-----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, B8GwyNaE87xGstmpuwNEqsERRDR/iK2wQ5H2XrZ6upV4Iq3Uv4loJZKymcdAKO71 mkTJXBJkDzCjBH+8mlpVaA== 0000950116-01-501323.txt : 20020413 0000950116-01-501323.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950116-01-501323 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011228 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11666 FILM NUMBER: 1825772 BUSINESS ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-K 1 tenk.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11666 GENESIS HEALTH VENTURES, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) 101 East State Street Pennsylvania Kennett Square, PA 19348 06-1132947 - -------------------------------------------------------------------------------- (State or other jurisdiction (Address of principal (I.R.S. Employer of incorporation executive offices Identification or organization) including zip code) Number) (610) 444-6350 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of each class - -------------------------------------------------------------------------------- Common Stock, par value $.02 per share Warrants to purchase common stock, par value $.02 per share, exercisable until October 2, 2002 Indicate by check mark whether the Registrant (i) 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, and (ii) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant is $676,395,579(1). As of December 26, 2001, 39,671,279 shares of Common Stock were outstanding and 1,328,721 are to be issued in connection with a plan confirmed by a court. Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO --- --- DOCUMENTS INCORPORATED BY REFERENCE NONE (1) The aggregate dollar amount of the voting stock set forth equals the number of shares of the Company's Common Stock outstanding, reduced by the amount of Common Stock held by officers, directors and shareholders owning in excess of 10% of the Company's Common Stock, multiplied by the last reported sale price for the Company's Common Stock on December 26, 2001. The information provided shall in no way be construed as an admission that any officer, director or 10% shareholder in the Company may or may not be deemed an affiliate of the Company or that he/it is the beneficial owner of the shares reported as being held by him/it, and any such inference is hereby disclaimed. The information provided herein is included solely for record keeping purposes of the Securities and Exchange Commission. INDEX
Page ---- Cautionary Statements Regarding Forward Looking Statements........................................................1 Risk Factors......................................................................................................2 PART I ITEM 1: BUSINESS General................................................................................................9 Reorganization.........................................................................................9 Inpatient Services....................................................................................10 Pharmacy and Medical Supply Services..................................................................11 Other Services........................................................................................11 Revenue Sources.......................................................................................12 Marketing.............................................................................................16 Personnel.............................................................................................17 Employee Training and Development.....................................................................18 Governmental Regulation...............................................................................18 Corporate Integrity Program...........................................................................20 Competition in the Healthcare Services Industry.......................................................21 Insurance.............................................................................................22 ITEM 2: PROPERTIES............................................................................................23 ITEM 3: LEGAL PROCEEDINGS.....................................................................................25 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................28 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................................................29 ITEM 6: SELECTED FINANCIAL DATA...............................................................................30 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................31 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................50 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................51 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................................................98 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................99 ITEM 11: EXECUTIVE COMPENSATION...............................................................................104 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................109 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................111 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K ......................................112
Cautionary Statements Regarding Forward Looking Statements As used herein, unless the context otherwise requires, "Genesis," the "Company," "we," "our" or "us" refers to Genesis Health Ventures, Inc. and its subsidiaries. Statements made in this report, and in our other public filings and releases, which are not historical facts contain "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to: o statements contained in "Risk Factors"; o certain statements in "Management's Discussion and Analysis of Financial Condition and Results Of Operations," such as our ability or inability to meet our liquidity needs, scheduled debt and interest payments and expected future capital expenditure requirements, and to control costs, sell assets and the expected effects of government regulation on reimbursement for services provided; o certain statements contained in "Business" concerning strategy, corporate integrity programs, government regulations and the Medicare and Medicaid programs; o certain statements in the Notes to Consolidated Financial Statements concerning pro forma adjustments; and o certain statements in "Legal Proceedings" regarding the effects of litigation. The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. You are cautioned that these statements are not guarantees of future performance and that actual results and trends in the future may differ materially. Factors that could cause actual results to differ materially include, but are not limited to the following, which are discussed more fully in "Risk Factors": o changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other measures to reduce the reimbursement for our services; o changes in pharmacy legislation and payment formulas; o the expiration of enactments providing for additional governmental funding; o efforts of third party payors to control costs; o the impact of federal and state regulations; o changes in payor mix and payment methodologies; o further consolidation of managed care organizations and other third party payors; o competition in our business; o litigation regarding our NeighborCare(R)pharmacy operations' provision of service to HCR Manor Care; 1 o an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; o competition for qualified staff in the healthcare industry; o our ability to control operating costs, return to profitability and generate sufficient cash flow to meet operational and financial requirements; and o an economic downturn or changes in the laws affecting our business in those markets in which we operate. Risk Factors Set forth below are risks that we believe are material to our business operations. Additional risks and uncertainties not known to us or that we currently deem immaterial may also impair our business operations. Changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other measures to reduce the reimbursement for our services may adversely affect our revenues and operating margins. We receive over 60% of our revenues from Medicare and Medicaid. The healthcare industry is experiencing a strong trend toward cost containment, as government seeks to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures generally have resulted in reduced rates of reimbursement for services that we provide, including skilled nursing facility services, pharmacy services and therapy services. Legislative and regulatory action has resulted in continuing changes in the Medicare and Medicaid reimbursement programs which have impacted us, including the following: o the adoption of the Medicare Prospective Payment System pursuant to the Balanced Budget Act of 1997, as modified by the Medicare Balanced Budget Refinement Act ("BBRA"); o adoption of the Benefits Improvement Protection Act of 2000 ("BIPA"); and o the repeal of the "Boren Amendment" federal payment standard for Medicaid payments to nursing facilities. The changes have limited, and are expected to continue to limit, payment increases under these programs. Also, the timing of payments made under the Medicare and Medicaid programs is subject to regulatory action and governmental budgetary constraints. In recent years, the time period between submission of claims and payment has increased. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may further affect payments made under those programs. Further, the federal and state governments may reduce the funds available under those programs in the future or require more stringent utilization and quality reviews of eldercare centers or other providers. There can be no assurances that adjustments from Medicare or Medicaid audits will not have a material adverse effect on us. The BIPA enactment mandates a phase out of intergovernmental transfer transactions by states whereby states inflate the payments to certain public facilities to increase federal matching funds. This action may reduce federal support for a number of state Medicaid plans. The reduced federal payments may impact aggregate available funds requiring states to further contain payments to providers. We operate in several of the states that will experience a contraction of federal matching funds. 2 With the repeal of the federal payment standards, there can be no assurances that budget constraints or other factors will not cause states to reduce Medicaid reimbursement to nursing facilities and pharmacies or that payments to nursing facilities and pharmacies will be made on timely basis. It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on our business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect our business. These changes may also adversely affect long-term care facilities which are customers of our specialty medical businesses, such as pharmacy and rehabilitation therapy services, which may, in turn, adversely affect such businesses. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Our financial condition and results of operations may be affected by the revenue reimbursement process, which in our industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. See "Business - Revenue Sources" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Additionally, the recent economic downturn may reduce state spending on Medicaid programs. Recent data compiled by the National Conference of State Legislatures indicate that the recent economic downturn has had a detrimental affect on state revenues. Historically these budget pressures have translated into reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we expect continuing cost containment pressures on Medicaid outlays for nursing homes and pharmacy services in the states in which we operate. Changes in pharmacy legislation and payment formulas could impact our NeighborCare(R) pharmacy operations. Pharmacy coverage and cost containment are important policy debates at both the federal and state levels. The federal government has considered proposals to expand Medicare coverage for outpatient pharmacy services. Enactment of such legislation could affect institutional pharmacy services. Likewise, a number of states have proposed cost containment initiatives pending. Changes in payment formulas and delivery requirements could impact our NeighborCare pharmacy operations. Our revenues will be adversely affected if enactments providing for additional funding expire as currently scheduled. A number of provisions of the BBRA and BIPA enactments providing additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002. Expiring provisions are estimated to, on average, reduce our per beneficiary per diems by $30. Moreover, the Centers for Medicare and Medicaid Services ("CMS") has indicated its desire to complete refinements to the case mix classification system as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. As a result of the combination of these factors, the Medicare skilled nursing facility sector is faced with an 18% reduction in the average median per diems. If we were to experience an 18% decline in our current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67,000,000 would have a material adverse effect on our financial position, results of operations and cash flows. 3 Efforts of third party payors to control cost may adversely affect our revenues and operating margins. We receive approximately 40% of our revenues from private insurance, long-term care facilities which utilize our specialty medical services, self-pay eldercare facility residents, and other third party payors. These private third party payors are continuing their efforts to control healthcare costs through direct contracts with healthcare providers, increased utilization review and greater enrollment in managed care programs and preferred provider organizations. These private payors increasingly are demanding discounted fee structures and the assumption by healthcare providers of all or a portion of the financial risk. We conduct business in a heavily regulated industry, and changes in regulations and violations of regulations may result in increased costs or sanctions that reduce our revenues and profitability. Our business is subject to extensive federal, state and, in some cases, local regulation with respect to, among other things, licensure and certification of eldercare centers and pharmacy operations, controlled substances and health planning, in addition to reimbursement. For our eldercare centers, this regulation relates, among other things, to the adequacy of physical plant and equipment, qualifications of personnel, standards of care and operational requirements. For pharmacy and medical supply products and services, this regulation relates, among other things, to operational requirements, documentation, licensure, certification and regulation of controlled substances. Compliance with such regulatory requirements, as interpreted and amended from time to time, can increase operating costs and thereby adversely affect the financial viability of our business. Because these laws are amended from time to time and subject to interpretation, we cannot predict when and to what extent liability may arise. Failure to comply with current or future regulatory requirements could also result in the imposition of various remedies including (with respect to inpatient services) fines, restrictions on admission, the revocation of licensure, decertification, imposition of temporary management or the closure of a facility or site of service. We are subject to periodic audits by the Medicare and Medicaid programs, which have various rights and remedies against us, if they assert that we have overcharged the programs or failed to comply with program requirements. Rights and remedies available to these programs include repayment of any amounts alleged to be overpayments or in violation of program requirements, or making deductions from future amounts due to us. These programs may also impose fines, criminal penalties or program exclusions. Other payor sources also reserve rights to conduct audits and make monetary adjustments. We believe that our eldercare centers and other sites of service are in substantial compliance with the various Medicare, Medicaid and state regulatory requirements applicable to us. However, in the ordinary course of our business, we receive notices of deficiencies for failure to comply with various regulatory requirements. We review such notices and take appropriate corrective action. In most cases, we and the reviewing agency will agree upon the measures to be taken to bring the center into compliance with regulatory requirements. In some cases or upon repeat violations, the reviewing agency may take various adverse actions against a provider, including but not limited to: o the imposition of fines; o suspension of payments for new admissions to the center; and o in extreme circumstances, decertification from participation in the Medicare or Medicaid programs and revocation of a center's license. These actions may adversely affect a center's ability to continue to operate, the ability to provide certain services, and/or eligibility to participate in the Medicare or Medicaid programs or to receive payments from other payors. Additionally, actions taken against one center may subject other centers under common control or ownership to adverse remedies. 4 We are also subject to federal and state laws which govern financial and other arrangements between healthcare providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to encourage the referral of patients to a particular provider for medical products and services. Furthermore, some states restrict certain business relationships between physicians and other providers of healthcare services. Many states prohibit business corporations from providing, or holding themselves out as a provider of medical care. Possible sanctions for violation of any of these restrictions or prohibitions include loss of licensure or eligibility to participate in reimbursement programs and civil and criminal penalties. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. From time to time, we have sought guidance as to the interpretation of these laws however, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with our practices. In July 1998, the federal government issued a new initiative to promote the quality of care in nursing homes. Following this pronouncement, it has become more difficult for nursing facilities to maintain licensing and certification. We have experienced and expect to continue to experience increased costs in connection with maintaining our licenses and certifications as well as increased enforcement actions. The operation of our eldercare centers is subject to federal and state laws prohibiting fraud by healthcare providers, including criminal provisions, which prohibit filing false claims or making false statements to receive payment or certification under Medicaid, or failing to refund overpayments or improper payments. Violation of these criminal provisions is a felony punishable by imprisonment and/or fines. We may be subject to fines and treble damage claims if we violate the civil provisions which prohibit the knowing filing of a false claim or the knowing use of false statements to obtain payment. State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against health care providers. The Health Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act of 1997 expanded the penalties for health care fraud, including broader provisions for the exclusion of providers from the Medicaid program. We have established policies and procedures that we believe are sufficient to ensure that our facilities will operate in substantial compliance with these anti-fraud and abuse requirements. While we believe that our business practices are consistent with Medicaid criteria, those criteria are often vague and subject to change and interpretation. Aggressive anti-fraud actions, however, could have an adverse effect on our financial position, results of operations and cash flows. State laws and regulations could affect our ability to grow. Many states in which we operate have adopted Certificate of Need or similar laws which generally require that a state agency approve certain acquisitions and determine that the need for certain bed additions, new services, and capital expenditures or other changes exist prior to the acquisition or addition of beds or services, the implementation of other changes, or the expenditure of capital. State approvals are generally issued for a specified maximum expenditure and require implementation of the proposal within a specified period of time. Failure to obtain the necessary state approval can result in the inability to provide the service, to operate the centers, to complete the acquisition, addition or other change, and can also result in the imposition of sanctions or adverse action on the center's license and adverse reimbursement action. 5 Possible changes in the case mix of patients as well as payor mix and payment methodologies may significantly affect our profitability. The sources and amounts of our patient revenues will be determined by a number of factors, including licensed bed capacity and occupancy rates of our centers, the mix of patients and the rates of reimbursement among payors. Likewise payment for ancillary medical services, including the institutional pharmacy services of our NeighborCare pharmacy operations and therapy services provided by our rehabilitation therapy services business, will vary based upon payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among private pay, Medicare, and Medicaid will significantly affect our profitability. Particularly, any significant increase in our Medicaid population could have a material adverse effect on our financial position, results of operations and cash flow, especially if states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates. Further consolidation of managed care organizations and other third party payors may adversely affect our profits. Managed care organizations and other third party payors have continued to consolidate in order to enhance their ability to influence the delivery of healthcare services. Consequently, the healthcare needs of a large percentage of the United States population are increasingly served by a small number of managed care organizations. These organizations generally enter into service agreements with a limited number of providers for needed services. To the extent such organizations terminate us as a preferred provider and/or engage our competitors as a preferred or exclusive provider, our business could be materially adversely affected. In addition, private payors, including managed care payors, increasingly are demanding discounted fee structures or the assumption by healthcare providers of all or a portion of the financial risk through prepaid capitation arrangements. We face intense competition in our business. The healthcare industry is highly competitive. We compete with a variety of other companies in providing eldercare services, many of which have greater financial and other resources and may be more established in their respective communities than us. Competing companies may offer newer or different centers or services than us and may thereby attract our customers who are either presently customers of our eldercare centers or are otherwise receiving our eldercare services. See "Business - Competition in the Healthcare Services Industry." We compete in providing pharmacy, medical supply and other specialty medical services with a variety of different companies. Generally, this competition is national, regional and local in nature. The primary competitive factors in the specialty medical services business are similar to those in the eldercare center business and include reputation; the cost of services; the quality of clinical services; responsiveness to customer needs; and the ability to provide support in other areas such as third party reimbursement, information management and patient record-keeping. Our NeighborCare(R) pharmacy operations are involved in arbitration and litigation with HCR Manor Care regarding certain service contracts whereby an unfavorable decision would have a material adverse effect on our financial position, results of operations and cash flows. Certain service contracts permit our NeighborCare pharmacy operations to provide services to HCR Manor Care which constitute approximately ten percent and four percent of the net revenues of our NeighborCare pharmacy operations and us, respectively. These Service Contracts are the subject of certain arbitration and litigation. We are not able to predict the results of such arbitration and litigation. However, if the outcome is unfavorable to us, it would have a material adverse effect on our financial position, results of operations and cash flows. 6 An increase in insurance costs may adversely affect operating cash flow and we may be liable for losses not covered by or in excess of our insurance. We have experienced an adverse effect on operating cash flow beginning in the third quarter of 2000 due to an increase in the cost of certain of our insurance programs and the timing of funding new policies. Rising costs of eldercare malpractice litigation, losses stemming from these malpractice lawsuits, and a constriction of insurers has caused many insurance carriers to raise the cost of insurance premiums or refuse to write insurance policies for nursing homes. Also, a tightening of the reinsurance market has affected property, auto, and excess liability insurance carriers. Accordingly, the costs of all insurance premiums have increased. We carry property, general and professional liability coverage on our behalf and on the behalf of our subsidiaries in amounts deemed adequate by management. However, there can be no assurance that any current or future claims will not exceed applicable insurance coverage. In addition, for workers' compensation insurance and certain health insurance provided to our employees, we are self-insured. Accordingly, we are liable for payments to be made under those plans. To the extent claims are greater than estimated, they could adversely affect our financial position, results of operations and cash flows. We could experience significant increases in our operating costs due to intense competition for qualified staff in the healthcare industry. We and the healthcare industry continue to experience shortages in qualified professional clinical staff. We compete with other healthcare providers and with non-healthcare providers for both professional and non-professional employees. As the demand for these services continually exceeds the supply of available and qualified staff, we and our competitors have been forced to offer more attractive wage and benefit packages to these professionals and to utilize outside contractors for these services at premium rates. Furthermore, the competitive arena for this shrinking labor market has created high turnover among clinical professional staff as many seek to take advantage of the supply of available positions, each offering new and more attractive wage and benefit packages. In addition to the wage pressures inherent in this environment, the cost of training new employees amid the high turnover rates has caused added pressure on our operating margins. While we have been able to retain the services of an adequate number of qualified personnel to staff our facilities appropriately and maintain our standards of quality care, there can be no assurance that continued shortages will not in the future affect our ability to attract and maintain an adequate staff of qualified healthcare personnel. A lack of qualified personnel at a facility could result in significant increases in labor costs at such facility or otherwise adversely affect operations at such facility. Any of these developments could adversely affect our operating results or expansion plans. 7 If we are unable to control operating costs, return to profitability and generate sufficient cash flow to meet operational and financial requirements, including servicing our reduced indebtedness, our business operations may be adversely affected. Cost containment and lower reimbursement levels by third party payors, including the federal and state governments, have had a significant impact on the healthcare industry as a whole and on our cash flows. Even with reduced indebtedness, our operating margins may continue to be under pressure because of continuing regulatory scrutiny and growth in operating expenses, such as labor costs and insurance premiums. In addition, as a result of competitive pressures, our ability to maintain operating margins through price increases to private patients is limited. Additionally, in connection with our emergence from bankruptcy, we entered into new senior loan obligations. If we are unable to service our reduced indebtedness, our business operations may be adversely affected. Therefore, we will have to find ways to control increasing operating costs, return to profitability and generate sufficient cash flow to meet operational and financing requirements, which includes servicing our reduced indebtedness. If we are unable to do so, our business operations and revenues may be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." We rely on certain markets and the recent economic downturn or changes in the laws affecting our business in those markets could have a material adverse effect on our operating results. Our business depends on its eldercare facilities, which are located in 15 states. As of November 15, 2001, 19% of the Company's eldercare facility beds were located in Pennsylvania, 18% were located in New Jersey, 16% were located in Massachusetts and 13% were located in Maryland. The economic condition of these markets could affect the ability of our customers and third party payors to reimburse the Company for our services through a reduction of disposable household income or the ultimate reduction of the tax base used to generate state funding of their respective Medicaid programs. An economic downturn, or changes in the laws affecting our business, in these markets and surrounding markets could have a material adverse effect on our financial position, results of operations and cash flows. 8 PART I ITEM 1: BUSINESS General Genesis Health Ventures, Inc. was incorporated in May 1985 as a Pennsylvania corporation. As used herein, unless the context otherwise requires, "Genesis," the "Company," "we," "our" or "us" refers to Genesis Health Ventures, Inc. and its subsidiaries. We are a leading provider of healthcare and support services to the elderly. Our operations are comprised of two primary business segments, inpatient services and pharmacy and medical supply services. These segments are complemented by an array of other service capabilities through the Genesis ElderCare(R) delivery model of integrated healthcare networks. We provide inpatient services through networks of skilled nursing and assisted living centers primarily located in the eastern United States. The networks currently include 276 owned, leased, managed and jointly-owned eldercare centers with approximately 33,000 beds. We provide pharmacy and medical supply services nationwide through our NeighborCare(R) integrated pharmacy and medical supply operation consisting of 60 institutional pharmacies of which two are jointly-owned. Our NeighborCare pharmacy operations serve approximately 253,000 institutional beds; 22 medical supply and home medical equipment distribution centers of which four are jointly-owned and serve over 1,000 eldercare centers with over 80,000 beds; 29 community-based pharmacies of which two are jointly-owned and infusion therapy services. We also provide rehabilitation services, diagnostic services, respiratory services, hospitality services, group purchasing services and healthcare consulting services. In order to achieve operating efficiencies, economies of scale and significant market share, Genesis has concentrated its eldercare networks in five geographic regions: New England Region (Massachusetts / Connecticut / New Hampshire / Vermont / Rhode Island); Midatlantic Region (Greater Philadelphia / Delaware Valley / New Jersey); Chesapeake Region (Southern Delaware / Eastern Shore of Maryland / Baltimore, Maryland / Washington D.C. / Virginia); Southern Region (Central Florida); and Allegheny / Midwest Region (West Virginia / Western Pennsylvania / Illinois / Wisconsin). Reorganization On October 2, 2001, the effective date, we and The Multicare Companies, Inc., referred to as Multicare, consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to a September 20, 2001 order entered by the U.S. Bankruptcy Court for the District of Delaware approving the Plan proposed by us and Multicare. The principal provisions of the Plan are as follows: o Multicare became our wholly-owned subsidiary. We previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis Eldercare brand name; o New senior notes, new convertible preferred stock, new common stock and new warrants were issued to the Companies' creditors. Approximately 93% of our common stock, also referred to as the new common stock, $242,600,000 in senior notes and preferred stock with a liquidation preference of $42,600,000 were issued to our and Multicare senior secured creditors. Approximately 7% of the new common stock is to be issued to our and Multicare unsecured creditors as well as one year warrants to purchase an additional 11% of the new common stock; 9 o Holders of our and Multicare pre-Chapter 11 preferred and common stock received no distribution and those instruments were canceled; o Claims between us and Multicare were set-off against one another and any remaining claims were waived and released; and o The following persons were designated to comprise our board of directors: Michael R. Walker, our chief executive officer and chairman; James H. Bloem of Humana Inc.; Edwin M. Crawford of Caremark Rx; James E. Dalton, Jr.; James D. Dondero of HCMLP; Robert H. Fish of Sonoma-Seacrest, LLC; Dr. Philip P. Gerbino of the University of the Sciences in Philadelphia; and Joseph A. LaNasa III of Goldman Sachs & Co. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Transactions and Events" for a description of other recent matters impacting our business and results of operations. Description of Business Inpatient Services We own, lease, manage or jointly-own 276 eldercare centers, including 34 standalone assisted living facilities and 24 transitional care units, located in 15 states. Our eldercare services focus on the central medical and physical issues facing the more medically demanding elderly. By integrating the talents of physicians with case management, comprehensive discharge planning and, where necessary, home support services, we believe we provide cost-effective care management to achieve superior outcomes and return customers to the community. We believe that our orientation toward achieving improved customer outcomes through our eldercare networks has resulted in increased utilization of specialty medical services, high occupancy of available beds, enhanced quality payor mix and a broader base of repeat customers. Our skilled nursing centers offer three levels of care for their customers: skilled, intermediate and personal. Skilled care provides 24-hour per day professional services of a registered nurse; intermediate care provides less intensive nursing care; and personal care provides for the needs of customers requiring minimal supervision and assistance. Each eldercare center is supervised by a licensed healthcare administrator and engages the services of a medical director to supervise the delivery of healthcare services to residents and a director of nursing to supervise the nursing staff. We maintain a corporate quality assurance program to monitor regulatory compliance and to enhance the standard of care provided in each center. We have established and actively market programs for elderly and other customers who require subacute levels of medical care. These programs include ventilator care, intravenous therapy, post-surgical recovery, respiratory management, orthopedic or neurological rehabilitation, terminal care and various forms of coma, pain and wound management. Private insurance companies and other third party payors, including certain state Medicaid programs, have recognized that treating customers requiring subacute medical care in centers such as those we operate is a cost-effective alternative to treatment in an acute care hospital. We provide subacute care at rates that we believe are substantially below the rates typically charged by acute care hospitals for comparable services. 10 The following table sets forth, for the periods indicated, information regarding our average number of beds in service and the average occupancy levels at our eldercare centers during the respective fiscal years.
2001 2000 1999 -------------------------------------------------------------------------------- Average Beds in Service: (1) Owned and Leased Facilities 24,783 14,286 15,522 Managed and Jointly-Owned Facilities 9,215 23,779 23,984 Occupancy Based on Average Beds in Service: Owned and Leased Facilities 91% 91% 91% Managed and Jointly-Owned Facilities 88% 91% 90% --------------------------------------------------------------------------------
(1) In connection with the consummation of the Plan, 10,702 Multicare beds previously classified as "Managed and Jointly-Owned Facilities" were reclassified as "Owned and Leased Facilities." See "Business - Reorganization." Pharmacy and Medical Supply Services We provide pharmacy and medical supply services in 41 states through our NeighborCare pharmacy operations. Our NeighborCare pharmacy operations consist of long-term care and retail pharmacies, medical supply centers, infusion services and home medical equipment facilities and serve over 250,000 customers in long-term care settings and more than 1,000,000 covered lives in home care settings. Included in pharmacy and medical supply service revenues are institutional pharmacy revenues, which include the provision of prescription and non-prescription pharmaceuticals, infusion therapy, and medical supplies and equipment provided to eldercare centers operated by us, as well as to independent healthcare providers by contract. The pharmacy services provided in these settings are tailored to meet the needs of the institutional customer. These services include highly specialized packaging and dispensing systems, computerized medical records processing and 24-hour emergency services. We provide institutional pharmacy products and services to the elderly, chronically ill and disabled in long-term care and alternate sites settings, including skilled nursing facilities, assisted living facilities, residential and independent living communities and the home. We also provide pharmacy consulting services to assure proper and effective drug therapy. We provide these services through 60 institutional pharmacies (two are jointly-owned) and 22 medical supply and home medical equipment distribution centers (four are jointly-owned) located in our various market areas. In addition, we operate 29 community-based pharmacies (two are jointly-owned) which are located in or near medical centers, hospitals and physician office complexes. The community-based pharmacies provide prescription and over-the-counter medications and certain medical supplies as well as personal service and consultation by licensed professional pharmacists. Approximately 91% of the sales attributable to all pharmacy operations in the twelve months ended September 30, 2001 were generated through external contracts with independent healthcare providers with the balance attributable to centers owned or leased by us. Other Services Rehabilitation Therapy. We provide an extensive range of rehabilitation therapy services, including speech pathology, physical therapy and occupational therapy, through 12 certified rehabilitation agencies in all five of our regional market concentrations. These services are provided by approximately 3,300 licensed rehabilitation therapists and assistants employed or contracted by us to substantially all of the eldercare centers we operate, as well as by contract to healthcare facilities operated by others. 11 Management Services. We provide management services to 84 eldercare centers pursuant to management agreements that provide generally for the day-to-day responsibility for the operation and management of the centers. In turn, we receive management fees, depending on the agreement, computed as either an overall fixed fee, a fixed fee per customer, a percentage of net revenues of the center plus an incentive fee, or a percentage of gross revenues of the center with some incentive clauses. The various management agreements, including renewal option periods, are scheduled to terminate between 2002 and 2011. Tidewater Group Purchasing. We own and operate The Tidewater Healthcare Shared Services Group, Inc., referred to as Tidewater, one of the largest long-term care group purchasing companies in the country. We have negotiated contracts with 65 national and 170 regional vendors. Tidewater provides purchasing and shared service programs specially designed to meet the needs of eldercare centers and other long-term care facilities. Tidewater's services are contracted to approximately 3,300 members with over 322,000 beds in 45 states and the District of Columbia. Other Services. We employ or have consulting arrangements with approximately 81 physicians, physician assistants and nurse practitioners who are primarily involved in designing and administering clinical programs and directing patient care. We also provide an array of other specialty medical services in certain parts of our eldercare network, including portable x-ray and other diagnostic services; home healthcare services; adult day care services; consulting services; respiratory health services and hospitality services such as dietary, housekeeping, laundry, plant operations and facilities management services. We also provide healthcare consulting services. The following table sets forth the amount of our total net revenue contributed by our segments for the periods presented (in thousands):
2001 2000 1999 - -------------------------------------------------------------------------------------- Inpatient services $ 1,360,230 $ 1,320,151 $ 704,105 Pharmacy and medical supply services 1,040,051 952,350 927,334 Other revenue 169,656 161,357 234,987
Revenue Sources We receive revenues from Medicare, Medicaid, private insurance, self-pay residents, other third party payors and long term care facilities which utilize our specialty medical services. The healthcare industry is experiencing the effects of the trend toward cost containment as federal and state governments and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, generally have resulted in reduced rates of reimbursement for services provided by us. The sources and amounts of our patient revenues will be determined by a number of factors, including licensed bed capacity and occupancy rates of our centers, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including the institutional pharmacy services of NeighborCare and therapy services provided by our rehabilitation therapy services business, will vary based upon payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among private pay, Medicare, and Medicaid will significantly affect our profitability. 12 The following table reflects the allocation of customer service revenues among these sources of revenue.
2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------ Private pay and other 39% 41% 47% 45% 39% Medicaid 43 43 39 35 37 Medicare 18 16 14 20 24 - ------------------------------------------------------------------------------------------ Total 100% 100% 100% 100% 100% - ------------------------------------------------------------------------------------------
See "Business - Government Regulation." Medicare and Medicaid. The Health Insurance for Aged and Disabled Act (Title XVIII of the Social Security Act), known as "Medicare," has made available to nearly every United States citizen 65 years of age and older a broad program of health insurance designed to help the nation's elderly meet hospital and other health care costs. Health insurance coverage has been extended to certain persons under age 65 qualifying as disabled and those having end-stage renal disease. Medicare includes three related health insurance programs: (i) hospital insurance ("Part A"); (ii) supplementary medical insurance ("Part B"); and (iii) a managed care option for beneficiaries who are entitled to Part A and enrolled in Part B ("Medicare+Choice" or "Medicare Part C"). The Medicare program is currently administered by fiscal intermediaries (for Part A and some Part B services) and carriers (for Part B) under the direction of the Centers for Medicare and Medicaid Services ("CMS") (formerly the Health Care Finance Administration) a division of the Department of Health and Human Services ("HHS"). Medicaid (Title XIX of the Social Security Act) is a federal-state matching program, whereby the federal government, under a needs based formula, matches funds provided by the participating states for medical assistance to "medically indigent" persons. The programs are administered by the applicable state welfare or social service agencies under federal rules. Although Medicaid programs vary from state to state, traditionally they have provided for the payment of certain expenses, up to established limits, at rates determined in accordance with each state's regulations. For skilled nursing centers, most states pay prospective rates, and have some form of acuity adjustment. In addition to facility based services, most states cover an array of medical ancillary services, including those services provided by institutional pharmacies. Payment methodologies for these services vary based upon state preferences and practices permitted under federal rules. Medicare and Medicaid are subject to statutory and regulatory changes, retroactive rate adjustments, administrative rulings and government funding restrictions, all of which may materially affect the timing and/or levels of payments to us for our services. We are subject to periodic audits by the Medicare and Medicaid programs, which have various rights and remedies against us if they assert that we have overcharged the programs or failed to comply with program requirements. These rights and remedies may include requiring the repayment of any amounts alleged to be overpayments or in violation of program requirements, or making deductions from future amounts due to us. Such programs may also impose fines, criminal penalties or program exclusions. Other third party payor sources also reserve rights to conduct audits and make monetary adjustments. Laws Affecting Revenues. Congress has enacted three major laws during the past five years that have significantly altered payment for nursing home and medical ancillary services. The Balanced Budget Act of 1997 ("the 1997 Act"), signed into law on August 5, 1997, reduced federal spending on the Medicare and Medicaid programs. The Medicare Balanced Budget Refinement Act ("BBRA"), enacted in November 1999 addressed a number of the funding difficulties caused by the 1997 Act. The Benefits Improvement and Protection Act of 2000 ("BIPA"), was enacted on December 15, 2000, further modifying the law and restoring additional funding. The following provides a brief summary of these laws and an overview of the impact of these enactments on our services. 13 Under the 1997 Act, participating skilled nursing facilities are reimbursed under a prospective payment system ("PPS") for inpatient Medicare covered services. The PPS system commenced with a facility's first cost reporting period beginning on or after July 1, 1998. Under PPS, nursing facilities are paid a predetermined amount per patient, per day ("per diem") based on the anticipated costs of treating patients. The per diem rate is determined by classifying each patient into one of forty-four resource utilization groups ("RUG") using the information gathered during the minimum data set ("MDS") assessment. There is a separate per diem rate for each of the RUG classifications. The per diem rate also covers rehabilitation and non-rehabilitation ancillary services. The law phased in PPS over a three-year period. The final phase in period for Genesis began October 1, 2001 and is expected to result in a decline in Medicare revenues of approximately $7,000,000. PPS reimbursement is based largely on a nursing facility's costs for the services it provided to Medicare beneficiaries in the 1994-1995 base year. As implemented by CMS, PPS has had an adverse impact on the Medicare revenues of many skilled nursing facilities. There have been three primary problems. First, the base year calculations understate costs. Second, the market basket index used to trend payments forward does not adequately reflect market experience. Third, the RUG case mix allocation is not adequately predictive of the costs of care for patients, and does not equitably allocate funding, especially for non-therapy ancillary services. In November 1999, the BBRA was passed in Congress. This enactment provided relief for certain reductions in Medicare reimbursement caused by the 1997 Act. For covered skilled nursing facility services furnished on or after April 1, 2000, the federal per diem rate was increased by 20% for 15 RUG payment categories. While this provision was initially expected to adjust payment rates for only six months, CMS withdrew proposed RUG refinement rules. These payment add-ons will continue until CMS completes certain mandated recalculations of current RUG weightings. For fiscal years 2001 and 2002, the BBRA mandated federal per diem rates for all RUG categories be increased by an additional 4% over the required market basket adjustment. The law provided that certain specific services (such as prostheses and chemotherapy drugs) would be reimbursed separately from and in addition to the federal per diem rate. A provision was included that provided for cost report years beginning on or after January 1, 2000, skilled nursing facilities could waive the PPS transition period and elect to receive 100% of the federal per diem rate. The enactment also lifted for two years a $1,500 cap on rehabilitation therapy services provided under Medicare Part B. On December 15, 2000, Congress passed BIPA that increased the nursing component of Federal PPS rates by approximately 16.7% for the period from April 1, 2001 through September 30, 2002. The legislation also changed the 20% add-on to 3 of the 14 rehabilitation RUG categories to a 6.7% add-on to all 14 rehabilitation RUG categories beginning April 1, 2001. The Part B consolidated billing provision of BBRA was repealed except for Medicare Part B therapy services and the moratorium on the $1,500 therapy caps were extended through calendar year 2002. These changes have had a positive impact on operating results. A number of the provisions of the BBRA and BIPA enactments providing additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002, referred to as the Medicare Rate Cliff. Expiring provisions are estimated to, on average, reduce per beneficiary per diems by $30. Moreover, CMS has indicated its desire to complete refinements to the case mix classification system ("RUG refinements") as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. The combined effect of the Medicare Rate Cliff and RUG refinements on the Medicare skilled nursing facility sector will be an 18% reduction in the average median per diems. If we were to experience an 18% decline in our current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67,000,000 would have a material adverse affect on our financial position, results of operations and cash flows. Trade organizations representing the skilled nursing facility sector are aggressively pursuing strategies to minimize the potential impact of the Medicare Rate Cliff. 14 The Company's average Medicare rate per patient day in Fiscal 1997, prior to the implementation of PPS, was over $400. In Fiscal 1998, 1999, 2000 and 2001, the average Medicare rate per patient day was $390, $302, $294 and $323 respectively. The 1997 Act contains provisions that have affected amounts paid to our NeighborCare pharmacy operations for pharmacy and medical supply products and services. Reimbursement for certain products covered under Medicare Part B is limited to 95% of the "average wholesale price." The move to prospective payment systems under the 1997 Act has made pricing a more important consideration in the selection of pharmacy providers. Also, Congress included provisions in the 1997 Act that would require nursing facilities to submit all claims for Medicare-covered services that their residents receive, both Medicare Part A and Part B, even if such services are provided by outside suppliers, including but not limited to pharmacy and rehabilitation therapy providers, except for certain excluded services. The BIPA, enacted in December 2000, repealed this provision, except for therapy services. The 1997 Act included several provisions affecting Medicaid. The 1997 Act repealed the "Boren Amendment" federal payment standard for Medicaid payments to nursing facilities effective October 1, 1997. The Boren Amendment required that Medicaid payments to certain healthcare providers be reasonable and adequate in order to cover the costs of efficiently and economically operated healthcare facilities. Under the 1997 Act, states must now use a public notice and comment period in order to determine rates and provide interested parties a reasonable opportunity to comment on proposed rates and the justification for and the methodology used in calculating such rates. With the repeal of the federal payment standards, there can be no assurances that budget constraints or other factors will not cause states to reduce Medicaid reimbursement to nursing facilities and pharmacies or that payments to nursing facilities and pharmacies will be made on timely basis. The 1997 Act also grants greater flexibility to states to establish Medicaid managed care projects without the need to obtain a federal waiver. Although these projects generally exempt institutional care, including nursing facilities and institutional pharmacy services, no assurances can be given that these projects ultimately will not change the reimbursement methodology for nursing facility services or institutional pharmacy services from fee-for-service to managed care negotiated or capitated rates. We anticipate that federal and state governments will continue to review and assess alternative health care delivery systems and payment methodologies. The BIPA enactment mandates a phase out of intergovernmental transfer transactions by states whereby states artificially inflate the payments to certain public facilities to increase federal matching funds. This action may reduce federal support for a number of state Medicaid plans. The reduced federal payments may impact aggregate available funds requiring states to further contain payments to providers. Genesis operates in several of the states that will experience a contraction of federal matching funds. Recent data compiled by the National Conference of State Legislatures indicate that the recent economic downturn has had a detrimental affect on state revenues. Historically these budget pressures have translated into reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we expect continuing cost containment pressures on Medicaid outlays for nursing homes and pharmacy services in the states in which we operate. The reimbursement rates for pharmacy services under Medicaid are determined on a state-by-state basis subject to review by CMS and applicable federal law. In most states, pharmacy services are priced at the lower of "usual and customary" charges or cost (which generally is defined as a function of average wholesale price and may include a profit percentage) plus a dispensing fee. Certain states have "lowest charge legislation" or "most favored nation provisions" which require our institutional pharmacy and medical supply operation to charge Medicaid no more than its lowest charge to other consumers in the state. During 2000, Federal Medicaid requirements establishing payment caps on certain drugs were revised ("Federal Upper Limits"). The final rule relating to Federal Upper Limits was substantially modified, reducing the impact of the new rules on NeighborCare operations. 15 Pharmacy coverage and cost containment are important policy debates at both the federal and state levels. Congress has considered proposals to expand Medicare coverage for outpatient pharmacy services. Enactment of such legislation could affect institutional pharmacy services. Likewise, a number of states have proposed cost containment initiatives pending. Changes in payment formulas and delivery requirements could impact NeighborCare. Federal and state governments continue to focus on efforts to curb spending on health care programs such as Medicare and Medicaid. Such efforts have not been limited to skilled nursing facilities, but have and will most likely include other services provided by us, including pharmacy and therapy services. We cannot at this time predict the extent to which these proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue. Legal Proceedings Potentially Affecting Revenues. Certain service contracts permit our NeighborCare pharmacy operations to provide services to HCR Manor Care, Inc. constituting approximately ten percent and four percent of the net revenues of NeighborCare and us, respectively, or approximately $116,000,000 for the twelve months ended September 30, 2001. These service contracts with HCR Manor Care are the subject of certain litigation. See "Business - Competition," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of operations - Certain Transactions and Events - Vitalink Transaction." Our NeighborCare pharmacy operations provide services to 58 centers operated by Mariner Post-Acute Network, Inc., referred to as Mariner, that represent four percent and two percent of net revenues of our NeighborCare pharmacy operations and us, respectively, or approximately $49,000,000, for the twelve months ended September 30, 2001. On January 18, 2000, Mariner filed voluntary petitions under Chapter 11 with the Bankruptcy Court, giving Mariner certain rights under the protection of the Bankruptcy Court. We participate as a member of the official Mariner unsecured creditors committee. Effective November 1, 2001, the Mariner Bankruptcy Court approved a settlement agreement between NeighborCare and Mariner relating to these Mariner service contracts, whereby, among other things, (1) the form of the contracts were restated and new pricing was implemented; (2) the terms of the contracts were extended for eighteen months through April 30, 2003, except that Mariner has the right to terminate a limited number of service contracts in the event of the disposition or closure of the subject facility; (3) NeighborCare waived all claims against Mariner in the Mariner bankruptcy with respect to these contracts except for an allowed $6,000,000 pre-petition unsecured claim and (4) Mariner "assumed" the service contracts, as modified, in the Bankruptcy Court. See "Risk Factors," "Business - Government Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenue Sources." Marketing Marketing for eldercare centers is focused at the local level and is conducted primarily by a dedicated regional marketing staff, who call on referral sources such as hospitals, hospital discharge planners, doctors, churches and various community organizations. In addition to those efforts, our marketing objective is to maintain public awareness of the eldercare center and its capabilities. We take advantage of our regional concentrations in our marketing efforts, where appropriate, through consolidated marketing programs, which benefit more than one center. Toll-free regional Genesis ElderCare(R) phone lines assist the marketing staff and direct referral sources. The ElderCare line speeds admissions by automated tracking of bed availability and specialty care capabilities for each Genesis ElderCare center and all our affiliates. 16 We market specialty medical services to independent healthcare providers, in addition to providing such services to our owned, leased, managed and affiliated eldercare centers. We market our institutional pharmacy, medical supplies, rehabilitation therapy services, group purchasing, respiratory therapy, diagnostic services and consulting services through a direct sales force which primarily calls on eldercare centers, hospitals, clinics and home health agencies. In addition, a corporate marketing department supports the eldercare centers and service companies in developing promotional materials and literature focusing on the Company's philosophy of care, services provided and quality clinical standards as well as providing industry research. See "Business - Government Regulation" for a discussion of the federal and state laws which limit financial and other arrangements between healthcare providers. We operate our core business under the name Genesis ElderCare(R). The Genesis ElderCare logo, trademarks and service marks have been featured in a series of print advertisements in publications serving the regional markets in which we operate. Our marketing of Genesis ElderCare is aimed at increasing awareness among decision makers in key professional and business audiences. We are using advertising, including our toll free Genesis ElderCare lines, to promote our brand name in trade, professional and business publications and to promote services directly to consumers. Personnel At November 30, 2001, we employed over 46,000 people, including approximately 33,000 full-time and 13,000 part-time employees. Approximately 19% of these employees are physicians, nurses and clinical professional staff. We currently have 68 facilities that are covered by, or are negotiating, collective bargaining agreements. The agreements expire at various dates from 2002 through 2005 and cover approximately 5,100 employees. We believe that our relationship with our employees is generally good. We and our industry continue to experience shortages in qualified professional clinical staff. We compete with other healthcare providers and with non-healthcare providers for both professional and non-professional employees. As the demand for these services continually exceeds the supply of available and qualified staff, we and our competitors have been forced to offer more attractive wage and benefit packages to these professionals and to utilize outside contractors for these services at premium rates. Furthermore, the competitive arena for this shrinking labor market has created high turnover among clinical professional staff as many seek to take advantage of the supply of available positions, each offering new and more attractive wage and benefit packages. In addition to the wage pressures inherent in this environment, the cost of training new employees amid the high turnover rates has created added pressure on our operating margins. While we have been able to retain the services of an adequate number of qualified personnel to staff our facilities appropriately and maintain our standards of quality care, there can be no assurance that continued shortages will not affect our ability to attract and maintain an adequate staff of qualified healthcare personnel in the future. A lack of qualified personnel at a facility could result in significant increases in labor costs at such facility or otherwise adversely affect operations at such facility. Any of these developments could adversely affect our operating results or expansion plans. See "Risk Factors." 17 Employee Training and Development We believe that nursing and professional staff retention and development has been and continues to be a critical factor in our successful operation. In response to this challenge, a compensation program which provides for annual merit reviews as well as financial and quality of care incentives has been implemented to promote center staff motivation and productivity and to reduce turnover rates. Management believes that our wage rates for professional nursing staff are commensurate with market rates. In addition, we have established an internal training and development program for both nurse assistants and nurses. Employee training is emphasized through a variety of in-house programs as well as a tuition reimbursement program. We have established, company-wide, the Genesis Nursing Assistant Specialist Program. Classes are held on the employee's time, at our cost, last for approximately six months and provide advanced instruction in nursing care. When all of the requirements for class participation have been met, the nurse aides graduate and are awarded the title of Geriatric Nursing Assistant Specialist ("GNAS") and they are given a salary adjustment. The GNAS then takes on additional responsibilities, acting in an enhanced, leadership roll in the center. As a GNAS continues along their career path, we provide further incentives. Similar programs are currently under development for both pharmacy technicians and nursing assistants who work in the assisted living environment. In addition, plans are underway to include specialized studies in the areas of end of life and/or dementia for future GNASs. We began a junior level management and leadership training program in 1990 referred to as the Pilot Light Program. The target audience for this training is registered nurses and licensed practical nurses occupying charge nurse positions within our nursing centers as well as junior level managers throughout our network. Over 1,300 participants have graduated from this program. Government Regulation Our business is subject to extensive federal, state and, in some cases, local regulation with respect to, among other things, licensure, certification and health planning. For our eldercare centers, this regulation relates, among other things, to the adequacy of physical plant and equipment, qualifications of personnel, standards of care and operational requirements. For pharmacy and medical supply products and services, this regulation relates, among other things, to operational requirements, reimbursement, documentation, licensure, certification and regulation of controlled substances. Compliance with such regulatory requirements, as interpreted and amended from time to time, can increase operating costs and thereby adversely affect the financial viability of our business. Failure to comply with current or future regulatory requirements could also result in the imposition of various remedies including fines, restrictions on admission, the revocation of licensure, decertification, imposition of temporary management or the closure of the facility. All of our eldercare centers and healthcare services, to the extent required, are licensed under applicable law. All skilled nursing centers and healthcare services, or practitioners providing the services therein, are certified or approved as providers under one or more of the Medicaid and Medicare programs. Generally, assisted living centers are not eligible to be certified under Medicare or Medicaid. Licensing, certification and other applicable standards vary from jurisdiction to jurisdiction and are revised periodically. State and local agencies survey all skilled nursing centers on a regular basis to determine whether such centers are in compliance with governmental operating and health standards and conditions for participation in government sponsored third party payor programs. We believe that our eldercare centers and other sites of service are in substantial compliance with the various Medicare, Medicaid and state regulatory requirements applicable to them. However, in the ordinary course of our business, we receive notices of deficiencies for failure to comply with various regulatory requirements. We review such notices and takes appropriate corrective action. In most cases, we and the reviewing agency will agree upon the measures to be taken to bring the center into compliance with regulatory requirements. In some cases, the reviewing agency may take various adverse actions against a provider, including but not limited to: 18 o the imposition of fines; o suspension of payments for all or new admissions to the center; and o in extreme circumstances, decertification from participation in the Medicare or Medicaid programs and revocation of a center's license. These actions may adversely affect a center's ability to continue to operate, ability to provide certain services, and/or eligibility to participate in the Medicare or Medicaid programs or to receive payments from other payors. Certain of our centers have received notices in the past from state and federal agencies that, as a result of certain alleged deficiencies, the agency was taking steps to decertify the centers from participation in Medicare and Medicaid programs. All of our owned and leased skilled nursing centers are currently certified to receive benefits provided under Medicare. Additionally, all our skilled nursing centers are currently certified to receive benefits under Medicaid. Both initial and continuing qualifications of a skilled nursing center to participate in such programs depend upon many factors including accommodations, equipment, services, patient care, safety, personnel, physical environment, and adequate policies, procedures and controls. Many states in which we operate have adopted Certificate of Need ("CON") or similar laws which generally require that a state agency approve certain acquisitions and determine that the need for certain bed additions, new services, and capital expenditures or other changes exist prior to the acquisition or addition of beds or services, the implementation of other changes, or the expenditure of capital. State approvals are generally issued for a specified maximum expenditure and require implementation of the proposal within a specified period of time. Failure to obtain the necessary state approval can result in: o the inability to provide the service; o the inability to operate the centers; o the inability to complete the acquisition, addition or other change; and o the imposition of sanctions or adverse action on the center's license and adverse reimbursement action. During the past year, several states have passed legislation altering their CON requirements. Virginia is expected to phase out its CON requirement, and Maryland is studying a similar action. These changes are not expected to materially alter our business opportunities. We are also subject to federal and state laws which govern financial and other arrangements between healthcare providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. These laws include: o the "anti-kickback" provisions of the federal Medicare and Medicaid programs, which prohibit, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid; and 19 o the "Stark laws" which prohibit, with limited exceptions, the referral of patients by physicians for certain services, including home health services, physical therapy and occupational therapy, to an entity in which the physician has a financial interest. In addition, some states restrict certain business relationships between physicians and other providers of healthcare services. Many states prohibit business corporations from providing, or holding themselves out as a provider of medical care. Possible sanctions for violation of any of these restrictions or prohibitions include loss of licensure or eligibility to participate in reimbursement programs and civil and criminal penalties. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. From time to time, we have sought guidance as to the interpretation of these laws, however, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with our practices. There have also been a number of recent federal and state legislative and regulatory initiatives concerning reimbursement under the Medicare and Medicaid programs. During the past few years, the Department of Health and Human Services ("HHS") has issued a series of voluntary compliance guidelines. These compliance guidelines provide guidance on acceptable practices. Skilled nursing facility services and durable medical equipment, prosthetics, orthotics, and supplies, also referred to as DMEPOS, supplier performance practices have been among the services addressed in these publications. Our Corporate Integrity Program is working to assure that our practices conform. HHS also issues fraud alerts and advisory opinions. Directives concerning double billing, home health services and the provision of medical supplies to nursing facilities have been released. It is anticipated that areas addressed by these advisories may come under closer scrutiny by the government. While we have focused our internal compliance reviews to assure our practices conform with government instructions, we cannot accurately predict the impact of any such initiatives. See "Cautionary Statements Regarding Forward Looking Statements" and "Revenue Sources." We face additional federal requirements that mandate major changes in the transmission and retention of health information. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") was enacted to ensure, first, that employees can retain and at times transfer their health insurance when they change jobs, and secondly, to simplify health care administrative processes. This simplification includes expanded protection of the privacy and security of personal medical data and requires the adoption of standards for the exchange of electronic health information. Among the standards that HHS may adopt pursuant to HIPAA are standards for the following: electronic transactions and code sets; unique identifiers for providers, employers, health plans and individuals; security and electronic signatures; privacy; and enforcement. Although HIPAA was intended to ultimately reduce administrative expenses and burdens faced within the healthcare industry, we believe that implementation of this law will result in additional costs. We have approximately two years to comply with the regulation. We have established a HIPAA task force consisting of clinical, financial and information services professionals focused on HIPAA compliance. Corporate Integrity Program The Genesis Corporate Integrity Program (the "Integrity Program") was developed to assure that we continue to achieve our goal of providing a high level of care and service in a manner consistent with all applicable state and federal laws and regulations, and our internal standard of conduct. This program is intended to allow personnel to prevent, detect and resolve any conduct or action that fails to satisfy all applicable laws and our standard of conduct. We have a corporate compliance officer responsible for administering the Integrity Program. The corporate compliance officer, with the approval of the chief executive officer or the board of directors, may use any of our resources to evaluate and resolve compliance issues. The corporate compliance officer reports significant compliance issues to the Board of Directors, including the results of investigations and any subsequent disciplinary or remedial actions taken. 20 In December 1998, we established the Corporate Integrity hotline (the "Hotline"), which offers a toll-free number available to all of our employees to report non-compliance issues. Employee calls to the Hotline may be kept anonymous. All calls reporting alleged non-compliance are logged, investigated, addressed and remedied by appropriate company officials. In 1999, the corporate integrity subcommittee (the "CIS") was established to ensure a mechanism exists for us to monitor compliance issues. Potential compliance issues are referred by the corporate compliance officer to members of the CIS for investigation. The CIS members are senior members of the reimbursement, risk management, human resources, legal, clinical practices and internal audit departments. Periodically, we receive information from HHS regarding individuals and providers that are excluded from participation in Medicare, Medicaid and other federal healthcare programs. Providers include medical directors, attending physicians, vendors, consultants and therapists. On a monthly basis, management compares the information provided by HHS to data bases containing providers and individuals doing businesses with us. Any potential matches are investigated and any necessary corrective action is taken to ensure we cease doing business with that provider and individual. Competition in the Healthcare Services Industry We compete with a variety of other companies in providing healthcare services. Certain competing companies have greater financial and other resources and may be more established in their respective communities than us. Competing companies may offer newer or different centers or services than us and may thereby attract our customers who are either presently residents of our eldercare centers or are otherwise receiving our healthcare services. We operate eldercare centers in 15 states. In each market, our eldercare centers may compete for customers with rehabilitation hospitals; subacute units of hospitals; skilled or intermediate nursing centers; and personal care or residential centers. Certain of these providers are operated by not-for-profit organizations and similar businesses which can finance capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to us. In competing for customers, a center's local reputation is of paramount importance. Referrals typically come from acute care hospitals; physicians; religious groups; health maintenance organizations; the customer's families and friends; and other community organizations. Members of a customer's family generally actively participate in the selection of an eldercare center. Competition for subacute patients is intense among acute care hospitals with long-term care capability, rehabilitation hospitals and other specialty providers and is expected to remain so in the future. Important competitive factors include the reputation in the community; services offered; the appearance of a center; and the cost of services. Genesis competes in providing pharmacy, medical supply and other specialty medical services with a variety of different companies. Generally, this competition is national, regional and local in nature. The primary competitive factors in the specialty medical services business are similar to those in the eldercare center business and include reputation; the cost of services; the quality of clinical services; responsiveness to customer needs and the ability to provide support in other areas such as third party reimbursement, information management and patient record-keeping. 21 HCR Manor Care is a publicly traded owner of eldercare centers that competes with us in certain markets. Pursuant to certain service contracts, our NeighborCare pharmacy operations provide services to HCR Manor Care constituting approximately four percent and ten percent of the consolidated net revenues of Genesis and our NeighborCare pharmacy operations, respectively in fiscal 2001. These service contracts are the subject of certain litigation. See "Legal Proceedings." See "Risk Factors." Insurance We carry property, general and professional liability coverage in amounts deemed adequate by management. However, there can be no assurance that any current or future claims will not exceed applicable insurance coverage. We have experienced an adverse effect on operating cash flow beginning in the third quarter of 2000 due to an increase in the cost of certain of our insurance programs and the timing of funding new policies. Rising costs of eldercare malpractice litigation, losses stemming from these malpractice lawsuits, and a constriction of insurers have caused many insurance carriers to raise the cost of insurance premiums or refuse to write insurance policies for nursing homes. Also, a tightening of the reinsurance market has affected property, auto, and excess liability insurance carriers. Accordingly, the costs of all insurance premiums have increased. Prior to June 1, 2000, we purchased general and professional liability insurance coverage ("GL/PL") from various commercial insurers on a first dollar coverage basis. Beginning with the June 1, 2000 policy, we have purchased GL/PL coverage from a commercial insurer subject to per claim retentions. These retentions are insured by our wholly-owned captive insurance company, Liberty Health Corp., LTD, referred to as LHC. LHC is currently insuring workers' compensation and GL/PL retentions. Workers' compensation insurance has been maintained as statutorily required, or in certain jurisdictions for certain periods, we have qualified as exempt or self-insured. Most of the commercial insurance purchased is loss sensitive in nature. As a result, we are responsible for adverse loss development or, in some cases, may be entitled to refunds if losses are below certain levels. We believe that adequate reserves are in place to cover the ultimate liability related to workers' compensation. We provide several health insurance options to our employees, including a self-insured 80/20 indemnity plan and several fully insured health maintenance organizations. See "Risk Factors." 22 ITEM 2: PROPERTIES Eldercare Facilities The following table provides information by state as of November 15, 2001 regarding the eldercare centers we own, lease and manage and the independently owned facilities that, for a fee, have access to many of the resources and capabilities of the Genesis Eldercare(R) Network ("Member Centers"). Member Centers typically purchase an array of services from us and have access to managed care contracts, preferred provider arrangements and group purchasing arrangements. Included in the center count are 34 standalone assisted living facilities with 3,323 units and 19 skilled nursing facilities with 632 assisted living units. Certain properties are leased by the respective operating entities from third parties. If we are unable to make rental payments under these leases it could result in loss of the leased property through eviction or other proceedings. Certain leases do not provide for non-disturbance from the mortgagee of the fee interest in the property and consequently each such lease is subject to termination in the event that the mortgage is foreclosed following a default by the owner. Also included in Managed centers are 24 transitional care units with 621 beds located in hospitals principally in the state of Massachusetts.
Wholly-Owned Leased Managed Member Centers Centers Centers Centers Total Centers Beds Centers Beds Centers Beds Centers Beds Centers Beds - ---------------------------------------------------------------------------------------------------------------------------------- Maryland 13 1,711 6 843 12 1,683 15 2,848 46 7,085 Pennsylvania 29 3,778 7 688 11 1,824 3 375 50 6,665 New Jersey 22 3,230 12 1,970 8 747 2 375 44 6,322 Massachusetts 13 1,742 3 370 41 3,162 - - 57 5,274 Florida 12 1,556 3 321 - - 1 120 16 1,997 West Virginia 15 1,331 5 394 4 270 - - 24 1,995 Connecticut 9 1,381 1 130 2 168 - - 12 1,679 New Hampshire 9 920 3 260 1 85 - - 13 1,265 Delaware 4 502 - - 3 319 3 449 10 1,270 Virginia 5 709 1 240 - - - - 6 949 Illinois 9 919 - - - - - - 9 919 Wisconsin 5 720 - - - - - - 5 720 Rhode Island 3 373 - - - - - - 3 373 North Carolina - - - - 2 340 - - 2 340 Vermont 3 314 - - - - - - 3 314 District of Columbia - - - - - - 1 189 1 189 - ---------------------------------------------------------------------------------------------------------------------------------- Totals 151 19,186 41 5,216 84 8,598 25 4,356 301 37,356 - ----------------------------------------------------------------------------------------------------------------------------------
23 Pharmacy and Medical Supply Facilities The following table provides information by state regarding the pharmacy and medical supply locations operated by our NeighborCare(R) pharmacy operations as of November 15, 2001. All but two of these sites are leased. Our inability to make rental payments under these leases could result in loss of the leased property through eviction or other proceedings. Certain leases do not provide for non-disturbance from the mortgagee of the fee interest in the property and consequently each such lease is subject to termination in the event that the mortgage is foreclosed following a default by the owner.
Medical Supply / Community Institutional Home Medical Based Pharmacies Equipment Sites Pharmacies Total - ------------------------------------------------------------------------------------------------------------------------------ Maryland 6 5 27 38 Pennsylvania 7 4 2 13 California 5 1 - 6 Florida 3 3 - 6 New Jersey 4 1 - 5 Virginia 3 2 - 5 Wisconsin 5 - - 5 Illinois 3 1 - 4 South Carolina 3 1 - 4 Indiana 3 - - 3 Connecticut 1 1 - 2 Massachusetts 1 1 - 2 New Hampshire 1 1 - 2 New York 2 - - 2 North Carolina 2 - - 2 Oklahoma 1 1 - 2 Oregon 2 - - 2 Colorado 1 - - 1 Iowa 1 - - 1 Kentucky 1 - - 1 Michigan 1 - - 1 Ohio 1 - - 1 Rhode Island 1 - - 1 Texas 1 - - 1 West Virginia 1 - - 1 - ------------------------------------------------------------------------------------------------------------------------------ Totals 60 22 29 111 - ------------------------------------------------------------------------------------------------------------------------------
We believe that our physical properties are well maintained and are in a suitable condition for the conduct of our business. 24 ITEM 3: LEGAL PROCEEDINGS On October 2, 2001, we and Multicare consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code pursuant to a September 20, 2001 order entered by the U.S. Bankruptcy Court for the District of Delaware approving the Plan. See "Business - Reorganization." An individual prepetition bond holder has filed a notice of appeal of the order confirming the Plan of Reorganizaton in the United States District Court for the District of Delaware. The appeal is pending. The Company has filed a motion to dismiss. We are a party to litigation arising in the ordinary course of business. With exception to the discussion which follows, we do not believe the results of such litigation, even if the outcome is unfavorable to us, would have a material adverse effect on our financial position. See "Cautionary Statements Regarding Forward Looking Statements." NeighborCare Pharmacy Services, Inc. v. HCR Manor Care, Inc., Manor Care, Inc. and ManorCare Health Services, Inc. On May 7, 1999, NeighborCare Pharmacy Services, Inc. ("NeighborCare"), our wholly-owned subsidiary, filed a demand for arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA Arbitration") against HCR Manor Care, Inc., Manor Care, Inc. and ManorCare Health Services, Inc (collectively, the "respondents"). The AAA Arbitration principally concerns two long-term master service agreements between NeighborCare(R) and ManorCare Health Services, Inc. ("the Master Service Agreements"). Pursuant to one of these agreements (the "Master Pharmacy Agreement"), NeighborCare provides pharmacy services to long-term care facilities owned or operated by Manor Care, Inc., formerly known as HCR Manor Care, Inc. ("Manor Care"). Pursuant to the other agreement (the "Master Infusion Therapy Agreement"), NeighborCare provides infusion therapy products and services to Manor Care long-term care facilities. In the AAA Arbitration, NeighborCare seeks injunctive relief and compensatory damages estimated to be approximately $34,000,000, plus interest, in connection with (1) respondents' attempts to terminate the Master Service Agreements, and (2) respondents' failure to provide NeighborCare with the right to serve as the preferred provider of pharmacy and infusion therapy services to all Manor Care long-term care facilities pursuant to the Master Service Agreements. Respondents have filed counterclaims requesting declaratory relief approving the purported termination of the Master Service Agreements, as well as counterclaims seeking compensatory damages of at least $21,000,000, plus interest, in connection with alleged overcharges under the two agreements. The AAA Arbitration incorporates causes of action that NeighborCare originally pleaded in a complaint filed on May 7, 1999 in the Circuit Court for Baltimore City in an action captioned Vitalink Pharmacy Services, Inc. v. HCR Manor Care, Inc., Manor Care, Inc., and ManorCare Health Services, Inc., Case No. 24-C-99-002179. At first, the AAA Arbitration only addressed claims relating to the Master Pharmacy Agreement, which, as amended, contained an arbitration clause. However, by letter agreement dated May 13, 1999 between NeighborCare and the defendants in the state court case, the litigants agreed to address the claims relating to the Master Infusion Therapy Agreement in the AAA Arbitration. The parties further agreed to stay respondents' attempted termination of both Master Service Agreements until ten days after a final decision is reached in the AAA Arbitration. As a result, the Master Service Agreements remain in full force and effect today. The parties selected former federal judge Charles Renfrew to serve as the Arbitrator. The parties briefed a motion by Manor Care to dismiss NeighborCare's claims relating to its right to service all of Manor Care's facilities. In connection with that motion, the Arbitrator, on May 17, 2000, declined to dismiss NeighborCare's claims for money damages for breach of its contractual right to serve as the preferred provider to all Manor Care long-term care facilities. However, the Arbitrator did dismiss, without prejudice, NeighborCare's claim for specific performance of that right. 25 On June 15, 2000, in anticipation of our possible bankruptcy filing, the Arbitrator stayed the AAA Arbitration. In connection with this stay, the parties agreed that respondents may pay NeighborCare 90% of the face amount of all invoices for pharmaceutical and infusion therapy goods and services that NeighborCare renders to respondents under the Master Service Agreements. The parties agreed, however, that respondents must continue to pay NeighborCare the full face amount of all invoices for pharmacy consulting services under the Master Service Agreement. We subsequently filed for protection under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on June 22, 2000. Upon that filing, the AAA Arbitration became subject to the automatic stay provisions of 11 U.S.C. ss. 362. On December 8, 2000, Manor Care renewed a previously filed motion seeking to lift the automatic stay in the AAA Arbitration. On February 6, 2001, the Bankruptcy Court granted the motion, allowing the AAA Arbitration to continue. The hearing in the AAA Arbitration began in Washington, D.C. on July 30, 2001 and was completed on August 16, 2001. Post-hearing briefing has been completed. The Arbitrator's decision is pending. Motion to Assume the Master Service Agreements, filed in In re Genesis Health Ventures, Inc. On January 16, 2001, NeighborCare filed a motion with the United States Bankruptcy Court for the District of Delaware seeking to assume the Master Service Agreements in its chapter 11 case. This motion was heard at the same time the Bankruptcy Court considered Manor Care's motion to lift the automatic stay. The Bankruptcy Court postponed any decision on the motion to assume pending the outcome of the AAA Arbitration. This issue is still pending. Genesis Health Ventures, Inc. v. HCR Manor Care, Inc., Manor Care, Inc., Paul A. Ormond, and Stewart Bainum, Jr. On May 7, 1999, we filed an action in the United States District Court for the District of Delaware against HCR Manor Care, Inc., Manor Care, Inc., Paul A. Ormond, and Stewart Bainum, Jr. (the "Genesis Delaware Action"). In this action, we seek compensatory and punitive damages exceeding $200,000,000 for federal securities fraud, common-law fraud, negligent misrepresentation and controlling person liability in connection with material misrepresentations and omissions made by defendants during the course of our acquisition of Vitalink. We further seek injunctive relief with respect to Manor Care's failure to dispose of its ownership interests in Heartland Healthcare Services, a competitor of NeighborCare, pursuant to a non-competition provision found in a Side Agreement between Genesis, Vitalink and the entity formerly known as Manor Care, Inc., and now known as Manor Care of America, Inc. ("MCAI"). Defendants filed a motion to dismiss or stay this action pending the resolution of the AAA Arbitration. On March 22, 2000, the Court denied the defendants' motion to dismiss, but granted the motion to stay the case pending resolution of the AAA Arbitration. As a result, the case remains stayed. NeighborCare Pharmacy Services, Inc. v. Omnicare, Inc. and Heartland Healthcare Services On July 26, 1999, NeighborCare filed an action in the Circuit Court for Baltimore County, Maryland against Omnicare, Inc. and Heartland Healthcare Services, a joint venture between Omnicare and Manor Care. In this action, NeighborCare seeks injunctive relief, and compensatory and punitive damages of not less than $200,000,000, in connection with defendants' tortious interference with the Master Service Agreements. The two defendants each filed motions to dismiss, or, in the alternative, to stay this action pending the resolution of the AAA Arbitration. On November 12, 1999, the Court granted the motions to stay, and set a January 31, 2000 hearing date for the motions to dismiss. Defendants subsequently withdrew their motions to dismiss prior to the hearing date. As a result, the case remains stayed. 26 Manor Care, Inc. v. Genesis Health Ventures, Inc. On August 17, 1999, MCAI (then known as Manor Care, Inc.) filed a lawsuit in the United States District Court for the District of Delaware against us. In this action, the plaintiff brings claims under the federal securities laws resulting from alleged misrepresentations and omissions made by us in connection with MCAI's acquisition of our Series G Preferred Stock as compensation for its sale of Vitalink to us. Plaintiff seeks compensatory damages of unspecified amount, rescission of MCAI's purchase of the Series G Preferred Stock, and the return of the consideration paid by MCAI at the time of our acquisition of Vitalink from MCAI. We filed a motion to dismiss this action. On September 29, 2000, the Court granted that motion in part and denied it in part. Specifically, the Court dismissed plaintiff's allegations regarding purportedly fraudulent statements concerning: our knowledge as to certain legislative changes to the Medicare program; the effect of our affiliate Multicare on Genesis' earnings; our intent with respect to the issuance of preferred stock; and our ability to declare dividends on the Series G Preferred Stock. Accordingly, the only allegations that were not dismissed from this action concern our alleged failure to include certain financial information on the Registration Statement it filed in connection with our acquisition of Vitalink, and allegedly fraudulent statements concerning our labor relations. Our motion to consolidate this action with the Genesis Delaware Action described above has been denied. On October 22, 2001, plaintiff filed a motion to reconsider the Court's decision to dismiss this action in part, and we filed an opposition to that motion. On December 5, 2001, Genesis filed a motion to dismiss the entire action pursuant to our Joint Plan of Reorganization and the Bankruptcy Court's order confirming that Plan, which extinguish plaintiff's claims against us except to the extent that those claims may be repled as set-off or recoupment against claims brought by us. The parties have agreed that plaintiff has until January 14, 2002 to respond to that motion. Manor Care of America, Inc. v. Genesis Health Ventures, Inc., the Cypress Group L.L.C., TPG Partners II, L.P., and Nazem, Inc. On December 22, 1999, MCAI filed a lawsuit in the United States District Court for the Northern District of Ohio against us, the Cypress Group L.L.C., TPG Partners II, L.P., and Nazem, Inc. In this action, MCAI brings claims of federal securities fraud in connection with alleged misrepresentations and omissions made by us in connection with our issuance of Series H Preferred Stock and Series I Preferred Stock (the "Senior Preferred Stock") on or about November 15, 1999. In connection with the issuance of the Senior Preferred Stock, MCAI also brings state law breach-of-contract claims with respect to our purported obligations under (1) a Rights Agreement entered into between us and MCAI at the time of our acquisition of Vitalink from MCAI, and (2) the terms of the Series G Preferred Stock issued to MCAI in connection with the Vitalink transaction. MCAI seeks rescission of the Senior Preferred Stock and unspecified monetary damages. On February 29, 2000, we filed a motion to dismiss this action on the ground, among others, that the sole federal claim alleged fails to state a cause of action under federal securities laws. That motion has been fully briefed. In response to our chapter 11 filing, the Court, on July 19, 2000, stayed this action and ordered the case closed subject to reopening upon written motion. The case remains closed. We are not able to predict the results of such litigation. However, if the outcome is unfavorable to us, and the claims of HCR Manor Care are upheld, such results would have a material adverse effect on our financial position, results from operations and cash flows. See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors." 27 U.S. ex rel Scherfel v. Genesis Health Ventures et al. In this action, brought in United States District Court for the District of New Jersey on March 16, 2000, the plantiff alleges that a pharmacy purchased by NeighborCare failed to process Medicaid credits for returned medications. The allegations are vaguely alleged for other jurisdictions. While the action was under seal in United States District Court, we fully cooperated with the Department of Justice's evaluation of the allegations. On or about March 2001, the Department of Justice declined to intervene in the suit and prosecute the allegations. The plantiff filed a proof of claim in our bankruptcy proceedings initially for approximately $650,000,000 and more recently submitted an amended claim in the amount of approximately $325,000,000. We believe the allegations have no merit and have objected to the proof of claim. We intend to defend the suit. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 28 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table indicates the range of prices per share of the our common stock that was cancelled as a result of the Plan, as reported on the New York Stock Exchange through June 22, 2000 and on the OTC Bulletin Board thereafter. Fiscal Year Ending High Low - ------------------ ---- --- September 30, 2001 First Quarter $0.20 $0.03 Second Quarter $0.41 $0.11 Third Quarter $0.36 $0.02 Fourth Quarter $0.08 $0.01 September 30, 2000 First Quarter $2.94 $1.94 Second Quarter $3.50 $0.56 Third Quarter $0.75 $0.02 Fourth Quarter $0.31 $0.06 Our new common stock was issued on October 2, 2001 and currently trades on the OTC Bulletin Board under the symbol "GHVE". We have applied to have the new common stock traded on the Nasdaq National Market. The range of prices from October 2, 2001 through December 26, 2001 of the new common stock was $19.20 to $26.00. As of December 26, 2001, there were 39,671,279 shares of the new common stock outstanding and entitled to vote. As of December 26, 2001, there were 5,199 stockholders of record of the new common stock. The Senior Credit Facility and Senior Secured Note agreements restrict our ability to pay dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". Management does not anticipate the payment of cash dividends on the new common stock in the foreseeable future. 29 ITEM 6: SELECTED FINANCIAL DATA
|--------------------------Predecessor Company-------------------------| 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Statement of Operations Data (in thousands, except per share data) Net revenues $ 2,569,937 $ 2,433,858 $ 1,866,426 $ 1,405,305 $1,099,823 Operating income (loss) before capital costs (1) 133,135 (138,280) 85,879 134,690 184,868 Earnings (loss) before extraordinary items, cumulative effect of accounting change and after preferred dividends (1,277,814) (873,043) (287,950) (23,976) 48,144 Net income (loss) attributable to common shareholders 247,009 (883,455) (290,050) (25,900) 47,591 Per common share data (Diluted): Earnings (loss) before extraordinary items and cumulative effect of accounting change (26.27) (18.55) (8.11) (0.68) 1.34 Net income (loss) attributable to common shareholders $ 5.08 $ (18.77) $ (8.17) $ (0.74) $ 1.33 Weighted average shares of common stock and equivalents 48,641 47,077 35,485 35,159 36,120 - ------------------------------------------------------------------------------------------------------------------------------- Other Financial Data Capital expenditures (in thousands) $ 43,721 $ 51,981 $ 77,943 $ 56,663 $ 61,102 Operating Data Payor Mix Private pay and other 39% 41% 47% 45% 39% Medicare 18% 16% 14% 20% 24% Medicaid 43% 43% 39% 35% 37% Average owned/leased eldercare center beds (2) 24,783 14,286 15,522 15,137 15,132 Occupancy Percentage 90.8% 90.7% 90.7% 91.5% 91.0% Average managed eldercare center beds (2) 9,215 23,779 23,984 24,234 6,101 Average institutional pharmacy beds served 253,224 244,409 245,277 109,520 51,655 Average full-time equivalent personnel 40,425 40,450 40,500 37,708 27,700 Successor | Company | |------------------Predecessor Company-----------------| 2001 | 2000 1999 1998 1997 Balance Sheet Data (in thousands) ---- | ---- ---- ---- ---- Working capital $ 298,515 | $ 304,241 $ 235,704 $ 243,461 $ 166,065 Total assets 1,834,580 | 3,127,899 2,429,914 2,627,368 1,434,113 Liabilities subject to compromise - | 2,446,673 - - - Long-term debt 603,268 | 10,441 1,484,510 1,358,595 651,667 Redeemable preferred stock 42,600 | 442,820 - - - Shareholders' equity (deficit) $ 834,858 | $ (246,926) $ 587,890 $ 875,072 $ 608,021
(1) Capital costs include depreciation and amortization, lease expense, interest expense, the Multicare joint venture restructuring cost incurred in 2000, and debt restructuring and reorganization costs incurred in 2000 and 2001. (2) In connection with the consummation of the Plan, 10,702 Multicare beds previously classified as "Managed and Jointly-Owned Facilities" were reclassified as "Owned and Leased Facilities." See "Business - Reorganization." Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Transactions and Events" for a description of significant transactions, including the definition of Successor Company, which is defined under "Reorganization - Fresh-Start Reporting." 30 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Since we began operations in July 1985, we have focused our efforts on providing an expanding array of specialty medical services to elderly customers. We generate revenues primarily from two sources: inpatient services and pharmacy and medical supply services. However, we also derive revenue from other sources. Inpatient service revenue includes all room and board charges and ancillary service revenue for our eldercare customers at our 192 owned and leased eldercare centers. We provide pharmacy and medical supply services through our NeighborCare(R) pharmacy operations. Included in pharmacy and medical supply service revenues are institutional pharmacy revenues, which include the provision of infusion therapy, medical supplies and equipment provided to eldercare centers operated by Genesis, as well as to independent healthcare providers by contract. We provide these services through 60 institutional pharmacies (two are jointly-owned) and 22 medical supply and home medical equipment distribution centers (four are jointly-owned) located in our various market areas. In addition, we operate 29 community-based pharmacies (two are jointly-owned) which are located in or near medical centers, hospitals and physician office complexes. The community-based pharmacies provide prescription and over-the-counter medications and certain medical supplies, as well as personal service and consultation by licensed professional pharmacists. We include the following service revenue in other revenues: rehabilitation therapy services, management fees, capitation fees, consulting services, homecare services, physician services, transportation services, diagnostic services, hospitality services, group purchasing fees, respiratory health services and other healthcare related services. Certain Transactions and Events Reorganization On October 2, 2001, the effective date, we and Multicare consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to a September 20, 2001 order entered by the U.S. Bankruptcy Court for the District of Delaware approving the Plan proposed by us and Multicare. The principal provisions of the Plan are as follows: o Multicare became our wholly-owned subsidiary. We previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis Eldercare(R) brand name; o New senior notes, new convertible preferred stock, new common stock and new warrants were issued to the companies' creditors. Approximately 93% of our common stock, referred to as the new common stock, $242,600,000 in senior notes and preferred stock with a liquidation preference of $42,600,000 were issued to our and Multicare senior secured creditors. Approximately 7% of the new common stock is to be issued to our and Multicare unsecured creditors as well as one year warrants to purchase an additional 11% of the new common stock; o Holders of our and Multicare pre-Chapter 11 preferred and common stock received no distribution and those instruments were canceled; 31 o Claims between us and Multicare were set-off against one another and any remaining claims were waived and released; and o The following persons were designated to comprise our board of directors: Michael R. Walker, our chief executive officer and chairman; James H. Bloem of Humana Inc.; Edwin M. Crawford of Caremark Rx; James E. Dalton, Jr.; James D. Dondero of HCMLP; Robert H. Fish of Sonoma-Seacrest, LLC; Dr. Philip P. Gerbino of the University of the Sciences in Philadelphia; and Joseph A. LaNasa III of Goldman Sachs & Co. Our financial difficulties were attributed to a number of factors. First, the federal government made fundamental changes to the reimbursement for medical services provided to individuals. These changes had a significant adverse impact on the healthcare industry as a whole and on our cash flows. Second, the federal reimbursement changes have exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various state Medicaid programs. Third, numerous other factors have adversely affected our cash flows, including increased labor costs, increased professional liability and other insurance costs, and increased interest rates. Finally, as a result of declining governmental reimbursement rates and in the face of rising inflationary costs, we were too highly leveraged to service our debt, including our long-term lease obligations. See Business - "Revenue Sources," "Personnel," "Government Regulation," and "Insurance." Also see "Fiscal 2000 Compared to Fiscal 1999." On October 2, 2001, the effective date, and in connection with the consummation of the Plan, we entered into a Senior Credit Facility consisting of the following: (1) a $150,000,000 revolving line of credit (the "Revolving Credit Facility"); (2) a $285,000,000 term loan (the "Term Loan") and (3) an $80,000,000 delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The proceeds from the Term Loan were utilized to repay $196,000,000 of the then outstanding amounts under the $250,000,000 Genesis debtor-in-possession financing facility (the "Genesis DIP Facility") and $50,000,000 of the then outstanding synthetic lease facility, with the remaining $39,000,000 provided to fund restructuring related costs in accordance with the Plan. On October 2, 2001, the effective date, and in connection with the consummation of the Plan, we also entered an indenture agreement in the principal amount of $242,605,000 (the "Senior Secured Notes"). Fresh-Start Reporting Upon emergence from our Chapter 11 proceedings, we adopted fresh-start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). In connection with the adoption of fresh start reporting, a new entity has been deemed created for financial reporting purposes. For financial reporting purposes, we adopted the provisions of fresh-start reporting effective September 30, 2001. Consequently, the consolidated balance sheet and related information at September 30, 2001 is labeled "successor company," and reflects the Plan and the principles of fresh start reporting. Periods presented prior to September 30, 2001 have been designated "predecessor company." In adopting the requirements of fresh-start reporting as of September 30, 2001, we were required to value our assets and liabilities at their estimated fair value and eliminate our accumulated deficit at September 30, 2001. With the assistance of financial advisors in reliance upon various valuation methods, including discounted projected cash flow analysis, price/earnings ratios, and other applicable ratios and economic industry information relevant to our operations, and through negotiations with the various creditor parties in interest, we determined our reorganization value, before consideration of post-filing current and long term liabilities or minority interests, to be $1,525,000,000. 32 The adjustments to reflect the adoption of fresh-start reporting, including the adjustments to record property, plant and equipment, other long-term assets, investments in unconsolidated affiliates and identifiable intangible assets, at their fair values, have been reflected in the consolidated balance sheet as of September 30, 2001. In addition, the successor company's consolidated balance sheet was further adjusted to eliminate existing liabilities subject to compromise, minority interest with Multicare and consolidated shareholders' deficit; and to reflect the aforementioned $1,525,000,000 reorganization value, which includes the establishment of $320,953,000 of reorganization value in excess of amounts allocable to net identifiable assets (goodwill). See "Footnote 2 - Fresh-Start Reporting in the Notes to Consolidated Financial Statements" for a reconciliation of the predecessor Company and successor Company consolidated balance sheets at September 30, 2001. Merger of Genesis and Multicare Prior to October 1, 1999, we accounted for our 43.6% owned investment in Multicare using the equity method of accounting. Following a restructuring transaction effective on October 1, 1999, we gained managerial, operational and financial control of Multicare, and consequently consolidated the results of Multicare. Accordingly, Multicare's assets, liabilities, revenues and expenses as of and for the year ended September 30, 2000 are consolidated at their recorded historical amounts and the financial impact of transactions between us and Multicare are eliminated in consolidation. The non-Genesis shareholders' remaining 56.4% interest in Multicare was carried as minority interest based on their proportionate share of Multicare's historical book equity. In accordance with the Plan, Multicare became our wholly-owned subsidiary on October 2, 2001, the effective date. Under fresh start reporting, we consolidated our 100% interest in Multicare as of September 30, 2001. The consummation of the Plan constitutes a change in our controlling interests. The provisions of the Plan will have a material effect on our operating results in future periods. See "Footnote 5 - Significant Transactions and Events in the Notes to Consolidated Financial Statements" concerning the pro forma effect of the Plan and the Merger of Genesis and Multicare. Proposed APS Transaction On September 24, 2001, our wholly-owned subsidiary entered into an asset purchase agreement to buy substantially all of the assets of American Pharmaceutical Services, Inc., referred to as APS, and certain other corporate entities, all of which are subsidiaries of either Mariner Health Group ("MHG") or Mariner Post Acute Network, referred to as MPAN, (such selling entities, collectively with MHG and MPAN, are referred to as the Sellers), for approximately $42,000,000 plus up to $18,000,000 in deferred payments contingent on performance (the "Genesis Original Offer"). The sale was subject to a U.S. Bankruptcy Court approved competitive bidding process and final court approval of the prevailing bid in the MPAN and MHG Chapter 11 cases. On December 5, 2001, pursuant to the bidding process, and following an auction held on December 4, 2001, the Mariner Bankruptcy Court approved another bidder to purchase APS. We will be eligible to collect a "break-up fee" of $1,700,000 contingent upon our leaving the Genesis Original Offer open for 60 days. If Mariner closes on the sale of APS to the prevailing bidder within the 60 day period, Mariner is required to pay the break-up fee to us. If Mariner does not close on the sale of APS to the prevailing bidder within said 60 day period, Mariner may, at its option, seek to close on the sale of APS to us upon the terms of the Genesis Original Offer or pay the break-up fee to us. 33 Other Dispositions, Closures and Lease Terminations In the normal course of business we continually evaluate the performance of our operating units. Therefore, from time to time, under-performing or non-strategic assets are closed or sold and related leases are terminated. Individually, these actions are not significant. ElderTrust Transactions On January 31, 2001, we reached an agreement to restructure our relationship with ElderTrust, a Maryland healthcare real estate investment trust. The agreements encompass, among other things, the resolution of leases and mortgages for 33 properties operated by us and Multicare either directly or through joint ventures. Under our agreement, we assumed the ElderTrust leases subject to certain modifications, including a reduction in our annual lease expense of $745,000; extension of the maturity and reduction of the principal balances of loans for three assisted living properties by $8,500,000 by satisfaction of an ElderTrust obligation of like amount; and acquisition of a building currently leased from ElderTrust, which is located on the campus of a Genesis skilled nursing facility, for $1,250,000. In its agreement with ElderTrust, Multicare sold three owned assisted living properties that are mortgaged to ElderTrust for principal amounts totaling $19,650,000 in exchange for the outstanding indebtedness. ElderTrust will lease the properties back to us under a new ten-year lease with annual rents of $791,561. AGE Institute In the fourth fiscal quarter of 2000, we received notice from the AGE Holdings, Inc., referred to as AGE, a not-for-profit owner / sponsor of 20 eldercare centers with approximately 2,400 beds, that it wished to discontinue our management contracts and ancillary service contracts (the "AGE Contracts"). Effective October 31, 2000, the AGE Contracts were terminated. In fiscal 2000, the AGE Contracts generated approximately $19,000,000 in revenue and $2,000,000 in operating income. On November 27, 2000, we filed an adversary proceeding in the Genesis bankruptcy cases against AGE and four of AGE's subsidiaries: AGE Institute of Pennsylvania, Inc.; AGE Institute of Massachusetts, Inc.; AGE Institute of Florida, Inc.; and Delaware Valley Convalescent Homes, Inc. (collectively, the "AGE Entities"). The complaint seeks to recover approximately $20,800,000 owed to us through the AGE Contracts, by which we provided services to 20 nursing homes owned by the defendants in Pennsylvania, Massachusetts and Florida. The complaint asserts counts against all defendants for breach of contract, civil conspiracy and unjust enrichment. The complaint asserts an additional claim against AGE Institute of Pennsylvania, Inc. and AGE Institute of Massachusetts, Inc. for breach of certain trust indentures. In response, the AGE Entities filed counterclaims against us alleging violations of the Racketeering Influenced Corrupt Organizations Act, fraud, lender liability, breach of fiduciary duty, breach of management agreements, breach of professional standards/ professional negligence, conversion, interference with business relations, and conspiracy. The counterclaims seek punitive, compensatory, and exemplary damages, as well as claims to invalidate certain working capital and subordinated loan obligations of the AGE Entities to us. The counterclaims further seek administrative expense treatment of any amount found due to the AGE Entities for post-petition damages. While we believe that the counterclaims have no merit, in the event the AGE Entities were to prevail on their counterclaims, such counterclaims could exceed our claims against the AGE Entities. There are no assurances that we will prevail on our claims against the AGE Entities and there will be any recovery. The AGE Entities have filed proofs of claim (in unliquidated amounts) in the Genesis Bankruptcy Cases in connection with their counterclaims. It is anticipated that the adversary proceeding will not be tried until the summer of 2002. It should be noted that any recovery against the AGE Entities is uncertain. 34 Sale of Ohio Operations In the third fiscal quarter of 2000, effective May 31, 2000, Multicare sold 14 eldercare centers with 1,128 beds located in the state of Ohio for approximately $33,000,000. We recorded a loss on sale of the Ohio properties of approximately $7,922,000. Vitalink Transaction On August 28, 1998, we consummated the merger agreement with Vitalink Pharmacy Services, Inc., referred to as Vitalink, pursuant to which Vitalink merged with and into our wholly-owned subsidiary. Vitalink provides pharmaceutical products and services, enteral and parenteral therapy supplies and services, urological and ostomy products, intravenous products and services and pharmacy consulting services to independent healthcare facilities. Multicare Transactions In October 1997, Genesis ElderCare Corp., a Delaware corporation owned 43.6% by us, acquired Multicare, pursuant to a tender offer and merger. Multicare is in the business of providing eldercare and specialty medical services in selected geographic regions. Included among the operations acquired by Genesis Eldercare Corp. were operations relating to the provision of: o eldercare services including skilled nursing care, assisted living, Alzheimer's care and related support activities traditionally provided in eldercare facilities; o specialty medical services consisting of sub-acute care such as ventilator care, intravenous therapy and various forms of coma, pain and wound management and rehabilitation therapies such as occupational, physical and speech therapy, and stroke and orthopedic rehabilitation; and o management services and consulting services to eldercare centers. In connection with the Multicare transaction, we entered into a management agreement pursuant to which we managed Multicare's operations. We also entered into an asset purchase agreement with Multicare and certain of its subsidiaries pursuant to which we acquired all of the assets used in Multicare's outpatient and inpatient rehabilitation therapy business, and a stock purchase agreement with Multicare and certain subsidiaries pursuant to which we acquired all of the outstanding capital stock and limited partnership interest of certain subsidiaries of Multicare that were engaged in the business of providing institutional pharmacy services to third parties. Results of Operations Fiscal 2001 Compared to Fiscal 2000 Our total net revenues for the twelve months ended September 30, 2001 were $2,569,937,000 compared to $2,433,858,000 for the twelve months ended September 30, 2000, an increase of $136,079,000, or 6%. 35 Inpatient service revenue increased $40,079,000, or 3%, to $1,360,230,000 from $1,320,151,000. Of this increase, approximately $8,922,000 is attributed to the consolidation of two eldercare centers previously under joint ownership that became wholly-owned effective July 1, 2000 (the "P&R Transaction"). Approximately $1,295,000 of the increase resulted from the consolidation of one additional eldercare center previously under joint ownership that became wholly-owned effective January 31, 2001 in connection with the ElderTrust Transactions. Approximately $83,190,000 is principally attributed to increased payment rates and higher Medicare, private pay and insurance patient days ("Quality Mix") as a percentage of total patient days. Our average rate per patient day for the twelve months ended September 30, 2001 was $165 compared to $153 for the comparable period in the prior year. This increase in the average rate per patient day is principally driven by the effect of the BBRA and BIPA on our average Medicare rate per patient day, which increased to $323 for the twelve months ended September 30, 2001 compared to $294 for the comparable period in the prior year. Our revenue Quality Mix for the twelve months ended September 30, 2001 was 51.8% compared to 49.4% for the comparable period in the prior year. These rate and Quality Mix increases are offset by a decrease in revenue of approximately $53,328,000 resulting from the sale, closure or lease terminations of certain eldercare centers. Total patient days decreased 455,965 to 8,161,134 during the twelve months ended September 30, 2001 compared to 8,617,099 during the comparable period last year. Of this decrease, 451,314 patient days are attributed to the sale, closure or lease terminations of certain eldercare centers; offset by the consolidation of 76,941 patient days of three eldercare centers following the P&R Transaction and Eldertrust Transaction. A decrease of 22,385 days compared to the comparable period last year is attributed to one additional calendar day in the September 30, 2000 period due to a leap year. The remaining decrease of 59,207 patient days is the result of a decrease in overall occupancy. Pharmacy and medical supply service revenue was $1,040,051,000 for the twelve months ended September 30, 2001 compared to $952,350,000 for the twelve months ended September 30, 2000. Pharmacy and medical supply service revenues increased approximately $87,701,000, or 9%, due primarily to net revenue growth with external customers. Other revenues increased approximately $8,299,000 from $161,357,000 to $169,656,000. Approximately $8,131,000 of this increase resulted from the consolidation of a respiratory health business purchased in April of 2000 for the entire 12 month period ended September 30, 2001, compared to only the final six months in the prior year. Approximately $7,368,000 of this increase is attributed to a net increase in revenues of other service businesses. The remaining change is a reduction in other revenue of approximately $7,200,000 and is attributed to the termination of certain management contracts, primarily with AGE. Salaries, wages and benefit costs increased $22,232,000, or 2% for the twelve month period ended September 30, 2001 to $1,110,675,000 from $1,088,443,000 for the same period in the prior year. Of this increase, approximately $6,178,000 resulted from the addition of new businesses in the current year. The overall increase was offset by approximately $24,261,000 in decreased salaries, wage and benefit costs resulting from the sale, closure or lease terminations of certain eldercare centers. As a percentage of net revenue, salaries, wages and benefit costs, once adjusted for the impact of new and exited businesses, declined to 43.3% for the twelve months ended September 30, 2001, compared to 44.7% for the comparable period in the prior year. This decrease as a percentage of revenue resulted from net revenue growth, primarily in our pharmacy and other ancillary service businesses, which did not require proportional increases in labor related costs. Cost of sales increased $76,557,000 for the twelve month period ended September 30, 2001, to $611,517,000 from $534,960,000 for the same period in the prior year. Approximately $70,707,000 is attributed to an increase in pharmacy and medical supply cost of sales ($52,875,000 of which is attributed to pharmacy and medical supply revenue volume growth, and $17,832,000 is attributed to changes in customer and product mix). The remainder of the increase of approximately $5,850,000, is principally related to the consolidation of and the growth in the cost of sales of a respiratory health business purchased in April of 2000. 36 Our other operating expenses decreased $234,125,000, to $714,610,000 for the twelve months ended September 30, 2001 from $948,735,000 for the comparable period in the prior year. Of the net decrease, approximately $266,315,000 is attributed to a decrease in certain charges equaling $108,393,000 for the twelve month period ended September 30, 2001 compared to $374,708,000 for the same period in the prior year (labeled as included in other operating expenses and described more fully in the paragraphs that follow), and approximately $22,134,000 from operating cost savings resulting from the sale, closure or lease terminations of certain eldercare centers. Those reductions are offset by approximately $3,459,000 attributed to the consolidation of the operating expenses of three eldercare centers following the P&R and ElderTrust Transactions; approximately $4,675,000 of higher bad debt provisions; and the remaining operating cost growth of approximately $46,190,000 is attributed to general inflationary cost increases. During the twelve months ended September 30, 2001, we recorded costs in connection with certain uncollectible receivables, insurance related cost and other charges included in other operating expenses. The following table and discussion provides additional information on these charges.
2001 - -------------------------------------------------------------------------------------------------------------------- Notes receivable, advances, and trade receivables, due from affiliated businesses formerly owned or managed deemed uncollectible $ 30,048,000 Uncollectible trade receivables 39,249,000 Self-insured and related program costs 21,026,000 Other charges 18,070,000 - --------------------------------------------------------------------------------------------------------------------- Total uncollectible receivable, insurance related and other charges included in other operating expenses $ 108,393,000 - ---------------------------------------------------------------------------------------------------------------------
In fiscal 2001, we performed periodic assessments of the collectibility of amounts due from certain affiliated businesses in light of the adverse impact of PPS on their liquidity and profitability. As a result of our assessment, the carrying value of notes receivable, advances and trade receivables due from affilitates was written down by $30,048,000. In fiscal 2001, we performed a re-evaluation of our allowance for doubtful accounts triggered by deteriorations in the agings of certain categories of receivables. We believed that such deteriorations in the agings were due to several prolonged negative factors related to the operational effects of the bankruptcy filings such as personnel shortages and the time demands required in normalizing relations with vendors and addressing a multitude of bankruptcy issues. As a result of this re-evaluation, we determined that an increase in the allowance for doubtful accounts of approximately $39,249,000 was necessary. In fiscal 2001, as a result of adverse claims development we reevaluated the levels of reserves established for certain self-insured health and workers' compensation benefits and other insurance related programs. These charges were approximately $21,026,000. In addition, we incurred charges of approximately $18,070,000 during fiscal 2001, principally related to contract and litigation matters and settlements, and certain other charges. In October of 2000, we sold an idle 232 bed eldercare center for cash consideration of approximately $7,000,000, resulting in a net gain of approximately $1,770,000. In April of 2001, we sold an underperforming 121 bed eldercare center for cash consideration of approximately $461,000. The sale resulted in a net loss of approximately $2,310,000. Depreciation and amortization expense decreased $9,678,000, principally attributed to the fourth quarter of fiscal 2000 write-off of impaired goodwill and property, plant and equipment and the sale, closure or lease terminations of certain eldercare centers. Lease expense decreased $2,502,000, of which approximately $2,204,000 is attributed to the sale, closure or lease terminations of certain eldercare centers, offset by an increase of approximately $1,202,000 attributed to the consolidation of two leased eldercare centers in connection with the P&R Transaction. The remaining decrease of approximately $1,500,000 is attributed to a decline in the weighted average borrowing rate associated with a lease financing facility. 37 Interest expense decreased $84,253,000. In accordance with SOP 90-7, we ceased accruing interest following the petition date, June 22, 2000, on certain long-term debt instruments classified as liabilities subject to compromise. Our contractual interest expense for the twelve months ended September 30, 2001 was $214,735,000, leaving $95,418,000 of interest expense unaccrued for that period as a result of the Chapter 11 filings. Contractual interest expense for the twelve months ended September 30, 2001 decreased by $16,764,000 compared to $231,499,000 for the same period in the prior year. Approximately $33,618,000 of the decrease is primarily attributed to a lower weighted average borrowing rate and offset by additional net capital and working capital borrowings under the Genesis DIP Facility resulting in additional interest expense of approximately $16,854,000. During the twelve months ended September 30, 2001, we recorded charges in connection with debt restructuring and reorganization costs. The following table and discussion provides additional information on these charges.
2001 - ------------------------------------------------------------------------------------------------------------- Debt Restructuring and Reorganization Costs: Professional, bank and other fees $ 59,393,000 Employee benefit related costs 16,786,000 Exit costs of terminated businesses 5,877,000 Fresh start valuation adjustments 1,033,729,000 - ------------------------------------------------------------------------------------------------------------- Total debt restructuring and reorganization costs $ 1,115,785,000 - -------------------------------------------------------------------------------------------------------------
During the twelve months ended September 30, 2001, we incurred approximately $1,115,785,000 of legal, bank, accounting, fresh-start valuation adjustments and other costs in connection with our debt restructuring and the Chapter 11 cases. Of these charges, approximately $59,393,000 is attributed to professional, bank and other fees and approximately $16,786,000 pertains to certain salary and benefit related costs, principally for a court approved special recognition program. In addition, we incurred approximately $5,877,000 of costs associated with exiting certain terminated businesses. Fresh-start valuation adjustments of $1,033,729,000 were recorded pursuant to the provisions of SOP 90-7, which require entities to record their assets and liabilities at estimated fair values. The fresh-start valuation adjustment is principally the result of the elimination of predecessor company goodwill and the revaluation of property, plant and equipment to estimated fair values. Equity in net loss of unconsolidated affiliates for the twelve months ended September 30, 2001 was $10,232,000 compared to $2,407,000 for the comparable period in the prior year. This increase of $7,825,000 is attributed to changes in the earnings/losses reported by our unconsolidated affiliates, as well as the P&R Transaction. Minority interest decreased $108,991,000 during the twelve months ended September 30, 2001 to $23,453,000 compared to $132,444,000 for the comparable period in the prior year. This decrease is principally attributed to a lower net loss reported by Multicare and the resulting Multicare joint venture partners' 56.4% interest in the Multicare net loss for the period. The Multicare net loss was reduced during the twelve months ended September 30, 2001 compared to the comparable period in the prior year, principally due to lower asset impairment charges and lower interest expense recognition under SOP 90-7. As a result of the consummation of the Plan, and in accordance with the provisions of SOP 90-7, we recorded a $1,524,823,000 extraordinary gain on the discharge of certain of our indebtedness. Effective October 1, 1999, Genesis adopted the provisions of the American Institute of Certified Public Accountant's Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") which requires start-up costs be expensed as incurred. For the twelve months ended September 30, 2000, the cumulative effect of expensing all unamortized start-up costs at October 1, 1999 was $16,400,000 pre tax and $10,412,000 after tax. 38 Preferred stock dividends increased $3,027,000 to $45,623,000 during the twelve months ended September 30, 2001 compared to $42,596,000 for the comparable period in the prior year. This increase is attributed to a full twelve months of series H and series I preferred stock accrued dividends for the twelve months ended September 30, 2001 compared to ten and one-half months in the 2000 period. Fiscal 2000 Compared to Fiscal 1999 In Fiscal 1999, prior to the Multicare restructuring transaction, we accounted for our investment in Multicare using the equity method of accounting. In Fiscal 2000, upon consummation of the restructuring transaction, we consolidated the financial results of Multicare because we had managerial, operational and financial control of Multicare under the terms of the restructuring agreement. Accordingly, Multicare's assets, liabilities, revenues and expenses are consolidated at their recorded historical amounts and the financial impact of transactions between us and Multicare are eliminated in consolidation. For the twelve months ended September 30, 2000, approximately $136,100,000 of revenue, and a corresponding amount of expense, was eliminated as a result of the consolidation of us and Multicare. The non-Genesis shareholders' remaining 56.4% interest in Multicare is carried as minority interest based on their proportionate share of Multicare's historical book equity. A significant percentage of the fluctuations in operating results reported in Fiscal 2000 compared to Fiscal 1999 are a result of this change in the method of accounting for Multicare. Inpatient service revenue increased $616,046,000 or 87% to $1,320,151,000 from $704,105,000. Of this increase, approximately $632,078,000 is attributed to the consolidation of Multicare's inpatient revenues in the twelve months ended September 30, 2000, and approximately $16,300,000 is attributed to volume growth in Genesis' Medicare census. These increases are offset by reduced revenue of approximately $44,100,000 resulting from ten fewer eldercare centers operating in the September 30, 2000 period compared to the September 30, 1999 period, and approximately $5,400,000 is attributed to rate dilution in our Medicare rate per patient day as a result of PPS. The remaining increase of approximately $17,168,000 is due to shifts in other payor categories and rates. Our average Medicare rate per patient day for the fiscal year ended September 30, 2000 was approximately $294 compared to $302 for the fiscal year ended September 30, 1999. Total patient days increased 3,679,048 to 8,617,099 during the twelve months ended September 30, 2000 compared to 4,938,051 during the comparable period last year. Of this increase, 4,001,732 patient days are attributed to the consolidation of Multicare's inpatient business in the twelve months ended September 30, 2000, and 13,284 days are attributed to one additional calendar day in the September 2000 period due to a leap year. These increases are offset by a reduction of 319,148 patient days resulting from ten fewer eldercare centers operating in the September 30, 2000 period compared to the September 30, 1999 period and the remaining decrease of 16,820 is the result of a decline in overall occupancy. Pharmacy and medical supply service revenues were $952,350,000 for the fiscal year ended September 30, 2000 versus $927,334,000 for fiscal year ended September 30, 1999. Pharmacy and medical supply service revenues increased approximately $51,716,000 due to net revenue growth with external customers. This increase is offset by approximately $26,700,000 due to the consolidation of Multicare's results with ours in the September 2000 period and the resulting elimination of pharmacy and medical supply service revenues generated with the Multicare centers. Other revenues decreased approximately $73,630,000 from $234,987,000 to $161,357,000. Approximately $5,300,000 of this decline is attributed to contraction in our rehabilitation services business since the January 1, 1999 implementation of PPS by many of our external rehabilitation customers. Approximately $60,800,000 of the decline is attributed to the consolidation of Multicare's results with ours and the resulting elimination of management fee and other service related revenues with Multicare in the twelve months ended September 30, 2000. Approximately $20,200,000 of this decline is attributed to the termination of a capitation contract in our Chesapeake region. Of the remaining increase in other revenue, $5,800,000 is attributed to the revenues of a respiratory health services business acquired in the third fiscal quarter of 2000, with the remaining approximately $6,900,000 attributed to net growth in our other service businesses. 39 Salaries, wages and benefits cost increased $375,239,000, or 52.6% for the twelve month period ended September 30, 2000 to $1,088,443,000 from $713,204,000 for the same period during fiscal 1999. Of this increase, approximately $339,575,000 resulted from the consolidation of Multicare's salaries, wages and benefit costs. Salaries, wages and benefit costs, as a percentage of net revenue, excluding the consolidation of Multicare's labor related costs, increased to 38.9% for the twelve months ended September 30, 2000, compared to 38.2% for the comparable period in the prior year. The growth in salaries, wages, and benefits as a percentage of revenue between 1999 and 2000 is attributed to continued pressure on wage and benefit related costs in all of our operating businesses, particularly in our eldercare centers. We and our industry have experienced shortages in qualified professional clinical staff. As the demand for these services has exceeded the supply of available and qualified staff, we and our competitors have been forced to offer more attractive wage and benefit packages to these professionals and to utilize outside contractors for these services at premium rates. Furthermore, the competitive arena for this shrinking labor market has created high turnover among clinical professional staff as many seek to take advantage of the supply of available positions, many offering new and more attractive wage and benefit packages. See Business - "Government Regulation," "Personnel," "Employee Training and Development." Cost of sales increased $32,791,000 for the twelve month period ended September 30, 2000, to $534,960,000 from $502,169,000 for the same period in the prior year. Approximately $73,656,000 is attributed to an increase in pharmacy and medical supply cost of sales ($26,923,000 of which is attributed to pharmacy and medical supply revenue volume growth, and $46,733,000 is attributed to changes in customer and product mix). The remaining variance is a decrease of approximately $40,865,000, which is due to the consolidation of Multicare in the twelve month period ended September 30, 2000, and the corresponding elimination of intercompany transactions resulting from pharmacy and medical supply sales to Multicare eldercare centers. Our other operating expenses were $948,735,000 for the fiscal year ended September 30, 2000 compared to $565,174,000 for the twelve months ended September 30, 1999, an increase of $383,561,000 or 67.8%, of which approximately $158,020,000 is attributed to the consolidation of Multicare's operating expenses (not including Multicare's debt restructuring and impairment charges) with ours, approximately $207,638,000 is attributed to an increase in certain charges (including those of Multicare) described more fully in the paragraphs that follow, approximately $16,300,000 is due to adverse development in self-insured employee health coverage, approximately $9,500,000 is due to additional provisions made for bad debts, approximately $2,000,000 is attributed to our adoption of a new accounting principle that requires start-up costs be expensed when incurred, $3,200,000 is attributed to the conversion of our incentive compensation program from stock-based to cash-based, approximately $5,400,000 is attributed to the operating expenses of a respiratory health services business acquired in the third fiscal quarter of 2000, and approximately $41,303,000 is attributed to growth in insurance related costs and inflationary increases. These increases are offset by reduced operating expenses of approximately $20,200,000 attributed to a terminated capitation contract in our Chesapeake region and $39,600,000 resulting from ten fewer eldercare centers operating in the twelve months ended September 30, 2000 compared to the twelve months ended September 30, 1999. In addition to the wage pressures inherent in this environment, the cost of training new employees amid the high turnover rates has caused added pressure on our operating margins. In addition to labor pressures, we and our industry continue to experience an adverse effect on operating profits due to an increase in the cost of certain of its insurance programs. Rising costs of eldercare malpractice litigation involving nursing care operators and losses stemming from these malpractice lawsuits has caused many insurance providers to raise the cost of insurance premiums or refuse to write insurance policies for nursing homes. Accordingly, the costs of general and professional liability and property insurance premiums have increased. Also, the impact of government regulation in a heavily regulated environment has adversely impacted our ability to reduce costs. The pressures on operating expenses described above are coupled with the effects of the federal and state governments' and other third party payors' trend toward imposing lower reimbursement rates, resulting in our inability to grow revenues at a rate that equals or exceeds the growth in our cost levels. The downward trend of reimbursement rates to nursing care operators and the cost pressures previously described have adversely impacted customers of our ancillary service businesses, resulting in pricing pressures in those businesses. See Business - "Revenue Sources," "Insurance" and "Competition in the Healthcare Services Industry." 40 During fiscal 2000, we recorded charges in connection with the Multicare joint venture restructuring, the impairment of long-lived assets and other impairments and charges. The following table and discussion provides additional information on these charges.
2000 - -------------------------------------------------------------------------------------------------------------- Multicare joint-venture restructuring $ 420,000,000 - -------------------------------------------------------------------------------------------------------------- Asset Impairment and Other Charges: Impairment of long-lived assets $ 234,009,000 Exit costs and write-off of unrecoverable assets of six eldercare centers closed or leases terminated 28,363,000 Investments in information systems development abandoned in fiscal 2000 19,200,000 Uncollectible trade and notes receivable due to customer bankruptcy or other liquidity issues 41,955,000 Other charges, including third party appeal issues and other cost settlement balances deemed uncollectible and insurance related adjustments 51,181,000 - -------------------------------------------------------------------------------------------------------------- Total asset impairments and other charges included in other operating expenses $ 374,708,000 - --------------------------------------------------------------------------------------------------------------
In connection with the restructuring transaction in the first fiscal quarter of 2000, we recorded a non-cash charge of approximately $420,000,000 representing the estimated cost to terminate the Put in consideration for the issuance of the series H preferred and series I preferred stock. The cost to terminate the Put was estimated based upon our assessment that no incremental value was realized by us as a result of the changes in the equity ownership structure of Multicare brought about by the restructuring of the Multicare joint venture. During the fourth quarter of fiscal 2000, in connection with our budget preparations for the forthcoming year and in accordance with Statement of Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"), management reviewed the current and projected undiscounted cash flows of our eldercare centers and our NeighborCare pharmacy operations. This review indicated that the assets of certain eldercare centers were impaired. The fair market value of businesses deemed potentially impaired were then estimated and compared to the carrying values of the long-lived assets. Any excess long-lived asset carrying value over the estimated fair value was written-off. Fair value was estimated using a per bed value determined by our management. The total loss for SFAS No. 121 impairments of $234,009,000 is associated with 49 eldercare centers. No impairment charge was assessed on the long-lived assets of our NeighborCare pharmacy operations. The impairment charge recorded resulted in the write-off of $185,037,000 of goodwill and $34,578,000 of property, plant and equipment. During fiscal 2000, we closed or were in the process of closing or terminating the leases of six underperforming eldercare centers with 842 combined beds. As a result, a charge of $28,363,000 was recorded to account for certain impaired and abandoned assets of these eldercare centers as well as the estimated future cost of maintaining owned properties that were closed. 41 As a result of our Chapter 11 bankruptcy filing and curtailment in funding availability, we assessed the recoverability of our investment in certain information systems developed internally for the operating needs of our institutional pharmacy and infusion therapy businesses. Our assessment determined that $19,200,000 of the carrying value of our investment in these systems was unrecoverable through estimated future product sales to third parties and future operating efficiencies. During fiscal 2000, we performed periodic assessments of the collectibility of amounts due from certain affiliated businesses in light of the adverse impact of PPS on their liquidity and profitability. In certain cases, customers have filed for protection under Chapter 11 of the Bankruptcy Code. As a result of our assessment, the carrying value of notes receivable, advances and trade receivables due from these customers was written down $41,955,000. In the fourth quarter of fiscal 2000, we performed an assessment of the collectibility of certain aged amounts due from third party payors and concluded that approximately $12,451,000 was unrecoverable. In addition, as a result of adverse claims development we reevaluated the levels of reserves established for certain self insured and other programs, including workers' compensation and general liability insurance, resulting in a charge of approximately $35,235,000. In the third fiscal quarter of 2000, effective May 31, 2000, Multicare sold 14 eldercare centers with 1,128 beds located in the state of Ohio for approximately $33,000,000. We recorded a loss on sale of the Ohio properties of approximately $7,922,000. Depreciation and amortization expense increased $42,006,000 to $116,961,000 during the twelve months ended September 30, 2000 from $74,955,000 during the same period in the prior year. $38,064,000 of this increase is attributed to the consolidation of Multicare's results with those of ours. The remaining increase is principally attributed to incremental amortization of deferred financing costs, as well as incremental depreciation expense from capital expenditures made since September 30, 1999. Lease expense increased $11,471,000 to $38,124,000 during the twelve months ended September 30, 2000 from $26,653,000 during the same period in the prior year. $11,824,000 of this increase is attributed to the consolidation of Multicare's results with ours. This increase is offset by $3,300,000 attributed to six fewer eldercare centers leased during the twelve months ended September 30, 2000 compared to the twelve months ended September 30, 1999. The remaining increase of approximately $2,900,000 is the result of increases in a variable rate lease financing facility and scheduled increases in fixed lease rates. Interest expense increased $84,350,000 to $203,570,000 during the twelve months ended September 30, 2000 from $119,220,000 during the same period in the prior year. $57,943,000 of this increase is attributed to the consolidation of Multicare's results with ours. In connection with our Chapter 11 filing, effective June 22, 2000 we ceased accruing interest on $371,590,000 of senior subordinated notes with a weighted average interest rate of 9.62%, or approximately $9,800,000. The remaining increase in interest expense of approximately $36,207,000 is primarily due to additional capital and working capital borrowings and an increase in our weighted average borrowing rate. Amendments to the our Credit Facility resulted in higher variable rates of interest, along with increases in market rates of interest. Genesis' average variable debt borrowing rate in fiscal 2000 increased to 10.0% from 7.85% in fiscal 1999, resulting in over $23,000,000 of added interest expense. The remaining increase in interest expense is principally attributed to growth in debt volume. Our contractual interest expense for the year ended September 30, 2000 was $231,499,000, leaving $27,929,000 of interest expense unaccrued at September 30, 2000 as a result of the Chapter 11 filings. During fiscal 2000, we recorded charges in connection with debt restructuring and reorganization costs. The following table and discussion provides additional information on these charges. 42
2000 - ------------------------------------------------------------------------------------------------------------- Debt Restructuring and Reorganization Costs: Professional, bank and other fees in connection with the Company's amended senior bank credit facilities, debtor-in-possession financing and the filings under Chapter 11 $ 29,935,000 Interest rate swap termination charge 28,331,000 Employee benefit related costs 4,529,000 - ------------------------------------------------------------------------------------------------------------- Total debt restructuring and reorganization costs $ 62,795,000 - --------------------------------------------------------------------------------------------------------------
During the third fiscal quarter of 2000, we began discussions with our lenders under our and Multicare Credit Facilities to revise our capital structure. During the discussion period, which continued into the third fiscal quarter, we and Multicare did not make certain scheduled principal and interest payments under our and Multicare Credit Facilities or certain scheduled interest payments under certain of our and Multicare senior subordinated debt agreements. On June 22, 2000, we and Multicare filed for voluntary relief under Chapter 11 of the Bankruptcy Code. In connection with the debt restructuring negotiations and for the costs of the subsequent reorganization cases, we incurred legal, bank, accounting and other costs of approximately $29,935,000. As a result of the nonpayment of interest under our Credit Facility, certain provisions under existing interest rate swap arrangements with Citibank were triggered. Citibank notified us that they elected to force early termination of the interest rate swap arrangements, and have asserted a $28,331,000 obligation. In addition, as a result of our restructuring and Chapter 11 cases we incurred costs of $4,529,000 for certain salary and benefit related costs, principally for a court approved special recognition program. During the first fiscal quarter of 2000, we recorded a non-cash pre tax charge of $7,720,000 for a stock option redemption program (the "Redemption Program") under which our current employees and directors elected to surrender certain of our stock options for unrestricted shares of our common stock. The Redemption Program was approved by shareholder vote at our 2000 Annual Meeting. As a result of our worsening financial condition and other considerations, we determined not to proceed with the Redemption Program, and therefore the $7,720,000 charge recorded in the first quarter was subsequently reversed. The elections made by optionees would have resulted in the redemption of approximately 4,600,000 stock options in exchange for approximately 4,000,000 shares of our common stock. Equity in net loss of unconsolidated affiliates declined $175,828,000 to a loss of $2,407,000 during the twelve months ended September 30, 2000 from a loss of $178,235,000 during the same period in the prior year. This change is principally due to the Fiscal 2000 change in our accounting for Multicare to the consolidation method of accounting. In consolidation, our 43.6% share in the net loss of Multicare was eliminated. Minority interest of $132,444,000 recorded during the twelve months ended September 30, 2000 principally represents our Multicare joint venture partners' 56.4% interest in the Multicare net loss for the period. Effective October 1, 1999, we adopted the provisions of the American Institute of Certified Public Accountant's Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") which requires start-up costs be expensed as incurred. The cumulative effect of expensing all unamortized start-up costs at October 1, 1999 was approximately $16,400,000 pre tax and $10,412,000 after tax. Preferred stock dividends increased $23,119,000 to $42,596,000 during the twelve months ended September 30, 2000 from $19,477,000 during the same period in the prior year. This increase is attributed to dividends accrued following the issuance of series H and series I preferred stock in mid-November, 1999. 43 Liquidity and Capital Resources Working Capital and Cash Flows At September 30, 2001 we reported working capital of $298,515,000 as compared to net working capital of $304,241,000 at September 30, 2000. Our days sales outstanding at September 30, 2001 was approximately 60 days compared to the approximately 67 days at September 30, 2000. Our unrestricted cash balance at September 30, 2001 was $32,139,000. At September 30, 2001, we reported restricted investments in marketable securities of $51,625,000, which are held by Liberty Health Corp. LTD., referred to as LHC, our wholly-owned captive insurance subsidiary incorporated under the laws of Bermuda. The investments held by LHC are restricted by statutory capital requirements in Bermuda. In addition, certain of these investments are pledged as security for letters of credit issued by LHC. As a result of such restrictions and encumbrances, we and LHC are precluded from freely transferring funds through intercompany loans, advances or cash dividends. Our cash flow from operations for the twelve months ended September 30, 2001 was a source of cash of $7,337,000 compared to a use of cash of $103,294,000 for the twelve months ended September 30, 2000, principally due to reduced interest payments during our Chapter 11 proceedings and improvement in the collections of accounts receivables. These cash flow savings were offset by incremental payments of approximately $28,291,000 of debt restructuring and reorganization costs for the twelve months ended September 30, 2001 compared to the same period in the prior year. We believe that cash flows from operations, along with available borrowings under our new Senior Credit Facility, are sufficient to meet our current liquidity needs. Indebtedness Senior Credit Facility On October 2, 2001, the effective date, and in connection with the consummation of the Plan, we entered into a Senior Credit Facility consisting of the following: (1) a $150,000,000 revolving line of credit (the "Revolving Credit Facility"); (2) a $285,000,000 term loan (the "Term Loan") and (3) an $80,000,000 delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The outstanding amounts under the Term Loan and the Delayed Draw Term Loan bear interest at the London Inter-bank Offered Rate ("LIBOR") plus 3.50%, or approximately 6.10% at September 30, 2001. The outstanding amounts under the Revolving Credit Facility, if any, bear interest based upon a performance related grid. Pursuant to the Senior Credit Facility, we and each of our subsidiaries named as guarantors have granted the lenders first priority liens and security interests in all unencumbered property, including but not limited to: fee owned property, bank accounts, investment property, accounts receivable, equipment and general intangible assets. The Senior Credit Facility limits, among other things, our ability to incur additional indebtedness or contingent obligations, permit additional liens, to make additional acquisitions, to sell or dispose of assets, to create or incur liens on assets, to pay dividends on our common stock and to merge or consolidate with any other person or entity. The Senior Credit Facility contains customary representations and warranties. The Senior Credit Facility requires us to maintain compliance with certain financial and non-financial covenants, including minimum EBITDAR (as defined); limitations on capital expenditures, maximum leverage ratios, minimum fixed charge coverage ratios and minimum net worth. 44 The Revolving Credit Facility is available to fund obligations under the Plan and for general working capital requirements. The Revolving Credit Facility matures on October 2, 2006. Usage under the Revolving Credit Facility is subject to a Borrowing Base (as defined) calculation based upon real property collateral value and a percentage of eligible accounts receivable (as defined). To date, there have been no borrowings under the Revolving Credit Facility. The proceeds from the Term Loan were utilized to repay $196,000,000 of the then outstanding amounts under the Genesis DIP Facility, and $50,000,000 of the then outstanding synthetic lease facility, with the remaining $39,000,000 provided to fund restructuring related costs in accordance with the Plan. In connection with the consummation of the Plan, the Term Loan balance is $285,000,000. The Term Loan amortizes at a rate of one percent per year, and matures on April 2, 2007. The Delayed Draw Term Loan may be used to (1) fund the purchase price of the proposed APS Transaction; (2) pay certain outstanding amounts owed to ElderTrust on certain loans secured by mortgages; (3) fund the exercise of an option to purchase three eldercare centers and (4) to make other Specific Payments (as defined). Once repaid, the Delayed Draw Term Loan can not be re-borrowed. In connection with the consummation of the Plan, no borrowings were made under the Delayed Draw Term Loan. The Delayed Draw Term Loan amortizes at a rate of one percent per year, and matures on April 2, 2007. In the first fiscal quarter of 2002, we utilized approximately $10,000,000 from the Delayed Draw Term Loan to fund the exercise of the purchase option previously described, and we utilized approxmiately $22,000,000 from the Delayed Draw Term Loan to satisfy certain mortgages as previously described. As a result of subsequent developments in our bid to consummate the APS Transaction, management is seeking lender approval to repay other debt obligations with the available borrowings under the Delayed Draw Term Loan that were otherwise earmarked for the APS Transaction. See "Certain Transactions and Events - Proposed APS Transaction." Senior Secured Notes On October 2, 2001 the effective date, and in connection with the consummation of the Plan, we entered an indenture agreement in the principal amount of $242,605,000 (the "Senior Secured Notes"). The Senior Secured Notes bear interest at LIBOR plus 5.0% (approximately 7.60% at September 30, 2001), and amortize one percent each year and mature on April 2, 2006. The Senior Secured Notes are secured by a junior lien on real property and related fixtures of substantially all of our subsidiaries, subject to liens granted to the lenders' interests under the Senior Credit Facility. The Senior Secured Notes may be pre-paid at any time without penalty, subject to restrictions in place under the Senior Credit Facility. Compliance with certain financial and non-financial covenants is required, but they are less restrictive than those required by the Senior Credit Facility. Other Secured Indebtedness On October 2, 2001, the effective date, we had $116,904,000 of other secured debt consisting principally of revenue bonds and secured bank loans, including loans insured by the Department of Housing and Urban Development. These loans are secured by the underlying real and personal property of individual eldercare centers. All of the other secured loans have fixed rates of interest ranging from 3.00% to 11.00%, with a weighted average rate of 9.04%. Redeemable Preferred Stock In connection with the consummation of the Plan, we issued series A convertible preferred stock (the "Series A Preferred"). The Series A Preferred has a liquidation preference of $42,600,000 and accrues dividends at the annual rate of 6% payable in additional shares of Series A Preferred. The Series A Preferred is convertible at any time, at the option of the holders, into 2,095,425 shares of the new common stock. We have the right to convert all of the shares of Series A Preferred to shares of our new common stock at any time after the first anniversary date of the effective date, or October 2, 2002, when the average trading price of the new common stock over the immediately preceding 30 days is $30.00 or more per share. We have the right to redeem the Series A Preferred at any time by giving 30 days notice to the holders (subject to certain restrictions imposed by the Company's senior credit facilities). The Series A Preferred are subject to mandatory redemption on October 2, 2010. The conversion rate is $20.33 of liquidation preference for each share of new common stock. 45 Warrants On October 2, 2001, the effective date, we issued warrants (the "Warrants") to purchase 4,559,475 shares of new common stock. This represents approximately 11% of the new common stock issued on the effective date. The Warrants expire on October 2, 2002 and have an exercise price of $20.33 per share of new common stock. An assumed exercise of all Warrants would result in cash proceeds to us of approximately $93,000,000. Capital Expenditures Investing activities for the twelve months ended September 30, 2001 include approximately $43,721,000 of capital expenditures compared to approximately $51,981,000 for the comparable period of the prior year. Capital expenditures consist primarily of betterments and expansion of eldercare centers and investments in data processing hardware and software. In order to maintain our physical properties in a suitable condition to conduct our business and meet regulatory requirements, we expect to continue to incur capital expenditure costs at levels at or above those for the twelve months ended September 30, 2001 for the foreseeable future. Cash flows provided by investing activities for the twelve months ended September 30, 2001 and 2000 include approximately $7,010,000 and $33,000,000, respectively, of cash proceeds from the sale of eldercare centers. For the twelve months ended September 30, 2001, we incurred approximately $35,622,000 of lease obligation costs and expect to continue to incur lease costs at levels approximating those for the twelve months ended September 30, 2001 for the foreseeable future. Net Operating Losses Following the consummation of the Plan, we had approximately $495,000,000 of Net Operating Loss ("NOL") carryforwards which will expire between September 30, 2020 and September 30, 2021. In addition, we have a capital loss carryforward of $736,000,000, which will expire September 30, 2005. These NOLs and capital loss carryforward have been reduced to $161,000,000 and $195,000,000, respectively, as a result of the discharge and cancellation of various prepetition liabilities under the Plan. The reduction of the NOLs and capital loss carryforward will be effective on October 1, 2002. In addition, the NOLs and capital loss carryforward remaining after the application of the cancellation of indebtedness provisions are subject to certain provisions of the Internal Revenue Code which restricts the utilization of the losses. Section 382 of the Internal Revenue Code imposes limitations on the utilization of loss carryforwards after certain changes of ownership of a loss company. The Company is deemed to be a loss company for these purposes. Under these provisions, our ability to utilize these loss carryforwards in the future will generally be subject to an annual limitation of approximately $43,000,000. There can be no assurances that we will be able to utilize these NOLs or capital loss carryforward due to the complex nature of the applicable tax code and the differences that may exist between our interpretation of the code and that of the Internal Revenue Service. As a result of the risks associated with NOLs and capital loss carryforward, we have established a 100% valuation allowance to offset the associated deferred tax asset. 46 Revenue Sources We receive revenues from Medicare, Medicaid, private insurance, self-pay residents, other third party payors and long-term care facilities which utilize our specialty medical services. The healthcare industry is experiencing the effects of the federal and state governments' trend toward cost containment, as government and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, have resulted in reduced rates of reimbursement for services we provide. Congress has enacted three major laws during the past five years that have significantly altered payment for nursing home and medical ancillary services. The Balanced Budget Act of 1997 ("the 1997 Act"), signed into law on August 5, 1997, reduced federal spending on the Medicare and Medicaid programs. As implemented by the Centers for Medicare and Medicaid Services ("CMS"), formerly the Health Care Financing Administration ("HCFA"), the 1997 Act has had an adverse impact on the Medicare revenues of many skilled nursing facilities. There have been three primary problems with the 1997 Act. First, the base year calculations understate costs. Second, the market basket index used to trend payments forward does not adequately reflect market experience. Third, the RUGs case mix allocation is not adequately predictive of the costs of care for patients, and does not equitably allocate funding, especially for non-therapy ancillary services. The Medicare Balanced Budget Refinement Act ("BBRA"), enacted in November 1999 addressed a number of the funding difficulties caused by the 1997 Act. A second enactment, the Benefits Improvement and Protection Act of 2000 ("BIPA"), was enacted on December 15, 2000, further modifying the law and restoring additional funding. A number of the provisions of the BBRA and BIPA enactments providing additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002. Expiring provisions are estimated to, on average, reduce per beneficiary per diems by $30. Moreover, CMS has indicated its desire to complete refinements to the case mix classification system as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. Combined, the Medicare skilled nursing facility sector face an 18% reduction in the average median per diems. If we were to experience an 18% decline in our current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67,000,000 would have a material adverse affect on our financial position, results of operations, and cash flows. Trade organizations representing the skilled nursing facility sector are aggressively pursuing strategies to minimize the potential impact of the "Medicare Rate Cliff." The reimbursement rates for pharmacy services under Medicaid are determined on a state-by-state basis subject to review by CMS and applicable federal law. In most states, pharmacy services are priced at the lower of "usual and customary" charges or cost (which generally is defined as a function of average wholesale price and may include a profit percentage) plus a dispensing fee. Certain states have "lowest charge legislation" or "most favored nation provisions" which require our institutional pharmacy and medical supply operation to charge Medicaid no more than its lowest charge to other consumers in the state. During 2000, Federal Medicaid requirements establishing payment caps on certain drugs were revised ("Federal Upper Limits"). The final rule relating to Federal Upper Limits was substantially modified, reducing the impact of the new rules on NeighborCare operations. Pharmacy coverage and cost containment are important policy debates at both the federal and state levels. Congress has considered proposals to expand Medicare coverage for outpatient pharmacy services. Enactment of such legislation could affect institutional pharmacy services. Likewise, a number of states have proposed cost containment initiatives pending. Changes in payment formulas and delivery requirements could impact our NeighborCare pharmacy operations. Recently the President announced a plan for discount purchasing of prescription drugs for Medicare beneficiaries. Details of the plan are just becoming public. Implementation could affect institutional pharmacy services. 47 Federal and state governments continue to focus on efforts to curb spending on health care programs such as Medicare and Medicaid. Such efforts have not been limited to skilled nursing facilities, but have and will most likely include other services provided by us, including pharmacy and therapy services. We cannot at this time predict the extent to which these proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals will have on us. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors are expected to continue. It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on our business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect our business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Our financial condition and results of operations may be affected by the reimbursement process, which in our industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. Certain service contracts permit our NeighborCare pharmacy operations to provide services to HCR Manor Care, Inc. constituting $116,000,000, or approximately ten percent and four percent of the net revenues, of NeighborCare and Genesis, respectively. These service contracts with HCR Manor Care, Inc. are the subject of certain litigation. See "Legal Proceedings." NeighborCare pharmacy operations provide services to 58 centers operated by Mariner Post-Acute Network, Inc., referred to as Mariner, which represent four percent and two percent of net revenues of NeighborCare and Genesis, respectively, or approximately $49,000,000 for the twelve months ended September 30, 2001. On January 18, 2000, Mariner filed voluntary petitions under Chapter 11 with the Bankruptcy Court, giving Mariner certain rights under the protection of the Bankruptcy Court to reject the service contracts for those centers. Genesis participates as a member of the official Mariner unsecured creditors' committee. Effective November 1, 2001, the Mariner Bankruptcy Court approved a settlement agreement between NeighborCare and Mariner relating to these Mariner service contracts, whereby, among other things, (1) the form of the contracts was restated and new pricing was implemented; (2) the term of the contracts was extended for eighteen months through April 30, 2003, except that Mariner has the right to terminate a limited number of service contracts in the event of the disposition or closure of the subject facility; (3) NeighborCare waived all claims against Mariner in the Mariner bankruptcy with respect to these contracts except for an allowed $6,000,000 pre-petition unsecured claim and (4) Mariner "assumed" the service contracts, as modified, in the Bankruptcy Court. Legislative and Regulatory Issues In July 1998, federal government administration issued a new initiative to promote the quality of care in nursing homes. Following this pronouncement, it has become more difficult for nursing facilities to maintain licensing and certification. We have experienced and expect to continue to experience increased costs in connection with maintaining our licenses and certifications as well as increased enforcement actions. We face additional federal requirements that mandate major changes in the transmission and retention of health information. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") was enacted to ensure, first, that employees can retain and at times transfer their health insurance when they change jobs, and secondly, to simplify health care administrative processes. This simplification includes expanded protection of the privacy and security of personal medical data and requires the adoption of standards for the exchange of electronic health information. Among the standards that the Department of Health and Human Services will adopt pursuant to HIPAA are standards for the following: electronic transactions and code sets; unique identifiers for providers, employers, health plans and individuals; security and electronic signatures; privacy; and enforcement. 48 Although HIPAA was intended to ultimately reduce administrative expenses and burdens faced within the healthcare industry, we believe that implementation of this law will result in additional costs. We have approximately two years to comply with the regulation. We have established a HIPAA task force consisting of both clinical and information services professionals focused on HIPAA compliance. Insurance Prior to June 1, 2000, we purchased general and professional liability insurance coverage ("GL/PL") from various commercial insurers on a first dollar coverage basis. Beginning with the June 1, 2000 policy, we have purchased GL/PL coverage from a commercial insurer subject to per claim retentions. These retentions are insured by our wholly-owned captive insurance company, Liberty Health Corp., LTD, referred to as LHC. LHC is currently insuring workers' compensation and GL/PL retentions. Based on independent actuarial studies, we believe that LHC's reserves are sufficient to meet our obligations. Workers' compensation insurance has been maintained as statutorily required, or in certain jurisdictions for certain periods, we have qualified as exempt or self-insured. Most of the commercial insurance purchased is loss sensitive in nature. As a result, we are responsible for adverse loss development or, in some cases, may be entitled to refunds if losses are below certain levels. We believe that adequate reserves are in place to cover the ultimate liability related to workers' compensation. Seasonality Our 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 marketplace labor shortages. To date, we have offset our increased operating costs by increasing charges for our services and expanding our 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. See "Cautionary Statements Regarding Forward Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Fiscal 2001 Compared to Fiscal 2000." 49 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to the impact of interest rate changes. In the past, we employed established policies and procedures to manage our exposure to changes in interest rates. Our objective in managing exposure to interest rate changes is to limit the impact of such changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objective, we primarily use interest rate swap agreements to manage net exposure to interest rate changes related to our portfolio of borrowings. As of September 30, 2001, no interest rate swap agreements were in place. It is expected that interest rate swap agreements will be entered into in the fourth quarter of fiscal 2002 to manage the exposure to interest rate changes on our variable rate debt. At September 30, 2001, we had $527,605,000 of debt subject to variable market rates of interest. We are exposed to the impact of interest rate changes. For each additional percentage point increase in the LIBOR, we will incur additional interest expense of approximately $5,276,000 annually.
Expected Maturity Date - ------------------------------------------------------------------------------------------------------------------------------ ($ in thousands) 2002 2003 2004 2005 2006 Thereafter Total ------------------------------------------------------------------------------------------------ Fixed rate debt $35,965 $ 5,520 $ 3,619 $ 3,750 $ 3,948 $ 64,102 $ 116,904 Weighted average rate 9.67% 8.54% 8.57% 8.55% 8.56% 8.79% 9.04% ------------------------------------------------------------------------------------------------ Variable rate debt $5,276 $5,276 $5,276 $5,276 $5,276 $501,225 $ 527,605 Weighted average rate L+4.19% L+4.19% L+4.19% L+4.19% L+4.19% L+4.19% L+4.19% ------------------------------------------------------------------------------------------------
In connection with the adoption of fresh-start reporting, our fixed and variable rate debt is recorded at fair value at September 30, 2001. L - three-month LIBOR (approximately 2.60% at September 30, 2001) 50 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report 52 Consolidated Balance Sheets as of September 30, 2001 (Successor) and 2000 (Predecessor) 53 Consolidated Statements of Operations for the years ended September 30, 2001, 2000 and 1999 (Predecessor) 54 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended September 30, 2001, 2000 and 1999 (Predecessor) 55 Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999 (Predecessor) 56 Notes to Consolidated Financial Statements 57
51 Genesis Health Ventures, Inc. and Subsidiaries Independent Auditors' Report The Board of Directors and Shareholders Genesis Health Ventures, Inc. We have audited the accompanying consolidated balance sheet of Genesis Health Ventures, Inc. and subsidiaries (the "Company") as of September 30, 2001 (Successor Company) and the accompanying consolidated balance sheet of Genesis Health Ventures, Inc. and subsidiaries as of September 30, 2000 and related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the years in the three year period ended September 30, 2001 (Predecessor Company). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Genesis Health Ventures, Inc. and subsidiaries as of September 30, 2001 and the financial position of the Predecessor Company as of September 30, 2000 and the results of the Predecessor Company's operations and cash flows for each of the years in the three year period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 3 to the consolidated financial statements, the Predecessor Company changed its method of accounting for the costs of start-up activities effective October 1, 1999. As described in note 2 to the consolidated financial statements, on October 2, 2001 the Company consummated a Joint Plan of Reorganization (the "Plan") which had been confirmed by the United States Bankruptcy Court. The Plan resulted in a change in ownership of the Predecessor Company and, accordingly, effective September 30, 2001 the Company accounted for the change in ownership through "fresh-start" reporting. As a result, the consolidated information prior to September 30, 2001 is presented on a different cost basis than that as of September 30, 2001 and, therefore, is not comparable. KPMG LLP Philadelphia, Pennsylvania December 19, 2001 52 Genesis Health Ventures, Inc. and Subsidiaries Consolidated Balance Sheets
Successor Company | Predecessor Company September 30, 2001 | September 30, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands except share and per share data) Assets | | Current assets: | Cash and equivalents $ 32,139 | $ 22,948 Restricted investments in marketable securities 51,625 | 27,899 Accounts receivable, net of allowance for doubtful accounts | of $83,125 in 2001 and $78,020 in 2000 399,816 | 446,614 Inventory 65,222 | 65,637 Prepaid expenses and other current assets 35,753 | 54,223 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 584,555 | 617,321 - --------------------------------------------------------------------------------------------------------------------------- | Property, plant and equipment, net 822,740 | 1,107,346 Notes receivable and other investments 14,539 | 39,244 Other long-term assets 45,698 | 105,726 Investments in unconsolidated affiliates 12,504 | 22,956 Identifiable intangible assets 33,591 | - Goodwill, net 320,953 | 1,235,306 - --------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,834,580 | $ 3,127,899 - --------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity (Deficit) | Current liabilities: | Current installments of long-term debt $ 41,241 | $ 133,000 Accounts payable 46,429 | 36,944 Accrued expenses 64,692 | 39,993 Accrued compensation 117,840 | 100,164 Accrued interest 15,838 | 2,979 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 286,040 | 313,080 - --------------------------------------------------------------------------------------------------------------------------- Liabilities subject to compromise - | 2,446,673 Long-term debt 603,268 | 10,441 Deferred income taxes - | 54,082 Deferred gain and other long-term liabilities 65,677 | 51,670 Minority interest 2,137 | 56,059 Redeemable preferred stock (subject to compromise in 2000) 42,600 | 442,820 Shareholders' equity (deficit): | Series G Cumulative Convertible Preferred Stock, | par $.01, authorized 5,000,000 shares, issued and | outstanding 589,714 at September 30, 2000 only - | 6 Common stock | Successor Company - par $.02, 200,000,000 authorized, | 39,671,279 issued and outstanding, and 1,328,721 to be issued | at September 30, 2001 | Predecessor Company - par $.02, 200,000,000 authorized, | 48,653,294 issued, and 48,641,194 outstanding at September 30, 2000 820 | 973 Additional paid-in capital 832,710 | 803,202 Retained earnings (accumulated deficit) 1,136 | (1,049,075) Accumulated other comprehensive income (loss) 192 | (1,789) Treasury stock, at cost - | (243) - --------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) 834,858 | (246,926) - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 1,834,580 | $ 3,127,899 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements 53 Genesis Health Ventures, Inc. and Subsidiaries Consolidated Statements of Operations
Predecessor Company Year ended September 30, - ------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands, except share and per share data) Net revenues: Inpatient services $ 1,360,230 $ 1,320,151 $ 704,105 Pharmacy and medical supply services 1,040,051 952,350 927,334 Other revenue 169,656 161,357 234,987 - ------------------------------------------------------------------------------------------------------------------------------ Total net revenues 2,569,937 2,433,858 1,866,426 - ------------------------------------------------------------------------------------------------------------------------------ Operating expenses: Salaries, wages and benefits 1,110,675 1,088,443 713,204 Cost of sales 611,517 534,960 502,169 Other operating expenses 714,610 948,735 565,174 Loss on sale of assets 2,310 7,922 - Gain on sale of assets (1,770) - - Multicare joint venture restructuring - 420,000 - Depreciation and amortization 107,283 116,961 74,955 Lease expense 35,622 38,124 26,653 Interest expense, net (contractual interest for the years ended September 30, 2001 and 2000 was $214,735 and $231,499, respectively) 119,317 203,570 119,220 - ------------------------------------------------------------------------------------------------------------------------------ Loss before debt restructuring and reorganization costs, income tax benefit, equity in net loss of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change (129,627) (924,857) (134,949) Debt restructuring and reorganization costs 1,115,785 62,795 - - ------------------------------------------------------------------------------------------------------------------------------ Loss before income tax benefit, equity in net loss of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change (1,245,412) (987,652) (134,949) Income tax benefit - 27,168 44,711 - ------------------------------------------------------------------------------------------------------------------------------ Loss before equity in net loss of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change (1,245,412) (960,484) (90,238) Equity in net loss of unconsolidated affiliates (10,232) (2,407) (178,235) Minority interest 23,453 132,444 - - ------------------------------------------------------------------------------------------------------------------------------ Loss before extraordinary items and cumulative effect of accounting change (1,232,191) (830,447) (268,473) Extraordinary items, net of tax 1,524,823 - (2,100) Cumulative effect of accounting change, net of tax - (10,412) - - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) 292,632 (840,859) (270,573) Preferred stock dividends 45,623 42,596 19,477 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) attributed to common shareholders $ 247,009 $ (883,455) $ (290,050) - ------------------------------------------------------------------------------------------------------------------------------ Per common share data: Basic and diluted Loss before extraordinary items and cumulative effect of accounting change $ (26.27) $ (18.55) $ (8.11) Net income (loss) $ 5.08 $ (18.77) $ (8.17) Weighted average shares of common stock 48,641,456 47,076,746 35,485,306 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements 54 Genesis Health Ventures, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity (Deficit)
Series G Cumulative Convertible Additional Retained (in thousands) Preferred Common paid-in earnings Stock stock capital (deficit) - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 (Predecessor Company) $ 6 $ 704 $ 749,491 $ 124,430 - --------------------------------------------------------------------------------------------------------------------------- Exercise of common stock options - 1 28 - Issuance of common stock to 401(k) plan - 18 3,982 - Partnership distribution - - (49) - Comprehensive loss Net unrealized loss on marketable securities - - - - Net loss - - - (270,573) Series G Cumulative Convertible Preferred Stock dividends - - - (19,477) Total comprehensive loss - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 (Predecessor Company) $ 6 $ 723 $ 753,452 $ (165,620) - --------------------------------------------------------------------------------------------------------------------------- Issuance of common stock - 250 49,750 - Comprehensive loss Net unrealized loss on marketable securities - - - - Net loss - - - (840,859) Series G Cumulative Convertible Preferred Stock dividends - - - (19,776) Series H Senior Convertible Participating Cumulative Preferred Stock dividends - - - (13,258) Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock dividends - - - (9,562) Total comprehensive loss - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 (Predecessor Company) $ 6 $ 973 $ 803,202 $(1,049,075) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income Net unrealized gain on marketable securities - - - - Net income - - - 292,632 Series G Cumulative Convertible Preferred Stock dividends - - - (19,721) Series H Senior Convertible Participating Cumulative Preferred Stock dividends - - - (15,029) Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock dividends - - - (10,873) Total comprehensive income - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 (Predecessor Company) $ 6 $ 973 $ 803,202 $ (802,066) =========================================================================================================================== Fresh start adjustments (6) (973) (803,202) 803,202 Issuance of common stock - 820 832,710 - - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 (Successor Company) $ - $ 820 $ 832,710 $ 1,136 - ---------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
Acumulated other Total comprehensive shareholders' (in thousands) income Treasury equity (loss) stock (deficit) - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 (Predecessor Company) $ 684 $ (243) $ 875,072 - ---------------------------------------------------------------------------------------------------------------------- Exercise of common stock options - - 29 Issuance of common stock to 401(k) plan - - 4,000 Partnership distribution - - (49) Comprehensive loss Net unrealized loss on marketable securities (1,112) - (1,112) Net loss - - (270,573) Series G Cumulative Convertible Preferred Stock dividends - - (19,477) ----------- Total comprehensive loss (291,162) - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 (Predecessor Company) $ (428) $ (243) $ 587,890 - ---------------------------------------------------------------------------------------------------------------------- Issuance of common stock - - 50,000 Comprehensive loss Net unrealized loss on marketable securities (1,361) - (1,361) Net loss - - (840,859) Series G Cumulative Convertible Preferred Stock dividends - - (19,776) Series H Senior Convertible Participating Cumulative Preferred Stock dividends - - (13,258) Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock dividends - - (9,562) ----------- Total comprehensive loss (884,816) - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 (Predecessor Company) $ (1,789) $ (243) $ (246,926) - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income Net unrealized gain on marketable securities 1,981 - 1,981 Net income - - 292,632 Series G Cumulative Convertible Preferred Stock dividends - - (19,721) Series H Senior Convertible Participating Cumulative Preferred Stock dividends - - (15,029) Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock dividends - - (10,873) ----------- Total comprehensive income 248,990 - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 (Predecessor Company) $ 192 $ (243) $ 2,064 ====================================================================================================================== Fresh start adjustments - 243 (736) Issuance of common stock - - 833,530 - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 (Successor Company) $ 192 $ - $ 834,858 - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements 55 Genesis Health Ventures, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Predecessor Company Year ended September 30, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income (loss) $ 292,632 $ (840,859) $ (270,573) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Charges (credits) included in operations not requiring funds: Extraordinary items, net of tax (1,524,823) - 2,100 Debt restructuring and reorganization costs 1,115,785 62,795 - Loss on impairment of assets and other charges 110,249 372,189 164,527 Multicare joint venture restructuring charge - 420,000 - Depreciation and amortization 107,283 116,961 74,955 Provision for losses on accounts receivable 49,901 45,226 54,061 Equity in net (income) loss of unconsolidated affiliates and minority interest (13,221) (124,870) 178,235 Amortization of deferred gains and premiums (6,845) (5,962) (5,986) Loss on sale of assets, net of gains 540 7,922 - Provision for deferred taxes - (27,831) (45,214) Cumulative effect of accounting change, net of tax - 10,412 - Non-cash common stock contribution to 401(k) plan - - 4,000 Changes in assets and liabilities excluding the effects of acquisitions: Accounts receivable (40,745) (75,390) (101,623) Cost reports receivable - - (3,633) Inventory (236) (2,331) (131) Prepaid expenses and other current assets (12,094) (13,129) (9,296) Accounts payable and accrued expenses (26,684) (32,313) 2,135 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjustments (240,890) 753,679 314,130 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operations before debt restructuring and reorganization costs 51,742 (87,180) 43,557 - ------------------------------------------------------------------------------------------------------------------------------------ Cash paid for debt restructuring and reorganization costs (44,405) (16,114) - - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities 7,337 (103,294) 43,557 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchase of restricted marketable securities (55,057) (39,614) (11,171) Proceeds on maturity or sale of restricted marketable securities 33,311 34,954 12,119 Capital expenditures (43,721) (51,981) (77,943) Payments for acquisitions, net of cash acquired - (588) (16,634) Investments in unconsolidated affiliates - - (16,051) Proceeds from assets sold, net 7,010 33,000 - Reductions in notes receivable and other investments 1,032 - 916 Additions to notes receivable and other investments - (3,083) (3,424) Other long term asset additions (1,324) (6,200) (22,782) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (58,749) (33,512) (134,970) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net borrowings under prepetition working capital revolving credit facilities 1,006 49,868 126,000 Net borrowings under Genesis DIP Facility 63,000 133,000 - Repayment of Genesis DIP Facility (196,000) - - Repayment of long term debt and payment of sinking fund requirments (77,990) (90,295) (149,888) Proceeds from issuance of long-term debt 285,000 10,000 136,756 Debt issuance costs (14,413) (9,183) (7,953) Issuance of common stock - 50,000 - Partnership distribution - - (49) Preferred stock dividends paid - - (5,987) Stock options exercised - - 29 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 60,603 143,390 98,908 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and equivalents 9,191 6,584 7,495 Cash and equivalents: Beginning of year (1) 22,948 16,364 4,902 - ------------------------------------------------------------------------------------------------------------------------------------ End of year $ 32,139 $ 22,948 $ 12,397 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Interest paid $118,057 $179,215 $117,864 Income taxes paid - 587 1,081 Non-cash financing activity - issuance of Genesis Series H Senior Convertible Participating Cumulative Preferred Stock and Genesis Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock $ - $420,000 $ - - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements (1) The beginning cash balance was adjusted to include the October 1, 1999 opening cash balance of Multicare following the Company's change in accounting for Multicare from the equity method of accounting to the consolidation method of accounting. 56 Genesis Health Ventures, Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) Reorganization On June 22, 2000, (the "Petition Date") Genesis Health Ventures, Inc. and certain of its direct and indirect subsidiaries ("Genesis" or the "Company") filed for voluntary relief under Chapter 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On the same date, The Multicare Companies, Inc. and certain of its direct and indirect susidiaries ("Multicare") and certain of its affiliates also filed for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court (singularly and collectively referred to herein as "the Chapter 11 cases" or "the bankruptcy cases" unless the context otherwise requires). Genesis and Multicare's financial difficulties were attributed to a number of factors. First, the federal government made fundamental changes to the reimbursement for medical services provided to individuals. The changes had a significant adverse impact on the healthcare industry as a whole and on the Company's cash flows. Second, the federal reimbursement changes have exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various state Medicaid programs. Third, numerous other factors adversely affected the Company's cash flows, including increased labor costs, increased professional liability and other insurance costs, and increased interest rates. Finally, as a result of declining governmental reimbursement rates and in the face of rising inflationary costs, the Companies were too highly leveraged to service their debt, including their long-term lease obligations. On July 13, 2001, the Bankruptcy Court approved the Disclosure Statement for Genesis and Multicare's (the "Debtors'") Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, (the "Disclosure Statement"), and authorized the Debtors to solicit votes with regard to the approval or rejection of the Debtors' Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated July 6, 2001. On October 2, 2001, (the "Effective Date"), Genesis and Multicare consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to a September 20, 2001 order entered by the Bankruptcy Court approving the Plan proposed by Genesis Health Ventures, Inc., et al., and The Multicare Companies, Inc., et al. The principal provisions of the Plan are as follows: o Multicare became a wholly-owned subsidiary of Genesis. Genesis previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis Eldercare(R) brand name; o New senior notes, new convertible preferred stock, new common stock and new warrants were issued to the Companies' creditors. Approximately 93% of the successor company's common stock (the "new common stock"), $242,600,000 in senior notes and preferred stock with a liquidation preference of $42,600,000 were issued to the Genesis and Multicare senior secured creditors. Approximately 7% of the new common stock is to be issued to the Genesis and Multicare unsecured creditors as well as one year warrants to purchase an additional 11% of the new common stock; o Holders of Genesis and Multicare pre-chapter 11 preferred and common stock received no distribution and those instruments were canceled; o Claims between Genesis and Multicare were set-off against one another and any remaining claims were waived and released; and o The board of directors of the Successor Company consists of: Michael R. Walker, the Chief Executive Officer and Chairman of the Company; James H. Bloem of Humana Inc.; Edwin M. Crawford of Caremark Rx; James E. Dalton, Jr.; James D. Dondero of HCMLP; Robert H. Fish of Sonoma-Seacrest, LLC; Dr. Philip P. Gerbino of the University of the Sciences in Philadelphia; and Joseph A. LaNasa III of Goldman Sachs & Co. 57 On the Effective Date, and in connection with the consummation of the Plan, the Successor Company (defined in "Footnote 2 Fresh-Start Reporting") entered into a Senior Credit Facility consisting of the following: (1) a $150,000,000 revolving line of credit (the "Revolving Credit Facility"); (2) a $285,000,000 term loan (the "Term Loan") and (3) an $80,000,000 delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The proceeds from the Term Loan were utilized to repay $196,000,000 of the then outstanding amounts under the Genesis DIP Facility (later defined), and $50,000,000 of the then outstanding synthetic lease facility, with the remaining $39,000,000 provided to fund debt restructuring and reorganization related costs in accordance with the Plan. On the Effective Date, and in connection with the consummation of the Plan, the Successor Company also entered an indenture agreement in the principal amount of $242,605,000 (the "Senior Secured Notes"). As a result of the consummation of the Plan, the Company recognized an extraordinary gain on debt discharge as follows (in thousands): Liabilities subject to compromise: Revolving credit and term loans $ 1,484,904 Senior subordinated notes 617,510 Other indebtedness 120,961 - -------------------------------------------------------------------------------- Long-term debt subject to compromise 2,223,375 - -------------------------------------------------------------------------------- Accounts payable and accrued liabilities 64,621 Accrued interest (including a $28,331 swap termination fee) 87,716 Accrued preferred stock dividends on Series G Preferred Stock 49,673 - -------------------------------------------------------------------------------- Subtotal - liabilities subject to compromise 2,425,385 - -------------------------------------------------------------------------------- Redeemable preferred stock - Series H and Series I 468,722 - -------------------------------------------------------------------------------- Total liabilities subject to compromise 2,894,107 - -------------------------------------------------------------------------------- Less: Cash payments 25,000 Value of secured, priority and other claims assumed 143,319 Value of new Senior Secured Notes 242,605 Value of Term Loan used to repay synthetic lease facility 50,000 Carrying value of deferred financing fees of discharged debts 32,230 Value of Successor Company's common stock 833,530 Value of Successor Company's redeemable preferred stock 42,600 - -------------------------------------------------------------------------------- Extraordinary gain on debt discharge $ 1,524,823 - -------------------------------------------------------------------------------- 58 In accordance with SOP 90-7 (as defined below), the Company has recorded all transactions incurred as a result of the Bankruptcy filing separately as debt restructuring and reorganization costs. A summary of the principal categories of debt restructuring and reorganization costs follows (in thousands): 2001 2000 - -------------------------------------------------------------------------------- Debt restructuring and reorganization costs: Professional, bank and other fees $ 59,393 $29,935 Employee benefit related costs, including severance 16,786 4,529 Costs of exited businesses 5,877 - Interest rate swap termination charge - 28,331 Fresh start valuation adjustments 1,033,729 - - -------------------------------------------------------------------------------- $1,115,785 $62,795 - -------------------------------------------------------------------------------- (2) Fresh Start Reporting Upon emergence from its Chapter 11 proceedings, the Company adopted the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") / ("fresh-start reporting"). In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes. For financial reporting purposes, the Company adopted the provisions of fresh-start reporting effective September 30, 2001. Consequently, the consolidated balance sheet and related information at September 30, 2001 is labeled "Successor Company"; and reflects the Company's Plan and the principles of fresh-start reporting. Periods presented prior to September 30, 2001 have been designated "Predecessor Company." In adopting the requirements of fresh-start reporting as of September 30, 2001, the Company was required to value its assets and liabilities at fair value and eliminate its accumulated deficit at September 30, 2001. A $1,525,000,000 reorganization value, before consideration of post filing current and long term liabilities or minority interests was determined by the Company with the assistance of financial advisors in reliance upon various valuation methods, including discounted projected cash flow analysis, price / earnings ratios, and other applicable ratios and economic industry information relevant to the operations of the Company, and through negotiations with the various creditor parties in interest. The following reconciliation of the Predecessor Company's consolidated balance sheet as of September 30, 2001 to that of the Successor Company was prepared to present the adjustments that give effect to the reorganization and fresh-start reporting. The adjustments entitled "Reorganization" reflect the consummation of the Plan, including the elimination of existing liabilities subject to compromise, and consolidated shareholders' deficit; and to reflect the aforementioned $1,525,000,000 reorganization value, which includes the establishment of $320,953,000 of reorganization value in excess of amounts allocable to net identifiable assets (goodwill). The adjustments entitled "Fresh-Start Adjustments" reflect the adoption of fresh-start reporting, including the elimination of minority interest with Multicare and the adjustments to record property, plant and equipment, other long-term assets, and identifiable intangible assets, at their fair values. Management estimated the fair value of its assets and liabilities by utilizing both independent appraisals and commonly used discounted cash flow valuation methods. Several of the Company's subsidiaries and consolidated joint ventures did not file for Chapter 11 protection. The non-filing subsidiaries are not subject to the fresh start reporting provisions under SOP 90-7 and, consequently, their balance sheets are reflected in the consolidated balance sheet at historical carrying value. 59
Predecessor Fresh-Start Successor (in thousands) Company Reorganization Adjustments Reclassification Company - ----------------------------------------------------------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 30,552 $ 1,587 $ - $ - $ 32,139 Restricted investments in marketable securities 51,625 - - - 51,625 Accounts receivable, net 399,816 - - - 399,816 Inventory 65,222 - - - 65,222 Prepaid expenses and other current assets 35,753 - - - 35,753 - ----------------------------------------------------------------------------------------------------------------------------------- Total current assets 582,968 1,587 - - 584,555 Property, plant and equipment 1,382,455 - (548,730) - 833,725 Accumulated depreciation (306,797) - 295,812 - (10,985) - ----------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 1,075,658 - (252,918) - 822,740 Notes receivable and other investments 18,001 - (3,462) - 14,539 Other long-term assets 93,973 (25,452) (22,823) - 45,698 Investments in unconsolidated affiliates 12,504 - - - 12,504 Identifiable intangible assets - - 33,591 - 33,591 Goodwill and other intangibles, net 1,191,438 - (870,485) - 320,953 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 2,974,542 $ (23,865) $(1,116,097) $ - $1,834,580 =================================================================================================================================== Liabilities and Shareholders' Equity (Deficit) Current installments of long-term debt $ 196,000 $ (196,000) $ - $ 41,241 $ 41,241 Accounts payable 46,429 - - - 46,429 Accrued expenses 67,904 (5,635) 2,423 - 64,692 Accrued compensation 117,840 - - - 117,840 Accrued interest 1,599 14,239 - - 15,838 - ----------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 429,772 (187,396) 2,423 41,241 286,040 Liabilities subject to compromise 2,425,385 (2,425,385) - - - Long-term debt 14,104 626,921 3,484 (41,241) 603,268 Deferred income taxes 53,157 - (53,157) - - Deferred gain and other long-term liabilities 41,495 30,500 (6,318) - 65,677 Minority interest 30,937 - (28,800) - 2,137 Redeemable preferred stock subject to compromise (Predecessor Company) 468,722 (426,122) - - 42,600 Shareholders' equity (deficit) Series G Preferred Stock 6 (6) - - - Common stock 973 (153) - - 820 Additional paid-in capital 803,202 832,710 - (803,202) 832,710 Retained earnings (accumulated deficit) (1,293,160) 1,524,823 (1,033,729) 803,202 1,136 Accumulated comprehensive loss 192 - - - 192 Treasury stock, at cost (243) 243 - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) (489,030) 2,357,617 (1,033,729) - 834,858 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 2,974,542 $ (23,865) $(1,116,097) $ - $1,834,580 ===================================================================================================================================
60 (3) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Predecessor of Genesis as of September 30, 2000 and for the three years ended September 30, 2001, and the Successor Company at September 30, 2001. All significant intercompany accounts and transactions have been eliminated in consolidation. In accordance with the Plan, Multicare became a wholly-owned subsidiary of Genesis on the Effective Date. Under fresh-start reporting, the Company consolidated its 100% interest in Multicare as of September 30, 2001. Genesis previously owned 43.6% of Multicare. Following a restructuring transaction effective on October 1, 1999 Genesis gained managerial, operational and financial control of Multicare, and consequently consolidated the results of Multicare. Accordingly, Multicare's assets, liabilities, revenues and expenses as of and for the year ended September 30, 2000 are consolidated at their recorded historical amounts and the financial impact of transactions between Genesis and Multicare are eliminated in consolidation. The non-Genesis shareholders' remaining 56.4% interest in Multicare is carried as minority interest based on their proportionate share of Multicare's historical book equity. Prior to October 1, 1999, Genesis accounted for its 43.6% owned investment in Multicare using the equity method of accounting. Other than Multicare, investments in unconsolidated affiliated companies, owned 20% to 50% inclusive, are stated at cost of acquisition plus the Company's equity in undistributed net income (loss) since acquisition. The change in the equity in net income (loss) of these companies is reflected as a component of net income or loss on the Consolidated Statements of Operations. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles. In the opinion of management, the consolidated financial statements for the periods presented include all necessary adjustments (consisting of normal recurring accruals and all adjustments pursuant to SOP 90-7) for a fair presentation of the financial position and results of operations for the periods presented. Prior to the Effective Date, SOP 90-7 required a segregation of liabilities subject to compromise by the Bankruptcy Court as of June 22, 2000 and identification of all transactions and events that are directly associated with the reorganization of the Company. Pursuant to SOP 90-7, prepetition liabilities were reported on the basis of the expected amounts of such allowed claims, as opposed to the amounts for which those claims may be settled. Certain prior year balances have been reclassified to conform with the current year presentation. Factors Affecting Comparability of Financial Information The amounts recorded in the consolidated balance sheet of the Predecessor Company were materially changed with the implementation of fresh-start reporting. Consequently, the consolidated balance sheet of the Successor Company is generally not comparable to that of the Predecessor Company, principally due to the adjustment of property, plant and equipment and goodwill to estimated fair value, the discharge of liabilities subject to compromise and the recapitalization of the Company. In addition, the Company recorded an extraordinary gain of $1,524,823,000 from the restructuring of its debt in accordance with the provisions of the Plan. Fresh-start valuation adjustments of $1,033,729,000 were made to reduce the net assets and liabilities of the Successor Company to estimated fair value as of September 30, 2001. 61 Business Genesis provides a broad range of healthcare services to the geriatric population, principally within five geographic markets in the eastern United States. The Company's operations are comprised of two primary business segments: inpatient services, and pharmacy and medical supply services. Inpatient services are provided through a network of skilled nursing and assisted living centers. Pharmacy and medical supply services are provided through long-term care pharmacies serving approximately 253,000 institutional beds; medical supply and home medical equipment distribution; community-based pharmacies and infusion therapy services. These segments are complemented by an array of other service capabilities through the Genesis ElderCare(R) delivery model of integrated healthcare networks. Revenue Recognition Within the Company's eldercare centers, revenue is recognized in the period the related services are rendered. Revenues are recorded based on standard charges applicable to all customers. The Company derives a substantial portion of its revenue under Medicaid and Medicare reimbursement systems. Under certain prospective Medicaid systems and Medicare the Company is reimbursed at a predetermined rate based upon the historical cost to provide the service, demographics of the site of service and the acuity of the customer. The differences between the established billing rates and the predetermined rates are recorded as contractual adjustments and deducted from revenues. Under a prospective reimbursement system, there is no adjustment or settlement of the difference between the actual cost to provide the service and the predetermined rate. Under certain retrospective Medicaid systems and other cost-based reimbursement programs, the Company is reimbursed for services rendered to covered customers as determined by reimbursement formulas. The differences between established billing rates and the amounts reimbursable by the programs and customer payments are recorded as contractual adjustments and deducted from revenues. Retroactively calculated third-party contractual adjustments are accrued on an estimated basis in the period the related services are rendered. Revisions to estimated contractual adjustments are recorded based upon audits by third-party payors, as well as other communications with third-party payors such as desk reviews, regulation changes and policy statements. Adjustments and final settlements with third-party payors are reflected in operations at the time of the adjustment or settlement as an increase or decrease to the balance of cost report receivables/payables and revenue. Within the Company's ancillary service businesses, the Company records revenues at the time services or supplies are provided. Revenue is reported at the estimated net realizable amounts expected to be received from individuals, third party payors or others for services and supplies provided. Cash Equivalents Short-term investments which have a maturity of ninety days or less at acquisition are considered cash equivalents. Restricted Investments in Marketable Securities Marketable securities, which are comprised of fixed interest securities, equity securities, money market funds and liquid reserve funds are considered to be available for sale and accordingly are reported at fair value with unrealized gains and losses, net of related tax effects, included within accumulated other comprehensive income or loss as a separate component of shareholders' equity (deficit). Fair values for fixed interest securities are based on quoted market prices. A decline in the market value of any security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. 62 Premiums and discounts on fixed interest securities are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method. Realized gains and losses for securities classified as available for sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Marketable securities are held by the Company's wholly-owned captive insurance subsidiary, Liberty Health Corp., LTD ("LHC") and are substantially restricted to securing the outstanding claims losses of LHC. LHC was not a party to the Chapter 11 cases. Inventories Inventories, consisting of drugs and supplies, are stated at the lower of cost or market. Cost is determined primarily on the first-in, first-out ("FIFO") method. Property, Plant and Equipment Land, land and building improvements, buildings, and equipment of the Predecessor Company are stated at cost. Depreciation is calculated on the straight-line method over estimated useful lives of 20-35 years for land and building improvements and buildings, and 3-15 years for equipment, furniture and fixtures and information systems. Expenditures for maintenance and repairs necessary to maintain property and equipment in efficient operating condition are charged to operations. Costs of additions and betterments are capitalized. Interest costs associated with construction or renovation are capitalized in the period in which they are incurred. As of the Effective Date, the Successor Company adjusted its property, plant and equipment to estimated fair value and changed the depreciable lives of certain assets in conjunction with the implementation of fresh-start reporting. The Successor Company maintains the same policies concerning transactions affecting property, plant and equipment as noted above. The Company records impairment losses on long-lived assets including property, plant and equipment used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Deferred Financing Costs Financing costs are deferred and are amortized on a straight-line basis, which approximates the effective interest method, over the term of the related debt. Deferred financing costs, net of accumulated amortization of $422,000 and $23,496,000 were $10,147,000 and $38,462,000 at September 30, 2001 and 2000, respectively, and are included in other long-term assets. As of the Effective Date, approximately $32,200,000 of net deferred financing fees associated with debts that were discharged as a result of the Reorganization were eliminated as a fresh-start adjustment. Approximately, $8,778,000 of financing fees associated with new indebtedness of the Successor Company were deferred at September 30, 2001. Goodwill Goodwill of the Predecessor Company principally consisted of the excess of the purchase price over the fair market value of net assets acquired and was amortized on a straight-line basis from 10 to 40 years. In accordance with fresh-start reporting, the Predecessor Company's remaining goodwill was eliminated as of the Effective Date. 63 New goodwill representing excess reorganization value of $320,953,000 was established in connection with fresh-start reporting. New goodwill is the difference between the Successor Company's reorganization value over the fair value of its net tangible and identifiable intangible assets. Under SFAS 142, adopted by the Company in fresh-start reporting, the Company will not amortize new goodwill, rather its recoverability will be evaluated on at least an annual basis. Accounting Pronouncements Recently Adopted As of the Effective Date, and in accordance with the early adoption provisions of SOP 90-7, the Company adopted the provisions of Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No. 141"), Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations" ("SFAS No. 143") and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). The principal provisions of SFAS No. 141 require that all business combinations be accounted for by the purchase method of accounting and identifiable intangible assets are to be recognized apart from goodwill. The principal provisions of SFAS No. 142 require that goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but rather tested annually for impairment. Under SFAS No. 142, intangible assets that have finite useful lives will continue to be amortized over their useful lives. SFAS No. 142 requires companies to test intangible assets that will not be amortized for impairment at least annually by comparing the fair value of those assets to their recorded amounts. The principal provisions of SFAS No. 143 address financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. SFAS No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and or normal use of the assets. The enterprise also is to record a corresponding increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the life of the asset. The liability is changed at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. Because of the extensive use of estimates, most enterprises will record a gain or loss when they settle the obligation. The adoption of SFAS No. 143 had no impact on the consolidated financial statements of the Company. The principal provisions of SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes Statement of Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"), it retains many of the fundamental provisions of that statement. 64 Identifiable Intangible Assets In adopting the requirements of fresh-start reporting and SFAS No. 141, the Successor Company recognized certain identifiable intangible assets, which are stated at their estimated fair value and, in accordance with FAS 142, are being amortized on the straight-line basis over the following estimated useful lives (in thousands): Classification Fair Value Estimated Life (Years) - -------------------------------------------------------------------------------- Customer contracts $26,391 2 - 6 Trademarks and tradenames 5,000 5 Non competition agreements 2,200 1 - 4 - -------------------------------------------------------------------------------- Total $33,591 - -------------------------------------------------------------------------------- Under the provisions of SFAS No. 142, the Successor Company will test identifiable intangible assets for impairment at least annually by comparing the fair value of those assets to their recorded amounts. Loss Reserves For Certain Self-insured Programs Certain of the Company's workers' compensation, and general and professional liability insurance is insured by the Company's wholly-owned insurance company, Liberty Health Corp., LTD ("LHC"). Outstanding losses and loss expenses comprise estimates of the amount of reported losses and loss expenses received from the loss administrator together with a provision for losses incurred but not reported, based on the recommendations of an independent actuary using the past loss experience of the Company and the industry. Outstanding losses and loss expenses are discounted at a rate of 4.5% in 2001 and 2000, which estimates the present value of funds required to pay losses at a future date. Had the Company provided losses at undiscounted levels at September 30, 2001 and 2000, the reserve for outstanding losses and loss expenses would have been increased by approximately $6,000,000 in 2001 and $3,235,000 in 2000. Management believes, based on the recommendations of an independent actuary, that the provision for outstanding losses and loss expenses will be adequate to cover the ultimate net cost of losses incurred to the balance sheet date but the provision is necessarily an estimate and may ultimately be settled for a significantly greater or lesser amount. It is at least reasonably possible that management will revise this estimate significantly in the near term. Any subsequent differences arising are recorded in the period in which they are determined. At September 30, 2001 and 2000, LHC has approximately $44,600,000 and $24,700,000, respectively, of loss reserves, which are included in accrued compensation reported on the consolidated balance sheets. Income Taxes Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Provision is made for deferred income taxes applicable to temporary differences between financial statement and taxable income. 65 Unfavorable Leases As of the Effective Date, the Successor Company revalued its leases in conjunction with the implementation of fresh-start reporting. At September 30, 2001, an unfavorable lease credit of $33,788,000 was established and is included in deferred gain and other long-term liabilities in the consolidated balance sheet of the Successor Company. Amortization of unfavorable leases is computed using the straight-line method over the individual lease life. Earnings or Loss Per Share Basic earnings or loss per share is calculated by dividing net income or loss available / attributed to common shareholders by the weighted average of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted average of common shares outstanding adjusted to include the potentially dilutive effect of outstanding stock options. Any incremental shares resulting from outstanding stock options would be anti-dilutive in the 2000 and 1999 calculations of diluted loss per share. Due to the Company's fractional share price during fiscal 2001, there were no stock options outstanding during fiscal 2001 at an exercise price low enough to result in a dilutive impact to the Company's earnings per share calculation. Pursuant to SOP 90-7, common stock was adjusted to reflect the capitalization of the Successor Company in accordance with the Plan. Use of Estimates Management of the Company has made a number of estimates relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates. See "Footnote 4 - - Certain Significant Risks and Uncertainties." Cumulative Effect of Accounting Change Effective October 1, 1999, the Company adopted the provisions of the American Institute of Certified Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). The statement requires costs of start-up activities, including organizational costs, to be expensed as incurred. Start-up activities are defined as those one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new process in an existing facility, or commencing a new operation. The cumulative effect of expensing all unamortized start-up costs at October 1, 1999 was approximately $16,400,000 pre tax and $10,412,000 after tax. (4) Certain Significant Risks and Uncertainties The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third party payors and long-term care facilities which utilize our pharmacy and other specialty medical services. The healthcare industry is experiencing the effects of the federal and state governments' trend toward cost containment, as government and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, have resulted in reduced rates of reimbursement for services provided by the Company. 66 In recent years, several significant actions have been taken with respect to Medicare and Medicaid reimbursement, including the following: o The adoption of the Medicare Prospective Payment System pursuant to the Balanced Budget Act of 1997, as modified by the Medicare Balanced Budget Refinement Act ("BBRA") and the Benefit Improvement Protection Act of 2000 ("BIPA"); and o The repeal of the "Boren Amendment" federal payment standard for Medicaid payments to nursing facilities. o A number of the provisions of the BBRA and BIPA enactments providing additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002. Expiring provisions are estimated to, on average, reduce per beneficiary per diems by $30. Moreover, the Centers for Medicare and Medicaid Services has indicated its desire to complete refinements to the case mix classification system (RUG refinements) as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. Combined, the Medicare skilled nursing facility sector face an 18% reduction in the average median per diems. If Genesis were to experience an 18% decline in its current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67,000,000 would have a material adverse effect on the Company's financial position, results of operations and cash flows. Trade organizations representing the skilled nursing facility sector are aggressively pursuing strategies to minimize the potentially adverse impact of the "Medicare Rate Cliff." o The 1997 Act included several provisions affecting Medicaid. The 1997 Act repealed the "Boren Amendment" federal payment standard for Medicaid payments to nursing facilities effective October 1, 1997. The Boren Amendment required that Medicaid payments to certain health care providers be reasonable and adequate in order to cover the costs of efficiently and economically operated healthcare facilities. Under the 1997 Act, states must now use a public notice and comment period in order to determine rates and provide interested parties a reasonable opportunity to comment on proposed rates and the justification for and the methodology used in calculating such rates. With the repeal of the Federal payment standards, there can be no assurances that budget constraints or other factors will not cause states to reduce Medicaid reimbursement to nursing facilities and pharmacies or that payments to nursing facilities and pharmacies will be made on timely basis. The 1997 Act also grants greater flexibility to states to establish Medicaid managed care projects without the need to obtain a federal waiver. Although these projects generally exempt institutional care, including nursing facilities and institutional pharmacy services, no assurances can be given that these projects ultimately will not change the reimbursement methodology for nursing facility services or pharmacy services from fee-for-service to managed care negotiated or capitated rates. The Company anticipates that federal and state governments will continue to review and assess alternative health care delivery systems and payment methodologies. o The BIPA enactment mandates a phase out of intergovernmental transfer (IGT) transactions by states whereby states artificially inflate the payments to certain public facilities to increase Federal matching funds. This action may reduce Federal support for a number of state Medicaid plans. The reduced Federal payments may impact aggregate available funds requiring states to further contain payments to providers. Genesis operates in several of the states that will experience a contraction of Federal matching funds. 67 It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on the Company's business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect the Company's business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company's financial condition and results of operations may be affected by the reimbursement process, which in the Company's industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. (5) Significant Transactions and Events Merger of Genesis /Multicare and the Reorganization In accordance with the Plan, Multicare became a wholly-owned subsidiary of Genesis on the Effective Date. Under fresh-start reporting, the Company consolidated its 100% interest in Multicare as of September 30, 2001. Genesis previously owned 43.6% of Multicare. The consummation of the Company's Plan constitutes a change in the controlling interests of the Company. The provisions of the Plan will have a material effect on the operating results of the Successor Company in future periods. The following unaudited pro forma statement of operations information gives effect to the Plan as if it were consummated on October 1, 2000. The unaudited pro forma financial information has been prepared to reflect the consolidation of the financial results of Multicare, with no minority interest. The pro forma financial information includes consideration for the Company's new capital structure, the elimination of restructuring related charges, and changes in depreciation and amortization expense following the revaluation of assets and liabilities to fair value. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the transaction actually occurred at the beginning of the period presented. (Unaudited, in thousands, except per share amounts) 2001 - ------------------------------------------------------------------------------ Pro Forma Statement of Operations Information: - ------------------------------------------------------------------------------ Total net revenues $2,569,937 Loss before extraordinary item (29,354) Loss attributable to common shareholders (29,354) Diluted loss per common share before extraordinary item (0.72) Diluted loss per common share (0.72) - ------------------------------------------------------------------------------ Proposed APS Transaction On September 24, 2001, a wholly-owned subsidiary of Genesis entered into an asset purchase agreement to buy substantially all of the assets of American Pharmaceutical Services, Inc. ("APS"), and certain other corporate entities, all of which are subsidiaries of either Mariner Health Group ("MHG") or Mariner Post Acute Network ("MPAN") (such selling entities, collectively with MHG and MPAN, are referred to as the "Sellers"), for approximately $42,000,000 plus up to $18,000,000 in deferred payments contingent on performance (the "Genesis Original Offer"). 68 The sale was subject to a U.S. Bankruptcy Court approved competitive bidding process and final court approval of the prevailing bid in the MPAN and MHG chapter 11 cases. On December 5, 2001, pursuant to the bidding process, and following an auction held on December 4, 2001, the Mariner Bankruptcy Court approved another bidder to purchase APS. The Company will be eligible to collect a "break-up fee" of $1,700,000 contingent upon the Company leaving the Genesis Original Offer open for 60 days. If Mariner closes on the sale of APS to the prevailing bidder within the 60 day period, Mariner is required to pay the break-up fee to the Company. If Mariner does not close on the sale of APS to the prevailing bidder within said 60 day period, Mariner may, at its option, seek to close on the sale of APS to the Company upon the terms of the Genesis Original Offer or pay the break-up fee to the Company. Sale of Ohio Operations Effective May 31, 2000, Multicare sold all of its long-term care operations located in the state of Ohio, which included 14 eldercare centers with 1,128 beds. The properties were sold for $33,000,000 in cash, resulting in a loss on sale of $7,922,000. The net proceeds of the sale were applied against Multicare's term loans and revolving credit facility. Other Dispositions, Closures and Lease Terminations Both in the normal course of business and in connection with the Reorganization, the Company has and will continue to evaluate the performance of its operating units. Consequently, certain under performing or non strategic assets are routinely closed, sold or related leases are rejected or terminated. Such dispositions, closures and lease terminations are not individually significant. ElderTrust Transactions On January 31, 2001, the Company reached an agreement to restructure its relationship with ElderTrust, a Maryland healthcare real estate investment trust. The agreements encompass, among other things, the resolution of leases and mortgages for 33 properties operated by Genesis and Multicare either directly or through joint ventures. Under its agreement, Genesis assumed the ElderTrust leases subject to certain modifications, including a reduction in Genesis' annual lease expense of $745,000; extended the maturity and reduced the principal balances of loans for three assisted living properties by $8,500,000 by satisfaction of an ElderTrust obligation of like amount; and acquired a building currently leased from ElderTrust, which is located on the campus of a Genesis skilled nursing facility, for $1,250,000. In its agreement with ElderTrust, Multicare sold three owned assisted living properties that are mortgaged to ElderTrust for principal amounts totaling $19,650,000 in exchange for the outstanding indebtedness. ElderTrust will lease the properties back to Genesis under a new ten-year lease with annual rents of $791,561. AGE Institute In the fourth fiscal quarter of 2000, the Company received notice from the AGE Holdings, Inc., a not-for-profit owner / sponsor of 20 eldercare centers with approximately 2,400 beds, that it wished to discontinue its management contracts and ancillary service contracts (the "AGE Contracts"). Effective October 31, 2000, the AGE Contracts were terminated. In fiscal 2000, the AGE Contracts generated approximately $19,000,000 in revenue and $2,000,000 in operating income. 69 On November 27, 2000, Genesis Health Ventures, Inc., along with several subsidiaries, filed an adversary proceeding in the Genesis bankruptcy cases against four related nursing home owners (AGE Institute of Pennsylvania, Inc.; AGE Institute of Massachusetts, Inc.; AGE Institute of Florida, Inc.; and Delaware Valley Convalescent Homes, Inc.); and their parent company AGE Holdings, Inc. (collectively, the "AGE Entities"). The complaint seeks to recover approximately $20,800,000 owed to Genesis through the AGE Contracts, by which Genesis provided services to 20 nursing homes owned by the defendants in Pennsylvania, Massachusetts and Florida. The complaint asserts counts against all defendants for breach of contract, civil conspiracy and unjust enrichment, and against AGE Institute of Pennsylvania, Inc. and AGE Institute of Massachusetts, Inc. for breach of certain trust indentures. In response, the AGE Entities filed counterclaims against the Genesis Debtors alleging violations of RICO, fraud, lender liability, breach of fiduciary duty, breach of management agreements, breach of professional standards / professional negligence, conversion, interference with business relations, and conspiracy. The counterclaims seek punitive, compensatory, and / exemplary damages, as well as claims to invalidate certain working capital and subordinated loan obligations of the AGE Entities to the Genesis Debtors. The counterclaims further seek administrative expense treatment of any amount found due to the AGE Entities for post-petition damages. While the Genesis Debtors believe that the counterclaims have no merit, in the event the AGE Entities were to prevail on their counterclaims, such counterclaims could exceed the claims of the Genesis Debtors against the AGE Entities. The AGE Entities have filed proofs of claim (in unliquidated amounts) in the Genesis Bankruptcy Cases in connection with their counterclaims. It is anticipated that the adversary proceeding will not be tried until the summer of 2002. Any recovery against the AGE Entities is uncertain. 70 (6) Restricted Investments in Marketable Securities Marketable securities are held by the Company's wholly-owned subsidiary, Liberty Health Corporation, LTD ("LHC"), incorporated under the laws of Bermuda. LHC provides various insurance coverages to the Company and to unrelated entities, most of which are managed by the Company. Marketable securities at September 30, 2001 of the Successor Company consist of the following (in thousands):
Amortized Unrealized Unrealized Fair cost gains losses value - -------------------------------------------------------------------------------------------------- U.S. mortgage backed securities $ 7,554 $ 616 $ - $ 8,170 Corporate bonds 6,600 189 - 6,789 Equity securities 1,580 - (509) 1,071 Term deposits 1,497 - - 1,497 Liquid reserve fund 26,805 - - 26,805 Money market funds 7,293 - - 7,293 - -------------------------------------------------------------------------------------------------- $ 51,329 $ 805 $(509) $ 51,625 - --------------------------------------------------------------------------------------------------
Marketable securities at September 30, 2000 of the Predecessor Company consisted of the following (in thousands):
Amortized Unrealized Unrealized Fair cost gains losses value - -------------------------------------------------------------------------------------------------- U.S. Treasury Notes $ 1,100 $ - $ (3) $ 1,097 U.S. mortgage backed securities 7,544 39 (15) 7,568 Corporate bonds 6,618 - (371) 6,247 Equity securities 1,580 - (1,439) 141 Term deposits 1,497 - - 1,497 Liquid Reserve Fund 4,078 - - 4,078 Money market funds 7,271 - - 7,271 - -------------------------------------------------------------------------------------------------- $ 29,688 $ 39 $(1,828) $ 27,899 - --------------------------------------------------------------------------------------------------
Fixed interest securities held at September 30, 2001 and 2000 mature as follows (in thousands):
Successor Company | Predecessor Company - ------------------------------------------------------------------------------------------------------ 2001 | 2000 - ------------------------------------------------------------------------------------------------------ Amortized Fair | Amortized Fair cost value | cost value - ------------------------------------------------------------------------------------------------------ Due in one year or less $ 2,101 $ 2,161 | $ 1,100 $ 1,097 Due after 1 year through 5 years 6,968 7,466 | 5,108 5,006 Due after 5 years through 10 years 5,085 5,332 | 9,054 8,809 - ------------------------------------------------------------------------------------------------------ $14,154 $14,959 | $15,262 $14,912 - ------------------------------------------------------------------------------------------------------
Actual maturities may differ from stated maturities because borrowers have the right to call or prepay certain obligations with or without prepayment penalties. 71 In the normal course of business, LHC's bankers have issued letters of credit totaling $39,667,000 in 2001 and $17,147,000 in 2000 in favor of insurers. Marketable securities with an amortized cost of $44,477,000 and a market value of $44,773,000 were pledged as security for these letters of credit as of September 30, 2001. (7) Property, Plant and Equipment Property, plant and equipment at September 30, 2001 and 2000 consist of the following (in thousands): Successor | Predecessor Company | Company - -------------------------------------------------------------------------------- 2001 | 2000 - -------------------------------------------------------------------------------- Land $ 86,072 | $ 104,741 Buildings and improvements 623,944 | 914,731 Equipment, furniture and fixtures 112,429 | 269,607 Construction in progress 11,280 | 68,588 - -------------------------------------------------------------------------------- 833,725 | 1,357,667 Less accumulated depreciation (10,985) | (250,321) - -------------------------------------------------------------------------------- Net property, plant and equipment $822,740 | $1,107,346 - -------------------------------------------------------------------------------- Due to an impairment to the carrying value of certain properties, the Company recorded a write-down of its property, plant and equipment of $34,578,000 during the twelve months ended September 30, 2000. In accordance with the provisions of fresh-start reporting, the Company adjusted its property, plant and equipment to estimated fair value, with exception to certain subsidiaries that were not party to the Chapter 11 cases. Such subsidiaries property, plant and equipment, and related accumulated depreciation, remain at their historical carrying value. (8) Notes Receivable and Other Investments Notes receivable and other investments at September 30, 2001 and 2000 consist of the following (in thousands): Successor | Predecessor Company | Company - -------------------------------------------------------------------------------- 2001 | 2000 - -------------------------------------------------------------------------------- Mortgage notes and other notes receivable $13,107 | $32,232 Investments in revenue bonds 1,432 | 7,012 - -------------------------------------------------------------------------------- $14,539 | $39,244 - -------------------------------------------------------------------------------- Mortgage notes and other notes receivable at September 30, 2001 bear interest at rates ranging from 7.25% to 10.0% and mature at various times ranging from 2002 to 2029. The majority of the mortgage notes and other notes are secured by first or second mortgage liens on underlying facilities and personal property, accounts receivable, inventory and / or gross facility receipts, as defined. During fiscal 2001, the Company performed periodic assessments of the collectibility of amounts due from affiliated businesses in light of the adverse impact of PPS on their liquidity and profitability. As a result of this assessment, the carrying value of notes receivable, advances and trade receivables due from affiliates was written down to net realizable value. 72 The Company has agreed to provide third parties, including facilities under management contract, with $8,800,000 of working capital lines of credit. The unused portion of working capital lines of credit was $5,161,000 at September 30, 2001. In December, 1997 the Board of Directors approved a Senior Executive Stock Ownership Program. Under the terms of the program, certain of the Company's senior executive employees were required to own shares of the Company's common stock having a market value based upon a multiple of the executive's salary. Each executive was required to own the shares within three years of the date of the adoption of the program. Subject to applicable laws, the Company was authorized to lend funds to one or more of the senior executive employees for his or her purchase of the Company's common stock. As of September 30, 2001, the Company had outstanding loan and accrued interest balances of approximately $3,200,000 from the senior executives. The note agreements were amended in fiscal 2000 to adjust the interest rate to 8.00% simple interest. Previously, the loans accrued interest based on the market rate at the date of the loan initiation. On February 23, 2001, the U.S. Bankruptcy Court ordered that the remaining loans be forgiven on the first anniversary of the Company's emergence from bankruptcy. Therefore, effective October 2, 2002, these loans will be forgiven and the Company will hold the executives harmless for all and any of the tax consequences resulting from the forgiveness of the loans. At September 30, 2001, the carrying value of the executive loans are fully reserved. Investments in revenue bonds bear interest at rates ranging from 10.00% to 10.45% and mature at various times between 2011 and 2021. The revenue bonds held were issued by a skilled nursing facility owned by an independent third party and managed by Genesis. (9) Other Long-Term Assets Other long-term assets at September 30, 2001 and 2000 consist of the following (in thousands): Successor | Predecessor Company | Company - -------------------------------------------------------------------------------- 2001 | 2000 - -------------------------------------------------------------------------------- Deferred financing fees, net $ 9,725 | $ 38,462 Cost report receivables 11,217 | 36,784 Property deposits and funds held in escrow 15,587 | 15,227 Other, net 9,169 | 15,253 - -------------------------------------------------------------------------------- $45,698 | $105,726 - -------------------------------------------------------------------------------- As of the Effective Date, approximately $32,200,000 of net deferred financing fees associated with debts that were discharged as a result of the Reorganization were eliminated. Approximately, $8,778,000 of financing fees associated with new indebtedness of the Successor Company were deferred at September 30, 2001. In connection with our bankruptcy proceedings and the related negotiations with the federal government, the Company performed an assessment of the collectibility of certain aged cost report receivable amounts due from government agencies and concluded that approximately $22,824,000 was unrecoverable. 73 (10) Long-Term Debt Long-term debt at September 30, 2001 and 2000 consist of the following (in thousands):
Successor | Predecessor Company | Company - --------------------------------------------------------------------------------------------------------------- 2001 | 2000 - --------------------------------------------------------------------------------------------------------------- Secured debt | Debtor-in-possession financing facilities $ - | $ 133,000 Credit facilities 285,000 | 1,483,897 Senior Secured Notes 242,605 | - Mortgage and other secured debt, net of unamortized debt premium 116,904 | 158,756 - --------------------------------------------------------------------------------------------------------------- Total secured debt 644,509 | 1,775,653 Unsecured debt | Senior subordinated notes, net of unamortized debt discount - | 617,488 Notes payable and other unsecured debt - | 7,623 - --------------------------------------------------------------------------------------------------------------- Total unsecured debt - | 625,111 | Total debt 644,509 | 2,400,764 Less: | Current portion of long-term debt (41,241) | (133,000) Long-term debt subject to compromise - | (2,257,323) - --------------------------------------------------------------------------------------------------------------- Long-term debt $ 603,268 | $ 10,441 - ---------------------------------------------------------------------------------------------------------------
Interest of $2,520,000 in 2001, $4,402,000 in 2000 and $4,784,000 in 1999, was capitalized in connection with facility construction, systems development and renovations. During fiscal 2001 the Company recorded an extraordinary gain on debt discharge of $1,524,823,000 in connection with the consummation of the Plan. During fiscal 1999, the Company recorded an extraordinary loss, net of tax of $2,100,000 related to the early retirement of debt. Long term debt - Successor Company: Senior Credit Facility On the Effective Date, and in connection with the consummation of the Plan, the Successor Company entered into a Senior Credit Facility consisting of the following: (1) a $150,000,000 revolving line of credit (the "Revolving Credit Facility"); (2) a $285,000,000 term loan (the "Term Loan") and (3) an $80,000,000 delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The outstanding amounts under the Term Loan and the Delayed Draw Term Loan bear interest at the London Inter-bank Offered Rate ("LIBOR") plus 3.50%, or approximately 6.10% at September 30, 2001. The outstanding amounts under the Revolving Credit Facility, if any, bear interest based upon a performance related grid. Pursuant to the Senior Credit Facility, the Company and each of its subsidiaries named as guarantors have granted the lenders first priority liens and security interests in all unencumbered property, including but not limited to: fee owned property, bank accounts, investment property, accounts receivable, equipment and general intangible assets. 74 The Senior Credit Facility limits, among other things, the Company's ability to incur additional indebtedness or contingent obligations, permit additional liens, to make additional acquisitions, to sell or dispose of assets, to create or incur liens on assets, to pay dividends on common stock and to merge or consolidate with any other person or entity. The Senior Credit Facility contains customary representations and warranties. The Senior Credit Facility requires the Successor Company to maintain compliance with certain financial and non-financial covenants, including minimum EBITDAR (as defined); limitations on capital expenditures, maximum leverage ratios, minimum fixed charge coverage ratios and minimum net worth. The Revolving Credit Facility is available to fund obligations under the Plan and for general working capital requirements. The Revolving Credit Facility matures on October 2, 2006. Usage under the Revolving Credit Facility is subject to a Borrowing Base (as defined) calculation based upon real property collateral value and a percentage of eligible accounts receivable (as defined). No borrowings have been made under the Revolving Credit Facility. The proceeds from the Term Loan were utilized to repay $196,000,000 of the then outstanding amounts under the Genesis DIP Facility (later defined), and $50,000,000 of the then outstanding synthetic lease facility, with the remaining $39,000,000 provided to fund restructuring related costs in accordance with the Plan. In connection with the consummation of the Plan, the Term Loan balance is $285,000,000. The Term Loan amortizes at a rate one percent per year, and matures on April 2, 2007. The Delayed Draw Term Loan shall be used to (1) fund the purchase price of the proposed APS Transaction (defined herein); (2) pay certain outstanding amounts owed to ElderTrust on certain loans secured by mortgages; (3) fund the exercise of an option to purchase three eldercare centers and (4) to make other Specific Payments (as defined). Once repaid, the Delayed Draw Term Loan can not be re-borrowed. In connection with the consummation of the Plan, no borrowings were made under the Delayed Draw Term Loan. The Delayed Draw Term Loan amortizes at a rate one percent per year, and matures on April 2, 2007. In the first fiscal quarter of 2002, the Company utilized approximately $10,000,000 from the Delayed Draw Term Loan to fund the exercise of the purchase option previously described, and we utilized approximately $22,000,000 from the Delayed Draw Term Loan to satisfy certain mortgages as previously described. As a result of subsequent developments in the Company's bid to consummate the APS Transaction, management is seeking lender approval to repay other debt obligations with the available borrowings under the Delayed Draw Term Loan that were otherwise earmarked for the APS Transaction. See Footnote 5 - "Significant Transactions and Events - Proposed APS Transaction." Senior Secured Notes On the Effective Date, and in connection with the consummation of the Plan, the Successor Company entered an indenture agreement in the principal amount of $242,605,000 (the "Senior Secured Notes"). The Senior Secured Notes bear interest at LIBOR plus 5.0% (approximately 7.60% at September 30, 2001), and amortize one percent each year and mature on April 2, 2007. The Senior Secured Notes are secured by a junior lien on real property and related fixtures of substantially all of the Company's subsidiaries, subject to liens granted to the lenders' interests subject to the Senior Credit Facility. The Senior Secured Notes may be prepaid at any time without penalty, subject to restrictions in place under the Senior Credit Facility. Compliance with certain financial and non-financial covenants is required, but they are less restrictive than those required by the Senior Credit Facility. Other Secured Indebtedness On the Effective Date of the Plan and at September 30, 2001, the Company had $116,904,000 of other secured debt consisting principally of revenue bonds and secured bank loans, including loans insured by the Department of Housing and Urban Development. These loans are secured by the underlying real and personal property of individual eldercare centers. All of the other secured loans have fixed rates of interest ranging from 3.00% to 11.00%, with a weighted average rate of 9.04%. 75 On the Effective date, sinking fund requirements and installments of long-term debt are as follows (in thousands): Years Ending September 30, Principal Amount - -------------------------------------------------------------------------------- 2002 $ 41,241 2003 10,796 2004 8,895 2005 9,026 2006 9,224 Thereafter $ 565,327 Long-Term Debt - Predecessor Company: In connection with the Chapter 11 cases, no principal or interest payments were made on certain indebtedness incurred by the Company prior to June 22, 2000 ("Prepetition Debt"). With regard to Multicare, no principal or interest payments were made on $424,110,000 of the Multicare Credit Facility, $250,000,000 of senior subordinated notes and $53,101,000 of other indebtedness. Multicare continued to pay interest on an aggregate outstanding balance of $10,240,000 in connection with two secured loans of subsidiaries not party to the Chapter 11 cases. With regard to Genesis, no principal or interest payments were made on $370,000,000 of senior subordinated notes and $101,485,000 of other indebtedness. Subsequent to June 22, 2000, Genesis repaid $40,000,000 of Tranche II Prepetition Debt under the Genesis Credit Facility and all interest incurred prior to June 22, 2000 on Prepetition Debt under the Genesis Credit Facility. Interest incurred on $1,059,000,000 of Prepetition Debt under the Genesis Credit Facility subsequent to June 22, 2000 continued to be paid as billed. At September 30, 2000 the Company's long-term debt included approximately $1,616,897,000 of floating rate debt based on Prime or LIBOR rate. In fiscal 2000, the weighted average interest rates on floating rate debt was 10.00%. At September 30, 2000, the Company' long-term debt included approximately $783,867,000 of fixed rate debt. In fiscal 2000 the weighted average interest rates on fixed rate debt was 9.45%. Genesis Debtor-in-Possession Financing On July 18, 2000, the Bankruptcy Court entered the Final Order approving a $250,000,000 Genesis debtor-in-possession financing facility (the "Genesis DIP Facility"). Usage under the Genesis DIP Facility was subject to a Borrowing Base which provided for maximum borrowings (subject to the $250,000,000 commitment limit) by the Company equal to the sum of (i) up to 90% of outstanding eligible accounts receivable, as defined and (ii) up to $175,000,000 against real property. Proceeds of the Genesis DIP Facility were available for general working capital purposes and as a condition of the loan, were required to refinance the $40,000,000 outstanding under the Company's pre-petition priority Tranche II sub-facility. Additionally, $44,000,000 of proceeds were used to satisfy all unpaid interest and rent obligations to the senior secured creditors under the Fourth Amended and Restated Credit Agreement dated August 20, 1999 and the Synthetic Lease dated October 7, 1996 as adequate protection for any diminution in value of the pre-petition senior secured lenders in these facilities, respectively. The Genesis DIP Facility was scheduled to mature on December 21, 2001, and was paid in full in connection with the consummation of the Plan on the Effective Date. Advances under the Genesis DIP Facility accrued interest at either Prime plus 2.25% or LIBOR rate plus 3.75%, or approximately 10.55% at September 30, 2000. As of September 30, 2000 borrowings outstanding under the Genesis DIP Facility were $133,000,000. The Genesis DIP Facility provided for the issuance of up to $25,000,000 in standby letters of credit. As of September 30, 2000 there was $11,500,000 in letters of credit issued thereunder, for a total utilization under the Genesis DIP Facility of $144,500,000. 76 Multicare Debtor-in-Possession Financing On July 18, 2000, the Bankruptcy Court entered the Final Order approving a $50,000,000 Multicare debtor-in-possession financing facility (the " Multicare DIP Facility"). Usage under the Multicare DIP Facility was subject to a Borrowing Base which provides for maximum borrowings (subject to the $50,000,000 commitment limit) by Multicare of up to 90% of outstanding eligible accounts receivable, as defined, and a real estate component. Proceeds of the Multicare DIP Facility were available for general working capital purposes. As of September 30, 2000 and through the Effective Date, there was no usage under the Multicare DIP Facility. The Multicare DIP Facility provided for the issuance of up to $20,000,000 in standby letters of credit. As of September 30, 2000 there were $3,700,000 in letters of credit issued thereunder. Genesis Credit Facility - (Subject to Compromise) Genesis entered into a fourth amended and restated credit agreement on August 20, 1999 pursuant to which the lenders amended and restated the credit agreement under which the lenders provided Genesis and its subsidiaries (excluding Multicare) a credit facility totaling $1,250,000,000 (the "Genesis Credit Facility") The Genesis Credit Facility consisted of three term loans with original balances of $200,000,000 each (collectively, the "Genesis Term Loans"), and a $650,000,000 revolving credit loan (the "Genesis Revolving Facility") and a $40,000,000 Tranche II Facility. The Genesis Term Loans amortized in quarterly installments through 2005. The Genesis Term Loans consisted of (i) an original six year term loan maturing in September 2003 with an outstanding balance of $110,445,000 at September 30, 2000 (the "Genesis Tranche A Term Facility"); (ii) an original seven year term loan maturing in September 2004 with an outstanding balance of $152,130,000 at September 30, 2000 (the "Genesis Tranche B Term Facility"); and (iii) an original eight year term loan maturing in June 2005 with an outstanding balance of $151,378,000 at September 30, 2000 (the "Genesis Tranche C Term Facility"). The Genesis Revolving Facility, with an outstanding balance of $645,834,000 (excluding letters of credit) at September 30, 2000, was to become payable in full on September 30, 2003. At September 30, 2000, there were no outstanding borrowings under the Tranche II Facility. The aggregate outstanding balance of the Genesis Credit Facility at September 30, 2000 was classified as a liability subject to compromise. Loans under the Genesis Credit Facility bore, at Genesis' option, interest at the per annum Prime Rate as announced by the administrative agent, or the applicable Adjusted LIBOR plus, in either event, a margin (the "Applicable Margin") that was dependent upon a certain financial ratio test. Loans under the Genesis Tranche A Term Facility and Genesis Revolving Facility had an Applicable Margin of 1.50% for Prime Rate loans and 3.25% for LIBOR rate loans. Loans under the Genesis Tranche B Term Facility had an Applicable Margin of 1.75% for Prime Rate loans and 3.50% for LIBOR Rate loans. Loans under the Genesis Tranche C Term Facility had an Applicable Margin of 2.00% for Prime Rate loans and 3.75% for LIBOR Rate loans. Subject to meeting certain financial ratios, the above referenced interest rates were reduced. Genesis was in default under the Genesis Credit Facility. Interest under the Genesis Credit Facility incurred prior to and subsequent to the Petition Date has been paid. Multicare Credit Facility - (Subject to Compromise) Multicare entered into a fourth amended and restated credit agreement on August 20, 1999 (the "Multicare Credit Facility"). 77 The Multicare Credit Facilities consisted of three term loans with an aggregate original balance of $400,000,000 (collectively, the "Multicare Term Loans"), and a $125,000,000 revolving credit loan (the "Multicare Revolving Facility"). The Multicare Term Loans amortized in quarterly installments through 2005. The loans consisted of (i) an original six year term loan maturing in September 2003 with an outstanding balance of $132,239,000 at September 30, 2000 (the "Multicare Tranche A Term Facility"); (ii) an original seven year term loan maturing in September 2004 with an outstanding balance of $138,339,000 at September 30, 2000 (the "Tranche B Term Facility"); and (iii) an original eight year term loan maturing in June 2005 with an outstanding balance of $45,877,000 at September 30, 2000 (the "Multicare Tranche C Term Facility"). The Multicare Revolving Facility, with an outstanding balance of $107,655,000 at September 30, 2000, was to become payable in full on September 30, 2003. The aggregate outstanding balance of the Multicare Credit Facility at September 30, 2000 was classified as a liability subject to compromise. Loans under the Multicare Tranche A Term Facility bore interest at a rate equal to LIBOR Rate plus a margin up to 3.75%, loans under the Multicare Tranche B Term Facility bore interest at a rate equal to LIBOR Rate plus a margin up to 4.0%, loans under the Multicare Tranche C Term Facility bore interest at a rate equal to LIBOR Rate plus a margin up to 4.25%; loans under the Multicare Revolving Credit Facility bore interest at a rate equal to LIBOR Rate plus a margin up to 3.75%. Subject to meeting certain financial covenants, the above-referenced interest rates were reduced. Multicare was in default under the Multicare Credit Facility and did not make any scheduled interest payments since March 29, 2000. Mortgage and Other Secured Debt - (Subject to Compromise) The Company had $158,756,000 of mortgage and other secured debt at September 30, 2000 consisting principally of secured revenue bonds and secured bank loans, including loans insured by the Department of Housing and Urban Development. Senior Subordinated Notes - (Subject to Compromise) In December 1998, Genesis issued $125,000,000 9.88% Senior Subordinated Notes due 2009 at a price of 96.1598% resulting in net proceeds of $120,200,000. Interest on the notes was payable semi-annually on January 15 and July 15 of each year, commencing July 15, 1999. Approximately $59,950,000 of the net proceeds were used to repay portions of the Tranche A, B and C Term Facilities and approximately $59,950,000 of the net proceeds were used to repay a portion of the Revolving Facility. In August 1997, Genesis Eldercare Acquisition Corp. issued $250,000,000 9% Senior Subordinated Notes due 2007. Interest on the notes was payable semiannually on February 1 and August 1 of each year. The net proceeds were used to finance the consummation of GEAC's acquisition of Multicare. In October 1996, Genesis completed an offering of $125,000,000 9.25% Senior Subordinated Notes due 2006. Interest was payable on April 1 and October 1 of each year. The Company used the net proceeds of approximately $121,250,000 together with borrowings under the Credit Facility, to pay the cash portion of the purchase price of 24 eldercare centers, and certain other healthcare businesses of Geriatric & Medical Companies, Inc., and to repay certain debt assumed as a result of the GMC Transaction and to repurchase Geriatric and Medical Companies, Inc. accounts receivable which were previously financed. 78 In June 1995, Genesis completed an offering of $120,000,000 of 9.75% Senior Subordinated Notes due 2005. Interest was payable on the notes on June 15 and December 15 of each year. The notes were redeemable at the option of the Company in whole or in part, at any time, on or after June 15, 2000 at a redemption price initially equal to 104.05% of the principal amount and decreasing annually thereafter. The Company used the net proceeds from the notes offering to repay a portion of the Credit Facility. Unsecured Senior Subordinated Notes include $1,590,000 of untendered 9.38% senior subordinated notes assumed by Genesis in connection with the Vitalink Transaction. Notes Payable and Other Unsecured Debt - (Subject to Compromise) Notes payable and other unsecured debt principally consists of seller notes due to the previous owners of small businesses acquired. (11) Leases and Lease Commitments The Company leases certain facilities under operating leases. Future minimum payments for the next five years under operating leases at September 30, 2001 are as follows (in thousands): Minimum Year ending September 30, Payment - -------------------------------------------------------------------------------- 2002 $ 41,193 2003 38,657 2004 37,436 2005 32,132 2006 $ 28,742 - -------------------------------------------------------------------------------- The Company classifies operating lease costs associated with its eldercare centers and corporate office sites as lease expense in the consolidated statement of operations, while the operating lease costs of pharmacy and other health service sites are included within other operating expenses. On January 31, 2001, the Company reached agreements to restructure its relationship with ElderTrust. See "Footnote 5 - Significant Transactions and Events - ElderTrust Transactions". Upon consummation of the Plan, the Company discharged a secured off-balance sheet lease financing facility (the "Synthetic Lease") associated with nine leased eldercare centers and its corporate headquarters building with a cash payment of $50,000,000 and a $35,155,000 senior secured claim. The annual lease cost of the Synthetic Lease approximated $7,800,000. The fair value of the underlying land and buildings of the formerly synthetically leased properties are included in the consolidated balance sheet at September 30, 2001. Prior to the adoption of fresh-start reporting, the Predecessor Company carried approximately $40,100,000 of deferred gains on sale lease back transactions. In accordance with the provisions of SOP 90-7, the deferred gains were eliminated and are not reflected in the consolidated balance sheet of the Successor Company. Also in connection with the adoption of fresh-start reporting, the Successor Company recorded an unfavorable lease liability of $33,788,000 associated with 40 leased properties which will be amortized using the straight-line method over the remaining lives of the leases. The unfavorable component of these lease contracts was estimated using market comparable lease coverage ratios for similar assets. The unfavorable lease liability will be amortized to lease expense over the remaining lease terms, which have a weighted average term of approximately six and one half years. 79 (12) Income Taxes Total income tax benefit for the years ended September 30, 2001, 2000 and 1999 was as follows (in thousands):
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------- Predecessor Company: Loss before equity in net loss of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change $ - $ (27,168) $ (44,711) Extraordinary items - - (1,276) Cumulative effect of accounting change - (5,988) - - ----------------------------------------------------------------------------------------------------------------- Total $ - $ (33,156) $ (45,987) - -----------------------------------------------------------------------------------------------------------------
The components of the provision (benefit) for income taxes for the years ended September 30, 2001, 2000 and 1999 were as follows (in thousands):
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------- Current: Federal $ - $ - $ - State - 663 503 - ----------------------------------------------------------------------------------------------------------------- $ - $ 663 $ 503 - ----------------------------------------------------------------------------------------------------------------- Deferred: Federal $ - $ (27,831) $ (45,272) State - - 58 - ----------------------------------------------------------------------------------------------------------------- $ - $ (27,831) $ (45,214) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Total $ - $ (27,168) $ (44,711) - -----------------------------------------------------------------------------------------------------------------
Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to net income before income taxes, equity in net income (loss) of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change as a result of the following (in thousands):
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------- Computed "expected" benefit $ (435,750) $ (345,678) $ (47,232) Increase (reduction) in income taxes resulting from: State and local income taxes, net of federal tax benefits - (431) (365) Amortization of goodwill 8,750 9,545 3,481 Targeted jobs tax credits - (1,389) (1,146) Multicare joint-venture restructuring charge - 147,000 - Write-off of non deductible goodwill 304,500 47,352 - Adequate protection payments 40,250 - - Change in valuation allowance 84,350 115,495 - Other, net (2,100) 938 551 - ----------------------------------------------------------------------------------------------------------------- Total income tax benefit $ - $ (27,168) $ (44,711) - -----------------------------------------------------------------------------------------------------------------
80 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2001 and 2000 are presented below (in thousands):
Successor | Predecessor Company | Company - ------------------------------------------------------------------------------------------------- 2001 | 2000 - ------------------------------------------------------------------------------------------------- Deferred Tax Assets: | Accrued compensation $ 1,109 | $ 1,609 Accounts receivable 15,999 | 1,999 Accrued liabilities and reserves 65,247 | 60,247 Net operating and capital loss carryforwards 130,423 | 148,423 Other, net 12,779 | 8,558 - ------------------------------------------------------------------------------------------------- Deferred tax assets 225,557 | 220,836 - ------------------------------------------------------------------------------------------------- Valuation allowance (127,534) | (118,895) - ------------------------------------------------------------------------------------------------- Net deferred tax assets 98,023 | 101,941 - ------------------------------------------------------------------------------------------------- Deferred Tax Liabilities: Accounts receivable (25,442) | (4,442) Goodwill and other intangibles (49,321) | (31,321) Depreciation (11,300) | (110,300) Accrued liabilities and reserves (11,960) | (9,960) - ------------------------------------------------------------------------------------------------- Total deferred tax liability (98,023) | (156,023) - ------------------------------------------------------------------------------------------------- Net deferred tax liability $ - | $ (54,082) - -------------------------------------------------------------------------------------------------
Successor Company: Following the consummation of the Plan, the Company has approximately $495,000,000 of Net Operating Loss ("NOL") carryforwards which will expire between September 30, 2020 and September 30, 2021. In addition, the Company has a capital loss carryforward of $736,000,000, which will expire September 30, 2005. These NOLs and capital loss carryforward have been reduced to $161,000,000 and $195,000,000, respectively as a result of the discharge and cancellation of various prepetition liabilities under the Plan. The reduction of the NOLs and capital loss carryforward will be effective on October 1, 2002. In addition, the NOLs and capital loss carryforward remaining after the application of the cancellation of indebtedness provisions are subject to certain provisions of the Internal Revenue Code which restricts the utilization of the losses. Section 382 of the Internal Revenue Code imposes limitations on the utilization of loss carryforwards after certain changes of ownership of a loss company. The Company is deemed to be a loss company for these purposes. Under these provisions, the Company's ability to utilize these loss carryforwards in the future will generally be subject to an annual limitation of approximately $43,000,000. There can be no assurances that the Company will be able to utilize these NOLs or capital loss carryforward due to the complex nature of the applicable tax code and the differences that may exist between management's interpretation of the code and that of the Internal Revenue Service. As a result of the risks associated with NOLs and capital loss carryforward, management has established a 100% valuation allowance to offset the associated net deferred tax asset. 81 Pursuant to SOP 90-7, the income tax benefit, if any, of any future realization of the remaining NOL carryforwards existing as of the Effective Date will be applied first as a reduction to goodwill. (13) Redeemable Preferred Stock Successor Company: Series A Convertible Preferred Stock In connection with the consummation of the Plan, the Successor Company issued Series A Convertible Preferred Stock (the "Series A Preferred"). The Series A Preferred has a liquidation preference of $42,600,000 and accrues dividends at the annual rate of 6% payable in additional shares of Series A Preferred. The Series A Preferred is convertible at any time, at the option of the holders, into 2,095,425 shares of the Successor Company's common stock. The Successor Company has the right to convert all of the shares of Series A Preferred to shares of Successor Company common stock at any time after the first anniversary date of the Effective Date, or October 2, 2002, when the average trading price for of the Successor Company common stock over the immediately preceding 30 days is $30.00 or more per share. The Successor Company has the right to redeem the Series A Preferred at any time by giving 30 days notice to the holders (subject to certain restrictions imposed by the Company's senior credit facilities). The Series A Preferred are subject to mandatory redemption on October 2, 2010. The conversion rate is $20.33 of liquidation preference for each share of Successor Company common stock. The Series A Preferred is reflected in the consolidated balance sheet of the Successor Company under redeemable preferred stock. Predecessor Company: Series H Senior Convertible Participating Cumulative Preferred Stock In connection with the November 1999 restructuring of the Multicare joint-venture, Genesis issued 24,369 shares of Genesis Series H Senior Convertible Participating Cumulative Preferred Stock (the "Series H Preferred"). Upon consummation of the Plan, $271,977,000 face value plus accrued and unpaid dividends of the Series H Preferred was eliminated upon the adoption of fresh-start reporting. The face value of the Series H Preferred plus accrued and unpaid dividends at September 30, 2000 was $256,948,000 which was classified as subject to compromise. 82 Series I Senior Convertible Exchangeable Participating Cumulative Preferred Stock Also, in connection with the November 1999 restructuring of the Multicare Joint Venture, Genesis issued 17,631 of Genesis Senior I Convertible Exchangeable Participating Cumulative Preferred Stock (the "Series I Preferred"). Upon consummation of the Plan, $196,745,000 face value plus accrued and unpaid dividends of the Series I Preferred was eliminated upon the adoption of fresh-start reporting. The face value of the Series I Preferred plus accrued and unpaid dividends at September 30, 2000 was $185,872,000, which was classified as subject to compromise. (14) Shareholders' Equity (Deficit) Successor Company: Common Stock The authorized common stock of the Successor Company consists of 200,000,000 shares, $.02 par value, of which 39,671,279 shares were issued and outstanding following the initial distribution of common shares in accordance with the Plan. The provisions of the Plan call for the issuance of 41,000,000 shares. The remaining 1,328,721 will be issued when all outstanding claim objections and other disputed claim matters of the bankruptcy proceedings are resolved. Warrants On the Effective Date, the Successor Company issued warrants (the "Warrants"), $.02 par value, to purchase 4,559,475 shares of new common stock. This represents approximately 11% of the new common stock issued on the Effective Date. The Warrants expire on October 2, 2002 and have an exercise price of $20.33 per share of new common stock. An assumed exercise of all Warrants would result in cash proceeds to the Company of approximately $93,000,000. Restricted Stock Grants On October 2, 2001, the Board of Directors authorized the Successor Company to issue 750,000 restricted shares of the Successor Company common stock to 43 of its senior officers. These shares vest quarterly over a five year period, commencing on January 1, 2002 and ending on October 1, 2006. In future periods, the Company will record compensation expense ratably over each vesting period at $20.33 per vesting share. Predecessor Company: Common Stock The authorized common stock of the Predecessor Company consisted of 200,000,000 shares, $.02 par value, of which 48,653,294 were issued and 48,641,194 were outstanding at September 30, 2000. These shares were cancelled as of the Effective Date. 83 Preferred Stock In August 1998, the Predecessor Company issued the Genesis Series G Cumulative Convertible Preferred Stock (the "Series G Preferred"). Upon consummation of the Plan, $295,100,000 face value plus accrued dividends of $49,673,000 were eliminated upon the adoption of fresh-start reporting. At September 30, 2000 there were approximately $34,921,000 of accrued, but unpaid dividends on the Series G Preferred. The accrued dividends were classified as liabilities subject to compromise at September 30, 2000. (15) Stock Option Plans Following the Effective Date, and subsequent to September 30, 2001, the Successor Company adopted the 2001 Stock Option Plan (the "2001 Plan"). The aggregate number of shares of the Successor Company common stock which may be issued under the 2001 Plan is 3,480,000, of which 3,305,000 may be issued to non-directors and 175,000 may be issued solely to directors. The Predecessor Company had three stock option plans (the "Employee Plan," the "1998 Non-Qualified Employee Plan" and the "Directors Plan"). On the Effective Date, all outstanding exercisable and unexercised stock options of the Predecessor Company were canceled. Presented below is a summary of the Employee Plan and the 1998 Non-Qualified Employee Plan for the two years ended September 30, 2000 (in thousands).
Predecessor Company Option Price Available for Per Share Outstanding Exercisable Grant - ----------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $2.22 - $35.25 4,154,488 2,346,437 1,085,216 - ----------------------------------------------------------------------------------------------------------------------------- Authorized - - - 2,000,000 Granted $3.13 - $11.19 2,252,100 - (2,252,100) Became Exercisable - - 1,545,389 - Exercised $5.33 - $5.33 (2,100) (2,100) - Canceled - (678,182) - 678,182 - ----------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $2.22 - $35.25 5,726,306 3,889,726 1,511,298 - ----------------------------------------------------------------------------------------------------------------------------- Authorized - - - - Granted $2.00 - $2.81 720,000 - (720,000) Became Exercisable - - 199,782 - Exercised - - - - Canceled - (794,370) - 794,370 - ----------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 $2.00 - $35.25 5,651,936 4,089,508 1,585,668 - -----------------------------------------------------------------------------------------------------------------------------
At September 30, 2000, there were 63,000 options outstanding and exercisable under the Directors Plan at grant prices ranging from $1.56 to $35.25. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and applies APB Opinion No. 25 in accounting for its plans and, accordingly, has not recognized compensation cost for stock option plans in its financial statements. Had the Company determined compensation cost based on the fair value at the grant date consistent with the provisions of Statement 123, the Company's net loss would have been changed to the pro forma amounts indicated below (in thousands): Predecessor Company 2000 1999 - -------------------------------------------------------------------------------- Net loss - as reported $ (883,455) $ (290,050) Net loss - pro forma (883,870) (297,543) Net loss per share - as reported (diluted) (18.77) (8.17) Net loss per share - pro forma (diluted) (18.78) (8.39) - -------------------------------------------------------------------------------- 84 The fair value of stock options granted in 2000 and 1999 is estimated at the grant date using the Black-Scholes option-pricing model with the following assumptions for 2000 and 1999: dividend yield of 0% (2000 and 1999); expected volatility of 179.22% (2000) and 105.63% (1999); a risk-free return of 5.17% (2000) and 6.36% (1999); and expected lives of approximately 6.6 years (2000) and 7.5 years (1999). The Company did not make any stock option grants in 2001 and as a result of the Company's deteriorating stock price following its voluntary petition for relief under Chapter 11 Bankruptcy, there were no outstanding stock options with intrinsic value during the twelve months ended September 30, 2001. Consequently, there is no compensation cost in fiscal 2001 pursuant to the provisions of Statement 123. (16) Patient Service Revenue The distribution of net patient service revenue by class of payor for the years ended September 30, 2001, 2000 and 1999 was as follows (in thousands): Class of payor 2001 2000 1999 - -------------------------------------------------------------------------------- Private pay and other $ 961,092 $ 965,702 $ 826,051 Medicaid 1,064,096 1,014,983 686,717 Medicare 434,190 381,148 242,807 - -------------------------------------------------------------------------------- $2,459,378 $2,361,833 $1,755,575 - -------------------------------------------------------------------------------- The above revenue amounts are net of third-party contractual allowances of $533,593,000, $496,792,000 and $343,020,000 in 2001, 2000 and 1999, respectively. Differences between patient service revenue and total net revenues reported in the consolidated statements of operations consist of revenues earned for management services, assisted living operations, group purchasing fees and other miscellaneous revenues. (17) Retirement Plan The Company's retirement plan (the "Retirement Plan") is a cash deferred profit-sharing plan covering all of the employees of the Company (other than certain employees covered by a collective bargaining agreement) who have completed at least 1,000 hours of service and twelve months of employment. Under the 401(k) component, each employee may elect to contribute a portion of his or her current compensation up to the maximum permitted by the Internal Revenue Code or 15% (or for more highly compensated employees a maximum of 4%, in accordance with Company policy) of such employee's annual compensation. The Company may make a matching contribution each year as determined by the Board of Directors. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. Under the profit sharing provisions of the Retirement Plan, the Company may make an additional employer contribution as determined by the Board of Directors each year. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. It is the Company's intent that employer contributions under the profit sharing provisions of the Retirement Plan are to be made only if there are sufficient profits to do so. Profit sharing contributions are allocated among the accounts of participants in the proportion that their annual compensation bears to the aggregate annual compensation of all participants. All employee contributions to the Retirement Plan are 100% vested. Company contributions are vested in accordance with a schedule that generally provides for vesting after five years of service with the Company (any non-vested amounts that are forfeited by participants are used to reduce the following year's contribution by the Company). 85 The Company recorded retirement plan expense for the 401(k) match and the discretionary contribution of approximately $7,926,000, $7,138,000 and $6,651,000 for the years ended September 30, 2001, 2000 and 1999, respectively. In 1999, the Company funded approximately $4,000,000 of its contribution to the Retirement Plan in the form of approximately 917,000 shares of newly issued Predecessor Company common stock. (18) Loss on Impairment of Assets and Other Charges Fiscal 2001: During the twelve months ended September 30, 2001, the Company recorded costs in connection with certain uncollectible receivables, insurance related costs and other charges, and debt restructuring and reorganization costs. The following table and discussion provides additional information on these charges (in thousands):
2001 - ----------------------------------------------------------------------------------------------------- Notes receivable, advances, and trade receivables, due from affiliated businesses formerly owned or managed deemed uncollectible $ 30,048 Uncollectible trade receivables 39,249 Self-insured and related program costs 21,026 Other charges 18,070 - ----------------------------------------------------------------------------------------------------- Total uncollectible receivable, insurance related and other charges included in other operating expenses $ 108,393 - ----------------------------------------------------------------------------------------------------- Debt Restructuring and Reorganization Costs: Professional, bank and other fees $ 59,393 Employee benefit related costs, including severance 16,786 Exit costs of terminated businesses 5,877 Fresh start valuation adjustments 1,033,729 - ----------------------------------------------------------------------------------------------------- Total debt restructuring and reorganization costs $1,115,785 - -----------------------------------------------------------------------------------------------------
Uncollectible receivable, insurance related costs and other charges included in other operating expenses In fiscal 2001, the Company performed periodic assessments of the collectibility of amounts due from certain affiliated businesses in light of the adverse impact of PPS on their liquidity and profitability. As a result of our assessment, the carrying value of notes receivable, advances and trade receivables due from affilitates was written down by $30,048,000. In fiscal 2001, the Company performed a re-evaluation of its allowance for doubtful accounts triggered by deteriorations in the agings of certain categories of receivables. Management believed that such deteriorations in the agings were due to several prolonged negative factors related to the operational effects of the bankruptcy filings such as personnel shortages and the time demands required in normalizing relations with vendors and addressing a multitude of bankruptcy issues. As a result of this re-evaluation, the Company determined that an increase in the allowance for doubtful accounts of approximately $39,249,000 was necessary. In fiscal 2001, as a result of adverse claims development we reevaluated the levels of reserves established for certain self-insured health and workers' compensation benefits and other insurance related programs. These charges were approximately $21,026,000. In addition, the Company incurred charges of approximately $18,070,000 during fiscal 2001, principally related to contract and litigation matters and settlements, and certain other charges. 86 Debt restructuring and reorganization costs During the twelve months ended September 30, 2001, the Company incurred approximately $1,115,785,000 of legal, bank, accounting, fresh-start valuation adjustments and other costs in connection with its debt restructuring and the Chapter 11 cases. Of these charges, approximately $59,393,000 is attributed to professional, bank and other fees and approximately $16,786,000 pertains to certain salary and benefit related costs, principally for a court approved special recognition program. In addition, the Company incurred approximately $5,877,000 of costs associated with exiting certain terminated businesses. Fresh-start valuation adjustments of $1,033,729,000 were recorded pursuant to the provisions of SOP 90-7, which require entities to record their assets and liabilities at fair value. The fresh-start valuation adjustment is principally the result of the elimination of predecessor company goodwill and the revaluation of property, plant and equipment to estimated fair values. Fiscal 2000: During fiscal 2000, the Company recorded charges in connection with the Multicare joint venture restructuring, the impairment of long-lived assets and other impairments and charges and debt restructuring, and reorganization costs. The following table and discussion provides additional information on these charges (in thousands):
2000 - ---------------------------------------------------------------------------------------------------------- Multicare joint-venture restructuring $ 420,000 - ---------------------------------------------------------------------------------------------------------- Impairment of long-lived assets $ 234,009 Exit costs and write-off of unrecoverable assets of six eldercare centers closed or leases terminated 28,363 Investments in information system development abandoned in fiscal 2000 19,200 Uncollectible trade and notes receivable due to customer bankruptcy or other liquidity issues 41,955 Other charges, including third party appeal issues and other cost settlement balances deemed uncollectible and insurance related adjustments 51,181 - ---------------------------------------------------------------------------------------------------------- Total asset impairments and other charges (included in other operating expenses) $ 374,708 - ---------------------------------------------------------------------------------------------------------- Professional bank and other costs in connection with the Company's amended senior bank credit facility and the filings under Chapter 11 $ 29,935 Interest rate swap termination charge 28,331 Employee benefit related costs 4,529 - ---------------------------------------------------------------------------------------------------------- Total debt restructuring and reorganization costs $ 62,795 - ----------------------------------------------------------------------------------------------------------
87 Multicare joint-venture restructuring In connection with the restructuring transaction in the first fiscal quarter of 2000, the Company recorded a non-cash charge of approximately $420,000,000 representing the estimated cost to terminate the Put in consideration for the issuance of the Series H Preferred and Series I Preferred. The cost to terminate the Put was estimated based upon our assessment that no incremental value was realized by Genesis as a result of the changes in the equity ownership structure of Multicare brought about by the restructuring of the Multicare joint venture. Asset impairments and other charges During the fourth quarter of fiscal 2000, in connection with the Company's budget preparations for the forthcoming year and in accordance with SFAS No. 121, management reviewed the current and projected undiscounted cash flows of the Company's eldercare centers and its NeighborCare(R) pharmacy businesses. This review indicated that the assets of certain eldercare centers were impaired. The fair market value of businesses deemed potentially impaired were then estimated and compared to the carrying values of the long-lived assets. Any excess long-lived asset carrying value over the estimated fair value was written-off. Fair value was estimated using a per bed value determined by Company management. The total loss for SFAS No. 121 impairments of $234,009,000 is associated with 49 eldercare centers. No impairment charge was assessed on the long-lived assets of the NeighborCare pharmacy businesses. The impairment charge recorded resulted in the write-off of $185,037,000 of goodwill and $34,578,000 of property, plant and equipment. During fiscal 2000, the Company closed or terminated the leases of six underperforming eldercare centers with 842 combined beds. As a result, a charge of $28,363,000 was recorded to account for certain impaired and abandoned assets of these eldercare centers as well as the estimated future cost of maintaining owned properties that were closed. As a result of the Company's Chapter 11 bankruptcy filing and curtailment in funding availability, the Company assessed the recoverability of our investment in certain information systems developed internally for the operating needs of our institutional pharmacy and infusion therapy businesses. The Company's assessment determined that $19,200,000 of the carrying value of our investment in these systems was unrecoverable through estimated future product sales to third parties and future operating efficiencies. During fiscal 2000, the Company performed periodic assessments of the collectibility of amounts due from certain current and former customers in light of the adverse impact of PPS on their liquidity and profitability. In certain cases, customers have filed for protection under Chapter 11 of the Bankruptcy Code. As a result of the Company's assessment, the carrying value of notes receivable, advances and trade receivables due from these customers was written down $41,955,000. In the fourth quarter of fiscal 2000, the Company performed an assessment of the collectibility of certain aged amounts due from third party payors and concluded that approximately $12,451,000 was unrecoverable. In addition, as a result of adverse claims development we reevaluated the levels of reserves established for certain self-insured and other programs, including workers' compensation and general liability insurance, resulting in a charge of approximately $35,235,000. 88 Debt Restructuring and Reorganization Costs During the third fiscal quarter of 2000, the Company began discussions with our lenders under the Genesis and Multicare Credit Facilities to revise our capital structure. During the discussion period, which continued into the third fiscal quarter, Genesis and Multicare did not make certain scheduled principal and interest payments under the Genesis and Multicare Credit Facilities or certain scheduled interest payments under certain of the Genesis and Multicare senior subordinated debt agreements. On June 22, 2000 Genesis and Multicare filed for voluntary relief under Chapter 11 of the Bankruptcy Court. In connection with the debt restructuring negotiations and for the costs of the subsequent reorganization cases, the Company incurred legal, bank, accounting and other costs of approximately $29,935,000. As a result of the nonpayment of interest under the Genesis Credit Facility, certain provisions under existing interest rate swap arrangements with Citibank were triggered. Citibank notified Genesis that they elected to force early termination of the interest rate swap arrangements, and have asserted a $28,331,000 obligation. In addition, as a result of the Company's restructuring and Chapter 11 cases the Company incurred costs of $4,529,000 for certain salary and benefit related costs, principally for a court approved special recognition program. During the first fiscal quarter of 2000, the Company recorded a non-cash pre tax charge of $7,720,000 for a stock option redemption program (the "Redemption Program") under which current Genesis employees and directors elected to surrender certain Genesis stock options for unrestricted shares of Genesis Common Stock. The Redemption Plan was approved by shareholder vote at the Company's 2000 Annual Meeting. As a result of the Company's worsening financial condition and other considerations, the Company determined not to proceed with the Redemption Program, and therefore the $7,720,000 charge recorded in the first quarter was subsequently reversed. The elections made by optionees would have resulted in the redemption of approximately 4,600,000 stock options in exchange for approximately 4,000,000 shares of Genesis Common Stock. Fiscal 1999: After performing an evaluation in fiscal 1999 like the one described in the "Fiscal 2000" section of this footnote, the Company concluded that the carrying value of certain eldercare centers, including goodwill and property, plant and equipment, exceeded their fair value by approximately $9,000,000 before tax. In addition to long-lived assets, the Company performed an evaluation of all of its assets, contracts, operations and employment arrangements. As a result of this evaluation, the Company concluded that the adverse impact of PPS on the Company's liquidity and profitability necessitated exiting certain businesses and projects. The Company fully reserved the carrying value of its transportation business, exited the operations of six leased eldercare centers at the end of their lease terms, abandoned certain investments in information systems, recorded the exit costs of a capitation contract in the Company's Chesapeake region and wrote off certain unrecoverable development project costs as well as other unrecoverable assets. In addition, the ability of certain former customers of the Company to repay amounts due for services rendered is less likely due to the adverse impact of PPS on their liquidity and profitability. As a result, the Company wrote down certain notes receivable, advances, trade and third party receivables, due to and from formerly owned and managed facilities. Also, the Company entered into the restructuring of the Multicare joint venture and amended its senior bank credit facility resulting in legal and other professional fees. The following table summarizes the before tax impact of the charges in Fiscal 1999 (in thousands): 89
1999 - ----------------------------------------------------------------------------------------------------------------- Exit costs and write-off of unrecoverable assets of one owned eldercare center to be sold, and six leased eldercare centers closed or no longer under lease and an investment in a respiratory services company $ 24,100 Investments in information systems abandoned 13,000 Exit costs and write-down of the remaining assets of the transportation business 12,700 Impairment of long-lived assets of six eldercare centers under SFAS No. 121 9,000 Unrecoverable development project costs 5,600 Cost to exit a capitation contract 5,000 - ----------------------------------------------------------------------------------------------------------------- Subtotal - terminated operations, discontinued businesses and asset impairments 69,400 - ----------------------------------------------------------------------------------------------------------------- Uncollectible trade receivables due to customer bankruptcy or other liquidity issues 17,800 Third party appeal issues deemed uncollectible 17,100 Costs to restructure the Multicare joint venture and amend the Company's senior bank credit facility 11,000 Other charges, including severance costs 13,870 - ----------------------------------------------------------------------------------------------------------------- Subtotal - uncollectible accounts, restructuring and other - 59,770 - ----------------------------------------------------------------------------------------------------------------- Notes receivable, advances, trade receivables and third party settlement receivables, due from or to businesses formerly owned or managed deemed uncollectible 37,900 - ----------------------------------------------------------------------------------------------------------------- Total (included in other operating expenses) $167,070 - -----------------------------------------------------------------------------------------------------------------
(19) Commitments and Contingencies Insurance Prior to June 1, 2000, the Company purchased general and professional liability insurance coverage ("GL/PL") from various commercial insurers on a first dollar coverage basis. Beginning with the June 1, 2000 policy, the Company has purchased GL/PL coverage from a commercial insurer subject to per claim retentions. These retentions are insured by the Company's wholly owned captive insurance company, Liberty Health Corp., LTD ("LHC"). LHC is currently insuring workers' compensation and GL/PL retentions. The Company, based on independent actuarial studies, believes that LHC's reserves are sufficient to meet their obligations. Workers' compensation insurance has been maintained as statutorily required, or in certain jurisdictions for certain periods, the Company has qualified as exempt ("self-insured"). Most of the commercial insurance purchased is loss sensitive in nature. As a result, the Company is responsible for adverse loss development or, in some cases, may be entitled to refunds if losses are below certain levels. The Company believes that adequate reserves are in place to cover the ultimate liability related to workers' compensation. The Company offers its employees several different health insurance options, including a self-insured program. Losses are limited to $150,000 per claimant per year. Genesis also requires that physicians practicing at its eldercare centers carry medical malpractice insurance to cover their individual practices. Financial Guarantees The Company has guaranteed approximately $10,200,000 of indebtedness of others, including facilities under management contract. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for guarantees, loan commitments and letters of credit is represented by the dollar amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. 90 Supply Contract NeighborCare Pharmacy Services, Inc. (d/b/a NeighborCare) purchases substantially all of its pharmaceuticals, approximately $618,000,000 annually, through Cardinal Health, Inc. under a five year supply contract which commenced in May of 1999. NeighborCare has other sources of supply available to it and has not experienced difficulty obtaining pharmaceuticals or other supplies used in the conduct of its business. Legal Proceedings NeighborCare Pharmacy Services, Inc. v. HCR Manor Care, Inc., Manor Care, Inc. and ManorCare Health Services, Inc. On May 7, 1999, NeighborCare Pharmacy Services, Inc. ("NeighborCare"), a wholly-owned subsidiary of Genesis, filed a demand for arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA Arbitration") against HCR Manor Care, Inc., Manor Care, Inc. and ManorCare Health Services, Inc (collectively, the "respondents"). The AAA Arbitration principally concerns two long-term master service agreements between NeighborCare and ManorCare Health Services, Inc. ("the Master Service Agreements"). Pursuant to one of these agreements (the "Master Pharmacy Agreement"), NeighborCare provides pharmacy services to long-term care facilities owned or operated by Manor Care, Inc., formerly known as HCR Manor Care, Inc. ("Manor Care"). Pursuant to the other agreement (the "Master Infusion Therapy Agreement"), NeighborCare provides infusion therapy products and services to Manor Care long-term care facilities. The Master Service Agreements represent approximately ten percent and four percent (approximately $116,000,000) of the net revenues of NeighborCare and Genesis, respectively. In the AAA Arbitration, NeighborCare seeks injunctive relief and compensatory damages estimated to be approximately $34,000,000, plus interest, in connection with (1) respondents' attempts to terminate the Master Service Agreements, and (2) respondents' failure to provide NeighborCare with the right to serve as the preferred provider of pharmacy and infusion therapy services to all Manor Care long-term care facilities pursuant to the Master Service Agreements. Respondents have filed counterclaims requesting declaratory relief approving the purported termination of the Master Service Agreements, as well as counterclaims seeking compensatory damages of at least $21,000,000, plus interest, in connection with alleged overcharges under the two agreements. The AAA Arbitration incorporates causes of action that NeighborCare originally pleaded in a complaint filed on May 7, 1999 in the Circuit Court for Baltimore City in an action captioned Vitalink Pharmacy Services, Inc. v. HCR Manor Care, Inc., Manor Care, Inc., and ManorCare Health Services, Inc., Case No. 24-C-99-002179. At first, the AAA Arbitration only addressed claims relating to the Master Pharmacy Agreement, which, as amended, contained an arbitration clause. However, by letter agreement dated May 13, 1999 between NeighborCare and the defendants in the state court case, the litigants agreed to address the claims relating to the Master Infusion Therapy Agreement in the AAA Arbitration. The parties further agreed to stay respondents' attempted termination of both Master Service Agreements until ten days after a final decision is reached in the AAA Arbitration. As a result, the Master Service Agreements remain in full force and effect. The parties selected former federal judge Charles Renfrew to serve as the Arbitrator. The parties briefed a motion by Manor Care to dismiss NeighborCare's claims relating to its right to service all of Manor Care's facilities. In connection with that motion, the Arbitrator, on May 17, 2000, declined to dismiss NeighborCare's claims for money damages for breach of its contractual right to serve as the preferred provider to all Manor Care long-term care facilities. However, the Arbitrator did dismiss, without prejudice, NeighborCare's claim for specific performance of that right. 91 On June 15, 2000, in anticipation of the possible bankruptcy filing of Genesis, the Arbitrator stayed the AAA Arbitration. In connection with this stay, the parties agreed that respondents may pay NeighborCare 90% of the face amount of all invoices for pharmaceutical and infusion therapy goods and services that NeighborCare renders to respondents under the Master Service Agreements. The parties agreed, however, that respondents must continue to pay NeighborCare the full face amount of all invoices for pharmacy consulting services under the Master Service Agreement. Genesis subsequently filed for protection under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on June 22, 2000. Upon that filing, the AAA Arbitration became subject to the automatic stay provisions of 11 U.S.C. ss. 362. On December 8, 2000, Manor Care renewed a previously filed motion seeking to lift the automatic stay in the AAA Arbitration. On February 6, 2001, the Bankruptcy Court granted the motion, allowing the AAA Arbitration to continue. The hearing in the AAA Arbitration began in Washington, D.C. on July 30, 2001 and was completed on August 16, 2001. Post-hearing briefing has been completed. The Arbitrator's decision is pending. Motion to Assume the Master Service Agreements, filed in In re Genesis Health Ventures, Inc. On January 16, 2001, NeighborCare filed a motion with the United States Bankruptcy Court for the District of Delaware seeking to assume the Master Service Agreements in its chapter 11 case. This motion was heard at the same time the Bankruptcy Court considered Manor Care's motion to lift the automatic stay. The Bankruptcy Court postponed any decision on the motion to assume pending the outcome of the AAA Arbitration. This issue is still pending. Genesis Health Ventures, Inc. v. HCR Manor Care, Inc., Manor Care, Inc., Paul A. Ormond, and Stewart Bainum, Jr. On May 7, 1999, Genesis filed an action in the United States District Court for the District of Delaware against HCR Manor Care, Inc., Manor Care, Inc., Paul A. Ormond, and Stewart Bainum, Jr. (the "Genesis Delaware Action"). In this action, Genesis seeks compensatory and punitive damages exceeding $200,000,000 for federal securities fraud, common-law fraud, negligent misrepresentation and controlling person liability in connection with material misrepresentations and omissions made by defendants during the course of Genesis' acquisition of Vitalink. Genesis further seeks injunctive relief with respect to Manor Care's failure to dispose of its ownership interests in Heartland Healthcare Services, a competitor of NeighborCare, pursuant to a non-competition provision found in a Side Agreement between Genesis, Vitalink and the entity formerly known as Manor Care, Inc., and now known as Manor Care of America, Inc. ("MCAI"). Defendants filed a motion to dismiss or stay this action pending the resolution of the AAA Arbitration. On March 22, 2000, the Court denied the defendants' motion to dismiss, but granted the motion to stay the case pending resolution of the AAA Arbitration. As a result, the case remains stayed. NeighborCare Pharmacy Services, Inc. v. Omnicare, Inc. and Heartland Healthcare Services On July 26, 1999, NeighborCare filed an action in the Circuit Court for Baltimore County, Maryland against Omnicare, Inc. and Heartland Healthcare Services, a joint venture between Omnicare and Manor Care. In this action, NeighborCare seeks injunctive relief, and compensatory and punitive damages of not less than $200,000,000, in connection with defendants' tortious interference with the Master Service Agreements. The two defendants each filed motions to dismiss, or, in the alternative, to stay this action pending the resolution of the AAA Arbitration. On November 12, 1999, the Court granted the motions to stay, and set a January 31, 2000 hearing date for the motions to dismiss. Defendants subsequently withdrew their motions to dismiss prior to the hearing date. As a result, the case remains stayed. 92 Manor Care, Inc. v. Genesis Health Ventures, Inc. On August 17, 1999, MCAI (then known as Manor Care, Inc.) filed a lawsuit in the United States District Court for the District of Delaware against Genesis. In this action, the plaintiff brings claims under the federal securities laws resulting from alleged misrepresentations and omissions made by Genesis in connection with MCAI's acquisition of Genesis' Series G Preferred Stock as compensation for its sale of Vitalink to Genesis. Plaintiff seeks compensatory damages of unspecified amount, rescission of MCAI's purchase of the Series G Preferred Stock, and the return of the consideration paid by MCAI at the time of Genesis' acquisition of Vitalink from MCAI. Genesis filed a motion to dismiss this action. On September 29, 2000, the Court granted that motion in part and denied it in part. Specifically, the Court dismissed plaintiff's allegations regarding purportedly fraudulent statements concerning: Genesis' knowledge as to certain legislative changes to the Medicare program; the effect of Genesis' affiliate Multicare on Genesis' earnings; Genesis' intent with respect to the issuance of preferred stock; and Genesis' ability to declare dividends on the Series G Preferred Stock. Accordingly, the only allegations that were not dismissed from this action concern Genesis' alleged failure to include certain financial information on the Registration Statement it filed in connection with its acquisition of Vitalink, and allegedly fraudulent statements concerning Genesis' labor relations. Genesis' motion to consolidate this action with the Genesis Delaware Action described above has been denied. On October 22, 2001, plaintiff filed a motion to reconsider the Court's decision to dismiss this action in part, and Genesis has filed an opposition to that motion. On December 5, 2001, Genesis filed a motion to dismiss the entire action pursuant to Genesis' Joint Plan of Reorganization and the Bankruptcy Court's order confirming that Plan, which extinguish plaintiff's claims against Genesis except to the extent that those claims may be repled as set-off or recoupment against claims brought by Genesis. The parties have agreed that plaintiff has until January 14, 2002 to respond to that motion. Manor Care of America, Inc. v. Genesis Health Ventures, Inc., the Cypress Group L.L.C., TPG Partners II, L.P., and Nazem, Inc. On December 22, 1999, MCAI filed a lawsuit in the United States District Court for the Northern District of Ohio against Genesis Health Ventures, Inc., the Cypress Group L.L.C., TPG Partners II, L.P., and Nazem, Inc. In this action, MCAI brings claims of federal securities fraud in connection with alleged misrepresentations and omissions made by Genesis in connection with Genesis' issuance of Series H Preferred Stock and Series I Preferred Stock (the "Senior Preferred Stock") on or about November 15, 1999. In connection with the issuance of the Senior Preferred Stock, MCAI also brings state law breach-of-contract claims with respect to Genesis' purported obligations under (1) a Rights Agreement entered into between Genesis and MCAI at the time of Genesis' acquisition of Vitalink from MCAI, and (2) the terms of the Series G Preferred Stock issued to MCAI in connection with the Vitalink transaction. MCAI seeks rescission of the Senior Preferred Stock and unspecified monetary damages. On February 29, 2000, Genesis filed a motion to dismiss this action on the ground, among others, that the sole federal claim alleged fails to state a cause of action under federal securities laws. That motion has been fully briefed. In response to Genesis' chapter 11 filing, the Court, on July 19, 2000, stayed this action and ordered the case closed subject to reopening upon written motion. The case remains closed. Genesis is not able to predict the results of such litigation. However, if the outcome is unfavorable to us, and the claims of HCR Manor Care are upheld, such results would have a material adverse effect on our financial position, results of operations and cash flows. 93 U.S. ex rel Scherfel v. Genesis Health Ventures et al. In this action brought in United States District Court for the District of New Jersey on March 16, 2000, the plaintiff alleges that a pharmacy purchased by NeighborCare, Inc. failed to process Medicaid credits for returned medications. The allegations are vaguely alleged for other jurisdictions. While the action was under seal in United States District Court, Genesis fully cooperated with the Department of Justice's evaluation of the allegations. On or about March 2001, the Department of Justice declined to intervene in the suit and prosecute the allegations. The plantiff filed a proof of claim in the Genesis bankruptcy proceedings initially for approximately $650,000,000 and more recently submitted an amended claim in the amount of approximately $325,000,000. The Company believes the allegations have no merit and has objected to the proof of claim. The Company intends to defend the suit. Other Legal Proceedings An individual prepetition bond holder has filed a notice of appeal of the order confirming the Plan of Reorganizaton in the United States District Court for the District of Delaware. The appeal is pending. The Company has filed a motion to dismiss. Genesis is a party to other litigation arising in the ordinary course of business. Genesis does not believe the results of such litigation, even if the outcome is unfavorable to the Company, would have a material adverse effect on its consolidated financial position or results of operations. (20) Fair Value of Financial Instruments The carrying amount of the Predecessor Company and Successor Company cash and equivalents, accounts receivable (net of allowance for doubtful accounts), prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and accrued interest approximates fair value because of the short-term maturity of these instruments. The Company also believes the carrying value of mortgage notes and other notes receivable, and non marketable debt securities approximate fair value based upon the discounted value of expected future cash flows using interest rates at which similar investments would be made to borrowers with similar credit quality and for the same remaining maturities. The fair value of the Company's commitments to provide working capital lines of credit and certain financial guarantees is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. Since the Company has not charged fees for currently outstanding commitments there is no fair value of such financial instruments. In connection with the adoption of fresh-start reporting, the carrying value of the Successor Company's long-term debt equals fair value. 94 (21) Segment Information The Company's principal operating segments are identified by the types of products and services from which revenues are derived and are consistent with the reporting structure of the Company's internal organization. The Company has two reportable segments: (1) Pharmacy and medical supplies services and (2) Inpatient services. The Company provides pharmacy and medical supply services through its NeighborCare pharmacy subsidiaries. Included in pharmacy and medical supply service revenues are institutional pharmacy revenues, which include the provision of infusion therapy, medical supplies and equipment provided to eldercare centers it operates, as well as to independent healthcare providers by contract. The Company provides these services through 60 institutional pharmacies (two are jointly-owned) and 22 medical supply and home medical equipment distribution centers (four are jointly-owned) located in its various market areas. In addition, the Company operates 29 community-based pharmacies (two are jointly-owned) which are located in or near medical centers, hospitals and physician office complexes. The community-based pharmacies provide prescription and over-the-counter medications and certain medical supplies, as well as personal service and consultation by licensed professional pharmacists. Approximately 91% of the sales attributable to all pharmacy operations in Fiscal 2001 were generated through external contracts with independent healthcare providers with the balance attributable to centers owned or leased by the Company. The Company includes in inpatient service revenue all room and board charges and ancillary service revenue for its eldercare customers at its 192 owned and leased eldercare centers. The centers offer three levels of care for their customers: skilled, intermediate and personal. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All intersegment sales prices are market based. The Company evaluates performance of its operating segments based on income before interest, income taxes, depreciation, amortization, rent and nonrecurring items. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column represents operating information of business units below the prescribed quantitative thresholds. These business units derive revenues from the following services: rehabilitation therapy, management services, capitation fees, consulting services, homecare services, physician services, transportation services, diagnostic services, hospitality services, group purchasing fees and other healthcare related services. In addition, the "Other" column includes the elimination of intersegment transactions. 95
- ------------------------------------------------------------------------------------------------------ 2001 - ------------------------------------------------------------------------------------------------------ Pharmacy and Medical Inpatient Supply (in thousands) Services Services Other Total - ------------------------------------------------------------------------------------------------------ Revenue from external customers $ 1,360,230 $1,040,051 $ 169,656 $2,569,937 Revenue from intersegment customers - 98,121 194,295 292,416 Operating income (1) 179,414 101,872 (39,758) 241,528 Total assets (2) 990,978 672,234 171,368 1,834,580 - ------------------------------------------------------------------------------------------------------ 2000 - ------------------------------------------------------------------------------------------------------ Revenue from external customers $ 1,320,151 $ 952,350 $ 161,357 $2,433,858 Revenue from intersegment customers - 99,928 185,886 285,814 Operating income (1) (3) 182,205 93,709 (39,486) 236,428 Total assets 1,739,658 1,041,757 346,484 3,127,899 - ------------------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------------------ Revenue from external customers $ 704,105 $ 927,334 $ 234,987 $1,866,426 Revenue from intersegment customers - 60,502 79,843 140,345 Operating income (1) 104,305 119,282 29,362 252,949 Total assets 767,748 1,072,099 590,067 2,429,914 - ------------------------------------------------------------------------------------------------------
(1) Operating income is defined as income before interest, income taxes, depreciation, amortization, rent and nonrecurring items. See Footnote 18 - "Loss on Impairment of Assets and Other Charges." The Company's segment information does not include an allocation of overhead costs, which for the inpatient services segment are between 3% - 4% of inpatient services net revenues, and for the pharmacy and medical supply segment are between 1% - 2% of the net revenues of that segment. (2) Successor Company. All other segment information presented is that of the Predecessor Company. (3) Certain operating income balances in the 2000 period were reclassified to conform to the current year presentation. (22) Comprehensive Income (Loss) The following table sets forth the computation of comprehensive loss for the years ended September 30, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 - -------------------------------------------------------------------------------------------------- Net income (loss) attributed to common shareholders $247,009 $(883,455) $(290,050) Unrealized (loss) gain on marketable securities 1,981 (1,361) (1,112) - -------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $248,990 $(884,816) $(291,162) - --------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss, which is composed of net unrealized gains and losses on marketable securities, was $192,000 and $(1,789,000) at September 30, 2001 and 2000, respectively. 96 (23) Quarterly Financial Data (Unaudited) The Company's unaudited quarterly financial information is as follows (in thousands):
Loss Before Diluted Extraordinary Earnings Item and (Loss) Per Cumulative Share Before Effect of Extraordinary Accounting Item and Change and Cumulative Diluted After Effect of Earnings Total Net Loss from Preferred Net Income Accounting (Loss) Revenues operations (1) Dividends (Loss) Change Per Share - ------------------------------------------------------------------------------------------------------------------- Quarter ended: December 31, 2000 $ 629,019 $ (8,696) $ (32,811) $ (32,811) $ (0.67) $ (0.67) March 31, 2001 630,082 (12,741) (36,723) (36,723) (0.75) (0.75) June 30, 2001 650,741 (1,117) (28,291) (28,291) (0.58) (0.58) September 30, 2001 660,095 (107,073) (1,179,989) 344,834 (24.26) 7.09 - ------------------------------------------------------------------------------------------------------------------- Quarter ended: December 31, 1999 $ 586,884 $ (445,671) $ (439,770) $(450,182) $(10.37) $(10.62) March 31, 2000 604,843 (58,111) (54,932) (54,932) (1.13) (1.13) June 30, 2000 615,851 (68,923) (60,937) (60,937) (1.25) (1.25) September 30, 2000 626,280 (352,152) (317,404) (317,404) (6.53) (6.53) - -------------------------------------------------------------------------------------------------------------------
(1) Loss from operations is defined as: loss before debt restructuring and reorganization costs, income taxes, equity in net loss of unconsolidated affiliates, minority interest, extraordinary items and cumulative effect of accounting change. Earnings (loss) per share was calculated for each three month and the twelve-month period on a stand-alone basis. As a result, the sum of the diluted earnings (loss) per share for the four quarters does not equal the loss per share for the twelve months. The first, second, third and fourth quarters of 2001 include debt restructuring, reorganization costs, and other charges of $14,209,000, $16,307,000, $17,704,000 and $1,067,565,000, respectively. In addition, the fourth quarter of fiscal 2001 includes an extraordinary gain of $1,524,823,000 in connection with the Company's reorganization. The fourth quarter of 2000 includes $62,795,000 of debt restructuring, reorganization costs, and other charges. See "Footnote 18 - Loss on Impairment of Assets and Other Charges," and "Footnote 1 - Reorganization." 97 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 98 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information with respect to our non-employee directors.
Name Age Committees of the board of directors - ---- --- ------------------------------------ James H. Bloem 51 Audit Committee Edwin M. Crawford 52 Compensation Committee James E. Dalton, Jr. 59 Executive Committee James D. Dondero 39 Audit Committee, Executive Committee Robert H. Fish 51 Audit Committee Dr. Philip P. Gerbino 54 Audit Committee, Compensation Committee Joseph A. LaNasa III 32 Compensation Committee, Executive Committee
James H. Bloem is Senior Vice President and Chief Financial Officer of Humana and is responsible for developing business growth strategies and supervising all accounting, actuarial, financial, tax, risk management, treasury, and investor relations activities. Previously, Mr. Bloem has served as Executive Vice President, then as President of the personal care division of Perrigo Company, the nation's largest manufacturer of over-the-counter pharmaceuticals, personal care, and nutritional products for the store brand market. Mr. Bloem's experience also includes independent financial and business consulting and a law partnership with a specialization in taxation and corporate practice. Mr. Bloem holds a Law degree from Vanderbilt University and a Masters of Business Administration degree from Harvard Business School. He is also a certified public accountant and serves as director of several corporate and educational boards. Edwin M. Crawford is Chairman of the Board and Chief Executive Officer of Caremark Rx, Inc. (formerly MedPartners, Inc.), a leading prescription benefit manager (PBM), providing comprehensive drug benefit services to over 1,200 health plan sponsors and holding contracts to serve approximately 20 million participants throughout the United States. Prior to joining Caremark Rx, Inc., Mr. Crawford was Chairman, President and CEO of Magellan Health Services, Inc., one of the nation's leading specialty managed care companies. A certified public accountant, Mr. Crawford received his B.S. degree from Auburn University in 1971. James E. Dalton's extensive management experience includes senior management positions with several national healthcare organizations including Quorum Health Group, Inc., HealthTrust Inc. and Humana and with hospitals in Virginia and West Virginia. He serves on the board of directors of a number of health care organizations and serves on the board of trustees of Universal Health Realty Income Trust, and the American Hospital Association. He is a Fellow of the American College of Healthcare Executives and past chairman of the Federation of American Hospitals. He holds a Bachelor's degree in Economics from Randolph-Macon College and a Master's degree in Hospital Administration from the Medical College of Virginia. James D. Dondero is President of Highland Capital Management, LP where he has facilitated growth through the creation of 19 separate portfolios holding in excess of $8 billion. Formerly, Mr. Dondero served as Chief Investment Officer of Protective Life Insurance Company's GIC subsidiary from 1989 to 1993. His portfolio management experience includes mortgage-backed securities, investment grade corporates, leveraged bank loans, emerging markets, derivatives, preferred stocks and common stocks. Mr. Dondero is a certified public accountant, chartered financial analyst, a certified management accountant and a member of the NYSSA. He completed his financial training at Morgan Guaranty Trust Company and is a graduate of the University of Virginia with degrees in Accounting and Finance. 99 Robert H. Fish has over 25 years experience in health care management. He is a Managing Partner of Sonoma-Seacrest, LLC, a California-based healthcare practice specializing in strategic planning, performance improvement, and merger and acquisition issues. Prior to joining Sonoma, Mr. Fish served as President and Chief Executive Officer of St. Joseph Health System and President and Chief Executive Officer of ValleyCare Health System. Mr. Fish holds a Bachelor of Arts degree in Sociology and Anthropology from Whittier College and a Masters in Hospital Administration from the University of California at Berkeley. In addition to consulting, Mr. Fish is a member of several corporate and social service boards. Dr. Philip P. Gerbino is president of the University of the Sciences in Philadelphia, which includes the Philadelphia College of Pharmacy, and has been part of the faculty and administration of that institution for over 25 years. In addition, he is a national leader in the pharmacy field and has served as president of the American Pharmaceutical Association, president of the APhA Academy of Pharmacy Practice, member of the U.S. Pharmacopeial Advisory Panel on Geriatrics and as chair of the Commission for Certification in Geriatric Pharmacy. He also serves on the board of directors of a number of public and private healthcare organizations and foundations. Dr. Gerbino holds a Bachelor of Science degree in Pharmacy and a Doctor of Pharmacy degree from the Philadelphia College of Pharmacy and Science. Joseph A. LaNasa III is a co-portfolio manager and a vice president in distressed bank debt at Goldman Sachs & Co., where he analyzes and invests in the debt of financially troubled companies. Prior to joining Goldman Sachs, he worked as an attorney at Wachtell, Lipton, Rosen & Katz and before that he clerked for the honorable Adrian Duplantier in federal district court in the Eastern District of New Orleans. He graduated magna cum laude from Harvard Law School and summa cum laude from Georgetown University's School of Foreign Service. The board of directors was appointed in connection with the consummation of the Plan, and will serve for a term of one year. At the first meeting of shareholders for the election of directors, the board of directors will be divided into three classes, class I, class II and class III, which will be as nearly equal in number as possible. Each director will serve for a term ending on the date of the third annual meeting following the annual meeting at which the director was elected; provided, however, that each director in class I will hold office until the first annual meeting of shareholders following the meeting at which the director was elected; each director in class II will hold office until the second annual meeting of shareholders following the meeting at which the director was elected; and each director in class III will hold office until the third annual meeting of shareholders following the meeting at which the director was elected. 100 The following table sets forth certain information with respect to our executive officers.
Name Age Position - ---- --- -------- Michael R. Walker 53 Chairman and Chief Executive Officer Richard R. Howard 52 Vice Chairman David C. Barr 51 Vice Chairman George V. Hager, Jr. 45 Executive Vice President and Chief Financial Officer Barbara J. Hauswald 42 Senior Vice President and Treasurer James V. McKeon 37 Senior Vice President and Corporate Controller Richard Pell, Jr. 53 Senior Vice President, Administration and Chief Compliance Officer Richard L. Castor 46 Senior Vice President and Chief Information Officer James W. Tabak 42 Senior Vice President, Human Resources James J. Wankmiller, Esquire 47 Senior Vice President, General Counsel and Corporate Secretary
Michael R. Walker founded Genesis and has served as chairman and chief executive officer of the company since its inception in 1985. Mr. Walker is also founder and chairman of the board of trustees of ElderTrust, a healthcare real estate investment trust. In addition to his responsibilities with Genesis and ElderTrust, Mr. Walker leads the Alliance for Quality Nursing Home Care, ("The Alliance") a national coalition of the nation's top 12 long term care providers. Since 1999, The Alliance has lobbied for and gained nearly $5 billion in additional Medicare funding for long term care providers. Mr. Walker holds a Master of Business Administration degree from Temple University and a Bachelor of Arts in Business Administration degree from Franklin and Marshall College. Richard R. Howard as vice chairman oversees Genesis ElderCare's five regional operations plus clinical practice, real estate and property management. Prior to becoming vice chairman in 1998, Mr. Howard served as president and as president and chief operating officer. He joined Genesis in 1985 as vice president of development. Mr. Howard's experience also includes over ten years in the banking industry. He is a graduate of the Wharton School, University of Pennsylvania, where he received a Bachelor of Science degree in Economics in 1971. David C. Barr is vice chairman of Genesis. He is responsible for oversight of the Genesis Health Services entities which include the company's pharmacy, medical supply, rehabilitation therapy, respiratory health, hospitality, group purchasing, consulting and diagnostic services. Mr. Barr also has responsibility for senior housing initiatives, and corporate sales and marketing. Prior to becoming vice chairman in 1998, he served as executive vice president and as chief operating officer. Before joining Genesis, Mr. Barr was a principal of a private consulting firm, Kane Maiwurm Barr, Inc., which provided management consulting services to small and medium-sized firms. Mr. Barr's experience also includes over 10 years with a service conglomerate and in the corporate banking industry. Mr. Barr graduated in 1972 from the University of Miami with a Bachelor of Science degree in Accounting. George V. Hager, Jr. serves as executive vice president and chief financial officer and is responsible for corporate finance, treasury, information services, third party reimbursement and risk management. Mr. Hager joined Genesis in 1992 as vice president and chief financial officer and was named senior vice president and chief financial officer in 1994. Mr. Hager has over 20 years experience in the healthcare industry including leading KPMG LLP's healthcare practice in Philadelphia. He holds a Bachelor of Arts degree in Economics from Dickinson College and a Master of Business Administration degree from Rutgers Graduate School of Management. Mr. Hager is a certified public accountant and a member of both the AICPA and PICPA. 101 Barbara J. Hauswald has served as senior vice president and treasurer since April 2000, and joined us as vice president and treasurer in April 1998. Prior to joining Genesis, Ms. Hauswald served as first vice president in the health care banking department of Mellon Bank N.A. Ms. Hauswald has over 16 years of commercial banking experience. She received a Bachelor of Science degree in Commerce in 1981 from the University of Virginia. James V. McKeon has served as senior vice president and corporate controller of Genesis since April 2000. Mr. McKeon joined us in June 1994 as director of financial reporting and investor relations and served as vice president of finance and investor relations from November 1995 to April 1997. From April 1997 to April 2000, Mr. McKeon served as the vice president and corporate controller. From September 1986 until June 1994, Mr. McKeon was employed by KPMG LLP, most recently as Senior Manager. He received a Bachelor of Science degree in Accountancy from Villanova University in 1986. Mr. McKeon is a certified public accountant and a member of the AICPA and PICPA. Richard Pell, Jr. has served as senior vice president-administration and chief compliance officer of us since April 1998. Mr. Pell oversees the following areas: human resources, law, government relations, public relations, staff development and corporate communications. Prior to joining Genesis, Mr. Pell was the director of the Veterans Affairs Medical Center in Martinsburg, West Virginia and chief of staff for the department of veterans affairs. He received a Bachelor of Science Degree in Economics from the University of Pennsylvania in 1970 and a Masters Degree in Health Care Administration from the Mt. Sinai School of Medicine, City University of New York in 1975. Richard L. Castor has served as senior vice president and chief information officer since June 2001, chief technology officer since December 2000, and as president of HealthObjects, a wholly-owned software development company since March 1998. Prior to that time, Mr. Castor served as chief technology officer for Aetna for 2 years, chief information officer and vice president of MIS for U.S. Healthcare for 8 years, and director for several R&D and commercial information systems organizations for GlaxoSmithKline over a 10 year period. Mr. Castor received a Bachelor of Science degree in Computer Science from Denison University in 1977. James W. Tabak, Esquire is senior vice president of human resources and oversees and directs the function of the human resource department including human resource planning, employment, training and development, labor relations, compensation, benefits and merit review system. Mr. Tabak joined us in January 1992 and has served as associate general counsel and vice president of human resources. His prior experience includes work as an associate counsel for The Mutual Benefit Life Insurance Company. He holds a Bachelor of Science degree in Political Science from the University of Pennsylvania and a law degree from The Boston University School of Law. Mr. Tabak is licensed to practice law in Pennsylvania, New York and New Jersey. James J. Wankmiller, Esquire has served as senior vice president, general counsel and corporate secretary since April 2000. Mr. Wankmiller joined Genesis in October 1996 as vice president, general counsel. Prior to joining Genesis, he was vice president of law and corporate secretary for Geriatric & Medical Companies, Inc. Mr. Wankmiller received his Bachelor of Science degree from St. Joseph's University in 1976 and his Juris Doctorate degree from Villanova University School of Law in 1980. He is a member of the National Health Lawyers Association, the Pennsylvania Society of Healthcare Attorneys, the Pennsylvania Bar Association's In House Counsel and Health Care Law Committees, and the American Corporate Counsel Association - Delaware Valley Chapter. He also serves on the legal subcommittee of the American Health Care Association. Reorganization All of the executive officers were with us either prior to or during our Chapter 11 bankruptcy proceedings. Mr. Walker and Dr. Gerbino were members of our board of directors either prior to or during our Chapter 11 bankruptcy proceedings. See "Business - Reorganization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 102 SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16 (a) of the Exchange Act Requires Genesis' directors and executive officers and persons who own more than 10% of a registered class of Genesis' equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Genesis. Officers, directors and greater than 10% shareholders are required by the SEC regulation to furnish Genesis with copies of all Section 16 (a) forms they file. To Genesis' knowledge, based solely on review of the copies of such reports submitted to Genesis with respect to the fiscal year ended September 30, 2001, all Section 16 (a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with. 103 ITEM 11: EXECUTIVE COMPENSATION
Long Term All Other Annual Compensation Compensation Compensation ------------------- ------------ ------------ (1)(6) ------ Name and Position Fiscal Salary Bonus Option with the Company Year (2)(4)(5) (7)(8)(9) Awards (3) ---------------- ---- --------- ---------- ---------- Michael R. Walker 2001 $750,000 $883,813 - $1,700 Chairman and Chief 2000 721,154 - - 4,525 Executive Officer 1999 650,000 - 300,000 18,377 - ------------------------------------------------------------------------------------------------------------------- Richard R. Howard 2001 $500,000 $392,250 - - Vice Chairman 2000 505,824 - - 3,400 1999 454,715 - 200,000 13,752 - ------------------------------------------------------------------------------------------------------------------- David C. Barr 2001 $500,000 $392,250 - $1,700 Vice Chairman 2000 502,139 - - 2,875 1999 489,446 - 200,000 11,837 - ------------------------------------------------------------------------------------------------------------------- George V. Hager, Jr. 2001 $350,000 $274,875 - $1,700 Executive Vice President 2000 356,637 - - 2,275 And Chief Financial Officer 1999 325,093 - 75,000 7,888 - ------------------------------------------------------------------------------------------------------------------- Robert A. Smith 2001 $232,281 $57,700 - $76,219 President, 2000 187,872 - - 8,561 NeighborCare Pharmacy 1999 - - - - - -------------------------------------------------------------------------------------------------------------------
(1) Represents our matching contribution under the 401(k) Retirement Plan and Non Qualified Retirement Plans, except otherwise noted. (2) Includes compensation deferred under the 401(k) Retirement Plan, Execuflex Plan and other arrangements with us; does not include other payments made by us under the 401(k) Retirement Plan, Execuflex Plan and other arrangements with us. (3) No options were granted by us during the fiscal year ended September 30, 2001 to any of our five most highly compensated executive officers. Does not include stock options Messrs. Walker, Howard, Barr and Hager forfeited in fiscal 2000. (4) The 1999 annual salary compensation for Messrs. Howard and Barr were restated by $54,714 and $93,015, respectively as a result of an increase in compensation retroactive to April 11, 1999. These retroactive adjustments were deferred by Messrs. Howard and Barr under the Non Qualified Deferred Compensation Plan. (5) The 2000 annual salary of Messrs. Howard, Barr and Hager include $91,439, $155,446 and $50,291, respectively of compensation deferred under the Non Qualified Deferred Compensation Plan. (6) In addition to our matching contribution under the 401(k) Retirement Plan, Mr. Smith also received relocation and automobile compensation in 2001 of $72,195 and $ 2,908, respectively and automobile/transportation compensation of $8,238 in 2000. (7) Includes performance bonuses for Messrs. Walker, Barr, Howard, and Hager of $71,000, $31,000, $31,000 and $22,000, respectively, and bankruptcy court approved emergence bonuses of $812,812, $361,250, $361,250, and $252,875, respectively. (8) Mr. Walker deferred the receipt of his emergence bonus ($812,812) and the performance bonus ($71,000) into the Non Qualified Deferred Compensation Plan. Mr. Barr deferred the receipt of his emergence bonus ($361,250) and the performance bonus ($31,000) into the Non Qualified Deferred Compensation Plan. Mr. Hager deferred the receipt of 50% of his emergence bonus ($137,437) and 50% of his cash bonus ($11,000) into the Non Qualified Deferred Compensation Plan. (9) Mr. Smith received a performance bonus and a bankruptcy court approved special recognition bonus in the amount of $32,500 and $25,200, respectively. 104 Directors Compensation Each director who is not an employee of us receives an annual fee of $25,000 for serving as a director of us and $1,500 for each day during which he participates in a meeting of our board of directors and, if on a separate day, $1,000 for each day during which he participates in a meeting of a committee of our board of directors of which he is a member. Employment Agreements We entered into amended employment agreements, effective October 2, 2001, with Michael R. Walker as our chairman and chief executive officer, Richard R. Howard and David C. Barr as our vice chairmen and George V. Hager, Jr., as our executive vice president and chief financial officer. The agreements currently expire on October 2, 2004. Unless notice of non-renewal is given by two-thirds of the non-management members of the board of directors, the current terms of the agreements shall automatically extend an additional year beginning on the anniversary thereof in 2002. The annual base salaries of Messrs. Walker, Howard, Barr and Hager currently are $850,000, $500,000, $500,000 and $400,000, respectively, and are reviewable by our board of directors at least annually. The agreements may be terminated by us at any time for Cause (as defined) upon the vote of not less than two-thirds of the non-management membership of our board of directors. Each executive may terminate his employment agreement upon notice to us of the occurrence of certain events, including an election by us not to renew the term of the agreement, as described above. If an executive terminates his employment following a change in control, the executive is entitled to receive, among other things, accrued bonuses and severance pay three times the executive's termination base salary plus three times the executive's average incentive compensation award, subject to the terms of the employment agreement. Upon a change in control, stock options granted to the executive immediately and fully vest and restricted stock awarded to the executive immediately and fully vests. In the event that we terminate the executive's employment agreement without Cause, or the executive terminates his employment agreement as described in the preceding sentence, the executive is entitled to severance compensation equal to three years base salary plus the cash bonuses granted during such period. If an executive becomes disabled, he will continue to receive all of his compensation and benefits so long as such period of disability does not exceed 6 consecutive months or shorter periods aggregating 6 months in any 12 month period. Each employment agreement also contains provisions that are intended to limit the executive from competing with us throughout the term of the agreement and for a period of two years thereafter. We have employment contracts with other key executives. The terms of the contracts consider base compensation, incentive compensation, severance, and non-compete provisions. The contracts expire over periods from July 1, 2002, to October 31, 2003. Restricted Stock Grants On October 2, 2001, the Board of Directors authorized the Successor Company to issue 750,000 restricted shares of the Successor Company common stock to 43 of its senior officers. These shares will vest and will be issued quarterly over a five year period, commencing on January 1, 2002 and ending on October 1, 2006. Stock Option Plans Pursuant to the terms of the Plan, shares of our common were canceled. Consequently, unexercised stock options of Amended and Restated Stock Option Plan and the 1998 Non-Qualified Employee Stock Option Plan were also canceled and the related plans ceased to exist. Set forth below is a summary of certain significant provisions of our 2001 Stock Option Plan (the "2001 Plan"). 105 The purpose of the 2001 Plan is to provide additional incentive to officers, other key employees, and directors of, and important consultants to us and each present or future parent or subsidiary corporation, by encouraging them to invest in shares of our new common stock, par value $0.02 and thereby acquire a proprietary interest in us and an increased personal interest in our continued success and progress. The aggregate number of shares of our common stock which may be issued under this 2001 Plan is 3,480,000 of which 3,305,000 shares may be issued to non-directors and 175,000 shares may be issued solely to directors. Notwithstanding the foregoing, in the event of any change in the outstanding shares of the common stock of us by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what our compensation committee of the board of directors (the "Committee") deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under the 2001 Plan shall be appropriately adjusted in a manner determined in the sole discretion of the Committee. Reacquired shares of our common stock, as well as unissued shares, may be used for the purpose of the 2001 Plan. Our common stock subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under the 2001 Plan. As of November 15, 2001, 2,680,000 stock options have been awarded of which 2,505,000 stock options were awarded to employees and 175,000 stock options were awarded to non-employee directors. All officers and key employees of the Company and of any present or future Company parent or subsidiary corporation are eligible to receive an option or options under this 2001 Plan. All directors of, and important consultants to us and of any of our present or future parent or subsidiary corporation are also eligible to receive an option or options under this 2001 Plan. The individuals who receive an option or options shall be selected by the Committee, in its sole discretion unless otherwise stipulated in the 2001 Plan. No individual may receive options under this 2001 Plan for more than 80% of the total number of shares of the our common stock authorized for issuance under this 2001 Plan. Options Granted No options were granted by the Company during the fiscal year ended September 30, 2001 to any of the five most highly compensated executive officers of Genesis. All outstanding options were cancelled as a result of the Plan. Special Recognition Program On September 5, 2000, we obtained Bankruptcy Court approval for a special recognition program (the "SRP"). The SRP was established to enhance our ability to reward and retain certain key employees during the reorganization. Cash payments under the SRP were paid out over four payments on the participant's first pay day following September 30, 2000, December 31, 2000, May 31, 2001 and on a date following our emergence from bankruptcy. The aggregate cost of the cash payments under the SRP was approximately $11,200,000. Messrs. Walker, Howard, Barr and Hager were not participants of the SRP. Non Qualified Deferred Compensation Plans Effective April 1, 2001 we adopted the Genesis Health Ventures, Inc. Deferred Compensation Plan (the "Non Qualified Deferred Compensation Plan") for a select group of management and / or Highly Compensated employees, as such term is defined in the Internal Revenue Service Code (the "Code"), which allows them to defer receipt of compensation and supplement retirement savings under the Genesis Health Ventures, Inc. Retirement Plan. In October of 2001, the Non Qualified Deferred Compensation Plan was amended and made available to all highly compensated employees as defined by the IRS (in calendar 2002, employees whose base salary meets or exceeds $90,000). 106 Beginning January 1, 2002, eligible employees will be permitted to defer up to 50% of their base salary and up to 100% of their incentive compensation bonus each year on a pre-tax basis. Participants will be able to select from several fund choices and their Plan account will raise or decline in value in accordance with the performance of the funds they have selected. In November 1991, we adopted the Execuflex Plan. All Genesis employees that were Highly Compensated, as such term is defined in the Code, were entitled to participate in the Execuflex Plan. Pursuant to the terms of the Execuflex Plan, an eligible employee could authorize us to reduce his / her base compensation or bonuses and credit such amounts to a retirement account, education account or fixed period account. A company matching contribution was based on years of service. In April 2000, the Execuflex Plan was liquidated and all eligible participant balances were distributed. Retirement Plan On January 1, 1989, we adopted an employee Retirement Plan which consists of a 401(k) component and a profit sharing component. The Retirement Plan, which is intended to be qualified under Sections 401(a) and (k) of the Code, is a cash deferred profit-sharing plan covering all of our employees (other than certain employees covered by a collective bargaining agreement) who have completed at least 1,000 hours of service and twelve months of employment. Effective January 1, 2000, under the 401(k) component, each eligible employee may elect to contribute a portion of his current compensation up to the lesser of $10,500 (or the maximum then permitted by the Code) or 15% (or for highly compensated employees, 4%) of such employee's annual compensation. We may make a matching contribution in cash, stock or other property as determined by the board of directors each year. The board of directors may establish this contribution at any level each year, or may omit such contribution entirely. An employee's eligibility for a matching contribution is contingent upon his employment on the last day of the calendar year. Our match since January, 1995 has been based on years of service. An employee who has completed six years of service is matched $0.75 per $1.00 of contribution up to 4% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 3% of his salary. If the employee contributes less than 4%, we contribute $0.75 per $1.00 of contribution. If an employee has not completed six years of service, or is considered a highly compensated employee (as such term is defined in the Code), he is matched $0.50 per $1.00 of contribution up to 2% of his salary. Under the profit sharing provisions of the Retirement Plan, we may make an additional employer contribution in cash, Company stock or other property as determined by the board of directors each year. The board of directors may establish this contribution at any level each year, or may omit such contribution entirely. Profit sharing contributions are allocated among the accounts of participants in the proportion that their annual compensation bears to the aggregate annual compensation of all participants. An employee's eligibility for profit sharing contribution is contingent upon a service requirement of a minimum of 1,000 hours and employment on the last day of the calendar year. All employee contributions to the Retirement Plan are 100% vested. Our contributions are vested in accordance with a schedule that generally provides for vesting after five years of service with us (any non-vested amounts that are forfeited by participants are used to reduce the following year's contribution by us). Distribution of benefits normally will commence upon the participant's reaching age 65 (or, if earlier, upon the participant's death, disability, or termination of employment). Payment of Retirement Plan benefits will generally be made in a lump sum unless an alternative equivalent form of benefit is elected. Certain special rules apply to the distribution of benefits to participants for whom the Retirement Plan has accepted a transfer of assets from another tax-qualified pension plan. 107 Senior Executive Stock Ownership Program and Executive Loans In December, 1997 the board of directors approved a Senior Executive Stock Ownership Program. Under the terms of the program, certain of our senior executive employees were required to own shares of our common stock having a market value based upon a multiple of the executive's salary. Each executive was required to own the shares within three years of the date of the adoption of the program. Subject to applicable laws, we were authorized to lend funds to one or more of the senior executive employees for his or her purchase of our common stock. As of September 30, 2001, we had outstanding loan and accrued interest balances of approximately $3,200,000 from the senior executives. The note agreements were amended in fiscal 2000 to adjust the interest rate to 8% simple interest. Previously, the loans accrued interest based on the market rate at the date of the loan initiation. On February 23, 2001, the U.S. Bankruptcy Court ordered that the remaining loans be forgiven on the first anniversary of our emergence from bankruptcy. Therefore, effective October 2, 2002, these loans will be forgiven and we will hold the executives harmless for all and any of the tax consequences resulting from the forgiveness of the loans. 108 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT The following table sets forth information with respect to the beneficial ownership of our common stock as of November 15, 2001 for: o each person who we know owns beneficially more than 5% of our common stock, o each of our most highly compensated executive officers; o each of our directors; and o all of our executive officers and directors as a group. Unless otherwise noted below, and subject to applicable community property laws, to our knowledge, each person has sole voting and investment power over the shares shown as beneficially owned, except to the extent authority is shared by spouses under applicable law and except as set forth in the footnotes to the table. The number of shares beneficially owned by each shareholder is determined under rules promulgated by the SEC. The information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options and warrants held by the respective person or group which may be exercised within 60 days after November 15, 2001. For purposes of calculating each person's or group's percentage ownership, stock options and warrants exercisable within 60 days after November 15, 2001 are included for that person or group but not the stock options and warrants of any other person or group. All addresses for the executive officers and directors are c/o Genesis Health Ventures, Inc., 101 East State Street, Kennett Square, Pennsylvania 19348. 109 Beneficial ownership, as set forth in the regulations of the SEC, includes securities owned by or for the spouse, children or certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days after November 15, 2001. The same shares may be beneficially owned by more than one person. Beneficial ownership may be disclaimed as to certain of the securities.
- ------------------------------------------------------------------------------------------------------------- Shares of Common Percent of Stock Beneficially Common Stock Owned Owned - ------------------------------------------------------------------------------------------------------------- Goldman Sachs Group. (1), (2) 85 Broad Street New York, NY 10004 7,173,461 17.69% - ------------------------------------------------------------------------------------------------------------- James H. Bloem 25,000 * - ------------------------------------------------------------------------------------------------------------- Edwin M. Crawford 25,000 * - ------------------------------------------------------------------------------------------------------------- James D. Dondero 25,000 * - ------------------------------------------------------------------------------------------------------------- Robert H. Fish 25,000 * - ------------------------------------------------------------------------------------------------------------- Dr. Philip P. Gerbino 25,000 * - ------------------------------------------------------------------------------------------------------------- Joseph A. LaNasa III 7,173,461 17.69% - ------------------------------------------------------------------------------------------------------------- James E. Dalton, Jr. 25,000 * - ------------------------------------------------------------------------------------------------------------- Michael R. Walker - - - ------------------------------------------------------------------------------------------------------------- David C. Barr - - - ------------------------------------------------------------------------------------------------------------- Richard R. Howard - - - ------------------------------------------------------------------------------------------------------------- George V. Hager, Jr. - - - ------------------------------------------------------------------------------------------------------------- Robert A. Smith - - - ------------------------------------------------------------------------------------------------------------- All executive officers and directors as a group (26 persons) 7,323,461 18.06% - -------------------------------------------------------------------------------------------------------------
* Less than one percent. (1) Goldman Sachs & Company is a wholly owned subsidiary of The Goldman Sachs Group. Goldman Sachs & Co.'s direct beneficial ownership consist of (a) 6,433,167 shares of new common stock, (b) 362,127 additional shares which may be acquired upon the exercise of warrants and (c) 71,799 shares of convertible preferred stock which are convertible into 353,167 shares of new common stock. Joseph A. LaNasa III, a vice president of Goldman Sachs Co., is a member of the successor company's board of directors and was granted 25,000 shares of stock options in the successor company. Mr. LaNasa has an understanding with Goldman Sachs Group pursuant to which he holds the options for the benefit of the Goldman Sachs Group. (2) Goldman Sachs & Co. currently owns 15.525% of issued stock warrants. The remaining stock warrants to be issued will increase their ownership in warrants by an additional 345,741 shares. 110 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to the Senior Executive Officer Stock Ownership Plan at September 30, 2001, Genesis had loans outstanding to Messrs. Howard, Barr, Hager and Rubinger in the principal amounts of $646,889, $820,962, $624,244 and $492,812, respectively. On February 23, 2001, the U.S. Bankruptcy Court ordered that the remaining loans be forgiven on the first anniversary of our emergence from bankruptcy. Therefore, effective October 2, 2002, these loans will be forgiven and we will hold the executives harmless for all and any of the tax consequences resulting from the forgiveness of the loans. Michael R. Walker is chairman of the board for the real estate investment trust ElderTrust. ElderTrust leases 19 eldercare centers to Genesis at an annual lease cost of approximately $16,863,000. A majority of ElderTrust's owned real estate was formerly owned by Genesis and sold to ElderTrust in sale lease back transactions. Genesis leases office space to Elder Trust at an annual rate of $46,000. On January 31, 2001, we reached an agreement to restructure their relationship. The agreement encompasses, among other things, the resolution of leases and mortgages for 33 properties operated by us either directly or through joint ventures. Under its agreement, Genesis assumed the ElderTrust leases subject to certain modifications, including a reduction in our annual lease expense of $745,000; extended the maturity and reduced the principal balances for three assisted living properties by $8,500,000 by satisfaction of an ElderTrust obligation of like amount and acquired a building currently leased from ElderTrust, which is located on the campus of one of our skilled nursing facilities, for $1,250,000. In addition, we sold three owned assisted living properties that are mortgaged to ElderTrust for principal amounts totaling $19,500,000 in exchange for the outstanding indebtedness. ElderTrust will lease the properties back to us under a new ten year lease with annual rents of $791,561. Mr. Walker abstains from voting on all board of director resolutions involving any of our matters with any ElderTrust entity. Mr. Joseph A. LaNasa III is an elected member of our board of directors. In this capacity, he will participate and have the opportunity to vote on matters that are presented to our board of directors. Mr. LaNasa is employed by Goldman Sachs Co. as a vice president. Mr. LaNasa has acquired stock options that were granted under our 2001 Stock Option Plan. He has an understanding with the Goldman Sachs Group pursuant to which he holds the options for the benefit of the Goldman Sachs Group. The Goldman Sachs Group beneficially owns 17.69% of the company's common stock. Mr. Glenn Adrian is president of our Allegheny Region. The Allegheny Region, headquarted in Morgantown, West Virginia, oversees management of eldercare centers in West Virginia, western Pennsylvania, Illinois and Wisconsin. Mr. Adrian is also a principal owner of Glenmark Holding LLC that leases real estate to us and our subsidiary companies. Approximately 18,000 square feet of office space and 16,000 square feet of warehouse space are leased to us at a total annual cost of approximately $502,000. The leases expire in December, 2004. 111 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)(1) The following financial statements of Genesis Health Ventures, Inc. and Subsidiaries are filed as part of this Form 10-K in Item 8: Independent Auditors' Report Consolidated Balance Sheets as of September 30, 2001 (Successor Company) and 2000 (Predecessor Company) Consolidated Statements of Operations for the years ended September 30, 2001, 2000 and 1999 (Predecessor Company) Consolidated Statements of Shareholders' Equity (Deficit) for the years ended September 30, 2001, 2000 and 1999 (Predecessor Company) Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999 (Predecessor Company) Notes to Consolidated Financial Statements (a)(2) Schedule Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2001, 2000 and 1999. Schedule II is included herein on page 120. All other schedules not listed have been omitted since the required information is included in the financial statements or the notes thereto, or is not applicable or required. 112 No. Description 2.1(1) Stock Purchase Agreement dated October 10, 1997 among Genesis Health Ventures, Inc. (the "Company"), The Multicare Companies, Inc., Concord Health Group, Inc., Horizon Associates, Inc., Horizon Medical Equipment and Supply, Inc., Institutional Health Services, Inc., Care4 L.P., Concord Pharmacy Services, Inc., Compass Health Services, Inc. and Encare of Massachusetts, Inc. 2.2(1) Asset Purchase Agreement dated October 11, 1997 among the Company, The Multicare Companies, Inc., Health Care Rehab Systems, Inc., Horizon Rehabilitation, Inc., Progressive Rehabilitation Centers, Inc., and Total Rehabilitation Centers, L.L.C. 2.3(1) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp., the Company, and the Multicare Companies, Inc. 2.4(2) Agreement and Plan of Merger, dated as of April 26, 1998, by and among the Company, V Acquisition Corp. and Vitalink Pharmacy Services, Inc. 2.5(3) Amendment Number One, dated as of July 7, 1998, to the Agreement and Plan of Merger, dated as of April 26, 1998, by and among the Company, V Acquisition Corp. and Vitalink Pharmacy Services, Inc. 2.6 Agreement and Plan of Merger by and among the Company, Multicare Acquisition Corp., and Genesis Eldercare Corp. dated October 2, 2001. 2.7(4) Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated July 6, 2001. 2.8(5) Technical Amendments to Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated August 27, 2001. 2.9(5) Amendments to Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated to comply with opinion on confirmation dated September 13, 2001. 2.10(6) Asset Purchase Agreement dated September 24, 2001, by and among, Mariner Post-Acute Network, Inc. ("MPAN"), Mariner Health Group, Inc. ("MHG"), certain corporate entities related to MPAN and MHG, the Company and NeighborCare Pharmacy Services, Inc. 3.1 The Company's Amended and Restated Articles of Incorporation, as filed with the Secretary of the Commonwealth of Pennsylvania on October 2, 2001. 3.2 The Company's Amended and Restated Bylaws. 4.1(7) Specimen of Common Stock Certificate. 4.2(8) Specimen of the Company's First Mortgage Bonds (Series A) due 2007. 4.3(9) Indenture of Mortgage and Deed of Trust, dated as of September 1, 1992, by and among the Company, Delaware Trust Company and Richard N. Smith. 4.4 Form of Warrant (included in Exhibit 10.23). 113 4.5 Certificate of Designation of the Series A Convertible Preferred Stock (included in Exhibit 3.1). 4.6 Indenture for Second Priority Secured Notes due 2007 dated as of October 2, 2001 between the Company, as issuer, the Guarantors, and the Bank of New York, as Trustee. +10.1(10) The Company's Employee Retirement Plan, adopted January 1, 1989, as amended and related Retirement Plan Trust Agreement. +10.2(8) The Company's Incentive Compensation Program. +10.3(11) Lease, dated as of January 5, 1989, as amended, by and between Towson Building Associates Limited Partnership and Meridian Healthcare, Inc. +10.4(11) Sublease, dated as of November 30, 1993, by and between Meridian Healthcare, Inc. and Fairmount Associates, Inc. +10.5(12) Agreement to Purchase Partnership Interests, dated as of March 1 1996, by and among Meridian Health, Inc., Fairmont ssociates, Inc. and MHC Holding Company. 10.6(13) Letter Agreement, dated as of June 16, 1997, between the Company and Sterns Associates. 10.7(14) Master Agreement for Infusion Therapy Products and Services, dated June 1, 1991. 10.8(15) Amendment to the Master Agreement for Infusion Therapy Products and Services, as amended on September 19, 1997 and April 26, 1998. 10.9(14) Master Pharmacy Consulting Agreement, dated as of June 1, 1991 and amended on September 19, 1997 and April 26, 1998. 10.10(15) Amendment to the Master Pharmacy Consulting Agreement, dated as of May 31, 1991 amended on September 19, 1997 and April 26, 1998. 10.11(14) Amendment to the Master Pharmacy Services Consulting Agreement, as amended on September 19, 1997 and April 26, 1998. 10.12(14) Master Agreement for Pharmacy Services, dated as of June 1, 1991 and amended on September 19, 1997 and April 26, 1998. 10.13(15) Amendments to the Master Agreement for Pharmacy Services, as amended on September 19, 1997 and April 26, 1998. 10.14(16) Fourth Amended and Restated Credit Agreement, dated as of August 20, 1999, by and among the Company, the Subsidiaries of the Company referred to on the signature pages thereto (and such other subsidiaries of the Company which may from time to time become Borrowers thereunder in accordance with the provisions thereof) (collectively with Genesis, the "Borrowers"), the Lenders referred to on the signature pages thereto (together with other lenders parties thereto from time to time, and their successors and assigns, the "Lenders"), Mellon Bank, N.A., a national banking association as issuer of Letters of Credit thereunder (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent"), Citicorp USA, Inc. as Syndication Agent, First Union National Bank, a national banking association as Documentation Agent, and Bank of America, N.A. (as successor to NationsBank, N.A. and Bank of America, NT&SA), a national banking association as Syndication Agent. 114 10.15(17) Forbearance Agreement, dated as of March 20, 2000, among Genesis Health Ventures, Inc., certain Subsidiaries thereof, Mellon Bank, N.A. as Administrative Agent, Issuer of Letters of Credit, Collateral Agent and Synthetic Lease Facility Agent, Citicorp USA, Inc. as Syndication Agent, First Union National Bank as Documentation Agent, Bank of America, N.A. as Syndication Agent, and the Lenders and Secured Parties. 10.16(18) Revolving Credit and Guaranty Agreement, dated as of June 22, 2000, among Genesis Health Ventures, Inc., a Debtor-in-Possession under Chapter 11 of the Bankruptcy Code as Borrower and Mellon Bank, N.A. as Administrative Agent and Arranger, First Union National Bank as Syndication Agent and Goldman Sachs. Credit Partners, L.P., as Documentation Agent. +10.17 2001 Stock Option Plan. +10.18 Employment Agreement between the Company and Michael R. Walker dated as of October 2, 2001. +10.19 Employment Agreement between the Company and George V. Hager, Jr. dated as of October 2, 2001. +10.20 Employment Agreement between the Company and Richard R. Howard dated as of October 2, 2001. +10.21 Employment Agreement between the Company and David C. Barr dated as of October 2, 2001. +10.22 Employment Agreement between the Company and Robert A. Smith dated as of July 2, 2001 and the amendment thereto dated October 2, 2001. 10.23 Warrant Agreement by and between the Company and Mellon Investor Services LLC as Warrant Agent dated as of October 2, 2001. 10.24 Registration Rights Agreement between the Company, Goldman Sachs & Co., and Highland Capital Management L.P., dated as of October 2, 2001, regarding the Company's Common Stock. 10.25 Registration Rights Agreement between the Company, Goldman Sachs & Co., and Highland Capital Management L.P., dated as of October 2, 2001, regarding the Company's Second Priority Secured Notes due 2007. 10.26(19) Second Amendment and Waiver, dated as of February 14, 2001, to the Revolving Credit and Guarantee Agreement, dated as of June 22, 2000, among the Company and certain of its lenders. 10.27(20) Third Amendment, dated as of June 29, 2001, to the Revolving Credit and Guaranty Agreement, dated as of June 22, 2000, among the Company and certain of its lenders. 10.28 Credit, Security, Guaranty and Pledge Agreement, dated as of October 2, 2001, among the Company, the Guarantors, the Lenders, First Union Securities, Inc., as Co-Lead Arranger, Goldman Sachs Credit Partners L.P., as Co-Lead Arranger and Syndication Agent, First Union National Bank, as Administrative Agent and Collateral Agent, General Electric Capital Corporation, as Collateral Monitoring Agent and Co-Documentation Agent and CitiCorp USA, Inc., as Co-Documentation Agent. 115 21 Subsidiaries of the Company - -------------------------- + Management contract or compensatory plan or arrangement. 1) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 10, 1997. 2) Incorporated by reference to the Company's Registration Statement on Form S-4, filed on June 30, 1998 (File No. 333-58221). 3) Incorporated by reference to the Company's Amendment No. 1 to Form S-4 filed July 28, 1998 (333-58221). 4) Incorporated by reference to the Company's Current Report on Form 8-K filed on June 19, 2001. 5) Incorporated by reference to the Company's Form T-3 filed on September 18, 2001. 6) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 9, 2001. 7) Incorporated by reference to the Company's Form 8-A12G filed on October 2, 2001. 8) Incorporated by reference to the Company's Registration Statement on Form S-1, dated September 4, 1992 (as amended) (Registration No. 33-51670). 9) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10) Incorporated by reference to the Company's Registration Statement on Form S-1, dated June 19, 1991 (Registration No. 33-40007). 11) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. 12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and filed on May 15, 1996. 13) Incorporated by reference to Amendment No. 7 to the Tender Offer Statement on Schedule 14D-1 filed by Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp. on June 20, 1997. 14) Incorporated by reference to Vitalink Pharmacy Services, Inc's. Registration Statement on Form S-1/A, dated February 29, 1992 (File No. 33-43261). 15) Incorporated by reference to Vitalink Pharmacy Services, Inc's. Annual Report on Form 10-K for the fiscal year ended May 31, 1998 (File No. 001-12729) and filed on August 31, 1998. 16) Incorporated by reference to the Company's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1999 and filed on September 15, 1999. 17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and filed on May 15, 2000. 18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and filed on August 21, 2000. 19) Incorporated by reference to the Company's Quarterly Report Form 10-Q for the quarter ended December 31, 2000 and filed on March 22, 2001. 20) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and filed on August 18, 2001. 116 (b) Reports on Form 8-K On October 4, 2001, the Company filed a Report on Form 8-K reporting the Company's emergence from Chapter 11 Bankruptcy pursuant to the terms of the Plan. On October 9, 2001, the Company filed a Report on Form 8-K reporting that a subsidiary of the Company entered into an asset purchase agreement to acquire substantially all of the assets of American Pharmaceutical Services, Inc., subject to certain contingencies. 117 Genesis Health Ventures, Inc. and Subsidiaries Independent Auditors' Report The Board of Directors and Shareholders Genesis Health Ventures, Inc.: Under date of December 19, 2001, we reported on the consolidated balance sheet of Genesis Health Ventures, Inc. and subsidiaries (the "Company") as of September 30, 2001 (Successor Company) and the accompanying consolidated balance sheet of Genesis Health Ventures, Inc. and subsidiaries as of September 30, 2000 and related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the years in the three-year period ended September 30, 2001 (Predecessor Company), as contained in the Genesis Health Ventures, Inc. annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 3 to the consolidated financial statements, the Company changed its method of accounting for costs of start-up activities effective October 1, 1999. The audit report on the consolidated financial statements of the Company referred to above contains an explanatory paragraph that states that on October 2, 2001 the Company consummated a Joint Plan of Reorganization (the "Plan") which had been confirmed by the United States Bankruptcy Court. The Plan resulted in a change in ownership of the Predecessor Company and, accordingly, effective September 30, 2001 the Company accounted for the change in ownership through "fresh-start" reporting. As a result, the consolidated information prior to September 30, 2001 is presented on a different cost basis than that as of September 30, 2001 and, therefore, is not comparable. KPMG LLP Philadelphia, Pennsylvania December 19, 2001 118
Schedule II Genesis Health Ventures, Inc. Valuation and Qualifying Accounts Years Ended September 30, 2001, 2000 and 1999 (in thousands) Charged to Balance at Other Balance Beginning of Charged to Accounts Deductions at End of Description Period Operations (1) (2) Period - ------------------------------------------------------------------------------------------------------------------------------ Year Ended September 30, 2001 Allowance for Doubtful Accounts $78,020 49,901 12,509 57,305 $83,125 Year Ended September 30, 2000 Allowance for Doubtful Accounts $86,067 45,226 13,466 66,739 $78,020 Year Ended September 30, 1999 Allowance for Doubtful Accounts $73,719 54,061 1,500 43,213 $86,067
(1) - In fiscal 2001, represents a reclassification of amounts previously reported as a direct reduction to trade receivables, rather than an allowance for doubtful accounts. In fiscal 2000, includes $18,494,000 representing the beginning of period balance of the Multicare Companies, Inc. Beginning October 1, 2000, Genesis changed its method of accounting for Multicare from the equity method of accounting to the consolidation method of accounting. (2) - Represents amounts written off as uncollectible 119 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf on December 28, 2001 by the undersigned duly authorized. Genesis Health Ventures, Inc. By: /s/ George V. Hager, Jr. ----------------------------------- George V. Hager, Jr., Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on December 28, 2001. Signature Capacity /s/ Michael R. Walker - ------------------------------------ Michael R. Walker Chairman and Chief Executive Officer (Principal Executive Officer /s/ James H. Bloem - ------------------------------------ James H. Bloem Director /s/ Edwin M. Crawford - ------------------------------------ Edwin M. Crawford Director /s/ James E. Dalton, Jr. - ------------------------------------ James E. Dalton, Jr. Director /s/ James D. Dondero - ------------------------------------ James D. Dondero Director /s/ Robert H. Fish - ------------------------------------ Robert H. Fish Director /s/ Dr. Philip P. Gerbino - ------------------------------------ Dr. Philip P. Gerbino Director /s/ Joseph A. La Nasa III - ------------------------------------ Joseph A. LaNasa III Director /s/ George V. Hager, Jr. - ------------------------------------ George V. Hager, Jr. Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 120 EX-2 3 ex2-6.txt EXHIBIT 2.6 Exhibit 2.6 EXECUTION COPY - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER dated as of October, 2001 by and among GENESIS HEALTH VENTURES, INC., MULTICARE ACQUISITION CORP., AND GENESIS ELDERCARE CORP. - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of October 2, 2001, by and among Genesis Health Ventures, Inc., a Pennsylvania corporation ("Genesis" or "Parent"), Multicare Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Genesis ("Merger Sub"), and Genesis ElderCare Corp., a Delaware corporation (the "Company"). RECITALS: WHEREAS, on June 22, 2000, each of Genesis and the Company commenced chapter 11 cases under chapter 11 of title 11 of the United States Code, as amended from time to time (the "Bankruptcy Code"); WHEREAS, Genesis, the Company, and certain of its affiliates have proposed a Joint Plan of Reorganization which provides for the merger of the Company with and into Merger Sub (the "Merger") and the Company will be the surviving corporation in the Merger in accordance with the Delaware General Corporation Law (the "DGCL") and the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and the representations, warranties and covenants herein contained, the Parties agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. Upon the terms and subject to conditions of this Agreement at the Closing and in accordance with the Delaware General Corporation Law ("DGCL"), at the Effective Time (as defined in Section 1.2), Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereafter cease. After the Merger, the Company shall continue as the Surviving Corporation (the "Surviving Corporation"). The Merger is being effected pursuant to Section 303 of the DGCL. Section 1.2 Effective Time of the Merger. Upon the terms and subject to the conditions hereof, an appropriate certificate of merger (the "Certificate of Merger") shall be duly prepared and executed by each of Merger Sub and the Company and thereafter delivered to the Secretary of State of the State of Delaware for filing, as provided in the DGCL, on the Closing Date (as defined in Section 1.3). Thc Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or, subject to the DGCL, at such later time as is agreed upon by the parties and specified in the Certificate of Merger. The term "Effective Time" shall mean the date and time at which the Merger becomes effective. Section 1.3 Closing. Unless another date or place is agreed to in writing by the parties hereto, the closing of the transactions contemplated hereby (the "Closing") shall take place at 10:00 a.m. local time no later than the second business day following the satisfaction or waiver of the conditions set forth in Article VII and concurrently with the effective date under the Plan of Reorganization, or such other date to which the parties hereto agree. The location of the Closing shall be the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153. The time and date of the Closing is herein called the "Closing Date." Section 1.4 Effects of the Merger. The Merger shall have the effects set forth in the DGCL and the Plan of Reorganization. Section 1.5 Certificate of Incorporation and By-Laws. (a) Pursuant to the Merger, the certificate of incorporation of the Company shall be amended in its entirety to read as set forth in Exhibit A hereto, and shall be the certificate of incorporation of the Surviving Corporation, until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be "Genesis ElderCare Corp." (b) The by-laws of the Company shall be amended in their entirety to read as set forth in Exhibit B hereto and shall be the by-laws of the Surviving Corporation, until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be "Genesis ElderCare Corp." Section 1.6 Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office from the Effective Time in accordance with the certificate of incorporation and by-laws of the Surviving Corporation and until his or her successor is duly elected and qualified. Section 1.7 Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office from the Effective Time in accordance with the certificate of incorporation and by-laws of the Surviving Corporation and until his or her successor is duly appointed and qualified. ARTICLE II CONVERSION OF SECURITIES; DISSENTING SHARES Section 2.1 Effect on Capital Stock of the Company and the Merger Sub. As of the Effective Time, by virtue of the Merger and the Plan of Reorganization and without any action on the part of any holder of any capital stock of the Company or Merger Sub: 2 (a) Conversion of Capital Stock of the Company. The common stock of the Company issued in accordance with the Plan of Reorganization shall be converted as follows: (i) holders of claims in Class M2 under the Plan of Reorganization shall receive (A) $25,000,000 in cash, (B) $147,682,000 in New Senior Notes (as defined in the Plan of Reorganization), (C) 116,000 shares of series A convertible preferred stock, $0.02 par value per share of Genesis ("Parent Preferred Stock"), having a liquidation amount of $11,600,000, and (D) 7,798,917 shares of the common stock, $0.02 par value per share, of Genesis ("Parent Common Stock") and (ii) holders of claims in Classes M4 and M5 under the Plan of Reorganization shall receive 1,026,857 shares of Parent Common Stock, representing 0.23% of the Parent Common Stock and New Warrants to purchase 1,723,830 shares of Parent Preferred Stock. (b) Cancellation of Treasury Stock, Subsidiary-Owned Stock and Parent-Owned Stock. Pursuant to the terms of the Plan of Reorganization, all shares of the common stock of the Company authorized or issued prior to the effective date of the Plan of Reorganization, including any shares that are owned by the Company as treasury stock, and any shares of common stock of the Company owned by (or which would otherwise be owned by) Parent, Merger Sub or any other Subsidiary of Parent shall be cancelled and shall cease to exist and no other consideration shall be delivered in exchange therefor and each holder of a certificate formerly representing any such shares shall cease to have any rights with respect thereto. As used in this Agreement, "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which such party, either directly or indirectly, or any other Subsidiary of such party, either directly or indirectly, beneficially owns at least a majority of the voting or economic interests. (c) Capital Stock of Merger Sub. Each issued and outstanding share of common stock, $0.01 par value per share, of Merger Sub ("Merger Sub Common Stock") of which, as of the date hereof, 100 shares are issued and outstanding, each entitling the holder thereof to vote on the approval of this Agreement and the transactions contemplated hereby), shall be converted into one fully paid and nonassessable share of common stock, $0.01 par value, of the Surviving Corporation. Section 2.2 Distribution of Merger Consideration. The consideration identified in Section 2.1 hereof shall be paid in accordance with the terms and conditions of the Plan of Reorganization. Section 2.3 Closing of Transfer Books; No Further Ownership Rights in Company Capital Stock. At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of any transfer of any shares of the common stock of the outstanding immediately prior to the effective date of the Plan or Reorganization on the records of the Company. Pursuant to section 303 of the DGCL no stockholder of the Company shall have any statutory right of appraisal of such stockholder's shares. 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Merger Sub as follows: Section 3.1 Organization; Qualification; Subsidiaries. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Company. As used in this Agreement, "Material Adverse Effect" shall mean, with respect to any entity, any change, effect, event, occurrence or state of facts (i) that is, or reasonably would be expected to be, materially adverse to the business, assets, financial condition, results of operations or prospects of the entity and its subsidiaries taken as a whole or (ii) that would prevent, or reasonably be expected to prevent, the entity from performing its obligations under this Agreement or prevent the consummation of the transactions contemplated hereby. (b) The Company is not in violation of any provision of its certificate of incorporation or by-laws. Section 3.2 Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Parent and Merger Sub, as the case may be, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Section 3.3 Consents and Approvals; No Violations. Except for filings, notices, consents and approvals as may be required under the DGCL and an order issued by United States Bankruptcy Court for the District of Delaware in the bankruptcy cases of Genesis and the Company, neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby nor compliance by the Company with any 4 of the provisions hereof will (i) conflict with or result in any breach of any provisions of its or any of its Subsidiaries' certificates of incorporation or by-laws, (ii) require any filing with, or notice to, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity") or any third party, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration of any right or obligation of the Company or to a loss of any benefit to which the Company is entitled) under, or result in the creation of any Encumbrance (as defined below) on any property or asset of the Company or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which it or they or any of its or their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. For purposes of this Agreement, "Encumbrance' means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or any equivalent statutes) of any jurisdiction). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to the Company as follows: Section 4.1 Organization. (a) Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the state of incorporation, respectively, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Parent is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property is owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the nature to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect on the Parent. Parent is not in violation of any provision of its certificate of incorporation or by-laws. Section 4.2 Authority. Parent and Merger Sub each have the requisite corporate power and authority to execute and deliver this Agreement and to 5 consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by each of Parent and Merger Sub and the consummation by Merger Sub of the Merger and by Parent and Merger Sub of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by each of Parent and Merger Sub and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of Parent and Merger Sub, enforceable against them in accordance with its terms. Section 4.3 Capitalization. As of the date hereof (after giving effect to the Plan of Reorganization), the authorized capital stock of Parent will consist of (a) 200,000,000 shares of Parent Common Stock, par value $0.01 per share of which 41,000,000 shares will be outstanding, and (b) 10,000,000 shares of Parent Preferred Stock, having a liquidation value of $100 per share of which 426,000 shares will be outstanding. Section 4.4 Consents and Approvals; No Violations. Except for filings, notices, consents and approvals as may be required under the DGCL and the Bankruptcy Court Order, neither the execution, delivery or performance of this Agreement by Parent and Merger Sub nor the consummation by Parent and Merger Sub of the transactions contemplated hereby nor compliance by Parent and Merger Sub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of their respective certificates of incorporation or by-laws, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity, or (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration of any right or obligation of the Parent or Merger Sub or to a loss of any benefit to which the Parent or Merger Sub is entitled) under, or result in the creation of any Encumbrance on any property or asset of the Parent or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Parent or any of its Subsidiaries is a party or by which it or they or any of its or their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent or by which any property or assets of Parent is bound or affected. Section 4.5 Operations of Merger Sub. Merger Sub (i) was formed solely for the purpose of engaging in the transactions contemplated hereby, (ii) has engaged in no other business activities and (iii) has conducted its operations only as contemplated hereby. 6 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 Conduct of Business of the Company. Except as expressly contemplated by this Agreement or with the prior written consent of Parent, during the period from the date of this Agreement to the Effective Time, the Company will conduct its operations only in the ordinary and usual course of business consistent with past practice and will use all reasonable best efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it. Section 5.2 Access to Information. The Company shall give Parent and its authorized representatives reasonable access, during normal business hours, to all books, records and information reasonably requested by Parent and to the Company's properties and facilities, employees, customers and suppliers. Notwithstanding the foregoing, Parent will not contact in connection with the transactions contemplated by this Agreement any customers, suppliers or employees of the Company or any governmental regulatory agencies governing the Company's business activities without obtaining the prior consent of the Company, which consent will not be unreasonably withheld. Section 5.3 Reasonable Best Efforts. (a) Upon the terms and subject to the conditions of this Agreement, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable including, but not limited to, the preparation and filing of all forms, registrations and notices required to be filed to consummate the transactions contemplated by this Agreement and the taking of such actions as are necessary to obtain any requisite approvals, consents, orders, exemptions or waivers by any third party or Governmental Entity and the satisfaction of all conditions to Closing. Each party shall promptly consult with the other with respect to, provide any necessary information not subject to legal privilege with respect to and provide the other (or its counsel) copies of, all filings made by such party with any Governmental Entity or any other information supplied by such party to a Governmental Entity in connection with this Agreement and the transactions contemplated by this Agreement. 7 (b) Each party hereto shall promptly inform the other of any communications from any Government Entity regarding any of the transactions contemplated by this Agreement. If any party or affiliate thereof receives a request for additional information or documentary material from any such Government Entity with respect to the transactions contemplated by this Agreement, then such party will endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. (c) Notwithstanding the forgoing, nothing in this Agreement shall be deemed to require Parent to enter into any agreement with any Governmental Entity or to consent to any order, decree or judgment requiring Parent to hold, separate or divest, or to restrict the dominion or control of Parent or any of its affiliates over, any of the assets, properties or businesses of Parent, its affiliates or the Company. Section 5.4 No Solicitation. The Company agrees not to, and agrees to use its best efforts to cause its officers, directors and advisors not to, directly or indirectly (A) solicit from any third person or entity any inquiries or proposals or enter into or continue any discussions, negotiations or agreements relating to the sale or other disposition of any or all of Company Common Stock or any or all of its material assets to any person or entity other than Parent (or an affiliate of Parent), or (B) provide any assistance or any information to any person or entity other than Parent in connection with any such inquiry, proposal or transaction, and, to the extent such information has already been provided in written form, the Company agrees to have all such information either promptly returned to the Company or destroyed. Section 5.5 Fees and Expenses. Regardless of whether the transactions provided for in this Agreement are consummated each party hereto shall pay its own fees and expenses incident to this Agreement and the transactions contemplated herein. Section 5.6 Public Announcements. Prior to the Effective Time, none of the parties hereto will issue or cause the publication of any press release or otherwise make any public statement with respect to the transactions contemplated hereby without the consent of the other parties hereto, which consent shall not be unreasonably withheld; provided, that, any party hereto may make a public announcement to the extent required by law or regulation. ARTICLE VI CONDITIONS Section 6.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligations of the parties to effect the Merger shall be subject to the satisfaction, on or prior to the Closing Date, of the following conditions: 8 (a) Bankruptcy Court Order. There shall have been entered in the Bankruptcy Court for Delaware an order confirming the Plan of Reorganization; and (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect (each party agreeing to use all reasonable efforts to have any such order reversed or injunction lifted). Section 6.2 Conditions to Obligation of Parent and Merger Sub. The obligation of Parent and Merger Sub to effect the Merger are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by Parent and Merger Sub: (a) Each of the representations and warranties of the Company in this Agreement shall be true and correct in all respects as of the date hereof and at and as of the Closing with the same effect as though such representations and warranties had been made at and as of such time, other than representations and warranties that speak as of a specific date or time (which need only be true and correct in all respects as of such date or time); (b) The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing; (c) All authorizations, consents, orders and approvals of, and declarations and filings with any Governmental Entity, shall have occurred, been filed or been obtained and any such approvals shall have become Final Orders. A "Final Order" means action by the relevant regulatory authority which has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by law before the transaction contemplated hereby may be consummated has expired, and as to which all conditions to the consummation of such transactions prescribed by law, regulation or order have been satisfied; (d) All third party consents necessary to effect the transactions contemplated by this Agreement, shall have occurred, been filed or been obtained; and (e) Parent shall have received such other documents or instruments from the Company as Parent reasonably requests to effect the transactions contemplated hereby. Section 6.3 Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions, on or prior to the Closing Date, unless waived by the Company: 9 (a) Each of the representations and warranties of Parent and Merger Sub in this Agreement shall be true and correct in all respects as of the date hereof and at and as of the Closing with the same effect as though such representations and warranties had been made at and as of such time, other than representations and warranties that speak as of a specific date or time (which need only be true and correct in all respects as of such date or time); (b) Parent and Merger Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing; (c) All authoritizations, consents, orders and approvals of, and declarations and filings with any Governmental Authority, shall here occurred, been filed or been obtained and any such approvals shall have become Final Orders; (d) All third party consents necessary to effect the transactions contemplated by this Agreement, shall here occurred, been filed or been obtained; and (e) The Company shall have received such other documents or instruments from Parent and Merger Sub as the Company reasonably requests to effect the transactions contemplated hereby. ARTICLE VII TERMINATION AND AMENDMENT Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of the Company or Merger Sub: (a) By mutual consent of Parent and the Company; or (b) By either Parent or the Company if the Merger shall not have been consummated before 180 days from the date of the Agreement despite the good faith effort of such party to effect such consummation (unless the failure to so consummate the Merger by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement, which action or failure to act constitutes a breach of this Agreement). Section 7.2 Effect of Termination. In the event of a termination of this Agreement by either the Company or Parent in accordance with Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company or their respective officers or directors. 10 ARTICLE VIII MISCELLANEOUS Section 8.1 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.2 Extension; Waiver. At any time prior to the Effective Time, the parties hereto may to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (iii) waive compliance with any of the agreements or conditions contained here. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Section 8.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Merger Sub, to Genesis Health Ventures, Inc. 101 East State Street Kennett Square, Pennsylvania 19348 Attn: James J. Wankmiller, Esq. Corporate Secretary and General Counsel Telephone: (610) 444-6350 Telecopier: (610) 444-3365 with a copy to Weil, Gotshal & Manges, LLP 767 Fifth Avenue New York, NY 10153 Telephone: (212) 310-8000 (a) Attention: Michael F. Walsh, Esq. Telecopy: 212-310-8007 11 if to the Company, to Genesis Eldercare Corp. 101 East State Street Kennett Square, Pennsylvania 19348 Attn: James J. Wankmiller, Esq. Corporate Secretary and General Counsel Telephone: (610) 444-6350 Telecopier: (610) 444-3365 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth on the second line of this Agreement. The term "to the Company's knowledge" shall be deemed to include the knowledge of all officers, directors and employees of the Company. Section 8.4 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties, it being understood that all parties need not sign the same counterpart. Section 8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 8.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made, executed, delivered and performed wholly within the State of Delaware, without regard to any applicable conflicts of law. Section 8.7 Specific Performance. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. Section 8.8 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that (i) Parent may assign, in its sole 12 discretion, any or all rights, interests and obligations of Merger Sub hereunder to any direct or indirect wholly owned Subsidiary of Parent, (ii) Parent may assign, in its sole discretion, any or all of its or Merger Sub's rights and interests hereunder as collateral in connection with any financing arrangements entered into in connection with the transactions contemplated by this Agreement and (iii) after the Closing Date, Parent and the Company may assign any or all of their rights and interests under this Agreement to any other person or entity. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 8.9 No Strict Construction. Each of the parties hereto acknowledge that this Agreement has been prepared jointly by the parties hereto, and shall not be strictly construed against either party. [SIGNATURE PAGE FOLLOWS] 13 IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. GENESIS HEALTH VENTURES, INC. By: ------------------------------------------ Name: Title: MULTICARE ACQUISITION CORP. By: ------------------------------------------ Name: Title: GENESIS ELDERCARE CORP. By: ------------------------------------------ Name: Title: EX-3 4 ex3-1.txt EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF GENESIS HEALTH VENTURES, INC. First: Name. The name of the corporation is Genesis Health Ventures, Inc. Second: Registered Office. The location and address of the registered office of the corporation is 101 East State Street, Kennett Square, Pennsylvania 19348. Third: Purpose. The corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purposes: To have unlimited power to engage in or to do any lawful act concerning any or all lawful businesses for which corporations may be incorporated under the Pennsylvania Business Corporation Law, as amended, and to own, operate and manage businesses engaged in healthcare services. Fourth: Term. The term for which the corporation is to exist is perpetual. Fifth: A. Capital Stock. 1. Authorized Shares. The aggregate number of shares which the corporation shall have authority to issue is two hundred ten million (210,000,000) shares, consisting of (a) two hundred million (200,000,000) shares of common stock, par value $.02 per share, and (b) ten million (10,000,000) shares of preferred stock, one million (1,000,000) of which are designated as Series A Convertible Preferred Stock as described in Article 5(B), and the remainder of which may be divided and issued from time to time in one or more series as may be designated by the Board of Directors of the corporation, as more fully described in Article 5(A)(2) below ("Preferred Stock"). 2. Preferred Stock. The shares of Preferred Stock may be divided and issued from time to time in one or more series as may be designated by the Board of Directors of the corporation, each such series to be distinctly titled and to consist of the number of shares designated by the Board of Directors. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon (if any) shall accrue or be cumulative (or both). The designations, preferences, qualifications, limitations, restrictions, and special or relative rights (if any) of any series of Preferred Stock may differ from those of any and all other series at any time outstanding. The Board of Directors of the Corporation is hereby expressly vested with authority to fix by resolution the designations, preferences, qualifications, limitations, restrictions and special or relative rights (if any) of the Preferred Stock and each series thereof which may be designated by the Board of Directors, including, but without limiting the generality of the foregoing, the following: (a) the voting rights and powers (if any) of the Preferred Stock and each series thereof; (b) the rates and times at which, and the terms and conditions on which, dividends (if any) on Preferred Stock, and each series thereof, will be paid and any dividend preferences or rights of cumulation; (c) the rights (if any) of holders of Preferred Stock, and each series thereof, to convert the same into, or exchange the name for, shares of other classes (or series of classes) of capital stock of the corporation and the terms and conditions for such conversion or exchange, including provisions for adjustment of conversion or exchange prices or rates in such events as the Board of Directors shall determine; (d) the redemption rights (if any) of the corporation and the holders of the Preferred Stock and each series thereof and the times at which, and the terms and conditions on which, Preferred Stock, and each series thereof, may be redeemed; and (e) the rights and preferences (if any) of the holders of Preferred Stock, and each series thereof, upon the voluntary liquidation, dissolution or winding up of the corporation. B. Series A Convertible Preferred Stock. 1. Definitions. The following definitions shall apply in this Article 5(B): "AGE Institute" shall mean individually and collectively the following corporations: AGE Institute of Pennsylvania, Inc., AGE Institute of Massachusetts, Inc., AGE Institute of Florida, Inc., Delaware Valley Convalescent Homes, Inc., and AGE Holdings, Inc. "Board" shall mean the Board of Directors of the Company. "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Common Stock" shall mean the Common Stock, par value $0.02 per share, of the Company. "Company" shall mean Genesis Health Ventures, Inc., a Pennsylvania corporation. "Conversion Price" shall mean $20.33, as adjusted pursuant to Section 7 of this Article 5(B). "Conversion Ratio" shall mean the ratio computed by dividing the Liquidation Preference by the Conversion Price. "Convertible Preferred Stock" shall refer to shares of Series A Convertible Preferred Stock, $0.01 par value per share, of the Company. 2 "Dividend Rate" shall mean 6% per annum, calculated on a 365 (or 366 in the case of leap year) day per year basis, based on the actual number of days elapsed. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include reference to the comparable section, if any, of any such similar Federal statute. "Fair Value" shall mean (i) the Market Price or (ii) if the Common Stock or Other Security, as the case may be, is not so listed or quoted but is traded in the over-the-counter market (other than the NASDAQ Market), the average of the closing bid and asked prices of a share of such Common Stock or Other Security, in each case quoted for the 30 Business Days (or such lesser number of Business Days as such Common Stock (or Other Security) shall have been so listed, quoted or traded) next preceding the date of measurement; provided, however, that if no such sales price or bid and asked prices have been quoted during the preceding 30-day period or there is otherwise no established trading market for such security, then "Fair Value" shall mean the value of such Common Stock or Other Security as determined reasonably and in good faith by the Board of Directors of the Company; and provided, further, however, that in the event the current market price of a share of such Common Stock or of the minimum traded denomination of such Other Security is determined during a period following the announcement by the Company of (x) a dividend or distribution on the Common Stock or Other Security payable in shares of Common Stock or in such Other Security, or (y) any subdivision, combination or reclassification of the Common Stock or Other Security, and prior to the expiration of 30 Business Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "Fair Value" shall be appropriately adjusted to take into account ex-dividend trading. Anything herein to the contrary notwithstanding, in case the Company shall issue any shares of Common Stock, rights, options, or Other Securities in connection with the acquisition by the Company of the stock or assets of any other Person or the merger of any other Person into the Company, the Fair Value of the Common Stock or Other Securities so issued shall be determined as of the date the number of shares of Common Stock, rights, options or Other Securities was determined (as set forth in a written agreement between the Company and the other party to the transaction) rather than on the date of issuance of such shares of Common Stock, rights, options or Other Securities. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "Liquidation Preference" shall mean $100 per share. 3 "Market Price" shall mean, with respect to Common Stock or any Other Security, in each case, if such security is listed on one or more stock exchanges or quoted on the National Market System or Small Cap Market of NASDAQ (the "NASDAQ Market"), the average of the closing or last reported sales prices of a share of Common Stock or, if an Other Security in the minimum denomination in which such security is traded, on the primary national or regional stock exchange on which such security is listed or on the NASDAQ Market if quoted thereon. "Net Cash Proceeds" shall mean all cash and cash equivalents received by the Company from any of the Specified Transactions net of (i) all expenses, commissions, and other fees incurred and all taxes required to be paid or accrued as a liability as a consequence of such Specified Transaction, (ii) all payments made by the Company or its Subsidiaries on debt which is secured by assets subject of such Specified Transaction or which debt is required to be repaid as a result or from proceeds from such Specified Transaction or in order to obtain a necessary consent to such Specified Transactions or, by applicable law, be repaid from such Specified Transaction and (iii) appropriate amounts to be provided by the Company or any of its Subsidiaries as a reserve in accordance with generally accepted accounting principles against liabilities of the Company or its Subsidiaries associated with such Specified Transaction, including, without limitation, claims for indemnification. "New Warrants" shall mean the warrants to purchase up to 4,559,475 shares of Common Stock of the Company for an exercise price of $20.33 issued on or about September 28, 2001. "Organic Change" shall mean (A) any sale, lease, exchange or other transfer of all or substantially all of the property and assets of the Company, (B) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, (C) any merger or consolidation to which the Company is a party and which the holders of the voting securities of the Company immediately prior thereto own less than a majority of the outstanding voting securities of the surviving entity immediately following such transaction, or (D) any Person or group of Persons (as such term is used in Section 13(d) of the Exchange Act), shall beneficially own (as defined in Rule 13d-3 under the Exchange Act) securities of the Company representing 50% or more of the voting securities of the Company then outstanding. For purposes of the preceding sentence, "voting securities" shall mean securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or Persons performing similar functions). "Other Securities" shall mean any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) that the holders of the Convertible Preferred Stock at any time shall be entitled to receive or shall have received, upon the conversion of the Convertible Preferred Stock, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities. "Other Shares" has the meaning specified in Section 7(h)(ii) of this Article 5(B). 4 "Original Issue Date" shall mean the date of the original issuance of shares of Convertible Preferred Stock. "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Redemption Date" shall mean the date on which any shares of Convertible Preferred Stock are redeemed by the Company. "Redemption Price" has the meaning set forth in Section 6(a)(i) of this Article 5(B). "Required Holders" shall mean the holders of at least of a majority of the outstanding shares of Convertible Preferred Stock. "Specified Transactions" shall mean (i) the sale of the following real and personal property,
ASSETS OWNER(S) Heritage at Madison Avenue (ground lease) Geriatric and Medical Services, inc. Wayside Center, Worcester, MA Wayside Nursing Home, Inc. Elmwood Center, Aurora, IL Elmwood Health Resources, Inc. Ewing Center, Ewing NJ Health Resources of Ewing, LLC Franklin Center, Greenfield, MA Genesis Health Ventures of Massachusetts, Inc. Lincoln Center, Worcester, MA Lincoln Nursing Home, Inc. Assets of Ambulance Business Network Ambulance Service, Inc., Genesis Eldercare Transportation Services, Inc., Weisenfluh Ambulance Service, Inc., Carefleet, Inc.; Valley Medical Services, Inc.; and Valley Transportation Ambulance Service, Inc.
(ii) the exercise of the New Warrants; (iii) any settlement or resolution of claims filed by the Company as of September 28, 2001 against the federal government with respect to disputed receivables payable to the Company pursuant to an agreement entered into between a health care facility, supplier or physician and The Center for Medicare and Medicaid Services or any federal or state agency or other entity administering Medicare in such state, or other grant of authority by The Center for Medicare and Medicaid Services or any federal or state agency or other entity administering Medicare in such state, under which the health care facility, supplier or physician is authorized to provide medical goods and services to Medicare patients and to be reimbursed by Medicare for such goods and services, where the dispute is related to "related party issues" or "employee benefits costs"; 5 (iv) the settlement or resolution of the claims of the Company and its subsidiaries as of September 28, 2001 against related nursing home owners affiliated with AGE Holdings, Inc. for, among other things, unpaid receivables, and (v) the issuance of any of the Common Stock of the Company (other than in respect of the New Warrants) for cash, which shall not include issuances of Common Stock upon conversion of the New Warrants or this Preferred Stock, any issuances of Common Stock in connection any acquisition or merger by the Company or issuances of Common Stock, the proceeds of which are required to be paid to creditors of the Company in accordance with the agreements related thereto. "Trading Day" shall mean a Business Day or, if the Common Stock is listed or admitted to trading on any national securities exchange or NASDAQ market, a day on which such exchange or market is open for the transaction of business. 2. Designation. The designation of the preferred stock shall be "Series A Convertible Preferred Stock." 3. Dividends. (a) So long as any shares of Convertible Preferred Stock shall be outstanding, the holders of such Convertible Preferred Stock shall be entitled to receive out of any funds legally available therefore, when, as and if declared by the Board of Directors of the Company, preferential dividends at the Dividend Rate on the Liquidation Preference hereunder, payable quarterly on the first Business Day of each calendar quarter either (i) in cash or (ii) in the issuance of additional shares of Convertible Preferred Stock with a Liquidation Preference equal to the amount of such dividend. Such dividends shall be cumulative and begin to accrue from the Original Issue Date, whether or not declared and whether or not there shall be net profits or net assets of the Company legally available for the payment of those dividends. (b) Dividends not paid on the applicable payment date shall be added to the then effective Liquidation Preference on the relevant dividend payment date. Any amounts so added to the then effective Liquidation Preference shall be subject to reduction as provided for in Section 3(c) below. 6 (c) An amount equal to the accumulated and unpaid dividends for any past dividend period may be declared and paid as a dividend in shares of Convertible Preferred Stock as provided for in Section 3(a) above on any subsequent dividend payment date to all holders of record on the record date relating to such subsequent dividend payment date. Each such payment shall automatically reduce the then effective Liquidation Preference per share by an amount equal to the aggregate amount of such payment divided by the number of shares of Convertible Preferred Stock outstanding on the record date relating to such subsequent dividend payment date; provided however, that the Liquidation Preference shall not be reduced below $100 per share. 4. Liquidation Rights of Convertible Preferred Stock. (a) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any shares of Common Stock or any share of any other class or series of the Company's preferred stock ranking junior to the Convertible Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Company, an amount equal to the Liquidation Preference plus all declared or accrued and unpaid dividends in respect of any liquidation, dissolution or winding up consummated. (b) If upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of Convertible Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Company to be distributed shall be distributed ratably among the holders of Convertible Preferred Stock, based on the full preferential amounts for the number of shares of Convertible Preferred Stock held by each holder. (c) After payment to the holders of Convertible Preferred Stock of the amounts set forth in Section 4(a) of this Article 5(B), the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among the holders of any Company stock entitled to a preference over the Common Stock in accordance with the terms thereof and, thereafter, to the holders of Common Stock. 5. Voting Rights. In addition to any voting rights provided by law, the holders of shares of Convertible Preferred Stock shall have the following voting rights: (a) So long as any of the Convertible Preferred Stock is outstanding, each share of Convertible Preferred Stock shall entitle the holder thereof to vote on all matters voted on by the holders of Common Stock, voting together as a single class with other shares entitled to vote at all meetings of the stockholders of the Company. With respect to any such vote, each share of Convertible Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of votes which could be cast in such vote by a holder of the number of shares of Common Stock of the Company into which such share of Convertible Preferred Stock is convertible on the record date for such vote. 7 (b) The affirmative vote of the Required Holders, voting together as a class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, or pursuant to a written consent of stockholders shall be necessary to (i) authorize, adopt or approve an amendment to the Amended and Restated Articles of Incorporation of the Company which would alter or change in any manner the terms, powers, preferences or special rights of the shares of Convertible Preferred Stock or grant waivers thereof, or which would otherwise adversely affect the rights of the Convertible Preferred Stock, provided that no such modification or amendment may, without the consent of each holder of Convertible Preferred Stock affected thereby, (A) change the redemption date of the Convertible Preferred Stock; (B) raise the Conversion Price or reduce the Liquidation Preference, Dividend Rate or Redemption Price of the Convertible Preferred Stock; (C) adversely affect any of the conversion features of the Convertible Preferred Stock set forth in Section 7 of this Article 5(B); or (D) reduce the percentage of outstanding Convertible Preferred Stock necessary to modify or amend the terms thereof or to grant waivers thereof; (ii) issue any shares of the capital stock of the Company ranking senior to, or pari passu with (either as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up) the Convertible Preferred Stock, or issue any securities convertible into or exchangeable for such shares; or (iii) enter into any transaction or series of transactions which would constitute an Organic Change if the terms thereof do not comply with Section 6(d) of this Article 5(B), if applicable. 6. Redemption of Convertible Preferred Stock. (a) (i) Optional Redemption. (A) If any Organic Change occurs, at the option of any holder of outstanding Convertible Preferred Stock (as exercised pursuant to subparagraph (B) below), the Company shall redeem, at the redemption price equal to the sum of the Liquidation Preference per share plus an amount equal to all accrued and unpaid dividends per share (the "Redemption Price"), those outstanding shares of Convertible Preferred Stock which the holders of such Convertible Preferred Stock have elected to redeem, such redemption to occur immediately prior to or simultaneously with the consummation of such Organic Change. (B) The Company will give written notice of any Organic Change, stating the substance and intended date of consummation thereof, not more than sixty (60) Business Days nor less than twenty (20) Business Days prior to the date of consummation thereof, to each holder of Convertible Preferred Stock. The holders of the Convertible Preferred Stock shall have fifteen (15) Business Days (the "Notice Period") from the date of the receipt of such notice to demand (by written notice mailed to the Company) redemption of all or any portion of the shares of Convertible Preferred Stock held by such holder. 8 (ii) Mandatory Redemption. (A) The Company shall redeem, and the holders of the outstanding Convertible Preferred Stock shall sell to the Company, at the Redemption Price, (1) all of the outstanding Convertible Preferred Stock on the ninth anniversary of the Original Issue Date and (2) outstanding Convertible Preferred Stock on a pro rata basis from Net Cash Proceeds from Specified Transactions actually received by the Company (which has not been previously used to redeem the Convertible Preferred Stock) provided that (x) the Company shall not be obligated to make any such redemption pursuant to this clause (2) in an amount less than $10 million and (y) such redemption pursuant to this clause (2) shall be made within 90 days after the receipt of such Net Cash Proceeds which would require a redemption hereunder. Any optional redemption made pursuant to Section 6(a)(iii) shall reduce the Company's obligation to make a mandatory redemption pursuant to clause (2) of this Article 5(B) on a dollar-for-dollar basis. (B) At least twenty (20) Business Days and not more than sixty (60) Business Days prior to the date fixed for the redemption of the Convertible Preferred Stock, written notice (the "Redemption Notice") shall be mailed, postage prepaid, to each holder of record of the Convertible Preferred Stock at its post office address last shown on the records of the Company. The Redemption Notice shall state: (1) the total number of shares of Convertible Preferred Stock the Company intends to redeem from all holders; (2) the number of shares of Convertible Preferred Stock held by the holder that the Company intends to redeem; (3) the date fixed for redemption and the Redemption Price; and (4) that the holder is to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the shares of Convertible Preferred Stock to be redeemed. (iii) Company's Optional Redemption. (A) The Company, at any time and from time to time, may at its option, elect to redeem, and the holders of the outstanding Convertible Preferred Stock shall sell to the Company, shares of Convertible Preferred Stock provided such redemption is made on pro rata basis from all holders of Convertible Preferred Stock. (B) At least twenty (20) Business Days and not more than sixty (60) Business Days prior to the date fixed for the redemption of the Convertible Preferred Stock, written notice (the "Redemption Notice") shall be mailed, postage prepaid, to each holder of record of the Convertible Preferred Stock at its post office address last shown on the records of the Company. The Redemption Notice shall state: 9 (1) the total number of shares of Convertible Preferred Stock the Company intends to redeem from all holders; (2) the number of shares of Convertible Preferred Stock held by the holder that the Company intends to redeem; (3) the date fixed for redemption and the Redemption Price; and (4) that the holder is to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the shares of Convertible Preferred Stock to be redeemed. (b) On or before the Redemption Date, each holder of Convertible Preferred Stock shall surrender the certificate or certificates representing such shares of Convertible Preferred Stock to the Company, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable in cash on the Redemption Date to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) Unless the Company defaults in the payment in full of the Redemption Price, dividends on the Convertible Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and the holders of such shares redeemed shall cease to have any further rights with respect thereto on the Redemption Date, other than to receive the Redemption Price without interest. (d) If, at the time of any redemption pursuant to this Section 6, the funds of the Company legally available for redemption of Convertible Preferred Stock are insufficient to redeem the number of shares required to be redeemed, those funds which are legally available shall be used to redeem the maximum possible number of such shares, pro rata based upon the number of shares to be redeemed. At any time thereafter when additional funds of the Company become legally available for the redemption of Convertible Preferred Stock, such funds shall immediately be used to redeem the balance of the shares of Convertible Preferred Stock which the Company has become obligated to redeem pursuant to this subparagraph, but which it has not redeemed; or, in the case of a redemption pursuant to Section 6(a)(i) if a Person other than the Company is the surviving or resulting corporation in any Organic Change, such Person shall, at the consummation of such Organic Change, redeem such balance of the shares of Convertible Preferred Stock (and the Company shall so provide in its agreements with such person relating to such Organic Change). (e) The Company may not otherwise redeem or repurchase the Convertible Preferred Stock. 10 7. Conversion. (a) Subject to the provisions for adjustment hereinafter set forth, (i) each share of Convertible Preferred Stock shall be convertible at any time after the Original Issue Date and from time to time, at the option of the holder thereof (such conversion, an "Optional Conversion") and (ii) all shares of Convertible Preferred Stock shall be converted at any time after the first anniversary of the Original Issue Date if, at any time, the average Market Price for a share of New Common Stock for 20 consecutive Trading Days exceeds $30.00 (as adjusted from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) (the "Price Condition"), at the option of the Company (such conversion, a "Mandatory Conversion"), in each case into fully paid and nonassessable shares of Common Stock. (b) Each share of Convertible Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing (x) the Liquidation Preference of each such share plus all accrued and unpaid dividends thereon by (y) the Conversion Price per share in effect at the time of conversion, provided, however, that upon any conversion of shares of Convertible Preferred Stock the Company shall have the right exercisable as provided in Section 7(c) below, to pay to the converting holder in cash the accrued and unpaid dividends on the Convertible Preferred Stock to be converted. (c) No fractional shares shall be issued upon the conversion of any shares of Convertible Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Convertible Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the Fair Value of such fraction on the date of conversion. (d) (i) An Optional Conversion of the Convertible Preferred Stock may be effected by any such holder upon the surrender to the Company at the principal office of the Company of the certificate for such Convertible Preferred Stock to be converted accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares (which may be fractional shares) in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. A Mandatory Conversion of the Convertible Preferred Stock shall be immediately effective on the date on which the Company sends a written notice to all holders of Convertible Preferred Stock and shall be deemed to be made as of the date of the Price Condition has been met; provided such notice is sent by the Company within 30 days thereof. Any holder may surrender to the Company the certificate for such Convertible Preferred Stock converted pursuant to a Mandatory Conversion accompanied by a written notice specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. Until such time as the holder surrenders its certificate pursuant to a Mandatory Conversion, the certificates representing the Convertible Preferred Stock shall represent the number of shares of Common Stock issuable upon conversion of such certificate. Upon any conversion of any shares of Convertible Preferred Stock, the Company shall pay the holder thereof all accrued and unpaid dividends owing in respect of such shares so converted. 11 (ii) In case the written notice specifying the name or name in which such holder wishes the certificate or certificates for shares of Common Stock to be issued shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Company will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Convertible Preferred Stock pursuant hereto. As promptly as practicable, and in any event within five Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Company that such taxes have been paid), the Company shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of Convertible Preferred Stock being converted shall be entitled and (ii) if less than the full number of shares of Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares of Convertible Preferred Stock evidenced by such surrendered certificate or certificates less the number of shares of Convertible Preferred Stock being converted. (iii) Such conversion shall be deemed to have been made at the close of business on the date of giving the written notice referred to in the first sentence of (b)(i) above and of such surrender of the certificate or certificates representing the shares of Convertible Preferred Stock to be converted so that the rights of the holder thereof as to the shares of Convertible Preferred Stock being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. (e) In case any shares of Convertible Preferred Stock are to be redeemed pursuant to Section 6, all rights of conversion shall cease and terminate as to the shares of Convertible Preferred Stock to be redeemed at the close of business on the Business Day next preceding the date fixed for redemption unless the Company shall default in the payment of the Redemption Price. (f) The Conversion Price shall be subject to adjustment from time to time in certain instances as hereinafter provided. (g) The Company shall at all times reserve, and keep available for issuance upon the conversion of the Convertible Preferred Stock, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Convertible Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all outstanding shares of Convertible Preferred Stock. 12 (h) The Conversion Price will be subject to adjustment from time to time as follows: (i) Adjustment for Stock Splits and Combinations. If the Company shall declare or pay a dividend on its outstanding shares of Common Stock or make a distribution to holders of its Common Stock, in either case in shares of Common Stock or subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, the Conversion Price then in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Company shall combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (i) shall become effective at the close of business on the date the subdivision or combination becomes effective. (ii) Distributions. If, after the effective date of these Amended and Restated Articles of Incorporation, the Company shall distribute to all holders of its shares of Common Stock evidences of its indebtedness, shares of another class of capital stock ("Other Shares"), assets (excluding cash distributions made as a dividend payable out of earnings or out of surplus legally available for dividends under the laws of the jurisdiction of incorporation of the Company) or rights to subscribe to shares of Common Stock, then in each such case, unless the Company elects to reserve such indebtedness, assets, rights or shares for distribution to each holder of Convertible Preferred Stock upon the conversion of the Convertible Preferred Stock so that such holder will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such indebtedness, assets, rights or shares which such holder would have received if such holder had, immediately prior to the record date for the distribution of such indebtedness, assets, rights or shares, converted the Convertible Preferred Stock and received Common Stock, the Conversion Price in effect immediately prior to such distribution shall be decreased to an amount determined by multiplying such Conversion Price by a fraction, the numerator of which is the Fair Value of a share of the Common Stock at the date of such distribution less the fair value of the evidences of indebtedness, Other Shares, assets or subscription rights as the case may be, so distributed (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive) and the denominator of which is the Fair Value of a share of Common Stock at such date. Such adjustment shall be made whenever any such distribution is made, and shall become effectively retroactively on the date immediately after the record date for the determination of stockholders entitled to receive such distribution. (iii) Adjustments for Reclassification, Exchange and Substitution. In the event the Common Stock issuable upon the conversion or redemption of the Convertible Preferred Stock is changed into the same or a different number of shares of stock of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of stock or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 7), then and in any such event each holder of Convertible Preferred Stock shall have the right thereafter to receive, upon the conversion or the redemption in exchange for Common Stock of such Convertible Preferred Stock, the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such Convertible Preferred Stock shall be convertible or redeemable, all subject to further adjustment as provided herein. 13 (iv) Reorganizations, Mergers, Consolidations or Sales of Assets. If there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of stock provided for elsewhere in this Section 7) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Corporation's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Convertible Preferred Stock shall thereafter be entitled to receive, upon the conversion or the redemption in exchange for Common Stock of such Convertible Preferred Stock, the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock issuable upon such conversion or redemption would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of such Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 7 (including adjustment of the Conversion Price then in effect and the number of shares of stock issuable upon conversion or redemption of such Convertible Preferred Stock) shall be applicable after that event and be as nearly equivalent as may be practicable. (v) For purposes of this paragraph (h), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Company or any of its subsidiaries. (vi) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this paragraph (h) or in the Conversion Price then in effect shall be required by reason of the taking of such record. (vii) Anything in this paragraph (h) to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Conversion Price unless and until the net effect of one or more adjustments (each of which shall be carried forward), determined as above provided, shall have resulted in a change of the Conversion Price by at least $0.01 and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Price by at least $0.01, such change in Conversion Price shall thereupon be given effect. 14 (i) In case of any Organic Change (or any other merger or consolidation to which the Company is a party, which for purposes of this paragraph (i) shall be deemed an Organic Change), each share of Convertible Preferred Stock then outstanding, other than those shares to be redeemed pursuant to Section 6 of this Article 5(B), shall thereafter be convertible into, in lieu of the Common Stock issuable upon such conversion prior to consummation of such Organic Change, the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Organic Change by a holder of that number of shares of Common Stock into which one share of Convertible Preferred Stock was convertible immediately prior to such Organic Change (including, on a pro rata basis, the cash, securities or property received by holders of Common Stock in any tender or exchange offer that is a step in such Organic Change). In case securities or property other than Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section 7 shall be deemed to apply, so far as appropriate and nearly as may be, to such other securities or property. (j) In case at any time or from time to time the Company shall pay any stock dividend or make any other non-cash distribution to the holders of its Common Stock, or shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of the Common Stock of the Company or consolidation or merger of the Company with or into another corporation, or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of said cases, the Company shall give at least 20 days' prior written notice to the registered holders of the Convertible Preferred Stock at the addresses of each as shown on the books of the Company as of the date on which (i) the books of the Company shall close or a record shall be taken for such stock dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided that in the case of any Organic Change to which paragraph (g) applies the Company shall give at least 30 days' prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance or participate in such dissolution, liquidation or winding up, as the case may be. Failure to give such notice shall not invalidate any action so taken. (k) Section 305 Issues. Anything in this Section 7 of Article 5(B) to the contrary notwithstanding, the Company shall be entitled, but not required, to make such reductions in the Conversion Price, in addition to those required by Section 7(h), as it in its discretion shall determine to be advisable in order that any dividend in or distribution of shares of Common Stock or shares of capital stock or any class other than Common Stock, subdivision, reclassification or combination of shares of Common Stock, issuance of rights or warrants, or any other transaction having similar effect, shall not be treated as a distribution of property by the Company to its shareholders under Section 305 of the Internal Revenue Code of 1986, as amended, or any successor provision and shall not be taxable to them. 15 8. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 7, then, and in each such case, the Company shall promptly deliver to each holder of the Convertible Preferred Stock, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion granted by Section 7, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to holders of the Convertible Preferred Stock may be given in advance. 9. No Reissuance of Preferred Stock. No Convertible Preferred Stock acquired by the Company by reason of redemption, purchase, or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Company shall be authorized to issue. 10. Notices. All notices to the Company permitted hereunder shall be personally delivered or sent by first class mail, postage prepaid, addressed to its principal office located at 101 East State Street, Kennett Square, Pennsylvania 19348 or to such other address at which its principal office is located and as to which notice thereof is similarly given to the holders of the Convertible Preferred Stock at their addresses appearing on the books of the Company. Sixth: No Cumulative Voting. Shareholders of the corporation are not entitled to cumulate their votes in the election of directors. Seventh: Board of Directors. A. The Board of Directors appointed through and upon the Plan of Reorganization of the corporation dated July 6, 2001 becoming effective shall serve for a term of one year. At the first meeting of shareholders for the election of directors following the effective date of these Amended and Restated Articles of Incorporation, the Board of Directors shall be divided into three classes, Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, however, that each director in Class I shall hold office until the first annual meeting of shareholders following the meeting at which such director was elected (or until the action of shareholders in lieu thereof); each director in Class II shall hold office until the second annual meeting of shareholders following the meeting at which such director was elected (or until the action of shareholders in lieu thereof); and each director in Class III shall hold office until the third annual meeting of shareholders following the meeting at which such director was elected (or until the action of shareholders in lieu thereof). B. The number of directors which shall constitute the whole Board of Directors of the corporation shall be the number from time to time fixed by the bylaws of the corporation (which number shall not be less than three), and such number of directors so fixed in such bylaws may be changed only by receiving the affirmative vote of (i) the holders of at least eighty percent (80%) of all the shares of the corporation then entitled to vote on such change, or (ii) seventy-five percent (75%) of the directors in office at the time of vote. When the number of directors is changed, any increase or decrease in the number of directorships shall be apportioned among the classes so as to make all classes as nearly equal in number as possible. The directors of this corporation need not be shareholders. 16 C. Each director shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal. Should a vacancy occur or be created, whether arising through death, resignation, retirement or removal of a director, such vacancy shall be filled by a majority vote of the remaining directors. A director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he was elected. D. Any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least eighty percent (80%) of all of the outstanding shares of capital stock of the corporation entitled to vote for that purpose, except that if the Board of Directors, by an affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors, recommends removal of a director to the shareholders, such removal may be effected by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the corporation entitled to vote on the election of directors at a meeting of shareholders called for that purpose. Eighth: Special Meetings of Shareholders. Special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of the Board and shall be called by the Secretary at the request in writing of a majority of the Board of Directors or shareholders entitled to cast thirty percent (30%) of the votes which all shareholders are entitled to cast at the particular meeting. Any such request of directors or shareholders shall state the purpose or purposes of the proposed meeting. Ninth: Business Combinations. Except for a "Business Combination" (as defined below) which as been approved by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors of the corporation, any Business Combination, in addition to any affirmative vote required by law, shall require the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class (it being understood that for purposes of this Article 9, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article 5(A) of these Amended and Restated Articles of Incorporation). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article 9 shall mean: 17 A. any merger or consolidation of the corporation or any corporation of which the shares of stock having a majority of the general voting power in electing the Board of Directors are, at the time as of which any determination is being made, owned by the corporation, either directly or indirectly ("Subsidiary"); or B. any sale, lease, exchange, transfer or other disposition (in one transaction or a series of transactions of all or substantially all of the assets of the corporation and its Subsidiaries; provided that transactions which are financing transactions (such as sale-leaseback transactions) shall not be deemed to be Business Combinations for purposes of this Article 9; or C. the adoption of any plan or proposal for the liquidation or dissolution of the corporation; or D. any reclassification of securities (including any reverse stock split) or recapitalization of the corporation, or any merger or consolidation of the corporation with any Subsidiary. Tenth: Amendment. Notwithstanding any other provisions of these Amended and Restated Articles of Incorporation or the bylaws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Amended and Restated Articles of Incorporation or the bylaws of the corporation), the affirmative vote of the holders of eighty percent (80%) or more of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with (collectively, "Amend") Articles 7, 8, 9, 10, 11 or 12 of these Amended and Restated Articles of Incorporation, unless such Amendment has been approved by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors of the corporation in which event such Amendment may be approved by the affirmative vote of the holders of a majority of the outstanding Voting Stock, voting together as a single class. Eleventh: Provisions Not Applicable. As provided in the corporation's Amended and Restated Articles of Incorporation filed on March 29, 1991 with the Department of State of the Commonwealth of Pennsylvania, the corporation reaffirms that the provisions contained in Subchapters E, G, H, I and J of Chapter 25 of the Pennsylvania Business Corporation Law, as it may be amended from time to time, shall not be applicable to the corporation. Twelfth: Tender Offers. A. The Board of Directors may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but it is not legally obligated to, consider any pertinent issues. By way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to consider any and all of the following: 18 1. whether the offer price is acceptable based on the historical and present operating results or financial conditions of the corporation; 2. whether a more favorable price could be obtained for the corporation's securities in the future; 3. the impact which an acquisition of the corporation would have on the employees, suppliers and customers of the corporation and its Subsidiaries and on the communities served by the corporation and its Subsidiaries; 4. the reputation and business practice of the offeror and its management and affiliates as they would affect the employees, suppliers and customers of the corporation and its Subsidiaries and the future value of the corporation's stock; 5. the value of the securities, if any, which the offeror is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the entity whose securities are being offered; and 6. any antitrust or other legal and regulatory issues that are raised by the offer. B. If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any and all of the following: (i) advising shareholders not to accept the offer, (ii) commencing litigation against the offeror; (iii) filing complaints with all governmental and regulatory authorities; (iv) acquiring the corporation's securities; (v) selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; (vi) acquiring a company to create an antitrust or other regulatory problem for the offeror; and (vii) obtaining a more favorable offer from another individual or entity. Thirteenth: Non-Voting Capital Stock. The Corporation shall not be authorized to issue non-voting capital stock to the extent prohibited by Section 1123(a)(6) of Title 11 of the United States Code (the "Bankruptcy Code"); provided however that this Article 13 will have no further force and effect beyond that required by Section 1123 of the Bankruptcy Code. Fourteenth: Severability. In the event that all, some or any part of any provision contained in these Amended and Restated Articles of Incorporation shall be found by any court of competent jurisdiction to be illegal, invalid or unenforceable (as against public policy or otherwise), such provision shall be enforced to the fullest extent permitted by law and shall be construed as if it had been narrowed only to the extent necessary so as not to be invalid, illegal or unenforceable; the validity, legality and enforceability of the remaining provisions of these Amended and Restated Articles of Incorporation shall continue in full force and effect and shall not be affected or impaired by such illegality, invalidity or unenforceability of any other provision (or any part or parts thereof) of these Amended and Restated Articles of Incorporation. If and to the extent that any provision contained in these Amended and Restated Articles of Incorporation violates any rule of a securities exchange or automated quotation system on which securities of the Corporation are traded, the Board of Directors is authorized, in its sole discretion, to suspend or terminate such provision for such time or periods of time and subject to such conditions as the Board of Directors shall determine in its sole discretion. EX-3 5 ex3-2.txt EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS of GENESIS HEALTH VENTURES, INC. These Bylaws are adopted by the Corporation and are supplemental to the Pennsylvania Business Corporation Law as the name shall from time to time be in effect. ARTICLE I. SHAREHOLDERS AND DIRECTORS Section 101.1 Place of Shareholders' Meetings. All meetings of the shareholders shall be held at such place or places, inside or outside the Commonwealth of Pennsylvania, as determined by the Board of Directors from time to time. Section 101.2 Annual Shareholders' Meeting. The annual meeting of the shareholders, for the election of directors and the transaction of other business which is properly brought before such meeting, shall be held in each calendar year, at a time and place determined by the Board of Directors. Section 101.3 Special Meetings of Shareholders. Special meetings of the shareholders may be called at any time by the Board of Directors or the Chairman of the Board and Chief Executive Officer. Section 101.4 Conduct of Shareholders' Meetings. The Chairman of the Board shall preside at all Shareholders' meetings. In the absence of the Chairman of the Board, the President shall preside or, in his or her absence, any officer designated by the Board of Directors. The officer presiding over the shareholders' meeting may establish such rules and regulations for the conduct of the meeting as he or she may deem to be reasonably necessary or desirable for the orderly and expeditious conduct of the meeting. Unless the officer presiding over the shareholders' meeting otherwise requires, shareholders need not vote by ballot on any questions. Section 102.1 Management by Board of Directors. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, regulation, the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws directed or required to be exercised or done by the shareholders. Section 102.2. Nomination for Directors. Beginning with the annual meeting of the shareholders to be held in 2002, nominations by shareholders for directors to be elected at a meeting of shareholders and which have not been previously approved by the Board of Directors must be submitted to the Secretary of the Corporation in writing, either by personal delivery, nationally recognized express mail or United States mail, postage prepaid, not later than (i) with respect to an election to be held at an annual meeting of shareholders, the latest date upon which shareholder proposals must be submitted to the Corporation for inclusion in the Corporation's proxy statement relating to such meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or other applicable rules or regulations under the federal securities laws or, if no such rules apply, at least ninety (90) days prior to the date one year from the date of the immediately preceding annual meeting of shareholders, and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. Each such nomination shall set forth: (i) the name and address of the shareholder making the nomination and of the person or persons nominated; (ii) a representation that the shareholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to vote for the person or persons nominated; (iii) a description of all arrangements and understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations were made by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated by the Board of Directors; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. All late nominations shall be rejected. Notwithstanding the foregoing, at any time prior to the election of directors at a meeting of shareholders, the Board of Directors may designate a substitute nominee to replace any bona fide nominee who was nominated as set forth above and who, for any reason, becomes unavailable for election as a director. Section 102.3. Number of Directors. The Board of Directors shall consist of initially eight (8) directors and, after an initial one year term following the effectiveness of the Corporation's Plan of Reorganization dated July 6, 2001, (i) the Board of Directors shall consist of not less than 8 nor more than 13 directors as shall be established from time to time by majority vote of the members in office of the Board of Directors, and (ii) the Board shall be divided into three classes in accordance with the Corporation's Amended and Restated Articles of Incorporation. Section 102.4. Term of Directors. Each director shall serve until his successor is elected and qualifies, even though his term of office has otherwise expired, except in the event of his earlier resignation, removal or disqualification. Section 102.5. Resignations of Directors. Any director may resign at any time. Such resignation shall be in writing, but the acceptance thereof shall not be necessary to make it effective. Section 102.6. Vacancies in the Board of Directors. Should a vacancy in the Board of Directors occur or be created, whether arising through death, resignation, retirement or removal of a Director, such vacancy shall be filled by a majority vote of the remaining Directors. A Director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he was elected. Section 102.7. Compensation of Directors. Unless the Board of Directors otherwise determines, directors shall not be entitled to any compensation for their services as directors; provided that directors who are not also employees of the Corporation shall be reimbursed by the Corporation for all out-of-pocket expenses actually incurred by such directors in attending meetings of the Board of Directors or any committees thereof. Any director may serve the Corporation in other capacities and be entitled to such compensation therefor as is determined by the Board of Directors. Section 102.8. Annual Meeting of Directors. An annual meeting of the Board of Directors shall be held each year immediately following the annual meeting of the shareholders and at such other times as the Board shall from time to time designate or as may be designated in any notice from the Secretary calling the meeting. Section 102.9. Meetings of the Directors. Meetings of the Board of Directors may be called by the Chairman or any three members of the Board of Directors. Any one member of the Board of Directors may request that the Chairman of the Board of Directors call a meeting of the Board of Directors. Upon the request of the Chairman or such three directors, it shall be the duty of the Secretary of the Corporation to fix the date of such meeting to be held at such time, not less than three (3) business days after the receipt of such request as the Secretary may determine and to give due notice thereof for any such meeting to be held at the principal office of the Corporation or at any other place designated in the notice of the meeting; or, in the alternative, not less than twenty-four (24) hours after the receipt of such request as the Secretary may determine and to give due notice thereof for any such meeting where any director may participate by using a conference telephone or similar communications equipment, by means of which all such persons participating in the meeting can hear each other. Section 102.10. Notice of Directors' Meetings. Whenever notice of a meeting of the Board of Directors is required, it shall be in writing and shall be made to each director to his or her address appearing on the books of the Corporation by hand delivery, first class or express mail (postage prepaid), courier service (charges prepaid) or by facsimile transmission. Unless otherwise required by law or these Bylaws, neither the business to be transacted at, nor the purpose of, any regular meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 102.11. Reports and Records. The reports of officers and committees and the records of the proceedings of all committees shall be filed with the Secretary of the Corporation and presented to the Board of Directors, if practicable, at its next regular meeting. The Board of Directors shall keep complete records of its proceedings in a minute book kept for that purpose. When a director shall request it, the vote of each director upon a particular question shall be recorded in the minutes. -2- Section 102.12. Committees. The following committees of the Board of Directors shall be established by the Board of Directors in addition to any other committee the Board of Directors may in its discretion establish: (a) Executive Committee; (b) Audit and Compliance Committee; and (c) Compensation Committee. Section 102.13. Executive Committee. The Executive Committee shall consist of at least three (3) directors. Meetings of the Committee may be called whenever two or more members of the Committee so request in writing. The Executive Committee shall have and exercise the authority of the Board of Directors in the management of the business of the Corporation between the dates of regular meetings of the Board. Section 102.14. Audit and Compliance Committee. The Audit and Compliance Committee shall consist of at least three (3) directors, a majority of which shall be independent. Meetings of the Audit and Compliance Committee Committee may be called at any time by the Chairman or Secretary of the Audit and Compliance Committee, and shall be called whenever two or more members of the Committee so request in writing. The Audit and Compliance Committee shall have the following authority, powers and responsibilities: (a) To recommend each year to the Board the independent accountants to audit the annual financial statements of the Corporation and its consolidated subsidiaries and to review the fees charged for such audits or for special engagements given to such accountants; (b) To meet with the independent accountants, Chief Executive Officer, Chief Financial Officer and any other Corporation executives as the Audit and Compliance Committee deems appropriate at such times as the Audit and Compliance Committee shall determine to review: (i) the scope of the audit plan; (ii) the Corporation's financial statements; (iii) the results of external and internal audits; (iv) the effectiveness of the Corporation's system of internal controls; (v) any limitations imposed by Corporation personnel on the independent public accountants; and (vi) such other matters as the Audit and Compliance Committee shall deem appropriate; (c) To report to the entire Board at such time as the Audit and Compliance Committee shall determine; (d) To take such other action as the Audit and Compliance Committee shall deem necessary or appropriate to assure that the interests of the Company are adequately protected. Section 102.15. Compensation Committee. The Compensation Committee shall consist of at least two (2) directors. Meetings of the Committee may be called at any time by the Chairman or Secretary of the Committee, and shall be called whenever two or more members of the Committee so request in writing. The Committee shall review compensation of executive officers and make recommendations to the Board of Directors regarding executive compensation and shall have such other duties as the Board of Directors prescribes. Section 102.16. Appointment of Committee Members. The Board of Directors shall appoint or shall establish a method of appointing the members of the Executive, Audit and Compensation Committees and of any other committees established by the Board of Directors, and the Chairman of each such committee, to serve until the next annual meeting of shareholders. Section 102.17. Organization and Proceedings. Each committee of the Board of Directors shall effect its own organization by the appointment of a Secretary and such other officers, except the Chairman, as it may deem necessary. The Secretary of the Executive Committee shall be the Secretary of the Corporation, but the Secretary of the Audit and Compensation Committees and of any other committee need not be the Secretary of the Corporation. A record of the proceedings of all committees shall be kept by the Secretary of such committee and filed and presented as provided in Section 102.12 of these Bylaws. -3- Section 102.18. Committees. In the absence or disqualification of any member of any committee established by the Board Directors, the members thereof who are present at any meeting such committee and are not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at such meeting in the place of such absent or disqualified member. Section 103. Absentee Participation in Meetings. A director or shareholder (as the case may be) may participate in a meeting of the Board of Directors, a meeting of a committee established by the Board of Directors, or a meeting of the shareholders, by use of a conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear each other. ARTICLE II. OFFICERS Section 201. Officers. The Corporation shall have a Chairman, a President, a Secretary and a Treasurer, and may have one or more Vice Chairmen, one or more Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers and other officers and assistant officers as the Board of Directors may from time to time deem advisable. Section 202. Election and Term of Officers. The Chairman and Chief Executive Officer, President and Chief Operating Officer, Secretary, and Treasurer of the Corporation shall be elected annually by the Board of Directors at the annual meetings of the Board of Directors. All other officers and assistant officers shall be elected by the Board of Directors at the time, in the manner, and for such term as the Board of Directors from time to time determines. Each officer and assistant officer shall serve until his successor is duly elected and qualifies, or until he resigns or is removed from office. Section 203. Compensation. Unless otherwise provided by the Board of Directors, the compensation of officers and assistant officers shall be fixed by the Chairman. Section 204. Chairman and Chief Executive Officer. The Chairman shall be the chief executive officer of the Corporation, and, subject to the direction and control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. Unless a designation to the contrary is made at a meeting, the Chairman, when present, shall preside at all meetings of the shareholders and of the Board of Directors. As authorized by the Board of Directors, the Chairman may execute and seal, or cause to be sealed, all instruments requiring such execution. Upon request of the Board of Directors, the Chairman shall report to it all matters which the interests of the Corporation may require to be brought to the attention of the Board of Directors. Section 205. President and Chief Operating Officer. The president shall be the chief operating officer of the Corporation. As authorized by the Board of Directors, the President may execute and seal, or cause to be sealed, all instruments requiring such execution, except to the extent that signing and execution thereof is expressly delegated by the Board of Directors to some other officer or agent of the Corporation. In the absence or disability of the Chairman, the President, unless otherwise determined by the Board of Directors, shall perform the duties and exercise the powers of the Chairman. Section 206. Vice President, Secretary, Treasurer, and Assistant Officers. In the absence or disability of the President, the Vice President or Vice Presidents, in the order of their seniority, unless otherwise determined by the Board of Directors or the Chairman shall perform the duties and exercise the powers of the President. The Vice President or Vice Presidents, the Secretary, the Treasurer, the Assistant Secretary or Secretaries, and the Assistant Treasurer or Treasurers, shall act under the direction of the Chairman and shall perform all duties which are prescribed by the Chairman or the Board of Directors. -4- ARTICLE III. PERSONAL LIABILITY AND INDEMNIFICATION Section 301.1.1. Personal Liability of Directors. (a) A director of this Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless: (1) the director has breached or failed to perform the duties of his office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation of 1988 (which, as amended from time to time, is hereafter called the "Business Corporation Law"); and (2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. (b) This Section 301.1.1 shall not limit a director's liability for monetary damages to the extent prohibited by the Business Corporation Law. Section 301.1.2. Mandatory Indemnification. The Corporation shall, to the fullest extent permitted by applicable law, indemnify its directors and officers who were or are a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not such action, suit or proceeding arises or arose by or in the right of the Corporation or other entity) by reason of the fact that such director or officer is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, general partner, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), against expenses (including, but not limited to, attorneys' fees and costs), judgments, fines (including excise taxes assessed on a person with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with such action, suit or proceeding, except as otherwise provided in Section 301.1.4 hereof. Persons who were members, directors or officers of the Corporation prior to the date this Section is approved by shareholders of the Corporation, but who do not hold such office on or after such date, shall not be covered by this Section 301.1. A director or officer of the Corporation entitled to indemnification under this Section 301.1.2 is hereafter called a "person covered by Section 301.1.2 hereof". Section 301.1.3. Expenses. Expenses incurred by a person covered by Section 301.1.2 hereof in defending a threatened, pending or completed civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation, except as otherwise provided in Section 301.1.4. Section 301.1.4. Exceptions. No indemnification under Section 301.1.2 or advancement or reimbursement of expenses under Section 301.1.3 shall be provided to a person covered by Section 301.1.2 hereof (a) with respect to expenses or the payment of profits arising from the purchase or sale of securities of the Corporation in violation of Section 16(b) of the Securities Exchange Act of 1934; (b) if a final unappealable judgment or award establishes that such director or officer engaged in self-dealing, willful misconduct or recklessness; (c) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, and amounts paid in settlement) which have been paid directly to such person by an insurance carrier under a policy of officers' and directors' liability insurance whose premiums are paid for by the Corporation or by an individual or entity other than such director or officer; and (d) for amounts paid in settlement of any threatened, pending or completed action, suit or proceeding without the written consent of the Corporation, which written consent shall not be unreasonably withheld. The Board of Directors of the Corporation is hereby authorized, at any time by resolution, to add to the above list of exceptions from the right of indemnification under Section 301.1.2 or advancement or reimbursement of expenses under Section 301.1.3, but any such additional exception shall not apply with respect to any event, act or omission which has occurred prior to the date that the Board of Directors in fact adopts such resolution. Any such additional exception may, at any time after its adoption, be amended, supplemented, waived or terminated by further resolution of the Board of Directors of the Corporation. Section 301.1.5. Continuation of Rights. The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Section 301.1 shall continue as to a person who has ceased to be a director or officer of the Corporation, and shall inure to the benefit of the heirs, executors and administrators of such person. -5- Section 301.1.6. General Provisions. (a) The term "to the fullest extent permitted by applicable law", as used in this Section 301.1, shall mean the maximum extent permitted by public policy, common law or statute. Any person covered by Section 301.1.2 hereof may, to the fullest extent permitted by applicable law, elect to have the right to indemnification or to advancement or reimbursement of expenses, interpreted, at such person's option, (i) on the basis of the applicable law on the date this Section was approved by the shareholders, or (ii) on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the action, suit or proceeding, or (iii) on the basis of the applicable law in effect at the time indemnification is sought. (b) The right of a person covered by Section 301.1.2 hereof to be indemnified or to receive an advancement or reimbursement of expenses pursuant to Section 301.1.3 (i) may also be enforced as a contract right pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the Corporation and such person, (ii) to the fullest extent permitted by applicable law, is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification (as determined by such person) of this Section with respect to events, acts or omissions occurring before such rescission or restrictive modification is adopted. (c) If a request for indemnification or for the advancement or reimbursement of expenses pursuant hereto is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation together with all supporting information reasonably requested by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim (plus interest at the prime rate announced from time to time by the Corporation's primary banker) and, if successful in whole or in part, the claimant shall be entitled also to be paid the expenses (including, but not limited to, attorneys' fees and costs) of prosecuting such claim. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or the advancement or reimbursement of expenses to the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. (d) The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Section 301.1 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement or reimbursement of expenses may be entitled under any bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in such director or officer's official capacity and as to action in another capacity while holding that office. (e) Nothing contained in this Section 301.1 shall be construed to limit the rights and powers the Corporation possesses under the Business Corporation Law, or otherwise, including, but not limited to, the powers to purchase and maintain insurance, create funds to secure or insure its indemnification obligations, and any other rights or powers the Corporation may otherwise have under applicable law. (f) The provisions of this Section 301.1 may, at any time (and whether before or after there is any basis for a claim for indemnification or for the advancement or reimbursement of expenses pursuant hereto), be amended, supplemented, waived, or terminated, in whole or in part, with respect to any person covered by Section 301.1.2 hereof by a written agreement signed by the Corporation and such person. (g) The Corporation shall have the right to appoint the attorney for a person covered by Section 301.1.2 hereof, provided such appointment is not unreasonable under the circumstances. Section 301.1.7. Optional Indemnification. The Corporation may, to the fullest extent permitted by applicable law, indemnify, and advance or reimburse expenses for, persons in all situations other than that covered by this Section 301.1. -6- ARTICLE IV. SHARES OF CAPITAL STOCK Section 401. Authority to Sign Share Certificate. Every share certificate of the Corporation shall be signed by the Chairman and Chief Executive Officer and by the Secretary or one of the Assistant Secretaries. If the certificate is signed by a transfer agent or registrar, the signature of any officer of the Corporation on the certificate may be facsimile, engraved or printed. Section 402. Lost or Destroyed Certificates. Any person claiming a share certificate to be lost, destroyed or wrongfully taken shall receive a replacement certificate if such shareholder: (a) requests such replacement certificate before the Corporation has notice that the shares have been acquired by a bona fide purchaser; (b) files with the Corporation an indemnity bond deemed sufficient by the Board of Directors; and (c) satisfies any other reasonable requirements fixed by the Board of Directors. ARTICLE V. GENERAL Section 501. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 502. Record Date. The Board of Directors may fix any time prior to the date of any meeting of shareholders as a record date for the determination of shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than ninety (90) days prior to the date of the meeting of shareholders. The Board of Directors may fix any time whatsoever (whether or not the same is more than ninety (90) days) prior to the date for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or will go into effect, as a record date for the determination of the shareholders entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. Section 503. Emergency Bylaws. In the event of any emergency resulting from an attack on the United States, a nuclear disaster or another catastrophe as a result of which a quorum cannot be readily assembled and during the continuance of such emergency, the following Bylaw provisions shall be in effect, notwithstanding any other provisions of these Bylaws. (a) A meeting of the Board of Directors or of any committee thereof may be called by any officer or director upon one hour's notice to all persons entitled to notice whom, in the sole judgment of the notifier, it is feasible to notify; (b) The director or directors in attendance at the meeting of the Board of Directors or of any committee thereof shall constitute a quorum; and (c) These Bylaws may be amended or repealed, in whole or in part, by a majority vote of the directors attending any meeting of the Board of Directors, provided such amendment or repeal shall only be effective for the duration of such emergency. Section 504. Severability. If any provision of these Bylaws is illegal or unenforceable as such, such illegality or unenforceability shall not affect any other provision of these Bylaws and such other provisions shall continue in full force and effect. ARTICLE VI. AMENDMENTS Section 601. Amendment or Repeal by the Board of Directors. Except as provided by applicable law, these Bylaws may be amended or repealed, in whole or in part, by a majority vote of the members of the Board of Directors present and voting at any duly convened regular or special meeting of the Board. -7- Section 602. Amendment or Repeal by Shareholders. These Bylaws may be amended or repealed, in whole or in part, by shareholders as follows: (i) in the case of an amendment or repeal that has previously received the approval of the Board of Directors, by a majority of the votes cast by shareholders at any duly convened annual or special meeting of the shareholders; and (ii) in the case of an amendment or repeal that has not previously received the approval of the Board of Directors, by a vote of shareholders entitled to cast at least 75 percent of the votes which all shareholders are entitled to cast thereon at any annual or special meeting of the shareholders. This Section 602 may be amended or repealed, in whole or in part, only by a vote of shareholders entitled to cast at least 75 percent of the votes which all shareholders are entitled to cast thereon at any duly convened annual or special meeting of shareholders. Section 602. Recording Amendments. The text of all amendments to these Bylaws shall be attached hereto, and a notation of the date of its adoption and a notation of whether it was adopted by the directors or the shareholders shall be made in Section 702 hereof. ARTICLE VII. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS THERETO Section 701. Adoption and Effective Date. These Bylaws have been adopted as the Bylaws of the Corporation this 2nd day of October, 2001, and shall be effective as of said date. Section 702. Amendments to Bylaws. -8- EX-4 6 ex4-6.txt EXHIBIT 4.6 GENESIS HEALTH VENTURES, INC., as Issuer, THE GUARANTORS (as defined herein), as Guarantors, THE BANK OF NEW YORK, as Trustee INDENTURE Dated as of October 2, 2001 $242,605,000 Second Priority Secured Notes due 2007. TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE............................................................1 Section 1.1. Definitions.................................................................................1 Section 1.2. Other Definitions..........................................................................19 Section 1.3. Incorporation by Reference of Trust Indenture Act..........................................19 Section 1.4. Rules of Construction......................................................................20 ARTICLE 2 THE SENIOR NOTES.....................................................................................21 Section 2.1. Dating; Incorporation of Form in Indenture.................................................21 Section 2.2. Execution and Authentication...............................................................21 Section 2.3. Agents.....................................................................................22 Section 2.4. Paying Agent to Hold Money in Trust........................................................22 Section 2.5. Noteholder Lists...........................................................................22 Section 2.6. Transfer and Exchange......................................................................23 Section 2.7. Replacement Senior Notes...................................................................23 Section 2.8. Outstanding Senior Notes...................................................................24 Section 2.9. Temporary Senior Notes.....................................................................24 Section 2.10. Cancellation...............................................................................24 Section 2.11. Defaulted Interest.........................................................................25 Section 2.12. Deposit of Moneys..........................................................................25 Section 2.13. CUSIP Number...............................................................................25 Section 2.14. Payments to Holders........................................................................25 Section 2.15. Book-Entry Provisions for Global Notes.....................................................26 Section 2.16. Record Date................................................................................27 ARTICLE 3 REDEMPTION...........................................................................................27 Section 3.1. Notices to Trustee.........................................................................27 Section 3.2. Selection by Trustee of Senior Notes to Be Redeemed........................................28 Section 3.3. Notice of Redemption.......................................................................28 Section 3.4. Effect of Notice of Redemption.............................................................29 Section 3.5. Deposit of Redemption Price................................................................29 Section 3.6. Senior Notes Redeemed in Part..............................................................29 Section 3.7. Optional Redemption........................................................................30
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PAGE Section 3.8. Mandatory Partial Redemption...............................................................30 ARTICLE 4 COVENANTS............................................................................................30 Section 4.1. Payment of Senior Notes....................................................................30 Section 4.2. Reports....................................................................................30 Section 4.3. Waiver of Stay, Extension or Usury Laws....................................................31 Section 4.4. Compliance Certificate.....................................................................31 Section 4.5. Taxes......................................................................................31 Section 4.6. Limitation on Additional Indebtedness......................................................32 Section 4.7. Limitation on Restricted Payments..........................................................32 Section 4.8. Limitation on Certain Asset Sales..........................................................33 Section 4.9. Limitation on Transactions with Affiliates.................................................35 Section 4.10. Limitations on Liens.......................................................................36 Section 4.11. Limitations on Investments.................................................................36 Section 4.12. Limitation on Creation of Subsidiaries.....................................................36 Section 4.13. Limitation on Subsidiaries and Unrestricted Subsidiaries...................................37 Section 4.14. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries.............38 Section 4.15. Restriction on Sale and Issuance of Subsidiary Equity Interest.............................39 Section 4.16. Limitation on Sale and Lease-Back Transactions.............................................39 Section 4.17. Line of Business...........................................................................39 Section 4.18. Limitation on Status as Investment Company.................................................39 Section 4.19. Corporate Existence........................................................................39 Section 4.20. Maintenance of Office or Agency............................................................40 Section 4.21. Maintenance of Insurance; Books and Records; Compliance with Laws........................40 Section 4.22. Further Assurances to the Trustee..........................................................41 Section 4.23. Collateral Documents.......................................................................41 ARTICLE 5 SUCCESSOR CORPORATION................................................................................41 Section 5.1. Merger, Consolidation or Sale of Assets....................................................41 Section 5.2. Successor Person Substituted...............................................................42
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PAGE ARTICLE 6 DEFAULTS AND REMEDIES................................................................................42 Section 6.1. Events of Default..........................................................................42 Section 6.2. Acceleration...............................................................................44 Section 6.3. Other Remedies.............................................................................44 Section 6.4. Waiver of Defaults and Events of Default...................................................45 Section 6.5. Control by Majority........................................................................45 Section 6.6. Limitation on Suits........................................................................45 Section 6.7. Rights of Holders to Receive Payment.......................................................46 Section 6.8. Collection Suit by Trustee.................................................................46 Section 6.9. Trustee May File Proofs of Claim...........................................................46 Section 6.10. Priorities.................................................................................47 Section 6.11. Undertaking for Costs......................................................................47 Section 6.12. Restoration of Rights and Remedies.........................................................47 Section 6.13. Delay or Omission Not Waiver...............................................................48 ARTICLE 7 TRUSTEE..............................................................................................48 Section 7.1. Duties of Trustee..........................................................................48 Section 7.2. Rights of Trustee..........................................................................49 Section 7.3. Individual Rights of Trustee...............................................................50 Section 7.4. Trustee's Disclaimer.......................................................................50 Section 7.5. Notice of Defaults.........................................................................51 Section 7.6. Reports by Trustee to Holders..............................................................51 Section 7.7. Compensation and Indemnity.................................................................51 Section 7.8. Replacement of Trustee.....................................................................52 Section 7.9. Successor Trustee by Consolidation, Merger or Conversion...................................53 Section 7.10. Eligibility; Disqualification..............................................................53 Section 7.11. Preferential Collection of Claims Against Company..........................................53 Section 7.12. Paying Agents..............................................................................53 Section 7.13. Co-Trustee and Separate Trustees...........................................................54 ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS..................................................................55 Section 8.1. Without Consent of Holders.................................................................55 Section 8.2. With Consent of Holders....................................................................56
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PAGE Section 8.3. Compliance with Trust Indenture Act........................................................57 Section 8.4. Revocation and Effect of Consents..........................................................57 Section 8.5. Notation on or Exchange of Senior Notes....................................................58 Section 8.6. Trustee to Sign Amendments, etc............................................................58 ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE...................................................................58 Section 9.1. Discharge of Indenture.....................................................................58 Section 9.2. Legal Defeasance...........................................................................59 Section 9.3. Covenant Defeasance........................................................................59 Section 9.4. Conditions to Legal Defeasance or Covenant Defeasance......................................59 Section 9.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions...................................................................61 Section 9.6. Reinstatement..............................................................................61 Section 9.7. Moneys Held by Paying Agent................................................................62 Section 9.8. Moneys Held by Trustee.....................................................................62 Section 9.9. Senior Note Collateral.....................................................................62 ARTICLE 10 COLLATERAL AND SECURITY..............................................................................62 Section 10.1. Security...................................................................................62 Section 10.2. Recording and Opinions.....................................................................63 Section 10.3. Release of Collateral......................................................................64 Section 10.4. Protection of the Trust Estate.............................................................65 Section 10.5. Certificates of the Company................................................................66 Section 10.6. Certificates of the Trustee................................................................66 Section 10.7. Authorization of Actions to be Taken by the Trustee Under the Collateral Documents........66 Section 10.8. Authorization of Receipt of Funds by the Trustee Under the Collateral Documents...........66 Section 10.9. Termination of Security Interest...........................................................67 Section 10.10. Cooperation of Trustee.....................................................................67 Section 10.11. Collateral Agent...........................................................................67 Section 10.12. Collateral Trust Agreement.................................................................68
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PAGE ARTICLE 11 GUARANTEE OF SENIOR NOTES............................................................................68 Section 11.1. Guarantee..................................................................................68 Section 11.2. Execution and Delivery of Guarantees.......................................................69 Section 11.3. Limitation of Guarantee....................................................................70 Section 11.4. Release of Guarantor.......................................................................70 Section 11.5. Additional Guarantors......................................................................71 ARTICLE 12 MISCELLANEOUS........................................................................................71 Section 12.1. Trust Indenture Act Controls...............................................................71 Section 12.2. Notices....................................................................................71 Section 12.3. Communications by Holders with Other Holders...............................................72 Section 12.4. Certificate and Opinion as to Conditions Precedent.........................................72 Section 12.5. Statements Required in Certificate and Opinion.............................................72 Section 12.6. When Treasury Senior Notes Disregarded.....................................................73 Section 12.7. Rules by Trustee and Agents................................................................73 Section 12.8. Business Days; Legal Holidays..............................................................73 Section 12.9. Governing Law..............................................................................73 Section 12.10. No Adverse Interpretation of Other Agreements..............................................74 Section 12.11. No Recourse Against Others.................................................................74 Section 12.12. Successors.................................................................................74 Section 12.13. Multiple Counterparts......................................................................74 Section 12.14. Table of Contents, Headings, etc...........................................................75 Section 12.15. Separability...............................................................................75
EXHIBITS Exhibit A Form of Guarantee Notation Exhibit B Form of Senior Note Exhibit C Global Notes Legend SCHEDULE 1 v Reconciliation and Tie between Trust Indenture Act of 1939 and Indenture, dated as of October , 2001 TRUST INDENTURE INDENTURE ACT SECTION SECTION Section 310(a)(1).............................................. 7.10 (a)(2)......................................... 7.10 (a)(3)......................................... 7.13 (a)(4)......................................... N.A. (b)............................................ 7.8; 7.10 (b)(1)......................................... 7.10 (c)............................................ N.A. Section 311(a) ............................................... 7.11 (b)............................................ 7.11 (c)............................................ N.A. Section 312(a) ............................................... 2.5 (b)............................................ 12.3 (c)............................................ 12.3 Section 313(a) ............................................... 7.6 (b)(1)......................................... 10.2 (b)(2)......................................... 10.2; 7.6 (c)............................................ 7.6 (d)............................................ 7.6 Section 314(a) ...............................................4.2; 4.4; 12.5 (b)............................................ 10.2 (c)(1)......................................... 12.4; 12.5 (c)(2)......................................... 12.4; 12.5 (c)(3)......................................... 12.4;12.5 (d)............................................ 10.2 (e)............................................ 10.2; 12.5 (f)............................................ N.A. Section 315(a) ............................................... 7.1; 7.2 (b)............................................ 7.5 (c)............................................ 7.1 (d)............................................ 6.5; 7.1; 7.2 (e)............................................ 6.11 Section 316(a) (last sentence)................................. 12.6 (a)(1)(A)...................................... 6.5 (a)(1)(B)...................................... 6.4 (a)(2)......................................... N.A. (b)............................................ 6.7 (c)............................................ 8.4 Section 317(a)(1).............................................. 6.8 (a)(2)......................................... 6.9 (b)............................................ 7.12 Section 318(a) ............................................... 12.1 vi Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture. Attention should also be directed to TIA Section 318(c), which provides that the provisions of TIA Sections 310 to and including 317 of the TIA are a part of and govern every qualified indenture, whether or not physically contained therein. vii THIS INDENTURE is dated as of October 2, 2001, among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation, as Issuer (the "Company"), the GUARANTORS listed on Schedule 1 hereto and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). The Company and the Guarantors have duly authorized the execution and delivery of this Indenture to provide for the issuance of the Second Priority Secured Notes due 2007 to be issued as provided for in this Indenture. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as hereinafter defined) of the Second Priority Secured Notes due 2007, which are unconditionally guaranteed by the Guarantors. ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 DEFINITIONS. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Subsidiary or assumed in connection with an Asset Acquisition from such Person. "Acquisition Indebtedness" means Indebtedness incurred by the Company or by a Subsidiary after the Issue Date the proceeds of which are used for an Asset Acquisition. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such Guarantor exceeds the total amount of liabilities (after giving effect to all fixed and contingent liabilities (including, without limitation, any guarantees of Indebtedness)), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the amount by which the present fair salable value of the assets of such Guarantor at such date exceeds the total amount of its debts (after giving effect to all fixed and contingent liabilities (including, without limitation, any guarantees of Indebtedness)), and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), but excluding liabilities under the Guarantee. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent, co-registrar or agent for service of notices and demands. "Asset Acquisition" means (a) an Investment by the Company or any Subsidiary of the Company in any other Person pursuant to which such Person shall become a Subsidiary of the Company, or shall be merged with or into the Company or any Subsidiary of the Company, (b) the acquisition by the Company or any Subsidiary of the Company of the assets of any Person (other than a Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or (c) the acquisition by the Company or any Subsidiary of the Company of any division or line of business of any Person (other than a Subsidiary of the Company). "Asset Sale" means the direct or indirect sale, transfer, issuance, conveyance, lease (other than operating leases entered into in the ordinary course of business pursuant to ordinary business terms, it being understood that the lease of a healthcare facility shall not be considered to be in the ordinary course but that leases of portions of a healthcare facility to service providers shall be considered to be in the ordinary course), assignment or other disposition (including, without limitation, by eminent domain, condemnation or similar governmental proceeding) and any merger or consolidation of any Subsidiary of the Company with or into another Person (other than the Company or any Wholly-Owned Subsidiary of the Company) in any single transaction or series of related transactions (separate eminent domain, Condemnation or similar governmental proceedings to each be considered a single transaction but not to be considered together as a series of related transactions) involving property or assets with a fair market value in excess of $500,000 of (a) any Equity Interest in any Subsidiary, (b) real property owned by the Company or any Subsidiary thereof, or a division, line of business or healthcare facility or comparable business segment of the Company or any Subsidiary thereof or (c) other property, assets or rights (including, without limitation, leasehold rights) of the Company, any Subsidiary thereof or any division, line of business or healthcare facility of the Company or any Subsidiary thereof, provided, however, that Asset Sales shall not include (i) sales, leases, conveyances, transfers or other dispositions to the Company or to a Subsidiary thereof or to any other Person if after giving effect to such sale, lease, conveyance, transfer or other disposition such other Person becomes a Wholly-Owned Subsidiary of the Company, (ii) transactions complying with Section 5.1, (iii) sales, transfers, issuances, conveyances, leases, assignments or other dispositions to the Company or any Wholly-Owned Subsidiary of the Company, and (iv) sales, leases, conveyances, transfers or other dispositions in any 12 month period (A) the fair market value of which does not, in the aggregate, exceed 2.5% of the Company's Consolidated Total Assets and (B) the Consolidated Cash Flow Available for Fixed Changes related to such properties or assets does not, in the aggregate, exceed 2.5% of the Company's Consolidated Cash Flow Available for Fixed Charges. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Company or any Subsidiary thereof from such Asset Sale, after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Subsidiary as a result of such Asset Sale, (d) payments made to retire Indebtedness secured by the assets subject to such Asset Sale, (e) payments made to the Trustee, the Collateral Agent and the agent of the holders of the Senior Indebtedness and (f) deduction of appropriate amounts to be provided by the Company or a Subsidiary thereof as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Subsidiary thereof after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other 2 non-cash consideration received by the Company or any Subsidiary thereof from such Asset Sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "Attributable Indebtedness" when used with respect to any Sale-Lease-Back Transaction or an operating lease with respect to a long-term care facility means, as at the time of determination, the present value (discounted at a rate equivalent to the interest rate implicit in the lease, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments (after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, utilities and other similar expenses payable by the lessee pursuant to the terms of the lease) during the remaining term of the lease included in any such Sale and Lease-Back Transaction or such operating lease or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of a penalty (in which case the rental payments shall include such penalty); provided, that the Attributable Indebtedness with respect to a Sale and Lease-Back Transaction shall be no less than the fair market value (as determined reasonably and in good faith by the Board of Directors of the Person incurring the Attributable Indebtedness) of the property subject to such Sale and Lease-Back Transaction. "Board of Directors" means, as to any Person, the board of directors or any duly authorized committee thereof of such Person or, if such Person is a partnership (or other non-corporate Person), of the managing general partner or partners (or Persons serving an analogous function) of such Person. "Board Resolution" means, as to any Person, a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of such Person, and to be in full force and effect, and, if required hereunder, delivered to the Trustee. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Casualty" with respect to any Collateral, means loss of, damage to or destruction of all or any part of such Collateral. "Collateral" means all the assets of the Company and its Subsidiaries defined as "Collateral" in the Collateral Documents. "Collateral Agent" means First Union National Bank as collateral agent under the Collateral Trust Agreement, and its successors. "Collateral Documents" means the Collateral Trust Agreement, the Credit Facility, the UCC-1s, together with all related mortgages, filings, assignments and instruments, as such agreements, filings, assignments and instruments may from time to time be amended, supplemented or otherwise modified in accordance with the terms of this Indenture and such other agreements. "Collateral Trust Agreement" means the Collateral Trust Agreement dated as of October 2, 2001 among the Company, the Trustee and First Union National Bank, as Collateral Agent and Administrative Agent. 3 "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces such party pursuant to Article 5 of this Indenture and thereafter means the successor. "Company Request" means any written request signed in the name of the Company by any two of the following: the Chief Executive Officer; the President; any Vice President; the Chief Financial Officer; the Treasurer; or the Secretary or any Assistant Secretary (but not both the Secretary and any Assistant Secretary) of the Company. "Condemnation" means any taking of the Collateral or any part thereof, in or by Condemnation, expropriation or similar proceeding, eminent domain proceedings, seizure or forfeiture, pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of the Collateral, or any part thereof, by a governmental authority. "Condemnation Proceeds" means any awards, proceeds, payment or other compensation arising out of a Condemnation less any and all payments made to the Trustee, the Collateral Agent and the agent of the holders of the Senior Indebtedness. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any Person for any period, on a consolidated basis in accordance with GAAP, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (A) (i) Consolidated Net Income, (ii) Consolidated Non-cash Charges, (iii) Consolidated Interest Expense, (iv) Consolidated Income Tax Expense, and (v) one-third of Consolidated Rental Payments, less (B) any non-cash items increasing Consolidated Net Income for such period. "Consolidated Fixed Charge Coverage Ratio" means with respect to any Person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (a) the incurrence of any Indebtedness of such Person or any of its Subsidiaries (and the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation (and the application of the net proceeds thereof), as if such incurrence (and application) occurred on the first day of the Four Quarter Period (it being understood that with respect to Indebtedness incurred under a revolving facility used primarily to finance working capital, the average daily principal amount outstanding during the Reference Period shall be deemed to be the amount incurred during the Reference Period), and (b) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Four Quarter Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Four Quarter 4 Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period. In calculating the Consolidated Fixed Charge Coverage Ratio and giving pro forma effect to the incurrence of Indebtedness during a Reference Period, pro forma effect shall be given to use of proceeds thereof to permanently repay or retire Indebtedness. If such Person or any of its Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, for purposes of determining the "Consolidated Fixed Charge Coverage Ratio," effect shall be given to the incurrence of such guaranteed Indebtedness as if such Person or such Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense, (ii) the product of (a) the aggregate amount of dividends and other distributions paid in cash during such period in respect of Disqualified Equity Interests of such Person and its Subsidiaries on a consolidated basis and (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory income tax rate of such Person, expressed as a decimal and (iii) one-third of Consolidated Rental Payments. "Consolidated Income Tax Expense" means, with respect to any Person for any period, the provision for federal, state, local and foreign income taxes of such Person and its Subsidiaries for each period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any Person, on a consolidated basis in accordance with GAAP, for any period, the sum of, without duplication, (a) the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Subsidiaries on a consolidated basis, (b) imputed interest included in Capitalized Lease Obligations, (c) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (d) the net costs associated with Interest Rate Agreements, (e) amortization of other financing fees and expenses, (f) the interest portion of any deferred payment obligation, (g) amortization of discount or premium, if any, (h) all other non-cash interest expense (other than interest amortized to cost of sales), (i) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP and (j) all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, plus the amount of any dividends or distributions received by such Person from 5 Unrestricted Subsidiaries; provided, however, that (a) the Net Income of any Person (the "other Person") in which the Person in question or any of its Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or its Subsidiaries, (b) the Net Income of any Subsidiary, incorporated in a jurisdiction other than the United States, or a state or territory thereof, of the Person in question shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or its Subsidiaries (c) the Net Income of any Subsidiary of the Person in question that is subject to any restriction or limitation (whether by terms of its charter, agreement or applicable law) on the payment of dividends or the making of other distributions shall be excluded to the extent such restriction or limitation would prevent such Subsidiary from being able to pay dividends or make other distributions out of its Net Income, (d)(i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Subsidiaries other than in the ordinary course of business shall be excluded, (e) extraordinary gains and losses (including any related tax effects) shall be excluded and (f) the cumulative effect of changes in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person at any date, the consolidated stockholders' equity of such Person less the amount of such stockholders' equity attributable to Disqualified Equity Interests of such Person and its Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Subsidiaries reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which required an accrual of or a reserve for cash charges for any future period). "Consolidated Rental Payments" of any Person means, for any period, the aggregate rental obligations of such Person and its consolidated Subsidiaries (not including taxes, utilities, insurance, maintenance and repairs and other similar expenses that the lessee is obligated to pay under the terms of the relevant leases), determined on a consolidated basis in accordance with GAAP, payable in respect of such period (net of income from subleases thereof, not including taxes, utilities, insurance, maintenance and repairs and other similar expenses that the sublessee is obligated to pay under the terms of such sublease), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person and its Subsidiaries or in the notes thereto, excluding, however, in any event, (i) that portion of Consolidated Interest Expense of such Person representing payments by such Person or any of its consolidated Subsidiaries in respect of Capitalized Lease Obligations (net of payments to such Person or any of its consolidated Subsidiaries under subleases qualifying as capitalized lease subleases to the extent that such payments would be deducted in determining Consolidated Interest Expense) and (ii) the aggregate amount of amortization of obligations of such Person and its consolidated Subsidiaries in respect of such Capitalized Lease Obligations for such period (net of payments to such Person or any of its 6 consolidated Subsidiaries and subleases qualifying as capitalized lease subleases to the extent that such payments could be deducted in determining such amortization amount). "Consolidated Total Assets" of any person means the consolidated total assets of such Person and its consolidated Subsidiaries, as set forth on the most recent consolidated balance sheet of such Person and its consolidated Subsidiaries determined in accordance with GAAP. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Credit Facility" means (i) any and all credit agreements (whether of the Company or any Subsidiary of Company) contemplated by the Commitment Letter dated as of July 13, 2001 between the Company, First Union Capital Markets and Goldman Sachs; (ii) any agreements, instruments and documents executed or delivered pursuant to or in connection with such credit agreement; and (iii) any credit agreement, loan agreement, note purchase agreement, indenture or other agreement, document or instrument refinancing, refunding or otherwise replacing the credit agreement or any other agreement deemed a Credit Facility under clause (i), (ii) or (iii) hereof, whether or not with the same agent, trustee, representative, lenders or holders, regardless of whether the Credit Facility or any portion thereof was outstanding or in effect at the time of such restatement, renewal, extension, restructuring, supplement or modification. Without limiting the generality of the foregoing, the term "Credit Facility" shall include any amendment, restatement, renewal, extension, restructuring, supplement or modification to any Credit Facility and all refundings, refinancings and replacements of any Credit Facility, including any agreement (a) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (b) adding or deleting borrowers or guarantors thereunder, provided that the addition of such borrower or guarantor would not be prohibited by this Indenture, (c) increasing the amount for Indebtedness incurred thereunder or available to be borrowed thereunder, provided such increase is permitted to be incurred under this Indenture or (d) otherwise altering the terms and conditions thereof in a manner not prohibited by this Indenture. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such person against fluctuations in currency values and not for the purpose of speculation. "Default" means any event that is, or after notice or passage of time of notice or both would be, an Event of Default. "Depository" means, with respect to the Senior Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Company, which Person must be a clearing agency registered under the Exchange Act. "Designated Facility" means any nursing facility, assisted and independent living center or other asset of the Company designated as a Designated Facility pursuant to an Officers' Certificate certifying that such facility had negative operating income based on the financial statements of such facility for the previous fiscal year. 7 "Designated Noncash Consideration" means the fair market value of noncash consideration received by the Company or one of its Subsidiaries in connection with an Asset Sale, including the cancellation of any Indebtedness, that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, or, in the case of the cancellation of any Indebtedness, the principal amount of such cancelled Indebtedness, executed by an Officer of the Company, less the amount of cash or Temporary Cash Investments received in connection with a subsequent sale of such Designated Noncash Consideration. "Disqualified Equity Interests" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatory redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date of the Senior Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Equity Interests shall be deemed to include (i) any Preferred Equity Interests of a Subsidiary of the Company and (ii) any Preferred Equity Interests of the Company, with respect to either of which, under the terms of such Preferred Equity Interests, by agreement or otherwise, such Subsidiary or the Company is obligated to pay current dividends or distributions in cash during the period prior to the Maturity Date. "Equity Interests" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interests in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exchangeable for any of the foregoing. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Collateral" means the property or assets of the Company or its Subsidiaries that are, or after the Issue Date, are subject to one or more Permitted Liens. "Fair market value" or "fair value" means, with respect to any assets or property, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a fully informed, willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction, all as reasonably determined by a majority of the Board of Directors acting in good faith, such determination to be evidenced by a Board Resolution delivered to the Trustee. No such determination need be supported by an appraisal or expert opinion. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time. "Global Note" means a Senior Note evidencing all or a part of the Senior Notes issued to and registered in the name of the Depository and bearing the legend prescribed in Exhibit C. "Guarantee" means, as the context may require, individually, a guarantee, or collectively, any and all guarantees, of the Obligations of the Company with respect to the Senior Notes by each Guarantor pursuant to the terms of Article 11 hereof, substantially in the form set forth as part of Exhibit A. "Guarantor" means each of the Subsidiaries of the Company on the Issue Date. 8 "Healthcare Related Business" means any business conducted by the Company and its Subsidiaries as of the Issue Date and any and all healthcare service businesses that are related thereto including all healthcare, pharmacy, long-term and specialty care, managed care, skilled nursing care, subacute care, rehabilitation programs, geriatric care, home healthcare related businesses, services or facilities, businesses which provide insurance relating to the costs of any of the foregoing and consulting and administrative services and businesses relating to any of the foregoing. "Holder" or "Noteholder" means the Person in whose name a Senior Note is registered on the Registrar's books. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become, directly or indirectly, liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable," and "incurring" shall have meanings correlative to the foregoing); provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. Any Indebtedness or Equity Interests of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Person at the time it becomes a Subsidiary. Indebtedness consisting of reimbursement obligations in respect of a letter of credit will be deemed to be incurred when the letter of credit is issued or renewed. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables, and other liabilities arising in the ordinary course of business) and shall also include, to the extent not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed, (iii) all Indebtedness of others of the type described in the other clauses of this definition (including all dividends of other Persons) the payment of which is guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (v) Disqualified Equity Interests, (vi) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing, and (vii) Attributable Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided, however, that (i) the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue 9 discount of such Indebtedness at such time as determined in conformity with GAAP, and (ii) Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any Subsidiaries for purposes of this definition. Furthermore, guarantees of obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Indenture" means this Indenture as amended, restated or supplemented from time to time. "Insurance Proceeds" means any payment, proceeds or other amounts received at any time under any insurance policy as compensation in respect of a Casualty, less any and all payments made to the Trustee, the Collateral Agent and the agent of the holders of the Senior Indebtedness, provided, that, business interruption insurance proceeds shall not constitute Insurance Proceeds. "interest" when used with respect to any Senior Note, means the amount of all interest accruing on such Senior Note, including all interest accruing subsequent to the occurrence of any events specified in Sections 6.1(7) and (8) or which would have accrued but for any such event. "Interest Payment Date" means each March 15, June 15, September 15, December 15 of each year, commencing December 15, 2001. "Interest Rate Agreement" means, for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect the party indicated therein against fluctuations in interest rates. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business, including accounts receivable arising in the ordinary course of business and acquired as part of the assets acquired by the Company in connection with an acquisition of assets which is otherwise permitted by the terms of this Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or stock or other evidence of beneficial ownership of, any Person, the guarantee or assumption of the Indebtedness of any other Person (except for an assumption of Indebtedness for which the assuming Person receives consideration with a fair market value at least equal to the principal amount of the Indebtedness assumed), the designation of a Subsidiary as an Unrestricted Subsidiary or the making of any investment in any Person and all other items that would be classified as investments on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. "Issue Date" means the Effective Date of the Plan of Reorganization. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, 10 without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Loss Event" means a Condemnation or Casualty involving an actual or constructive total loss or agreed or compromised actual or constructive total loss of all or substantially all of any Property constituting Collateral, except where the Company reasonably concludes that Restoration of such Property can be made in accordance with this Indenture and elects to do so in an Officers' Certificate delivered to the Trustee within 90 days of the relevant Condemnation or Casualty. "Maturity Date" means April 2, 2007. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Investments" means the excess of (i) the aggregate of all Investments made by the Company or a Subsidiary thereof on or after the Issue Date (in the case of an Investment made other than in cash, the amount shall be the fair market value of such Investment) over (ii) the sum of (A) the aggregate amount returned in cash on such Investments whether through interest payments, principal payments, dividends or other distributions and (B) the net cash proceeds received by the Company or such Subsidiary from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company), provided, however, that with respect to all Investments made in Unrestricted Subsidiaries the sum of clauses (A) and (B) above with to such Investments shall not exceed the aggregate amount of all Investments made in all Unrestricted Subsidiaries. "Net Proceeds" means (a) in the case of any sale of Equity Interests by the Company, the aggregate net proceeds received by the Company, less payment of expenses, commissions and the like incurred in connection therewith and any and all payments made to the Trustee, the Collateral Agent and the agent of the holders of the Senior Indebtedness, whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt), and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into Equity Interests of the Company which are not Disqualified Equity Interests, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or surrender plus any additional amount required to be paid by the holder to the Company upon such exchange, exercise, conversion or surrender (e.g., on account of fractional shares and less all expenses incurred by the Company in connection therewith). "Obligations" means, with respect to any Indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses payable under the documentation governing such Indebtedness. "Officer" means, with respect to any Person, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer of such Person, the Controller or the Secretary of the Company or a Guarantor, or any other officer designated by the Board of Directors of such Person, as the case may be (or, in the case of a Person that is a partnership (or other non-corporate Person), of a general partner (or analogous individuals) of such Person in such capacity). 11 "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person (or, in the case of a Person that is a partnership (or other non-corporate Person), of a general partner (or analogous individuals) of such Person in such capacity) that shall comply with applicable provisions of this Indenture. "Opinion of Counsel" means a written opinion from legal counsel which counsel is reasonably acceptable to the Trustee. "Permitted Indebtedness" means: (i) Indebtedness (plus interest, premium, fees and other obligations associated therewith) of the Company or any Subsidiary thereof arising under or in connection with Permitted Secured Indebtedness; (ii) Indebtedness (plus interest, premium, fees and other obligations associated therewith) of the Company or any Subsidiary thereof arising under or in connection with Senior Indebtedness; (iii) Indebtedness under the Senior Notes; (iv) Additional Indebtedness of the Company, including Indebtedness incurred in connection with or arising out of Capitalized Lease Obligations in an aggregate principal amount outstanding at any time not to exceed $50 million; (v) Indebtedness of a Subsidiary issued to and held by the Company or a Subsidiary or Indebtedness of the Company to a Subsidiary in respect of intercompany advances or transactions; (vi) Indebtedness outstanding on the Issue Date; (vii) Indebtedness evidenced by letters of credit issued in the ordinary course of business to support the Company's or any Subsidiary's insurance or self-insurance obligations (including, without limitation, to secure workers' compensation and other similar insurance coverages); (viii) Indebtedness in respect of Interest Rate Agreements; provided that the notional principal amount related to such Interest Rate Agreement does not exceed the principal amount of the Indebtedness to which such Interest Rate Agreement relates; (ix) Indebtedness represented by performance bonds, warranty or contractual service obligations, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company and its Subsidiaries; (x) Refinancing Indebtedness; 12 (xi) Any Indebtedness provided for in the Plan of Reorganization; and (xii) Indebtedness not otherwise permitted to be incurred pursuant to clauses (i) through (xi) above, which, together with any other Indebtedness incurred pursuant to this clause (xii), has an aggregate principal amount not in excess of $10 million at any time outstanding. "Permitted Investments" means, for any Person, Investments made on or after the date of this Indenture consisting of: (i) Temporary Cash Investments; (ii) (A) Investments in the Company or a Subsidiary of the Company, (B) Investments in any Person, if (1) as a result of such Investment (y) such Person becomes a Wholly-Owned Subsidiary of the Company or (z) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly-Owned Subsidiary thereof and (2) after giving effect to such Investment the Company is in compliance with Sections 4.17 and 5.1 hereof and (C) Net Investments in any Person, provided, however, that the aggregate amount of all such Net Investments made pursuant to this clause (C) shall not exceed $10 million at any one time outstanding; (iii) Investments represented by accounts receivable created or acquired in the ordinary course of business; (iv) Advances to employees in the ordinary course of business; (v) Investments under or pursuant to Interest Rate Agreements; (vi) An investment that is made by the Company or a Subsidiary thereof in the form of any Equity Interests, Indebtedness or securities that are issued by any Person solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under Section 4.8 hereof; (vii) Investments in the Senior Notes; (viii) Investments existing on the Issue Date; (ix) Investments in connection with a Permitted Mortgage Financing; (x) Investments provided for in the Plan of Reorganization; and (xi) Investments in Permitted Joint Ventures or any Healthcare Related Business, provided that the Company is able, at the time of such Investment and immediately after giving pro forma effect thereto, to incur at least $1.00 of 13 additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.6. "Permitted Joint Venture" means any Person which owns, operates or services Healthcare Related Business. "Permitted Liens" means, without duplication, (i) Liens existing on the date of this Indenture, (ii) Liens securing the Senior Indebtedness and Liens securing all other Obligations of the Company and its Subsidiaries under the Credit Facility, (iii) Liens in favor of the Company or any Subsidiary thereof; provided that such liens are either collectively assigned to the Collateral Agent or the Trustee or subordinated to the lien in favor of the Trustee securing the Senior Notes, (iv) Liens on property of a Person existing at the time such Person becomes a Subsidiary of, or is acquired by, merged into or consolidated with the Company or any Subsidiary thereof, provided, however, that such Liens (a) were not created in connection with or in anticipation of such acquisition, merger or consolidation or such Person becoming a Subsidiary and (b) are not applicable to any other property of the Company or any of the other Subsidiaries of the Company, (v) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided, however, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor, (vi) landlords', carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and with respect to amounts which are not yet delinquent or are being contested in good faith by appropriate proceedings, (vii) pledges or deposits made in the ordinary course of business in connection with (a) leases, performance bonds and similar obligations, (b) workers' compensation, unemployment insurance and other social security legislation, or (c) securing the performance of surety bonds and appeal bonds required in connection with judgments that do not give rise to an Event of Default and are not paid by an unaffiliated insurance carrier pursuant to any insurance policy maintained by the Company, (viii) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar encumbrances which, in the aggregate, do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or any Subsidiary in connection therewith, (ix) Liens to secure Purchase Money Indebtedness that is otherwise permitted under this Indenture, provided, however, that (a) any such Lien is solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such a purchase or construction) of such Property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs, (c) the principal amount of all Purchase Money Indebtedness secured by such Liens does not exceed $100 million at any time, (d) such Lien does not extend to or cover any Property other than such item of Property and any improvements on such item and (e) such Lien is granted within 180 days of the incurrence of such Purchase Money Indebtedness, (x) Liens securing Capitalized Lease Obligations permitted to be incurred under clause (iv) of the definition of "Permitted Indebtedness," provided, however, that such Lien does not extend to any property other than that subject to the underlying lease, (xi) Liens pursuant to leases and subleases of real property which do not interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries and which are made on customary and usual terms applicable to similar properties and in the case of any lease of a healthcare facility do not extend to any property of the Company or a Subsidiary other than the personal property located at such facility, (xii) Liens securing reimbursement 14 obligations under commercial letters of credit, but only in or upon the goods the purchase of which were financed by such letters of credit, (xiii) Liens securing Acquisition Indebtedness, provided that such Liens do not extend to or cover any property other than the property directly or indirectly acquired with the proceeds of such Acquisition Indebtedness and any improvements thereto (unless such Liens are otherwise Permitted Liens), (xiv) Liens securing Refinancing Indebtedness, provided, however, that such Liens extend only to the assets securing the Indebtedness being extended, refinanced, renewed or replaced, and such Indebtedness was previously secured by such asset and provided, further, the terms of such Liens are no less favorable to the holders of the Senior Notes than the Liens being extended, refinanced, renewed or replaced, (xv) Liens securing a Permitted Mortgage Financing, (xvi) Liens in favor of the Trustee, (xvii) any Lien provided for in the Plan of Reorganization, (xviii) Liens on accounts receivable or inventory of the Company or any Subsidiary; (xix) Liens on Existing Collateral; and (xx) other Liens on assets of the Company or its Subsidiaries securing Indebtedness having an aggregate principal amount at any one time outstanding not to exceed $15 million. "Permitted Mortgage Financing" means a transaction in which (i) the Company and/or certain of its Subsidiaries would transfer certain assets to one or more Unrestricted Subsidiaries, (ii) in consideration for such transfer of assets, the Company would retain, directly or indirectly, 100% of the Equity Interests in such Unrestricted Subsidiary or Subsidiaries (iii) such Unrestricted Subsidiary or Subsidiaries would use the assets contributed by the Company and/or its Subsidiaries as security for a mortgage refinancing and (iv) all net proceeds received by such Unrestricted Subsidiary or Subsidiaries in such mortgage refinancing would be dividended or otherwise transferred to the Company. "Permitted Secured Indebtedness" means any Indebtedness (plus interest, premium, fees and other obligations associated therewith), and any refinancing, refunding, replacement, renewal or extension of, under agreements evidencing any Indebtedness which is secured by assets of the Company or its Subsidiaries, provided, however, that the aggregate amount of all such Indebtedness outstanding (or committed to be advanced under the agreements to which such Indebtedness relates) at any time, other than Indebtedness outstanding on the Issue Date or as provided in the Plan of Reorganization, shall not exceed $100 million. "Person" means any individual, corporation, partnership, limited liability company or partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Plan of Reorganization" means that certain Debtors' Plan of Reorganization, dated July 6, 2001 as confirmed by the U.S. Bankruptcy Court for the District of Delaware on September 20, 2001. "Preferred Equity Interest" means any Equity Interest of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of any other Equity Interest issued by such Person. "principal" of a debt security means the principal amount of the security plus, when appropriate, the premium, if any, on the security. 15 "Proceeding" means a liquidation, dissolution, bankruptcy, insolvency reorganization, receivership or similar proceeding under Bankruptcy Law, an assignment for the benefit of creditors, any marshalling of assets or liabilities or winding up or dissolution, but shall not include any transaction permitted by and made in compliance with Article 5 hereof. "Property" or "property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary course of business by a Person to finance the cost (including the cost of construction) of an item of Property, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Redemption Date" when used with respect to any Senior Note to be redeemed means the date fixed for such redemption pursuant to this Indenture. "Refinancing Indebtedness" means Indebtedness that refunds, refinances, renews, replaces or extends any Indebtedness of the Company or its Subsidiaries outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Subsidiaries pursuant to the terms of this Indenture, whether involving the same or any other lender or creditor or group of lenders or creditors, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Senior Notes to at least the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Senior Notes, (iii) such Refinancing Indebtedness has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the Indebtedness being refunded, refinanced or extended, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is less than or equal to the aggregate principal then outstanding under the Indebtedness being refunded, refinanced or extended and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the Company. "Restoration" means the restoration of all or any portion of the Collateral in connection with any destruction or Condemnation thereof. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Equity Interests of the Company or any Subsidiary thereof or any payment made to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company or any Subsidiary thereof (other than (a) dividends or distributions payable solely in Equity Interests (other than Disqualified Equity Interests) or 16 in options, warrants or other rights to purchase Equity Interests (other than Disqualified Equity Interests) or (b) in the case of Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase, redemption or other acquisition or retirement for value of any Equity Interest of the Company or any Subsidiary thereof (other than Equity Interests owned by the Company or a Wholly-Owned Subsidiary, excluding Disqualified Equity Interests), (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Subordinated Indebtedness, (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "S&P" means Standard & Poor's Ratings Group and its successors. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company of any real or tangible personal Property, which Property (i) has been or is to be sold, conveyed or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing and (ii) would constitute an Asset Sale if such Property had been sold in an outright sale thereof. "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities Act" means the Securities Act of 1933, as amended. "Senior Notes" means the Second Priority Secured Notes due 200_, being the securities that are issued under this Indenture, as amended or supplemented from time to time pursuant to this Indenture, including, without limitation, any notes issued in accordance with Section 2.2 hereof. "Senior Indebtedness" means the following obligations, whether outstanding on the Closing Date or thereafter incurred: all Indebtedness and other monetary obligations of the Company or any Subsidiary of the Company under or in respect of the Credit Facility (including obligations in respect of any lease financing facility of the Credit Facility) or any Interest Rate Agreement or Currency Agreement related to Indebtedness under the Credit Facility, whether for principal, interest (including interest accruing after the filing of a petition by or against the Company or any Subsidiary of the Company under any state or federal Bankruptcy Laws, whether or not such interest is allowed as a claim after such filing in any proceeding under such law), fees, expenses, indemnification or otherwise. "Subordinated Indebtedness" means Indebtedness of any Person which is expressly subordinated in right of payment to any other Indebtedness of such Person. "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. Notwithstanding the 17 foregoing, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the Company other than for purposes of the definition of Unrestricted Subsidiary, unless the Company shall have designated such Unrestricted Subsidiary as a "Subsidiary" by written notice to the Trustee. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in Section 8.3 hereof). "Temporary Cash Investments" means (i) Investments in marketable, direct obligations issued or fully guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, backed by the full faith and credit of the United States and maturing within one year of the date of purchase; (ii) Investments in time deposits, certificates of deposit, bankers acceptances or commercial paper issued by a bank (or any parent company of such bank) organized under the laws of the United States of America or any State thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500 million and rated at least A by S&P and A-2 by Moody's, maturing within one year of purchase; (iii) commercial paper that is rated at least A- by S&P or P-1 by Moody's, issued by a company that is incorporated under the laws of the United States or of any State and directly issues its own commercial paper, and has a remaining term to maturity of not more than one year; (iv) a repurchase agreement with (A) any commercial bank that is organized under the laws of any State or any national banking association and that has total assets of at least $500 million, or (B) any investment bank that is organized under the laws of any State and that has total assets of at least $500 million, which agreement is secured by any one or more of the securities and obligations described in clauses (i), (ii) or (iii) of this definition of Temporary Cash Investments, which shall have a market value (exclusive of accrued interest and valued at least monthly) at least equal to the principal amount of such investments; or (v) Investments in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i), (ii), (iii) and (iv). "Trust Officer" when used with respect to the Trustee, means any officer or assistant officer of the Trustee assigned to the corporate trust department or similar department performing corporate trust work of the Trustee or any successor to such department or, in the case of a successor Trustee, any officer of such successor Trustee performing corporate trust functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "UCC-1s" means those UCC financing statements and fixture filings filed by the Company or any Guarantor in connection with any of the Collateral Documents. "Unrestricted Subsidiary" means (i) any Subsidiary of an Unrestricted Subsidiary and (ii) any Subsidiary of the Company which shall have been designated after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of Directors of the Company; provided that a Subsidiary organized or acquired after the Issue Date may be so classified as an 18 Unrestricted Subsidiary only if such classification is in compliance with Section 4.13 hereof and an Unrestricted Subsidiary may be designated as a Subsidiary (but only if such classification is in compliance with the definition of "Subsidiary" contained in this Section 1.1). The Trustee shall be given prompt written notice by the Company of each resolution adopted by the Board of Directors of the Company under this provision, together with a copy of each such resolution adopted. "U.S. Government Obligations" means (i) securities that are direct obligations of the United States of America for the payment of which its full faith and credit are pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or a specific payment of principal or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt. "Wholly-Owned Subsidiary" means any Subsidiary all of the outstanding Equity Interests (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. Section 1.2 OTHER DEFINITIONS. The definitions of the following terms may be found in the Sections indicated as follows: Term Defined in Section ---- ------------------ "Agent Members" 2.15 "Bankruptcy Law" 6.1 "Business Day" 12.8 "Covenant Defeasance" 9.3 "Custodian" 6.1 "Event of Default" 6.1 "Legal Defeasance" 9.2 "Legal Holiday" 12.8 "Paying Agent" 2.3 "Physical Notes" 2.1 "Registrar" 2.3 "Required Filing Date" 4.2 "transfer" 5.1 Section 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the portion of such provision required to be incorporated herein in order for this Indenture 19 to be qualified under the TIA is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Senior Notes. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor on the indenture securities" means the Company, the Guarantors or any other obligor on the Senior Notes. All other terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings therein assigned to them. Section 1.4 RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it herein, whether defined expressly or by reference; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) words used herein implying any gender shall apply to every gender; (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or Subdivision, unless expressly stated otherwise; and (7) provisions apply to successive events and transactions. 20 ARTICLE 2 THE SENIOR NOTES Section 2.1 DATING; INCORPORATION OF FORM IN INDENTURE. The Senior Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B which is incorporated in and made part of this Indenture. The Senior Notes may have notations, legends or endorsements required by law, stock exchange rule, usage, or agreements to which the Company or any Guarantor is subject. The Company may use "CUSIP" numbers in issuing the Senior Notes. Each Senior Note shall be dated the date of its authentication. One or more permanent Global Notes issued and delivered hereunder may be in registered form, substantially in the form set forth in Exhibit B, having the legend set forth in Exhibit C, may be issued to the Depository, to the extent such Depository is the Registered Holder of the applicable Senior Notes. Otherwise, Senior Notes hereunder may be issued in the form of certificated Senior Notes in registered form in substantially the form set forth in Exhibit B (the "Physical Notes"). The terms and provisions contained in the Senior Notes and the Guarantees shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.2 EXECUTION AND AUTHENTICATION. The Senior Notes shall be executed on behalf of the Company by two Officers of the Company or an Officer and an Assistant Secretary of the Company. Such signatures may be either manual or facsimile. If an Officer whose signature is on a Senior Note no longer holds that office at the time the Trustee authenticates the Senior Note or at any time thereafter, the Senior Note shall be valid nevertheless. A Senior Note shall not be valid until the Trustee manually signs the certificate of authentication on the Senior Note. Such signature shall be conclusive evidence that the Senior Note has been authenticated under this Indenture. The Trustee or an authenticating agent shall authenticate Senior Notes for original issue in the aggregate principal amount of up to $242,605,000, subject to adjustment pursuant to Section 8.1(7). The aggregate principal amount of Senior Notes outstanding at any time may not exceed such amount except as provided in Section 2.7 hereof. The Senior Notes shall be issuable only in registered form without coupons and only in denominations of $100 and integral multiples thereof. The Trustee shall issue Senior Notes upon a Company Request. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Senior Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Senior Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. Such authenticating agent shall have the same right as the Trustee in dealing with the Company or an Affiliate. 21 Section 2.3 AGENTS. The Company shall maintain an office or agency in the Borough of Manhattan, City of New York, State of New York where Senior Notes may be presented for registration of transfer or for exchange ("Registrar") and where Senior Notes may be presented for payment ("Paying Agent") and where notices and demands to or upon the Company in respect of the Senior Notes and this Indenture may be served. The Registrar shall keep a register of the Senior Notes and of their transfer and exchange. The Company may appoint one or more co-Registrars and one or more additional Paying Agents. The Company may change any Paying Agent, Registrar or co-Registrar without notice to any Noteholder. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent which is not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or agent for service of notices and demands, or fails to give the foregoing notice, the Trustee shall act as such and shall be entitled to appropriate compensation pursuant to Section 7.7. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Senior Notes. Section 2.4 PAYING AGENT TO HOLD MONEY IN TRUST. On or before each due date of the principal of, premium if any, and interest on any Senior Notes, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal, premium if any, and interest so becoming due. Each Paying Agent shall hold in trust for the benefit of Noteholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Senior Notes (whether such money has been paid to it by the Company or any other obligor on the Senior Notes), and the Company and the Paying Agent shall notify the Trustee of any default by the Company or any Guarantor (or any other obligor on the Senior Notes) in making any such payment. Money held in trust by the Paying Agent need not be segregated except as required by law and in no event shall the Paying Agent be liable for any interest on any money received by it hereunder. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee, and the Trustee may at any time during the continuance of any Event of Default specified in Section 6.1(1) or (2), upon written request to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all sums so held in trust by such Paying Agent together with a complete accounting of such sums. Upon doing so, the Paying Agent shall have no further liability for the money delivered to the Trustee. Section 2.5 NOTEHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or prior to the tenth Business Day before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders, including the aggregate principal amount of Senior Notes held by each such Noteholder. 22 Section 2.6 TRANSFER AND EXCHANGE. Subject to Section 2.16, when a Senior Note is presented to the Registrar with a request to register the transfer thereof, the Registrar shall register the transfer as requested if the requirements of applicable law are met and, when Senior Notes are presented to the Registrar with a request to exchange them for an equal principal amount of Senior Notes of other authorized denominations, the Registrar shall make the exchange as requested, provided that every Senior Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder thereof or his attorney, duly authorized in writing. To permit registration of transfers and exchanges, upon surrender of any Senior Note for registration of transfer at the office or agency maintained pursuant to Section 2.3 hereof, the Company shall issue and execute and the Trustee shall authenticate Senior Notes at the Registrar's request. Any exchange or transfer shall be without any service charge to the Noteholder, except that the Company may require payment by the Noteholder of a sum sufficient to cover any tax or the governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to this Indenture. The Trustee shall not be required to register transfers of Senior Notes or to exchange Senior Notes for a period of 15 days before the mailing of a notice of redemption of any Senior Notes to be redeemed. The Trustee shall not be required to exchange or register transfers of any Senior Notes called or being called for redemption in whole or in part, except the unredeemed portion of any Senior Note being redeemed in part. All Senior Notes issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Senior Notes surrendered upon such transfer or exchange. Any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of the beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. Each Holder of a Senior Note agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Senior Note in violation of any provision of this Indenture and/or applicable U.S. Federal or state securities law. Except as expressly provided herein, neither the Trustee nor the Registrar shall have any duty to monitor the Company's compliance with or have any responsibility with respect to the Company's compliance with any Federal or state securities laws. Section 2.7 REPLACEMENT SENIOR NOTES. If a mutilated Senior Note is surrendered to the Registrar or Trustee or if the Holder of a Senior Note presents evidence to the satisfaction of the Company and the Trustee that the Senior Note has been lost, destroyed or wrongfully taken and of the ownership thereof, the Company shall issue and the Trustee shall authenticate a replacement Senior Note if the Holder of such Senior Note furnishes to the Company and the Trustee evidence reasonably acceptable to them of the ownership and destruction, loss or theft of such Senior Note. An indemnity bond may be required by the Company or the Trustee 23 that is sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Senior Note is replaced. The Company or the Trustee each may charge for its expenses (including reasonable attorneys' fees and expenses) in replacing a Senior Note. Every replacement Senior Note is an additional obligation of the Company. Section 2.8 OUTSTANDING SENIOR NOTES. Senior Notes outstanding at any time are all Senior Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, and those described in this Section 2.8 as not outstanding. If a Senior Note is replaced pursuant to Section 2.7, it ceases to be outstanding until the Company and the Trustee receive proof satisfactory to each of them that the replaced Senior Note is held by a bona fide purchaser in whose hands such obligation is a legal, valid and binding obligation of the Company. If a Paying Agent holds on a Redemption Date or Maturity Date money sufficient to pay the principal of, premium, if any, and all accrued interest with respect to Senior Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Senior Notes shall cease to be outstanding and interest on them shall cease to accrue. Subject to Section 12.6, a Senior Note does not cease to be outstanding solely because the Company or an Affiliate holds the Senior Note. Section 2.9 TEMPORARY SENIOR NOTES. Until definitive Senior Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Senior Notes. Temporary Senior Notes shall be substantially in the form, and shall carry all rights, benefits and privileges, of definitive Senior Notes but may have variations that the Company considers appropriate for temporary Senior Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Senior Notes in exchange for temporary Senior Notes presented to it. Section 2.10 CANCELLATION. The Company at any time may deliver Senior Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Senior Notes surrendered to them for transfer, exchange or payment. The Trustee shall cancel and retain or may destroy (subject to the record-retention requirements of the Exchange Act) or return to the Company, in accordance with its normal practice, all Senior Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7 hereof, the Company may not issue new Senior Notes to replace Senior Notes in respect of which it has previously paid all principal, premium and interest accrued thereon, or delivered to the Trustee for cancellation. 24 Section 2.11 DEFAULTED INTEREST. If the Company defaults in a payment of any interest on the Senior Notes, it shall pay the defaulted amounts, plus (to the extent permitted by law) any interest payable on defaulted amounts pursuant to Section 4.1 hereof, to the persons who are Noteholders on a subsequent special record date. The Company shall fix the special record date and payment date for payment of such defaulted amounts in a manner satisfactory to the Trustee and provide the Trustee at least 20 days notice of the proposed amount of default interest to be paid and the special payment date. At least 15 days before the special record date, the Company shall mail or cause to be mailed to each Noteholder at his address as it appears on the Senior Notes register maintained by the Registrar a notice that states the special record date, the payment date (which shall be not less than five nor more than ten days after the special record date), and the amount to be paid. In lieu of the foregoing procedures, the Company may pay defaulted interest in any other lawful manner satisfactory to the Trustee. Section 2.12 DEPOSIT OF MONEYS. Prior to 10:00 a.m., New York City time, as required, on (i) each Interest Payment Date and (ii) the Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Trustee to remit payment to the Holders at such times. The principal and interest on Global Notes shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Notes represented thereby. The principal and interest on Physical Notes shall be payable at the office of the Paying Agent. Section 2.13 CUSIP NUMBER. The Company in issuing the Senior Notes may use a "CUSIP" number (or numbers), and if so, the Trustee may use the CUSIP number(s) in notices of redemption or exchange as a convenience to Holders, provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Senior Notes, and that reliance may be placed only on the other identification numbers printed on the Senior Notes. The Company will promptly notify in writing the Trustee of any such CUSIP number used by the Company in connection with the Senior Notes and any change in such CUSIP number. Section 2.14 PAYMENTS TO HOLDERS. Notwithstanding any provisions of this Indenture and the Senior Notes to the contrary: (a) Except for any payments to be made on a Redemption Date or the Maturity Date, payments with respect to any of the Senior Notes may be made by the Paying Agent upon receipt from the Company of immediately available funds, by check mailed to the Holder, at the address shown in the registrar of the Senior Notes maintained by the Registrar pursuant to Section 2.3 hereof; or 25 (b) At the request of a Holder of 10% or more in aggregate principal amounts of Senior Notes outstanding all payments with respect to any of the Senior Notes, may be made by the Paying Agent upon receipt from the Company of immediately available funds prior to 10:00 a.m., New York City time, directly to the Holder of such Senior Note (whether by federal funds, wire transfer or otherwise), provided, however, that no such federal funds, wire transfer or other such direct payment shall be made to any Holder under this Section 2.14(b) unless such Holder has delivered written instructions to the Trustee prior to the relevant record date for such payment requesting that such payment will be so made and designating the bank account to which such payments shall be so made and, in the case of payments of principal, surrenders the Senior Note to the Trustee in exchange for a Senior Note or Senior Notes aggregating the same principal amount as the unredeemed principal amount of the Senior Notes surrendered. The Trustee shall be entitled to rely on the last instruction delivered by the Holder pursuant to this Section 2.14(b) unless a new instruction is delivered prior to the relevant record date for a payment date. The Company will indemnify and hold the Trustee harmless against any loss, liability or expense (including attorneys' fees and expenses) resulting from any act or omission to act on the part of the Company or any such Holder in connection with any such agreement or which the Paying Agent may incur as a result of making any payment in accordance with any such agreement. All payments made on a Redemption Date are subject to Section 2.8 and Article 3 hereof. No later than fifteen (15) days prior to the Maturity Date, the Trustee shall notify the Holder, at the address shown in the registrar of the Senior Notes maintained by the Registrar pursuant to Section 2.3 hereof, that the Company expects that the final installment of principal of and interest on the Senior Notes will be paid on the Maturity Date. Such notice shall specify that such final installment will be payable only upon presentation and surrender of such Senior Note and shall specify the place where such Senior Notes may be presented and surrendered for payment of such installment. Additionally, in accordance with Section 2.8, such Senior Notes shall cease to be outstanding. Section 2.15 BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit C. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Senior Note. (b) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if 26 (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall upon receipt of a written order from the Company authenticate and make available for delivery, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in writing in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) The Holder of any Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture, the Senior Notes or the Guarantees. Section 2.16 RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided in TIA Section 316(c). ARTICLE 3 REDEMPTION Section 3.1 NOTICES TO TRUSTEE. (a) If the Company elects to redeem Senior Notes pursuant to Section 3.7 hereof, (i) at least 60 days prior to the Redemption Date in the case of a partial redemption, (ii) at least 45 days prior to the Redemption Date in the case of a total redemption or (iii) during such other period as the Trustee may agree to in writing, the Company shall notify the Trustee in writing of the Redemption Date, the principal amount of Senior Notes to be redeemed and the redemption price, and deliver to the Trustee an Officers' Certificate stating that such redemption will comply with the conditions contained in Section 3.7 hereof. (b) If the Company redeems Senior Notes pursuant to Section 3.8 hereof, (i) at least 60 days prior to the Redemption Date or (ii) during such other period as the Trustee may agree in writing, the Company shall notify 27 the Trustee in writing of the Redemption Date, the principal amount of Senior Notes to be redeemed and the redemption price, and deliver to the Trustee an Officers' Certificate stating that such redemption will comply with the conditions contained in Section 3.8 hereof. Section 3.2 SELECTION BY TRUSTEE OF SENIOR NOTES TO BE REDEEMED. In the event that fewer than all of the Senior Notes are to be redeemed pursuant to Section 3.7 hereof, the Trustee shall select the Senior Notes to be redeemed, if the Senior Notes are listed on a national securities exchange, in accordance with the rules of such exchange or, if the Senior Notes are not so listed, on either a pro rata basis or by lot, or such other method as it shall deem fair and equitable. The Trustee shall promptly notify the Company of the Senior Notes selected for redemption and, in the case of any Senior Notes selected for partial redemption, the principal amount thereof to be redeemed. The Trustee may select for redemption portions of the principal of the Senior Notes that have denominations larger than $100. Senior Notes and portions thereof the Trustee selects shall be redeemed in amounts of $100 or whole multiples of $100. For all purposes of this Indenture unless the context otherwise requires, provisions of this Indenture that apply to Senior Notes called for redemption also apply to portions of Senior Notes called for redemption. Section 3.3 NOTICE OF REDEMPTION. At least 15 days, but no more than 30 days, before a Redemption Date, the Company shall mail, or cause to be mailed, a notice of redemption by first-class mail to each Holder of Senior Notes to be redeemed at his last address as the same appears on the registry books maintained by the Registrar pursuant to Section 2.3 hereof. The notice shall identify the Senior Notes to be redeemed (including the CUSIP number(s) thereof) and shall state: (1) the Redemption Date; (2) the redemption price and the amount of accrued interest, if any, to be paid (or the method by which any such amount of accrued interest to be paid is to be calculated); (3) if any Senior Note is being redeemed in part, the portion of the principal amount of such Senior Note to be redeemed and that, after the Redemption Date and upon surrender of such Senior Note, a new Senior Note or Senior Notes in principal amount equal to the unredeemed portion will be issued; (4) the name and address of the Paying Agent; (5) that Senior Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that unless the Company defaults in making the redemption payment, interest on Senior Notes called for redemption ceases to accrue on and after the Redemption Date and that the only remaining right of the Holders of such Senior Notes is to receive payment of the Senior Notes redemption price upon surrender to the Paying Agent of the Senior Notes redeemed; 28 (7) the aggregate principal amount of Senior Notes that are being redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Section 3.4 EFFECT OF NOTICE OF REDEMPTION. Once the notice of redemption described in Section 3.3 is mailed, Senior Notes called for redemption become due and payable on the Redemption Date and at the redemption price, including any premium, plus interest accrued to the Redemption Date. Upon surrender to the Paying Agent, such Senior Notes shall be paid at the redemption price, including any premium, plus interest accrued to the Redemption Date, provided that if the Redemption Date is after a regular interest payment record date and on or prior to the Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Senior Notes registered on the relevant record date, and provided, further, that if a Redemption Date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Section 3.5 DEPOSIT OF REDEMPTION PRICE. On or prior to 10:00 A.M., New York City time, on each Redemption Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to pay the redemption price of and accrued interest on all Senior Notes to be redeemed on that date other than Senior Notes or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation. On and after any Redemption Date, if money sufficient to pay the redemption price of and accrued interest on Senior Notes called for redemption shall have been made available in accordance with the preceding paragraph and payment thereof is not prohibited pursuant to the terms of this Indenture, the Senior Notes called for redemption will cease to accrue interest and the only right of the Holders of such Senior Notes will be to receive payment of the redemption price of and, subject to the first proviso in Section 3.4, accrued and unpaid interest on such Senior Notes to the Redemption Date. If any Senior Note called for redemption shall not be so paid, interest will be paid, from the Redemption Date until such redemption payment is made, on the unpaid principal of the Senior Note and any interest not paid on such unpaid principal, in each case, at the rate and in the manner provided in the Senior Notes. Section 3.6 SENIOR NOTES REDEEMED IN PART. Upon surrender of a Senior Note that is redeemed in part, the Trustee shall authenticate for a Holder a new Senior Note equal in principal amount to the unredeemed portion of the Senior Note surrendered. 29 Section 3.7 OPTIONAL REDEMPTION Subject to the terms of Section 3.8 hereof, the Company may redeem the Senior Notes, in whole or in part, at any time at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to the Redemption Date. Section 3.8 MANDATORY PARTIAL REDEMPTION Each Senior Note shall be redeemed in part on each October 1 (so long as there are Senior Notes outstanding) by payment of one percent of the principal amount thereof outstanding on such Redemption Date, in each case together with accrued and unpaid interest thereon to such Redemption Date. ARTICLE 4 COVENANTS Section 4.1 PAYMENT OF SENIOR NOTES. The Company shall pay the principal of, premium, if any, and interest on the Senior Notes from the Issue Date, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on each Interest Payment Date and in the manner provided in the Senior Notes at the rate per annum, reset quarterly, equal to 3-month LIBOR (as defined in the Senior Notes) plus 500 basis points until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed and a 360-day year. Section 4.2 REPORTS. The Company will file with the SEC all information, documents and reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is subject to such filing requirements, so long as the SEC will accept such filings on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been or is required to so file such documents. The Company (at its own expense) shall also in any event within 15 days after each Required Filing Date (i) transmit by mail to all Holders, at their addresses appearing in the register of Senior Notes maintained by the Registrar and (ii) file with the Trustee within 15 days after the Required Filing Date, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or would be required to file with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture under the TIA, the Company shall comply with the provisions of TIA Section 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained 30 therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). Section 4.3 WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company and each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead (as a defense or otherwise) or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Company or such Guarantor, as the case may be, from paying all or any portion of the principal of, premium, if any, and/or interest on the Senior Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company and each Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.4 COMPLIANCE CERTIFICATE. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate (one of the signers of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company or such Guarantor, as the case may be) complying with Section 314(a)(4) of the TIA stating that a review of the activities of the Company or such Guarantor, as the case may be, during such fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled its obligations under the Collateral Documents and this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled each and every covenant contained in the Collateral Documents and this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions thereof or hereof (determined without regard to any period of grace or requirement of notice provided herein), or, if a Default or Event of Default shall have occurred, describing all or such Defaults or Events of Default of which he may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto. (b) The Company will, so long as any of the Senior Notes are outstanding, deliver to the Trustee, forthwith upon any Officer's becoming aware of any Default or Event of Default, an Officers' Certificate specifying the nature and extent of the same in reasonable detail and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto. Section 4.5 TAXES. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon it or its Subsidiaries' income, 31 profits or property and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon their property; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (1) whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings or (2) the failure to pay or discharge would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Section 4.6 LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, incur (as defined herein) any Indebtedness (including Acquired Indebtedness) other than Permitted Indebtedness; provided, however, that the Company or its Subsidiaries may incur Indebtedness (including Acquired Indebtedness) (a) if (i) after giving effect on a pro forma basis to the incurrence of such Indebtedness and to the extent set forth in the definition of Consolidated Fixed Charge Coverage Ratio the receipt and application of the proceeds thereof, the Company's Consolidated Fixed Charge Coverage Ratio would be greater than 2.0 to 1; and (ii) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness and (b) in connection with a Permitted Mortgage Financing. Section 4.7 LIMITATION ON RESTRICTED PAYMENTS. The Company and the Guarantors will not, and will not permit any of their Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) immediately after giving pro forma effect to such Restricted Payment, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.6 hereof; and (c) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date through and including the date of such Restricted Payment (the "Base Period") does not exceed the sum of (1) 50% of the Company's Consolidated Net Income (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit) during the Base Period, and (2) 100% of the aggregate Net Proceeds, including the fair market value of securities or other property received by the Company from the issue or sale during the Base Period, of Equity Interests (other than Disqualified Equity Interests or equity interests of the Company issued to any Subsidiary of the Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Equity Interests (other than Disqualified Equity Interests) of the Company which has been so converted or exercised or exchanged, as the case may be. For purposes of determining under clause (c) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash will be valued at its fair market value. The provisions of this Section 4.7 shall not prohibit (i) the agreement or commitment to make any payment or distribution permitted under this Indenture or the Credit Facility or the payment or distribution so agreed or committed to be made as long as such payment or distribution is made on the date of such agreement or commitment or within 60 days thereof, provided, however, that on the date of such agreement or commitment such payment would comply with the foregoing provisions, it being understood that the agreement or commitment to make such payment or distribution shall constitute Permitted Indebtedness, (ii) the retirement of any Equity Interests of the Company or Subordinated 32 Indebtedness of the Company by conversion into or by an exchange for Equity Interests (other than Disqualified Equity Interests), or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than Disqualified Equity Interests); provided that Net Proceeds of such Equity Interests so used shall not be included under clause (c)(2) above, (iii) the redemption or retirement of Subordinated Indebtedness of the Company that is subordinated to the Senior Notes in exchange for, by conversion into, or out of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company that is contractually subordinated in right of payment to the Senior Notes to at least the same extent as the Subordinated Indebtedness being redeemed or retired, (iv) the retirement of any Disqualified Equity Interests by conversion into, or by exchange for, shares of Disqualified Equity Interests, or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other Disqualified Equity Interests, (v) any Restricted Payment made in connection with the Asset Acquisition of substantially all the assets of American Pharmaceutical Services, Inc. and its Subsidiaries and Compass Pharmacy Services, Inc. and related entities, Pinnacle Pharmaceutical Services, Inc., Compass Pharmacy Services of Texas, Inc. and Compass Pharmacy Services of Maryland, Inc. (vi) the retirement of the Company's Series A Convertible Preferred Stock pursuant to the mandatory redemption provisions thereof as in effect on the Issue Date, (vii) any purchase, redemption or other acquisition of Equity Interests of a Permitted Joint Venture from a physician or healthcare provider which is required to be purchased, redeemed or otherwise acquired by applicable law, (viii) any purchase, redemption or other acquisition of Equity Interests of a Permitted Joint Venture, or (ix) the making of any payment pursuant to any guarantee of Indebtedness of a Permitted Joint Venture; provided, however, that in the case of the immediately preceding clauses (ii) and (iii), no Default or Event of Default shall have occurred and be continuing at the time of such Restricted Payment or would occur as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date for purposes of clause (c) above, amounts expended pursuant to clauses (i) and (ii) of the immediately preceding paragraph shall be included, but without duplication, in such calculation. For purposes of calculating the Net Proceeds received by the Company from the issuance or sale of its Equity Interests either upon the conversion of, or in exchange for, Indebtedness of the Company or any Subsidiary, such amount will be deemed to be an amount equal to the difference of (a) the sum of (i) the principal amount or accreted value (whichever is less) of such Indebtedness on the date of such conversion or exchange and (ii) the additional cash consideration, if any, received by the Company upon such conversion or exchange, plus any payment on account of fractional shares, minus (b) all expenses incurred in connection with such issuance or sale. In addition, for purposes of calculating the Net Proceeds received by the Company from the issuance or sale of its Equity Interests upon the exercise of any options or warrants of the Company, such amount shall be deemed to be an amount equal to the difference of (a) the additional cash consideration, if any, received by the Company upon such exercise, minus (b) all fees, commissions, discounts and expenses incurred by the Company in connection with such issuance or sale. Section 4.8 LIMITATION ON CERTAIN ASSET SALES. (a) Neither the Company nor any of its Subsidiaries will consummate or permit, directly or indirectly, any Asset Sale, unless (i) the Company or such Subsidiary, as the case may be, receives consideration at the 33 time of each such Asset Sale at least equal to the fair market value of the Property subject to such Asset Sale, (ii) (x) in the case of an Asset Sale of Property constituting Collateral (other than a Designated Facility), at least 50% of the consideration received by the Company or such Subsidiary is in the form of cash or Temporary Cash Investments, and (y) in the case of all other Asset Sales, at least 33% of the consideration is in the form of cash or Temporary Cash Investments (provided that in the case of an Asset Sale of a Designated Facility, there is no requirement that the consideration be in the form of cash or Temporary Cash Investments), (iii) no Default or Event of Default shall have occurred and be continuing on the date of such proposed Asset Sale or would result as a consequence of such Asset Sale, (iv) such Asset Sale is permitted under the terms of the Senior Indebtedness and (v) such Asset Sale will not materially adversely affect or materially impair the value of the remaining Collateral or materially interfere with the Trustee's ability to realize such value and will not materially impair the maintenance and operation of the remaining Collateral; provided that the amount of (a) any notes or other obligations received by the Company or such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the cash received) within 90 days following the closing of such Asset Sale, and (b) any Designated Noncash Consideration received by the Company or any of its Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (b) that is at that time outstanding, not to exceed $50 million at the time of the receipt of such Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value shall be deemed to be cash for purposes of clause (ii) of this provision. (b) With respect to any Asset Sale Proceeds in the form of cash or Temporary Cash Investments (including cash collected on any notes), Insurance Proceeds or Condemnation Proceeds related to Collateral (the "Collateral Proceeds Amount"), the Company shall (i) first, to the extent the Company elects (or is required by the terms of any Indebtedness), prepay, repay, redeem or purchase Senior Indebtedness of the Company or Senior Indebtedness of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Sale or the receipt of such Collateral Proceeds Amount, (ii) second, to the extent the Company elects, apply the Collateral Proceeds to acquire Property (provided that the Company shall cause such Property to become Collateral as and when received by the Company or by any of its Subsidiaries) that is useful in any business in which the Company is permitted to be engaged within 365 days from the later of the date of such Asset Sale or the receipt of such Collateral Proceeds Amount and (iii) third, make an offer (a "Collateral Proceeds Offer") for up to a maximum principal amount (expressed as an integral multiple of $100) of Senior Notes equal to the Collateral Proceeds Amount to the extent of the balance of such Collateral Proceeds Amount after application in accordance with clauses (i) and (ii) at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Senior Notes tendered pursuant to such Collateral Proceeds Offer is less than the amount of Collateral Proceeds, the Company may use such portion of the Collateral Proceeds that is not used to purchase Senior Notes tendered for general corporate purposes not inconsistent with the Senior Notes or this Indenture. If the aggregate principal amount of the Senior Notes tendered pursuant to such Collateral Proceeds Offer is more than the amount of the Collateral Proceeds, the Senior Notes tendered will be repurchased on a pro rata basis or by such other method as the Trustee 34 shall deem fair and appropriate. Upon the completion of any Collateral Proceeds Offer and the closing of any repurchase of Senior Notes tendered pursuant to such Collateral Proceeds Offer, the amount of Collateral Proceeds Amount shall be deemed to be zero. All Asset Sale Proceeds from Asset Sales of Property constituting Collateral, Insurance Proceeds and Condemnation Proceeds from Loss Events and non-cash consideration from Asset Sales of Property constituting Collateral, including all Collateral Proceeds Amounts, shall be (i) subject to the perfected second priority Lien in favor of the Trustee subject to Liens permitted under the Collateral Documents in respect of the relevant item of Collateral, and (ii) held in trust for the benefit of the holders of the Senior Notes and the Trustee. If the Company is required to make a Collateral Proceeds Offer, the Company shall mail, within 30 days following the date on which the Company receives any Collateral Proceeds Amounts, notice to the holders of the Senior Notes stating, among other things: (1) that such holders have the right to require the Company to apply the Collateral Proceeds Amount to repurchase such Senior Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date, which shall be no earlier than 30 days and not later than 60 days from the date such notice is mailed; (3) the instructions, determined by the Company, that each holder of Senior Notes must follow in order to have such Senior Notes repurchased; and (4) the calculations used in determining the amount of Collateral Proceeds Amount to be applied to the repurchase of such Senior Notes. In the event of the transfer of substantially all (but not all) of the assets of the Company or any Subsidiary of the Company or substantially all (but not all) of the assets of any division or line of business of the Company or any Subsidiary of the Company as an entirety to a Person in a transaction or series of related transactions permitted under Section 5.1 hereof, the successor corporation shall be deemed to have sold the assets of the Company, the Subsidiary or the division or line of business, as the case may be, not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such assets of the Company, the Subsidiary or the division or line of business, as the case may be, deemed to be sold shall be deemed to be Asset Sale Proceeds for purposes of this covenant. The provisions of this Section 4.8 shall not prohibit the application by the Company of all, or substantially all, proceeds arising from Specified Transactions (as defined in the Certificate of Designations for the Series A Convertible Preferred Stock as in effect on the Issue Date) for the retirement of the Company's Series A Convertible Preferred Stock pursuant to the mandatory redemption provisions thereof as in effect on the Issue Date. Section 4.9 LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (including any Affiliate in which the Company or any Subsidiary thereof owns a minority interest) or holder of 10% or more of the Company's Equity Interests (each such transaction, an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate 35 Transaction entered into prior to the Issue Date unless (i) such Affiliate Transaction is solely between or among the Company and its Wholly-Owned Subsidiaries; (ii) such Affiliate Transaction is solely between or among Wholly-Owned Subsidiaries of the Company; (iii) such Affiliate Transaction is for reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary thereof as reasonably determined in good faith by the Board of Directors (when required as described below) or senior management of the Company or of such Subsidiary having no interest in such Affiliate Transaction; or (iv) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. (b) The foregoing provisions will not apply to (i) the payment of reasonable annual compensation to directors or executive officers of the Company, (ii) the purchase in the ordinary course of business of, supplies, services and the like from the Company or any Subsidiary; and (iii) the continued performance of transactions with Affiliates disclosed in the Plan of Reorganization. The provisions of this Section 4.9 shall not prohibit the application by the Company of all, or substantially all, proceeds arising from Specified Transactions (as defined in the Certificate of Designations for the Series A Convertible Preferred Stock as in effect on the Issue Date) for the retirement of the Company's Series A Convertible Preferred Stock pursuant to the mandatory redemption provisions thereof as in effect on the Issue Date. Section 4.10 LIMITATIONS ON LIENS. The Company will not, and will not permit any of its Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Company or any Subsidiary or any shares of stock or debt of any Subsidiary which owns property or assets, now owned or hereafter acquired, or any income or profits therefrom, unless (i) if such Lien secures Indebtedness which is pari passu with the Senior Notes, then the Senior Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien or (ii) if such Lien secures Subordinated Indebtedness, any such Lien shall be subordinated to a Lien on such property or asset or shares of stock or debt granted to the Holders of the Senior Notes to the same extent as such Subordinated Indebtedness is subordinated to the Senior Notes. Section 4.11 LIMITATIONS ON INVESTMENTS. The Company will not, and will not permit any of its Subsidiaries to, make any Investment other than (i) a Permitted Investment or (ii) an Investment that is made as a Restricted Payment in compliance with Section 4.7 hereof. Section 4.12 LIMITATION ON CREATION OF SUBSIDIARIES. The Company shall not create or acquire, nor permit any of its Subsidiaries to create or acquire, any Subsidiary other than (i) an Unrestricted Subsidiary, or (ii) a Subsidiary that, at the time it has either assets or shareholders' equity in excess of $10,000, executes a Guarantee in the form 36 included as part of Exhibit A to this Indenture and reasonably satisfactory in form and substance to the Trustee (and with documentation relating thereto as the Trustee shall require, including, without limitation, a supplement or amendment to this Indenture and an Opinion of Counsel as to the enforceability of such Guarantee); provided that such Subsidiary shall not be required to execute such a Guarantee if such Subsidiary is prohibited by law or by the terms of any agreement from making such a Guarantee, such Subsidiary would have been released from its guarantee by virtue of events set forth in Section 11.4 hereof, or such Subsidiary is a Subsidiary of a Person which has been released as a guarantor pursuant to Section 11.4 hereof. Section 4.13 LIMITATION ON SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES. (a) The Company may by written notice to the Trustee designate any Subsidiary (including a newly acquired or newly formed Subsidiary (including any such Subsidiary formed in connection with a Permitted Mortgage Financing)) to be an Unrestricted Subsidiary, provided, however, that other than with respect to a Subsidiary formed in connection with a Permitted Mortgage Financing (i) no Default or Event of Default shall have occurred and be continuing or would arise therefrom, (ii) such designation is at that time permitted under Section 4.7 hereof and (iii) immediately after giving effect to such designation, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.6 hereof: (i) an "Investment" shall be deemed to have been made at the time any Subsidiary is designated as an Unrestricted Subsidiary in an amount (proportionate to the Company's percentage Equity Interest in such Subsidiary) equal to the net worth of such Subsidiary at the time that such Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the aggregate of all Restricted Payments made as Investments since the Issue Date shall exclude and be reduced by an amount (proportionate to the Company's percentage Equity Interest in such Subsidiary) equal to the net worth of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Subsidiary, not to exceed, in the case of any such redesignation of an Unrestricted Subsidiary as a Subsidiary, the amount of Investments previously made by the Company and its Subsidiaries in such Unrestricted Subsidiary (for purposes of clauses (a)(i) and (a)(ii) hereof, "net worth" shall be calculated based upon the fair market value of the assets of such Subsidiary as of any such date of designation); and (iii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer. (b) Notwithstanding clause (a) above, the Board of Directors of the Company may not designate any Subsidiary of the Company to be an Unrestricted Subsidiary if, after such designation: (i) the Company or any Subsidiary provides credit support for, or a guarantee of, any Indebtedness or other obligation (contingent or otherwise) of such Subsidiary (including any understanding, agreement or instrument evidencing such Indebtedness or obligation) or is otherwise subject to recourse or obligated thereunder or therefor, unless such credit support or guarantee is permitted by the terms of this Indenture; 37 (ii) a default with respect to any Indebtedness of such Subsidiary (including any right which the holders thereof may have to take enforcement action against such Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Subsidiary of the Company to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity; (iii) such Subsidiary owns any Equity Interests in, or owns or holds any Lien on any property of, any Subsidiary which is not a Subsidiary of the Subsidiary to be so designated; (iv) such Subsidiary has any contract, arrangement, agreement or understanding with the Company, or any Subsidiary of the Company, whether written or oral, other than a transaction having terms no less favorable to the Company or such Subsidiary of the Company than those which might be obtained at the time from persons who are not Affiliates of the Company; or (v) the Company or any Subsidiary of the Company has any obligation to subscribe for any Equity Interest in such Subsidiary or to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve specified levels of operating results, unless such obligation is permitted by the terms of this Indenture. Section 4.14 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any of its Subsidiaries to (a) pay dividends or make any other distributions in cash or otherwise on its Equity Interests to the Company or any Subsidiary, (b) pay any Indebtedness owed to the Company or any Subsidiary, (c) make loans or advances to the Company or any Subsidiary thereof, (d) transfer any of its properties or assets to the Company or any Subsidiary thereof (other than customary restrictions on transfer of property subject to a Permitted Lien under the term of the agreements creating such Permitted Lien (other than a Lien on cash not constituting proceeds of non-cash property subject to a Permitted Lien) which would not materially adversely affect the Company's ability to satisfy its obligations under the Senior Notes), or (e) guarantee any Indebtedness of the Company or any Subsidiary of the Company, except, in each case, for such encumbrances or restrictions existing under or contemplated by reason of (i) the Senior Notes or this Indenture, (ii) any restrictions existing under or contemplated by agreements evidencing any Senior Indebtedness or Permitted Secured Indebtedness, (iii) any restrictions which are in existence on the Issue Date or which exist with respect to a Person that becomes a Subsidiary on or after the Issue Date, which are in existence at the time such Person becomes a Subsidiary of the Company (but not created in connection with or contemplation of such Person becoming a Subsidiary of the Company and which encumbrance or restriction is not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired) and any agreement that refinances or replaces the same, provided, however, that the terms and conditions of any such restrictions are not materially less favorable in the aggregate to the holders of the Senior Notes than those under or pursuant to the agreement being replaced or the agreement evidencing the Indebtedness refinanced or replaced (iv) customary non-assignment 38 provisions in any contract or licensing agreement entered into by the Company or any Subsidiary of the Company in the ordinary course of business or in any lease governing any leasehold interest of the Company or a Subsidiary, (v) any restrictions existing under or contemplated by agreements evidencing any Purchase Money Obligations that impose restrictions on the ability of any of the Company or its Subsidiaries to transfer the property so acquired to the Company or its Subsidiaries, (vi) any restrictions existing under or contemplated by agreements evidencing any Refinancing Indebtedness, providing that the restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive in whole than those contained in the agreements governing the Indebtedness being refinanced and (vii) any matter provided for in the Plan of Reorganization. Section 4.15 RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY EQUITY INTEREST. The Company and its Subsidiaries will not issue or sell, and will not permit any other Subsidiaries to issue or sell, any Equity Interests of any Subsidiary to any person other than the Company or a Wholly-Owned Subsidiary of the Company, except for Common Equity Interests with no preferences or special rights or privileges and with no redemption or prepayment provisions. Section 4.16 LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. The Company will not, and will not permit any of its Subsidiaries to, enter into any Sale and Lease-Back Transaction (other than a Permitted Mortgage Financing) unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold and (ii) immediately prior to and after giving effect to the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction, the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.6 hereof. Section 4.17 LINE OF BUSINESS. The Company will not, and will not permit any of its Subsidiaries to, engage in any business other than any Healthcare Related Business or any other business determined by the Company's Board of Directors, in good faith, to be reasonably related to the foregoing. Section 4.18 LIMITATION ON STATUS AS INVESTMENT COMPANY. Neither the Company nor any of its Subsidiaries will take any action or suffer to exist any condition that would require the Company or any of its Subsidiaries to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or otherwise become subject to regulation as an investment company. Section 4.19 CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and the corporate, partnership or other existence of each Subsidiary, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such 39 right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole. Section 4.20 MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York an office or agency where Senior Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Senior Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 12.2. The Company may also from time to time designate one or more other offices or agencies where the Senior Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company shall give prompt written notice to the Trustee of such designation or rescission and of any change in the location of any such other office or agency; provided, however, that no such designation or rescission shall relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company initially appoints the Trustee as Registrar, Paying Agent and Agent for service of notices and demands in connection with the Senior Notes and this Indenture. Section 4.21 MAINTENANCE OF INSURANCE; BOOKS AND RECORDS; COMPLIANCE WITH LAWS. (a) The Company and each of its Subsidiaries shall provide or cause to be provided, for itself and each of their respective Subsidiaries, insurance (including appropriate self-insurance) that is adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary for businesses similarly situated in the industry. (b) The Company shall and shall cause each of its subsidiaries to keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each Subsidiary of the Company, in accordance with GAAP consistently applied to the Company and its Subsidiaries taken as a whole. (c) The Company shall and shall cause each of its Subsidiaries to comply with all statutes, laws, ordinances, or government rules and regulations to which they are subject, non-compliance with which would materially adversely affect the business, prospects, earnings, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. 40 Section 4.22 FURTHER ASSURANCES TO THE TRUSTEE. The Company shall (and shall cause each of its Subsidiaries to do) execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as may be required from time to time in order (i) to carry out more effectively the purposes of the Collateral Documents, (ii) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interest required to be encumbered thereby, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Trustee any of the rights granted or now or hereafter intended by the parties thereto to be granted to the Trustee or under any other instrument executed in connection therewith or granted to the Company under the Collateral Documents or under any other instrument executed in connection therewith. Section 4.23 COLLATERAL DOCUMENTS. None of the Company or any of its Subsidiaries will amend, waive or modify, or take or refrain from taking any action that has the effect of amending, waiving or modifying, any provision of the Collateral Documents or engaging in any transfer of assets from a company whose capital stock and assets constitute Collateral or any restructuring of the affairs of such a company and its subsidiaries to the extent that such amendment, waiver, modification, action or restructuring could have an adverse effect on the rights of the Trustee or the Holders, provided, that (i) the Collateral may be released or modified in an Asset Sale as expressly authorized in this Indenture or in the Collateral Documents; (ii) any Guarantee and pledges may be released in an Asset Sale as expressly provided in this Indenture or in the Collateral Documents; and (iii) this Indenture and any of the Collateral Documents may be otherwise amended, waived or modified as set forth under Article 9 hereof. ARTICLE 5 SUCCESSOR CORPORATION Section 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS. (a) The Company will not consolidate with, merge with or into, or sell, assign, lease, convey, transfer or otherwise dispose of (a "transfer") all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company are transferred shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Senior Notes, this Indenture and the Collateral Documents, and the obligations under this Indenture shall remain in full force and effect; and (ii) immediately before and immediately after giving effect to such transaction, 41 no Default or Event of Default shall have occurred and be continuing; and (iii) immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.6 hereof; and (iv) immediately thereafter, the Company or the other surviving entity, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction. (b) In connection with any consolidation, merger or transfer of assets contemplated by this Section 5.1, the Company shall deliver or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this Section 5.1 and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. (c) This Section 5.1 shall not apply to the sale of the stock or assets of the Company or any Subsidiary of the Company in accordance with Section 4.8 hereof. Section 5.2 SUCCESSOR PERSON SUBSTITUTED. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company or any Subsidiary in accordance with Section 5.1 above, the successor corporation formed by such consolidation or into which the Company or any Subsidiary is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary under this Indenture with the same effect as if such successor corporation had been named as the Company or such Subsidiary herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Senior Notes, except, in the case of a transfer, for the obligation to pay the principal of, and interest on, the Senior Notes. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1 EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) there is a default in the payment of any principal of, or premium, if any, on the Senior Notes when the same becomes due and payable; (2) default for 30 days in the payment of any interest on the Senior Notes after such interest becomes due and payable; (3) the Company or any Guarantor fails to comply with any of the terms or provisions of Section 5.1 hereof; (4) the Company or any Guarantor defaults in the observance or performance of any other provision, covenant or agreement contained in the Senior Notes, this Indenture or the Collateral Documents for 30 days after 42 written notice from the Trustee or the holders of not less than 25% in aggregate principal amount of the Senior Notes then outstanding; (5) there is a failure to pay when due principal, interest or premium in an aggregate amount of $10 million or more with respect to any Indebtedness of the Company or any Subsidiary thereof, or the acceleration prior to its express maturity of any such Indebtedness aggregating $10 million or more; (6) a court of competent jurisdiction renders a final judgment or judgments which can no longer be appealed for the payment of money in excess of $10 million (which are not paid or covered by third party insurance by financially sound insurers) against the Company or any Subsidiary thereof and such judgment remains undischarged for a period of 60 consecutive days during which a stay of enforcement of such judgment shall not be in effect; (7) the Company or any Subsidiary pursuant to or within the meaning of any Bankruptcy Law; other than the Plan of Reorganization and the proceedings related thereto: (A) commences a voluntary case or proceeding, (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors or shall admit in writing its inability to pay its debt, or (E) generally is not paying its debts as they become due; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Subsidiary in an involuntary case or proceeding, (B) appoints a Custodian of the Company or any Subsidiary or for all or substantially all of the property of the Company or any Subsidiary, or (C) orders the liquidation of the Company or any Subsidiary, and, in each case, the order or decree remains unstayed and in effect for 60 consecutive days. 43 The term "Bankruptcy law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors as in effect from time to time. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (9) At any time after the execution and delivery thereof, (i) any Guarantee for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, or (ii) a material Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations or any other termination of such Collateral Document in accordance with their terms hereof or thereof) or shall be declared null and void, or the Trustee or the Collateral Agent shall not have or shall cease to have a valid and perfected second priority Lien on any Collateral purported to be covered thereby having a fair market value, individually or in the aggregate, exceeding $2,500,000, in each case for any reason other than the failure of the Trustee or the Collateral Agent to take any action within its control. (10) Holders of Senior Indebtedness holding a Lien on the stock or assets of the Company take any judicial action to enforce such Lien. Subject to the provisions of Sections 7.1 and 7.2, the Trustee shall not be charged with knowledge of any Default or Event of Default unless written notice thereof shall have been given to a Trust Officer at the Corporate Trust Office by the Company or any other Person. Section 6.2 ACCELERATION. If an Event of Default (other than an Event of Default arising under Section 6.1(7) or (8) occurs and is continuing, the Trustee by notice to the Company or the Holders of not less than 25% in aggregate principal amount of the Senior Notes then outstanding by written notice to the Company and the Trustee may declare to be immediately due and payable the entire principal amount of all the Senior Notes then outstanding plus premium, if any, and accrued interest to the date of acceleration; provided, however, that after such acceleration but before a judgment or decree based on such acceleration is obtained by the Trustee, the Holders of 51% in aggregate principal amount of the outstanding Senior Notes may rescind and annul such acceleration if all existing Events of Default, other than nonpayment of accelerated principal, premium, if any, or interest, have been cured or waived as provided in this Indenture and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.1(7) or (8) occurs, the principal, premium, if any, and interest amount with respect to all of the Senior Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or the Holders of the Senior Notes. Section 6.3 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or premium, if any, and interest on the Senior Notes or to enforce the performance of any provision of the Senior Notes or this 44 Indenture and may take any necessary action requested of it as Trustee to settle, compromise, adjust or otherwise conclude any proceedings to which it is a party. The Trustee may maintain a proceeding even if it does not possess any of the Senior Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 6.4 WAIVER OF DEFAULTS AND EVENTS OF DEFAULT. Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of a majority in principal amount of the Senior Notes then outstanding have the right to waive any existing or future Default or Event of Default or compliance with any provision of this Indenture or the Senior Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto except as specifically set forth therein. Section 6.5 CONTROL BY MAJORITY. The Holders of a majority in principal amount of the Senior Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee by this Indenture. The Trustee, however, may refuse to follow any direction that conflicts with law, this Indenture or the Collateral Documents or that the Trustee determines may be unduly prejudicial to the rights of another Noteholder not taking part in such direction, and the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or if the Trustee in good faith shall determine that the proceedings so directed may involve it in personal liability unless the Trustee has asked for and received indemnification reasonably satisfactory to it against any loss, liability or expense caused by its following such direction; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.6 LIMITATION ON SUITS. Subject to Section 6.7 below, a Noteholder may not institute any proceeding or pursue any remedy with respect to this Indenture or the Senior Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 51% in aggregate principal amount of the Senior Notes then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer, and if requested, provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; 45 (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in aggregate principal amount of the Senior Notes then outstanding. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. Section 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, but subject to the Collateral Documents, the right of any Holder of a Senior Note to receive payment of principal of, or premium, if any, and interest on the Senior Note on or after the respective due dates expressed in the Senior Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 6.8 COLLECTION SUIT BY TRUSTEE. If an Event of Default in payment of principal, premium or interest specified in Section 6.1(1) or (2) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or the Guarantors (or any other obligor on the Senior Notes) for the whole amount of unpaid principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate then borne by the Senior Notes (after giving effect to Section 4.1), and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, including all sums due and owing to the Trustee pursuant to the Indenture including Section 7.7. Section 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in any judicial proceedings relative to the Company or the Guarantors (or any other obligor upon the Senior Notes), their respective creditors or property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after deduction of its reasonable charges and expenses to the extent that any such charges and expenses are not paid out of the estate in any such proceedings and any custodian in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under the Indenture, including without limitation Section 7.7 hereof. Nothing herein contained shall be deemed to 46 authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan or reorganization, arrangement, adjustment or composition affecting the Senior Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceedings. Section 6.10 PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee, its agents and counsel for amounts due under the Indenture, including without limitation, Section 7.7 hereof; SECOND: to Noteholders for amounts due and unpaid on the Senior Notes for principal, premium, if any, and interest as to each, ratably, without preference or priority of any kind, according to the amounts due and payable on the Senior Notes; and THIRD: to the Company or, to the extent the Trustee collects any amount from any Guarantor, to such Guarantor. The Trustee may fix a record date and payment date for any payment to Noteholders pursuant to this Section 6.10. The Trustee shall give the Company prior notice of any such record date and payment date; provided, however, that the failure to give any such notice shall not affect the establishment of such record date or payment date or any payment to Noteholders pursuant to this Section 6.10. Section 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof or a suit by Holders of more than 10% in principal amount of the Senior Notes then outstanding. Section 6.12 RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 47 Section 6.13 DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE 7 TRUSTEE Section 7.1 DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the same circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default known to the Trustee: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and the Collateral Documents and no others and no implied covenants or obligations shall be read into this Indenture or the Collateral Documents against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture and the Collateral Documents (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) In the absence of bad faith on its part, the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.2 and 6.5 hereof. 48 (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, paragraphs (a), (b), (c), (d), (f) and (g) of this Section 7.1 shall govern every provision of this Indenture that in any way relates to the Trustee or any Agent. (f) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability, expense or fee. (g) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company or any Guarantor. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by the law. Section 7.2 RIGHTS OF TRUSTEE. Subject to Section 7.1 hereof: (1) The Trustee may conclusively rely on and shall be protected in acting or refraining from acting upon any document reasonably believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent (other than the negligence or willful misconduct of an agent who is an employee of the Trustee) appointed by it with due care. (3) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers; provided that the Trustee's conduct does not constitute negligence or bad faith. (4) The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (5) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both. (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. 49 (7) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (8) The Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. (9) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Senior Notes and this Indenture. (10) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. (11) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Senior Notes and may make loans to, accept deposits from, perform services for or otherwise deal with the Company or any Guarantor, or any Affiliates thereof, with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, shall be subject to Sections 7.10 and 7.11 hereof. Section 7.4 TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture, the Collateral Documents, the Senior Notes or any Guarantee, it shall not be accountable for the Company's use of the proceeds from the sale of Senior Notes or any money paid to the Company pursuant to the terms of this Indenture or the Collateral Documents, and it shall not be responsible for any statement in the Senior Notes or any document used in connection with the sale of the Senior Notes other than its certificate of authentication. 50 Section 7.5 NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Noteholder notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal or premium, if any, or interest on the Senior Notes, or that resulted from the failure of the Company to comply with Section 5.1, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines it to be in the best interests of the holders of the Senior Notes to do so. Section 7.6 REPORTS BY TRUSTEE TO HOLDERS. If required by TIA Section 313(a), within 60 days after May 15 of any year, commencing the May 15 following the date of this Indenture, the Trustee shall mail to each Noteholder a brief report dated as of such May 15 that complies with TIA Section 313(a); provided that no such report need be transmitted if no such events listed in TIA Section 313(a) have occurred within such period. The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c) and TIA Section 313(d). A copy of each report at the time of its mailing to Noteholders shall be filed with the SEC and each stock exchange on which the Senior Notes are listed. The Company shall promptly notify the Trustee when the Senior Notes are listed on any stock exchange, and of any delisting thereof, and the Trustee shall comply with TIA Section 313(d). Section 7.7 COMPENSATION AND INDEMNITY. The Company and the Guarantors (on a joint and several basis) shall pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee (or in the absence of such an agreement, reasonable compensation) for its services hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company and the Guarantors (on a joint and several basis) shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it in connection with its duties under this Indenture, including the compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors (on a joint and several basis) shall indemnify each of the Trustee and any predecessor Trustee for, and hold them harmless against, any and all loss, damage, claim, liability, expense (including but not limited to attorneys' fees and expenses) or taxes (other than taxes based on the income of the Trustee) incurred by it in connection with the acceptance or performance of its duties under this Indenture including the costs and expenses of defending itself against any claim (whether asserted by the Company, a Guarantor, any holder of Senior Notes or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder (including, without limitation, settlement costs). The Trustee shall notify the Company and the Guarantors in writing promptly of any claim asserted against the Trustee for which it may seek indemnity. However, the failure by the Trustee to so notify the Company and the Guarantors shall not relieve the Company or the Guarantors of their obligations hereunder. 51 Notwithstanding the foregoing, the Company and the Guarantors need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by the Trustee through its negligence or bad faith. To secure the payment obligations of the Company and the Guarantors in this Indenture, including without limitation, Sections 7.7 and 9.5, the Trustee and any predecessor Trustee shall have a lien prior to the Senior Notes and the Senior Indebtedness on all money or property held or collected by the Trustee in its capacity as such, except such money or property held in trust to pay principal of and interest on particular Senior Notes. The obligations of the Company and the Guarantors under this Section 7.7 to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall be joint and several liabilities of the Company and each of the Guarantors and shall survive the satisfaction and discharge of this Indenture, including the termination or rejection hereof in any bankruptcy proceeding to the extent permitted by law. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(7) or (8) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8 REPLACEMENT OF TRUSTEE. The Trustee may resign by so notifying the Company and the Guarantors in writing, such resignation to become effective upon the appointment of a successor Trustee. The Holders of a majority in principal amount of the outstanding Senior Notes may remove the Trustee by notifying the removed Trustee in writing and may appoint a successor Trustee with the Company's written consent which consent shall not be unreasonably withheld. The Company may remove the Trustee at its election if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 25% in principal amount of the outstanding Senior Notes may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 52 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately following such delivery, the retiring Trustee shall, subject to its rights under Section 7.7 hereof, transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Noteholder. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. Section 7.9 SUCCESSOR TRUSTEE BY CONSOLIDATION, MERGER OR CONVERSION. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation or national banking association, subject to Section 7.10 hereof, the successor corporation or national banking association without any further act shall be the successor Trustee. Section 7.10 ELIGIBILITY; DISQUALIFICATION. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b), including the provision in Section 310(b)(1); provided that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or conflicts of interest or participation in other securities, of the Company or the Guarantors are outstanding if the requirements for exclusion set forth in TIA Section 310(b)(1) are met. Section 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311 (b). A Trustee who has resigned or been removed shall be subject to TIA Section 311 (a) to the extent indicated therein. Section 7.12 PAYING AGENTS. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to it and the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 7.12: (A) that it will hold all sums held by it as agent for the payment of principal of, or premium, if any, or interest on, the Senior Notes (whether such sums have been paid to it by the Company or by any obligor on the Senior Notes) in trust for the benefit of Holders of the Senior Notes or the Trustee; (B) that it will at any time during the continuance of any Event of Default, upon written request from the Trustee, deliver to the Trustee all sums so held in trust by it together with a full accounting thereof; and 53 (C) that it will give the Trustee written notice within three (3) Business Days of any failure of the Company (or by any obligor on the Senior Notes) in the payment of any installment of the principal of, premium, if any, or interest on, the Senior Notes when the same shall be due and payable. Section 7.13 CO-TRUSTEE AND SEPARATE TRUSTEES. At any time or times, for the purpose of meeting the legal requirements of any applicable jurisdiction, the Company and the Trustee shall have power to appoint, and, upon the written request of the Trustee or of the Holders of at least 33% in principal amount of the Securities then outstanding, the Company shall for such purpose join with the Trustee in the execution and delivery of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Trustee either to act as co-trustee, jointly with the Trustee, or to act as separate trustee, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons, in the capacity aforesaid, and for the benefit of the Holders, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Company does not join in such appointment within 15 days after the receipt by it of a request so to do, or if an Event of Default shall have occurred and be continuing, the Trustee alone shall have power to make such appointment. Should any written instrument or instruments from the Company be required by any co-trustee or separate trustee to more fully confirm to such co-trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Company. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following conditions: (a) the Securities shall be authenticated and delivered, and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustee hereunder, shall be exercised solely, by the Trustee; (b) the rights, powers, duties and obligations hereby conferred or imposed upon the Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed either by the Trustee or by the Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed singly by such co-trustee or separate trustee. (c) the Trustee at any time, by an instrument in writing executed by it, with the concurrence of the Company, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, it an Event of Default shall have occurred and be continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Company. Upon the written 54 request of the Trustee, the Company shall join with the Trustee in the execution and delivery of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section; (d) no co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Trustee, or any other such trustee hereunder, and the Trustee shall not be personally liable by reason of any act or omission of any such co-trustee or separate trustee; (e) any act of Holders delivered to the Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee; (f) any separate trustee or co-trustee may at any time appoint the Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name; and (g) if any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new successor trustee. ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.1 WITHOUT CONSENT OF HOLDERS. The Company and/or one or more Guarantors and the Trustee may modify, waive, amend or supplement this Indenture, the Senior Notes, the Guarantees or the Collateral Documents without notice to or consent of any Noteholder: (1) to comply with Section 5.1 hereof; (2) to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes; (3) to comply with any requirements of the SEC under the TIA; (4) to cure any ambiguity, defect or inconsistency, or to make any other change that does not materially and adversely affect the rights of any Noteholder; (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Senior Notes; or (6) to enter into additional or supplemental Collateral Documents consistent with the terms hereof; 55 (7) to adjust the aggregate principal amount of Senior Notes permitted to be issued pursuant to this Indenture so that the aggregate principal amount of Senior Notes permitted to be issued pursuant to this Indenture are as provided in the Plan of Reorganization; (8) to otherwise comply with the terms of the Plan of Reorganization; (9) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (10) to add any additional Events of Default. The Trustee is hereby authorized to join with the Company and the Guarantors, if any, in the execution of any modification, waiver, amendment or supplement to this Indenture, the Senior Notes, the Guarantees or the Collateral Documents authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such modification, waiver, amendment or supplement to this Indenture, the Senior Notes, the Guarantees or the Collateral Documents which adversely affects its own rights, duties or immunities under this Indenture. Section 8.2 WITH CONSENT OF HOLDERS. The Company and/or one or more Guarantors and the Trustee may modify, amend, waive or supplement this Indenture, the Senior Notes, the Guarantees or the Collateral Documents with the written consent of the Holders of not less than a majority in aggregate principal amount of outstanding Senior Notes, provided, however, that such modification, amendment, waiver or supplement is consistent with the terms of any applicable Collateral Documents. The Holders of not less than a majority in aggregate principal amount of outstanding Senior Notes may waive compliance in a particular instance by the Company with any provision of this Indenture or the Senior Notes. Subject to Section 8.4, without the consent of each Noteholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may not: (1) reduce the amount of Senior Notes whose Holders must consent to an amendment, modification, supplement or waiver to this Indenture or the Senior Notes; (2) reduce the rate of or change the time for payment of interest on any Senior Note; (3) reduce the principal of or premium on or change the stated maturity of any Senior Note; (4) make any Senior Note payable in money other than that stated in the Senior Note or change the place of payment from New York, New York; (5) change the amount or time of any payment required by the Senior Notes or reduce the premium payable upon any redemption of the Senior Notes; (6) waive a default in the payment of the principal of, or interest on, or redemption payment with respect to any Senior Note; 56 (7) subordinate in right of payment, or otherwise subordinate, the Senior Notes or the Guarantees to another Indebtedness or obligation of the Company or the Guarantors; (8) take any other action otherwise prohibited by this indenture to be taken without the consent of each Holder affected thereby; (9) release all or substantially all of the Collateral from the Lien of this Indenture and the Collateral Documents (other than pursuant to an Asset Sale in compliance with Section 4.8 hereto); or (10) modify this Section 8.2, Section 6.4 or 6.7. After a modification, amendment, supplement or waiver under this Section 8.2 becomes effective, the Company shall mail to the Holders a notice briefly describing the modification, amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such modification, amendment, supplement or waiver. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, modification, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. Section 8.3 COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to or supplement of this Indenture or the Senior Notes shall comply with the TIA as then in effect. Section 8.4 REVOCATION AND EFFECT OF CONSENTS. Until a modification, amendment, supplement, waiver or other action becomes effective, a consent to it by a Holder of a Senior Note is a continuing consent conclusive and binding upon such Holder and every subsequent Holder of the same Senior Note or portion thereof, and of any Senior Note issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Senior Note. Any such Holder or subsequent Holder, however, may revoke the consent as to his Senior Note or portion of a Senior Note, if the Trustee receives the notice of revocation before the date the modification, amendment, supplement, waiver or other action becomes effective. Notwithstanding the foregoing, nothing in this paragraph shall impair the right of any Holder under TIA Section 316(b). The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any modification, amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such modification, amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date unless the consent of the requisite number of Holders has been obtained. 57 After a modification, amendment, supplement, waiver or other action becomes effective, it shall bind every Holder and every subsequent Holder. Section 8.5 NOTATION ON OR EXCHANGE OF SENIOR NOTES. If a modification, amendment, supplement or waiver changes the terms of a Senior Note, the Trustee may request the Holder of the Senior Note to deliver it to the Trustee. In such case, the Trustee shall place an appropriate notation on the Senior Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Senior Note shall issue and the Trustee shall authenticate a new security that reflects the changed terms. Failure to make the appropriate notation or issue a new Senior Note shall not affect the validity and effect of such modification, amendment, supplement or waiver. Section 8.6 TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any modification, amendment, supplement or waiver authorized pursuant to this Article 8 if the modification, amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such modification, amendment, supplement or waiver, the Trustee shall be entitled to receive and, subject to Section 7.1 hereof, shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel stating that such modification, amendment, supplement or waiver is authorized or permitted by this Indenture and such supplemental indenture constitutes the legal, valid and binding obligation of the Company and the Guarantors enforceable against each of them in accordance with its terms (subject to customary exceptions). The Company or any Guarantor may not sign a modification, amendment or supplement until the Board of Directors of the Company or such Guarantor, as appropriate, approves it. ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.1 DISCHARGE OF INDENTURE. The Company and the Guarantors, if any, may terminate their obligations under the Senior Notes, the Guarantees, if any, and this Indenture, except the obligations referred to in the last paragraph of this Section 9.1, if there shall have been cancelled by the Trustee or delivered to the Trustee for cancellation all Senior Notes theretofore authenticated and delivered (other than any Senior Notes that are asserted to have been destroyed, lost or stolen and that shall have been replaced as provided in Section 2.7 hereof) and the Company has paid all sums payable by it hereunder or deposited all required sums with the Trustee. After such delivery the Trustee upon request shall acknowledge in writing the discharge of the Company's and the Guarantors' obligations under the Senior Notes, the Guarantees and this Indenture except for those surviving obligations specified below. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company in Sections 2.7, 7.7, 9.5, 9.6 and 9.8 hereof shall survive. 58 Section 9.2 LEGAL DEFEASANCE. The Company may at its option, by Board Resolution, be discharged from its obligations with respect to the Senior Notes and the Guarantors, if any, discharged from their obligations under the Guarantees, if any, on the date the conditions set forth in Section 9.4 below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Senior Notes and to have satisfied all its other obligations under such Senior Notes and this Indenture insofar as such Senior Notes are concerned (and the Trustee, at the expense of the Company, shall, subject to Section 9.6 hereof, execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Senior Notes to receive solely from the trust funds described in Section 9.4 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due, (B) the Company's obligations with respect to such Senior Notes under Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 4.20 hereof, (C) the rights, powers, trusts, duties, and immunities of the Trustee hereunder (including claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof) and (D) this Article 9. Subject to compliance with this Article 9, the Company may exercise its option under this Section 9.2 with respect to the Senior Notes notwithstanding the prior exercise of its option under Section 9.3 below with respect to the Senior Notes. Section 9.3 COVENANT DEFEASANCE. At the option of the Company, pursuant to a Board Resolution, the Company and the Guarantors, if any, shall be released from their respective obligations under Sections 4.2 through 4.4 hereof, inclusive, Sections 4.6 through 4.17 hereof, inclusive, Section 4.23 and clause (a)(iii) of Section 5.1 hereof with respect to the outstanding Senior Notes on and after the date the conditions set forth in Section 9.4 hereof are satisfied (hereinafter, "Covenant Defeasance") and the Senior Notes shall thereafter be deemed to not be outstanding for purposes of any direction, waiver, consent, declaration or act of the Holders (and the consequences thereof) in connection with such covenants but shall continue to be outstanding for all other purposes hereunder. For this purpose, such Covenant Defeasance means that the Company and the Guarantors, if any, may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section or portion thereof, whether directly or indirectly by reason of any reference elsewhere herein to any such specified Section or portion thereof or by reason of any reference in any such specified Section or portion thereof to any other provision herein or in any other document, but the remainder of this Indenture and the Senior Notes shall be unaffected thereby. Section 9.4 CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to application of Section 9.2 or Section 9.3 hereof to the outstanding Senior Notes: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7. 10 hereof who shall agree to comply with the provisions of this Article 9 applicable to it) as funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely 59 to, the benefit of the Holders of the Senior Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and accrued interest on the outstanding Senior Notes at the maturity date of such principal, premium, if any, or interest, or on dates for payment and redemption of such principal, premium, if any, and interest selected in accordance with the terms of this Indenture and of the Senior Notes; (2) no Event of Default or Default with respect to the Senior Notes shall have occurred and be continuing on the date of such deposit, or shall have occurred and be continuing at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period under any Bankruptcy Law applicable to the Company in respect of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute default under any other agreement or instrument to which the Company is a party or by which it is bound; (4) the Company shall have delivered to the Trustee an Opinion of Counsel stating that, as a result of such Legal Defeasance or Covenant Defeasance, neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended; (5) in the case of an election under Section 9.2 above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling to the effect that or (ii) there has been a change in any applicable Federal income tax law with the effect that, and such opinion shall confirm that, the Holders of the outstanding Senior Notes or persons in their positions will not recognize income, gain or loss for Federal income tax purposes solely as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if such Legal Defeasance had not occurred; (6) in the case of an election under Section 9.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Senior Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (7) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (a) all conditions precedent provided for relating to either the Legal Defeasance under Section 9.2 above or the Covenant Defeasance under Section 9.3 hereof (as the 60 case may be) have been complied with and (b) if any other Indebtedness of the Company shall then be outstanding, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness; and (8) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit under clause (1) was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others. Section 9.5 DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 9.4 hereof in respect of the outstanding Senior Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Senior Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Holders of such Senior Notes, of all sums due and to become due thereon in respect of principal, premium, if any, and accrued interest, but such money need not be segregated from other funds except to the extent required by law. The Trustee shall be under no duty to invest such money or U.S. Government Obligations. The Company and the Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 9.4 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Senior Notes. Subject to Sections 7.1 and 7.2 hereof, anything in this Article 9 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 9.4 hereof which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 9.6 REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 9.1, 9.2 or 9.3 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company and any Guarantor under this Indenture, the Senior Notes and the Guarantees, if any, shall be revived and reinstated as though no deposit had occurred pursuant to this Article 9 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 9.1 hereof; provided, however, that if the Company or any Guarantors have made any payment of principal of, premium, if any, or accrued interest on any Senior Notes because of the reinstatement of their obligations, the Company or such Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Senior 61 Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. Section 9.7 MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee, or if sufficient moneys have been deposited pursuant to Section 9.4 hereof, to the Company (or, if such moneys had been deposited by any Guarantors, to such Guarantors), and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Section 9.8 MONEYS HELD BY TRUSTEE. Any moneys deposited with the Trustee or any Paying Agent or then held by the Company or any Guarantors in trust for the payment of the principal of, premium, if any, or interest on any Senior Note that are not applied but remain unclaimed by the Holder of such Senior Note for two years after the date upon which the principal of, or premium, if any, or interest on such Senior Note shall have respectively become due and payable shall be repaid to the Company (or, if appropriate, the Guarantors) upon Company Request, or if such moneys are then held by the Company or any Guarantors in trust, such moneys shall be released from such trust; and the Holder of such Senior Note entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company and the Guarantors, if any, for the payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or any such Paying Agent, before being required to make any such repayment, shall, at the expense of the Company and the Guarantors, mail to each Noteholder affected, at the address shown in the register of the Senior Notes maintained by the Registrar pursuant to Section 2.3 hereof, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing, any unclaimed balance of such moneys then remaining will be repaid to the Company. After payment to the Company or the Guarantors, if any, or the release of any money held in trust by the Company or any Guarantors, as the case may be, Noteholders entitled to the money must look only to the Company and any Guarantors for payment as general creditors unless applicable abandoned property law designates another person. Section 9.9 SENIOR NOTE COLLATERAL. Upon the Company's exercise under Section 9.1 hereof of the option applicable under either Section 9.2 or 9.3, the Collateral shall be released pursuant to Section 10.3 hereof. ARTICLE 10 COLLATERAL AND SECURITY Section 10.1 SECURITY. The due and punctual payment of the principal of, premium, if any, and interest on the Senior Notes when and as the same shall be due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of, premium, if 62 any, and interest on the Senior Notes and performance of all other obligations of the Company and the Guarantors to the Holders of Senior Notes or the Trustee under this Indenture, the Senior Notes and the Guarantees, according to the terms hereunder or thereunder, shall be secured by the Collateral, as provided in the Collateral Documents which the Company and the applicable parties have entered into simultaneously with the execution of this Indenture for the benefit of the Holders of Senior Notes. Each Holder of Senior Notes, by its acceptance thereof, consents and agrees to the terms of the Collateral Documents (including, without limitation, the provisions providing for foreclosure and release of Collateral) as the same may be in effect or may be amended from time to time in accordance with its terms and authorizes and directs the Trustee to enter into the Collateral Documents and to perform its obligations and exercise its rights thereunder in accordance therewith. The Company and the Guarantors shall deliver to the Trustee copies of all documents executed pursuant to this Indenture and the Collateral Documents and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Collateral Documents to assure and confirm to the Trustee the security interest in the Collateral contemplated hereby, by the Collateral Documents or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Senior Notes and the Guarantees secured hereby, according to the intent and purposes herein expressed. The Company shall take, or shall cause its Subsidiaries to take any and all actions reasonably required to cause the Collateral Documents to create and maintain, as security for the obligations of the Company hereunder, a valid and enforceable perfected priority Lien in and on all the Collateral in accordance with the terms of the Collateral Documents. Section 10.2 RECORDING AND OPINIONS. The Company and the Guarantors will cause this Indenture, if necessary, the applicable Collateral Documents, including any financing statements, all amendments or supplements to each of the foregoing and any other similar security documents as necessary, to be registered, recorded and filed and/or re-recorded, re-filed and renewed in such manner and in such place or places, if any, as may be required by law in order fully to preserve and protect (a) the Lien securing the obligations under the Senior Notes and the Guarantees of those Guarantors that are parties to the Collateral Documents pursuant to the Collateral Documents and (b) the Lien of the Guarantors that are parties to the Collateral Documents securing (for the ratable benefit of the Holders of Senior Notes) the Senior Notes and the Guarantees and to effectuate and preserve the security of the Holders of Senior Notes and all rights of the Trustee. The Company, the Guarantors and any other obligor shall furnish to the Trustee: (a) Promptly after the execution and delivery of this Indenture, and promptly after the execution and delivery of any other instrument of further assurance or amendment, an Opinion of Counsel in the United States (a) stating that this Indenture, the Senior Notes and the Collateral Documents and such instruments of further assurance or amendment, if any, are valid, binding and enforceable obligations of the Company and its Subsidiaries which are signatories to those agreements, subject to customary qualifications and exceptions reasonably acceptable to the Trustee, and (b) either (i) stating that, subject to customary assumptions and exclusions, in the opinion of such counsel, this Indenture and other applicable Collateral Documents and all other instruments of further assurance or amendment have been properly recorded, registered and filed to the extent necessary to make effective the Lien intended to be created by such Indenture and Collateral Documents and reciting the 63 details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that, subject to customary assumptions and exclusions, as to such Indenture and Collateral Documents and such other instruments such recording, registering and filing are the only recordings, registerings and filings necessary to give notice thereof and that no re-recordings, re-registerings or re-filings are necessary to maintain such notice, and further stating that all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the rights of the Holders of Senior Notes and the Trustee hereunder and under the Collateral Documents or (ii) stating that, subject to customary assumptions and exclusions, in the opinion of such counsel, no such action is necessary to make any Lien created under any of the Collateral Documents effective as intended by this Indenture and such Collateral Documents; and (b) Within 30 days after February 1, in each year beginning with the year 2002, an Opinion of Counsel, dated as of such date, either (i) stating that, subject to customary assumptions and exclusions, in the opinion of such counsel, such action has been taken with respect to the recording, registering, filing, re-recording, re-registering and re-filing of this Indenture and all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of this Indenture and the Collateral Documents until the next Opinion of Counsel is required to be rendered pursuant to this paragraph and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the rights of the Holders and the Trustee hereunder and under the Collateral Documents or (ii) stating that, subject to customary assumptions and exclusions, in the opinion of such counsel, no such action is necessary to maintain such Lien, until the next Opinion of Counsel is required to be rendered pursuant to this paragraph. (c) The Company shall furnish to the Trustee the certificate or opinions, as the case may be, required by TIA Section 314(d). Such certificates or opinions will be subject to the terms of TIA Section 314(e). Section 10.3 RELEASE OF COLLATERAL. (a) Subject to subsections (b), (c) and (d) of this Section 10.3, Collateral may be released from the Lien and security interest created by this Indenture and the Collateral Documents at any time or from time to time upon the request of the Company pursuant to an Officers' Certificate certifying that all terms for release and conditions precedent hereunder and under the applicable Collateral Document have been met and specifying (A) the identity of the Collateral to be released and (B) the provision of this Indenture and the applicable Collateral Document which authorizes such release. The Trustee shall release, and shall give any necessary consent, waiver or instruction to the Collateral Agent to release (at the sole cost and expense of the Company) (i) all Collateral that is contributed, sold, leased, conveyed, transferred or otherwise disposed of; provided, such contribution, sale, lease, conveyance, transfer or other distribution is or will be in accordance with the provisions of this Indenture, including, without limitation, the requirement that the net proceeds, if any, from such contribution, sale, lease, conveyance, transfer or other distribution are or will be applied in accordance with this Indenture and that no Default or Event of Default has occurred and is continuing or would occur immediately following such release; (ii) Collateral which may be released with the consent of Holders pursuant to Article 8 hereof; (iii) all Collateral 64 (except as provided in Article 9 hereof) upon discharge or defeasance of this Indenture in accordance with Article 9 hereof; (iv) all Collateral upon the payment in full of all obligations of the Company with respect to the Senior Notes; and (v) Collateral of a Guarantor whose Guarantee is released pursuant to Section 11.4 hereof. Upon receipt of such Officers' Certificate, an Opinion of Counsel and any other opinions or certificates required by this Indenture and the TIA, the Trustee shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the release of any Collateral permitted to be released pursuant to this Indenture and the Collateral Documents. (b) No Collateral shall be released from the Lien and security interest created by the Collateral Documents pursuant to the provisions of the Collateral Documents unless there shall have been delivered to the Trustee the certificates required by this Section 10.3. (c) The Trustee may release Collateral from the Lien and security interest created by this Indenture and the Collateral Documents upon the sale or disposition of Collateral pursuant to the Trustee's powers, rights and duties with respect to remedies provided under any of the Collateral Documents. (d) The release of any Collateral from the terms of this Indenture and the Collateral Documents shall not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Collateral is released pursuant to the terms hereof. To the extent applicable, the Company shall cause TIA Section 313(b), relating to reports, and TIA Section 314(d), relating to the release of property or securities from the Lien and security interest of the Collateral Documents and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Collateral Documents to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the company except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected or approved by the Trustee in the exercise of reasonable care. Section 10.4 PROTECTION OF THE TRUST ESTATE. Upon prior written notice to the Company and the Guarantors, the Trustee shall have the power (i) to institute and maintain such suits and proceedings as it may deem expedient, to prevent any impairment of the Collateral under any of the Collateral Documents; and (ii) to enforce the obligations of the Company, the Guarantors or any Restricted Subsidiary under this Indenture or the Collateral Documents, to institute and maintain such suits and proceedings as may be expedient to prevent any impairment of the Collateral under the Collateral Documents and in the profits, rents, revenues and other income arising therefrom; including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair any Collateral or be prejudicial to the interests of the Holders of Senior Notes or the Trustee, to the extent permitted thereunder. 65 Section 10.5 CERTIFICATES OF THE COMPANY. The Company shall furnish to the Trustee, prior to each proposed release of Collateral pursuant to the Collateral Documents (i) all documents required by TIA Section 314(d) and (ii) an Opinion of Counsel in the United States, which opinion shall be subject to customary assumptions and exclusions, to the effect that such accompanying documents constitute all documents required by TIA Section 314(d). The Trustee may, to the extent permitted by Sections 7.1 and 7.2 hereof, accept as conclusive evidence of compliance with the foregoing provisions the appropriate statements contained in such documents and such Opinion of Counsel. Section 10.6 CERTIFICATES OF THE TRUSTEE. In the event that the Company wishes to release Collateral in accordance with the Collateral Documents and has delivered the certificates and documents required by the Collateral Documents and Sections 10.3 and 10.5 hereof, the Trustee shall determine whether it has received all documents required by TIA Section 314(d) in connection with such release and, based on such determination and the Opinion of Counsel delivered pursuant to Section 10.5(ii), shall deliver a certificate to the Collateral Agent, setting forth such determination. Section 10.7 AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE COLLATERAL DOCUMENTS. Subject to the provisions of Sections 7.1 and 7.2 hereof and the Collateral Trust Agreement, the Trustee may, in its sole discretion and without the consent of the Holders of Senior Notes, direct, on behalf of the Holders of Senior Notes, the Collateral Agent to take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Collateral Documents and (b) collect and receive any and all amounts payable in respect of the Obligations of the Company hereunder. Subject to the Collateral Trust Agreement, the Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Collateral Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders of Senior Notes in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders of Senior Notes or of the Trustee). Section 10.8 AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE COLLATERAL DOCUMENTS. Subject to the Collateral Trust Agreement, upon an Event of Default and so long as such Event of Default continues, the Trustee may exercise in respect of the Collateral, in addition to the other rights and remedies provided for herein, in the Collateral Documents or otherwise available to it, all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law, and the Trustee may also upon obtaining possession of the Collateral as set forth herein, without notice to the Company, except as specified below, sell the Collateral or any part thereof in one or more parcels 66 at public or private sale, at any exchange, broker's board or at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. The Company acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such a sale were a public sale. The Company agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Any cash that is Collateral held by the Trustee and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied (unless otherwise provided for in the Collateral Documents) in accordance with Section 6.10 hereof, or as the Holders of the Senior Notes shall direct pursuant to Section 6.5 hereof. Any surplus of such cash or cash proceeds held by the Trustee and remaining after payment in full of all the obligations shall be paid over to the Company or to whomsoever may be lawfully entitled to receive such surplus or as a court of competent jurisdiction may direct. Section 10.9 TERMINATION OF SECURITY INTEREST. Upon the payment in full of all Obligations of the Company under this Indenture and the Senior Notes, or upon Legal Defeasance or Covenant Defeasance, the Trustee shall, at the written request of the Company, deliver a certificate to the Collateral Agent stating that such Obligations have been paid in full, and instruct the Collateral Agent to release the Liens pursuant to this Indenture and the Collateral Documents. Section 10.10 COOPERATION OF TRUSTEE. In the event the Company or any Guarantor pledges or grants to the Trustee a security interest in additional Collateral, the Trustee shall cooperate with the Company or such Guarantor in reasonably and promptly agreeing to the form of, and executing as required, any instruments or documents necessary to make effective the security interest in the Collateral to be so pledged. To the extent practicable, the terms of any security agreement or other instrument or document necessitated by any such pledge shall be comparable to the provisions of the existing relevant Collateral Documents. Subject to, and in accordance with the requirements of this Article 10 and the terms of the Collateral Documents, in the event that the Company or any Guarantor engages in any transaction pursuant to Section 10.3, the Trustee, subject to the provisions of Sections 10.3 and 10.5, shall cooperate with the Company or such Guarantor in order to facilitate such transaction in accordance with any reasonable time schedule proposed by the Company, including by delivering and releasing the Collateral in a prompt and reasonable manner. Section 10.11 COLLATERAL AGENT. The Collateral Agent may be delegated any one or more of the duties or rights of the Trustee hereunder or under the Collateral Documents or which 67 are specified in any Collateral Documents, including without limitation, the right to hold any Collateral in the name of, registered to, or in the physical possession of, such Collateral Agent for the ratable benefit of the Holders of the Senior Notes and the holders from time to time of Senior Indebtedness. Each such Collateral Agent shall have such rights and duties as may be specified in the Collateral Trust Agreement. Section 10.12 COLLATERAL TRUST AGREEMENT. The Company, the Trustee and the Collateral Agent are entering into the Collateral Trust Agreement which sets forth the relative rights of the Trustee and the Holders, on the one hand, and the holders of the Senior Indebtedness, on the other hand, as to the priority of payment of the Senior Indebtedness over the Senior Notes and related obligations in certain circumstances. As among the Holders, the Collateral shall be held for the equal and ratable benefit of such Holders without preference, priority or distinction of any thereof over any other. The terms of this Indenture and the Collateral Documents will be subject to the terms of such Collateral Trust Agreement and each Holder, by accepting a Senior Note, agrees to all of the terms and provisions of such Collateral Trust Agreement, as the same may be amended from time to time pursuant to the provisions thereof and this Indenture. Without limiting the foregoing, each Holder, by accepting a Senior Note, acknowledges and agrees that its rights to payment of the obligations evidenced by the Senior Notes and the Guarantees may be subject to the terms of any such Collateral Trust Agreement and agrees that the Trustee is hereby irrevocably authorized and directed to execute, deliver and perform such Collateral Trust Agreement, in accordance with its terms. The Trustee and each Holder agree that in the event of any conflict between this Indenture and the Collateral Trust Agreement, the provisions of such Collateral Trust Agreement shall control; provided, that no provision of such Collateral Trust Agreement shall be deemed to limit or subordinate the Trustee's right to compensation, fees, expenses or indemnities under this Indenture, or the Trustee's right to require Officers' Certificates or Opinions of Counsel in accordance with the provisions of this Indenture. The provisions of this Section shall be expressly for the benefit of the holders of the Senior Indebtedness and may not be amended without the consent of the holders of a majority in principal amount thereof (without thereby limiting any other provisions of this Indenture or elsewhere provided for their benefit). ARTICLE 11 GUARANTEE OF SENIOR NOTES Section 11.1 GUARANTEE. Subject to the provisions of this Article 11, each Guarantor hereby jointly and severally unconditionally and irrevocably guarantees to each Holder and to the Trustee, on behalf of the Holders, (i) the due and punctual payment of the principal of, premium, if any, and interest (including Additional Interest) on each Senior Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of, and premium, if any, and interest on the Senior Notes, to the extent lawful, and the due and punctual performance of all other Obligations of the Company to the Holders or the Trustee all in accordance with the terms of such Senior Note and this Indenture, and (ii) in the case of any extension of time of payment or renewal of any Senior Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension 68 or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor, by execution of the Guarantee, agrees that its obligations thereunder and hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Senior Note or this Indenture, any failure to enforce the provisions of any such Senior Note or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto by the Holder of such Senior Note or the Trustee, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor, by execution of the Guarantee, waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Senior Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that the Guarantee will not be discharged as to any such Senior Note except by payment in full of the principal thereof, premium if any, and interest thereon and as provided in Section 9.1 hereof. If any Holder or the Trustee is required by any court or otherwise to return to the Company or any Guarantor or any Custodian, trustee, liquidator or other similar official acting in relation to either the Company or any Guarantor, any amount paid by either the Company or any Guarantor to the Holder or Trustee, each Guarantor's Guarantee, to the extent therefor discharged, shall be reinstated in full force and effect. Each Guarantor, by execution of the Guarantee, further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed by the Guarantee may be accelerated as provided in Article 6 hereof for the purposes of the Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed thereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 6 hereof, the Trustee shall promptly make a demand for payment on the Senior Notes under any Guarantee provided for in this Article 11 and not discharged. Failure to make such demand shall not affect the validity or enforceability of the Guarantee upon any Guarantor. A Guarantee shall not be valid or become obligatory for any purpose with respect to a Senior Note unless the certificate of authentication on such Senior Note shall have been signed by or on behalf of the Trustee. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by the Trustee as a representative of any Holder in enforcing any rights under this section. Section 11.2 EXECUTION AND DELIVERY OF GUARANTEES. To further evidence the Guarantee set forth in this Article 11, each Guarantor shall execute a Guarantee in the form included as part of Exhibit A hereto and hereby agrees that a notation of such Guarantee shall be placed on each Senior Note authenticated and made available for delivery by the Trustee and that this Guarantee shall be executed on behalf of each Guarantor by the manual or facsimile signature of an Officer of each Guarantor. 69 Each Guarantor hereby agrees that the Guarantee set forth in Section 11.1 shall remain in full force and effect notwithstanding any failure to endorse on each Senior Note a notation of such Guarantee. If an Officer of a Guarantor whose signature is on the Guarantee no longer holds that office at the time the Trustee authenticates the Senior Note on which the Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Senior Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of each Guarantor. Section 11.3 LIMITATION OF GUARANTEE. The obligations of each Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. Section 11.4 RELEASE OF GUARANTOR. A Guarantor shall be released from all of its obligations under its Guarantee if: (i) the Guarantor has sold all or substantially all of its assets or the Company and its Subsidiaries have sold all of the Equity Interests of the Guarantor owned by them, in each case in a transaction in compliance with Sections 4.8 and 5.1 hereof to the extent applicable; or (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with Section 5.1 hereof; and in each such case, the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to such transactions have been complied with. At the written request of the Company, the Trustee will promptly execute and deliver appropriate instruments in forms reasonably acceptable to the Company evidencing and further implementing any releases or discharges pursuant to the foregoing provisions. 70 Section 11.5 ADDITIONAL GUARANTORS. The Company covenants and agrees that it will cause any Person which becomes obligated to guarantee the Senior Notes pursuant to the terms of Section 4.12 hereof, to execute a Guarantee satisfactory in form and substance to the Trustee pursuant to which such Person shall guarantee the obligations of the Company under the Senior Notes and this Indenture in accordance with this Article 11 with the same effect and to the same extent as if such Person had been named herein as a Guarantor. Notwithstanding the foregoing, if such Person is a Subsidiary incorporated in a jurisdiction other than the United States, and if and to the extent that the execution of a Guarantee by such Person would have adverse tax consequences for the Company or any of its Subsidiaries, the Company shall not be obligated to cause such Person to execute a Guarantee, provided that the Company shall cause 65% (or such other greater or lesser percentage which as a result of a change of law may be pledged without resulting in adverse tax consequences) of the issued and outstanding shares of stock of such Person to become Collateral as and when received by the Company or by any of its Subsidiaries. ARTICLE 12 MISCELLANEOUS Section 12.1 TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 12.2 NOTICES. Any notice or communication shall be given in writing and delivered in person, sent by facsimile, delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows: If to the Company or any Guarantor: Genesis Health Venture, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker, Chairman and Chief Executive Officer If to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration 71 Such notices or communications shall be effective when received and shall be sufficiently given if so given within the time prescribed in this Indenture. The Company, any Guarantors or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to him by first-class mail, postage prepaid, at his address shown on the register kept by the Registrar. If a notice or communication to a Holder is mailed in the manner provided above, it shall be deemed duly given on the date so deposited in the mail, whether or not the addressee receives it. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. In case, by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. Section 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Senior Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 12.5 below) in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; (2) an Opinion of Counsel (which shall include the statements set forth in Section 12.5 below) in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with; and (3) where applicable, a certificate or opinion by an independent certified public accountant satisfactory to the Trustee that complies with TIA Section 314(c). Section 12.5 STATEMENTS REQUIRED IN CERTIFICATE AND OPINION. Each certificate and opinion with respect to compliance with a condition or covenant Provided for in this Indenture shall include: 72 (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. Section 12.6 WHEN TREASURY SENIOR NOTES DISREGARDED. In determining whether the Holders of the required aggregate principal amount of Senior Notes have concurred in any direction, waiver or consent, Senior Notes owned by the Company, any Guarantor or any other obligor on the Senior Notes or by any Affiliate of any of them shall be disregarded as though they were not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Senior Notes which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. Senior Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to the Senior Notes and that the pledgee is not the Company, a Guarantor or any other obligor upon the Senior Notes or any Affiliate of any of them. Section 12.7 RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or meetings of Holders. The Registrar and Paying Agent may make reasonable rules for their functions. Section 12.8 BUSINESS DAYS; LEGAL HOLIDAYS. A "Business Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.9 GOVERNING LAW. THIS INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO 73 THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SENIOR NOTES. Section 12.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan, security or debt agreement of the Company or any Subsidiary thereof. No such indenture, loan, security or debt agreement may be used to interpret this Indenture. Section 12.11 NO RECOURSE AGAINST OTHERS. No recourse for the payment of the principal of or premium, if any, or interest on any of the Senior Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company or any Guarantor in this Indenture or in any supplemental indenture, or in any of the Senior Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any stockholder, officer, director, partner, affiliate, beneficiary or employee, as such, past, present or future, of the Company or of any successor corporation or against the property or assets of any such stockholder, officer, employee, partner, affiliate, beneficiary or director, either directly or through the Company or any Guarantor, or any successor corporation thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the Senior Notes are solely obligations of the Company and the Guarantors, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any stockholder, officer, employee, partner, affiliate, beneficiary or director, as such, of the Company or any Guarantor, or any successor corporation thereof, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or the Senior Notes or implied therefrom, and that any and all such personal liability of, and any and all claims against every stockholder, officer, employee, partner, affiliate, beneficiary and director, as such, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Senior Notes. It is understood that this limitation on recourse is made expressly for the benefit of any such shareholder, employee, officer, partner, affiliate, beneficiary or director and may be enforced by any one or all of them. Section 12.12 SUCCESSORS. All agreements of the Company and the Guarantors in this Indenture and the Senior Notes shall bind their respective successors. All agreements of the Trustee, any additional trustee and any Paying Agents in this Indenture shall bind their respective successors. Section 12.13 MULTIPLE COUNTERPARTS. The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same agreement. 74 Section 12.14 TABLE OF CONTENTS, HEADINGS, ETC. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 12.15 SEPARABILITY. Each provision of this Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this Indenture or the Senior Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SIGNATURE PAGE TO FOLLOW 75 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date and year first written above. GENESIS HEALTH VENTURES, INC. By: ---------------------------------------------------- Name: Title: ACADEMY NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: ACCUMED, INC. By: ---------------------------------------------------- Name: Title: ADS APPLE VALLEY LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: ADS APPLE VALLEY, INC. By: ---------------------------------------------------- Name: Title: 76 ADS CONSULTING, INC. By: ---------------------------------------------------- Name: Title: ADS DANVERS ALF, INC. By: ---------------------------------------------------- Name: Title: ADS DARTMOUTH ALF, INC. By: ---------------------------------------------------- Name: Title: ADS DARTMOUTH GENERAL PARTNERSHIP By: ---------------------------------------------------- Name: Title: THE ADS GROUP, INC. By: ---------------------------------------------------- Name: Title: ADS HINGHAM ALF, INC. By: ---------------------------------------------------- Name: Title: 77 ADS HINGHAM LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: ADS HINGHAM NURSING FACILITY, INC. By: ---------------------------------------------------- Name: Title: ADS HOME HEALTH, INC. By: ---------------------------------------------------- Name: Title: ADS MANAGEMENT, INC. A/K/A ADS/TMCI MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: ADS PALM CHELMSFORD, INC. By: ---------------------------------------------------- Name: Title: 78 ADS RECUPERATIVE CENTER LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: ADS RECUPERATIVE CENTER, INC. By: ---------------------------------------------------- Name: Title: ADS RESERVOIR WALTHAM, INC. By: ---------------------------------------------------- Name: Title: ADS SENIOR HOUSING, INC. By: ---------------------------------------------------- Name: Title: ADS VILLAGE MANOR, INC. By: ---------------------------------------------------- Name: Title: 79 ADS/MULTICARE, INC. By: ---------------------------------------------------- Name: Title: ANR, INC. (Formerly ADACOM NETWORK ROUTERS, INC.) By: ---------------------------------------------------- Name: Title: THE APPLE VALLEY PARTNERSHIP HOLDING COMPANY, INC. By: ---------------------------------------------------- Name: Title: APPLEWOOD HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: ARCADIA ASSOCIATES By: ---------------------------------------------------- Name: Title: 80 ASCO HEALTHCARE OF NEW ENGLAND, INC. By: ---------------------------------------------------- Name: Title: ASCO HEALTHCARE OF NEW ENGLAND, LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: ASCO HEALTHCARE, INC. By: ---------------------------------------------------- Name: Title: ASL, INC. By: ---------------------------------------------------- Name: Title: THE ASSISTED LIVING ASSOCIATES OF BERKSHIRE, INC. By: ---------------------------------------------------- Name: Title: 81 THE ASSISTED LIVING ASSOCIATES OF LEHIGH, INC. By: ---------------------------------------------------- Name: Title: THE ASSISTED LIVING ASSOCIATES OF SANATOGA, INC. By: ---------------------------------------------------- Name: Title: THE ASSISTED LIVING ASSOCIATES OF WALL, INC. By: ---------------------------------------------------- Name: Title: AUTOMATED HOMECARE SYSTEMS, LLC By: ---------------------------------------------------- Name: Title: AUTOMATED PROFESSIONAL ACCOUNTS, INC By: ---------------------------------------------------- Name: Title: 82 BERKS NURSING HOMES, INC. By: ---------------------------------------------------- Name: Title: BETHEL HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: BREVARD MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: BREYUT CONVALESCENT CENTER, INC. By: ---------------------------------------------------- Name: Title: BREYUT CONVALESCENT CENTER, L.L.C. By: ---------------------------------------------------- Name: Title: BRIGHTWOOD PROPERTY, INC. By: ---------------------------------------------------- Name: Title: 83 BRINTON MANOR, INC. By: ---------------------------------------------------- Name: Title: BURLINGTON WOODS CONVALESCENT CENTER, INC. By: ---------------------------------------------------- Name: Title: CARE HAVEN ASSOCIATES LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: CARE4, LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: CARECARD, INC. By: ---------------------------------------------------- Name: Title: 84 CAREFLEET, INC. By: ---------------------------------------------------- Name: Title: CATONSVILLE MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: CENTURY CARE CONSTRUCTIONS, INC. By: ---------------------------------------------------- Name: Title: CENTURY CARE MANAGEMENT, INC. (Formerly CENTURY MANAGEMENT, INC.) By: ---------------------------------------------------- Name: Title: CHATEAU VILLAGE HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: 85 CHELTENHAM LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: CHG INVESTMENT CORP. By: ---------------------------------------------------- Name: Title: CHNR-I, INC. By: ---------------------------------------------------- Name: Title: COLONIAL HALL HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: COLONIAL HOUSE HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: COMPASS HEALTHCARE SERVICES, INC. By: ---------------------------------------------------- Name: Title: 86 CONCORD COMPANION CARE, INC. By: ---------------------------------------------------- Name: Title: CONCORD HEALTH GROUP, INC. By: ---------------------------------------------------- Name: Title: CONCORD HEALTHCARE CORPORATION By: ---------------------------------------------------- Name: Title: CONCORD HEALTHCARE SERVICES, INC. By: ---------------------------------------------------- Name: Title: CONCORD HOME HEALTH, INC. By: ---------------------------------------------------- Name: Title: 87 CONCORD PHARMACY SERVICES, INC. By: ---------------------------------------------------- Name: Title: CONCORD REHAB, INC. (Doing business as AMERICAN THERAPY) By: ---------------------------------------------------- Name: Title: CONCORD SERVICES CORPORATION By: ---------------------------------------------------- Name: Title: CRESTVIEW CONVALESCENT HOME, INC. By: ---------------------------------------------------- Name: Title: CRESTVIEW NORTH, INC. By: ---------------------------------------------------- Name: Title: 88 CRYSTAL CITY NURSING CENTER, INC. By: ---------------------------------------------------- Name: Title: CUMBERLAND ASSOCIATES OF RHODE ISLAND, L.P. By: ---------------------------------------------------- Name: Title: CVNR, INC. By: ---------------------------------------------------- Name: Title: DELCO APOTHECARY, INC. By: ---------------------------------------------------- Name: Title: DELM NURSING, INC. By: ---------------------------------------------------- Name: Title: 89 DENTON HEALTHCARE CORPORATION By: ---------------------------------------------------- Name: Title: DENTON HEALTHCARE CORPORATION By: ---------------------------------------------------- Name: Title: DERBY NURSING CENTER CORPORATION By: ---------------------------------------------------- Name: Title: DIANE MORGAN & ASSOCIATES, INC. (Doing business as DM & A REHAB) By: ---------------------------------------------------- Name: Title: EASTERN MEDICAL SUPPLIES, INC. By: ---------------------------------------------------- Name: Title: 90 EASTERN REHAB SERVICES, INC. By: ---------------------------------------------------- Name: Title: EASTON MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: EDELLA STREET ASSOCIATES By: ---------------------------------------------------- Name: Title: EIDOS, INC. By: ---------------------------------------------------- Name: Title: ELDERCARE RESOURCES CORP. (Formerly HEALTH RESOURCES OF TAZEWELL, INC.) By: ---------------------------------------------------- Name: Title: 91 ELMWOOD HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: ENCARE OF MASSACHUSETTS, INC. By: ---------------------------------------------------- Name: Title: ENCARE OF MENDHAM, L.L.C. By: ---------------------------------------------------- Name: Title: ENCARE OF MENDHAM, INC. By: ---------------------------------------------------- Name: Title: ENCARE OF PENNYPACK, INC. By: ---------------------------------------------------- Name: Title: ENCARE OF QUAKERTOWN, INC. By: ---------------------------------------------------- Name: Title: 92 ENCARE OF WYNCOTE, INC. By: ---------------------------------------------------- Name: Title: ENR, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE ADULT DAY HEALTH SERVICES, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CENTERS I, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CENTERS I, L.P. By: ---------------------------------------------------- Name: Title: 93 GENESIS ELDERCARE CENTERS II, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CENTERS II, L.P. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CENTERS III, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CENTERS III, L.P. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE CORP. By: ---------------------------------------------------- Name: Title: 94 GENESIS ELDERCARE DIAGNOSTIC SERVICES, INC. (Formerly DIVERSIFIED DIAGNOSTICS, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE EMPLOYMENT SERVICES, LLC By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE HOME CARE SERVICES, INC. (Formerly HEALTHCARE SERVICES NETWORK, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE HOME HEALTH SERVICES - SOUTHERN, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE HOSPITALITY SERVICES, INC. (Formerly HCHS, INC.) By: ---------------------------------------------------- Name: Title: 95 GENESIS ELDERCARE LIVING FACILITIES, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE MANAGEMENT SERVICES, INC. (Formerly BLUEFIELD MANOR, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE NATIONAL CENTERS, INC. (Formerly NATIONAL HEALTH CARE AFFILIATES, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE NETWORK SERVICES OF MASSACHUSETTS, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE NETWORK SERVICES, INC. (Formerly GENESIS MANAGEMENT RESOURCES, INC. and TOTAL CARE SYSTEMS, INC.) By: ---------------------------------------------------- Name: Title: 96 GENESIS ELDERCARE PARTNERSHIP CENTERS, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE PHYSICIAN SERVICES, INC. (Formerly GENESIS PHYSICIAN SERVICES, INC. and GENESIS HEALTH VENTURES LINEN SERVICES, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE PROPERTIES, INC. By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE REHABILITATION MANAGEMENT SERVICES, INC. (Formerly ROBINDALE MEDICAL SERVICES, INC.) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE REHABILITATION SERVICES, INC. (Formerly TEAM REHABILITATION, INC.) By: ---------------------------------------------------- Name: Title: 97 GENESIS ELDERCARE STAFFING SERVICES, INC. (Formerly STAFF REPLACEMENT SERVICES, INC. and SRS ACQUISITION CORPORATION) By: ---------------------------------------------------- Name: Title: GENESIS ELDERCARE TRANSPORTATION SERVICES, INC. (Formerly HSS-PARA TRANSIT, INC.) By: ---------------------------------------------------- Name: Title: GENESIS - GEORGETOWN SNF/JV, L.L.C. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH SERVICES CORPORATION By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF ARLINGTON, INC. By: ---------------------------------------------------- Name: Title: 98 GENESIS HEALTH VENTURES OF BLOOMFIELD, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF INDIANA, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF LANHAM, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC. By: ---------------------------------------------------- Name: Title: 99 GENESIS HEALTH VENTURES OF NAUGATUCK, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF NEW GARDEN, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF POINT PLEASANT, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF SALISBURY, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF WAYNE, INC. By: ---------------------------------------------------- Name: Title: 100 GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF WEST VIRGINIA, LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF WILKES-BARRE, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTH VENTURES OF WINDSOR, INC. By: ---------------------------------------------------- Name: Title: GENESIS HEALTHCARE CENTERS HOLDINGS, INC. By: ---------------------------------------------------- Name: Title: 101 GENESIS HOLDINGS, INC. By: ---------------------------------------------------- Name: Title: GENESIS IMMEDIATE MED CENTER, INC. By: ---------------------------------------------------- Name: Title: GENESIS PROPERTIES LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: GENESIS PROPERTIES OF DELAWARE CORPORATION By: ---------------------------------------------------- Name: Title: GENESIS PROPERTIES OF DELAWARE LTD. PARTNERSHIP, L.P. By: ---------------------------------------------------- Name: Title: 102 GENESIS SELECTCARE CORP. By: ---------------------------------------------------- Name: Title: GENESIS/VNA PARTNERSHIP HOLDING COMPANY, INC. By: ---------------------------------------------------- Name: Title: GENESIS-CROZER PARTNERSHIP HOLDING COMPANY, INC By: ---------------------------------------------------- Name: Title: GERIATRIC & MEDICAL COMPANIES, INC. (Formerly GERIATRIC & MEDICAL CENTERS, INC.) By: ---------------------------------------------------- Name: Title: GERIATRIC & MEDICAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: 103 GERIATRIC AND MEDICAL INVESTMENTS CORP. By: ---------------------------------------------------- Name: Title: GERIMED CORP. By: ---------------------------------------------------- Name: Title: GHV AT SALISBURY CENTER, INC. By: ---------------------------------------------------- Name: Title: GLENMARK ASSOCIATES, INC. By: ---------------------------------------------------- Name: Title: GLENMARK LIMITED LIABILITY COMPANY I By: ---------------------------------------------------- Name: Title: 104 GLENMARK PROPERTIES I, LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: GMA PARTNERSHIP HOLDING COMPANY, INC. By: ---------------------------------------------------- Name: Title: GMA-BRIGHTWOOD, INC. By: ---------------------------------------------------- Name: Title: GMA-CONSTRUCTION, INC. By: ---------------------------------------------------- Name: Title: GMA-MADISON, INC. By: ---------------------------------------------------- Name: Title: GMA-UNIONTOWN, INC. By: ---------------------------------------------------- Name: Title: 105 GMC FINANCIAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: GMC LEASING CORPORATION By: ---------------------------------------------------- Name: Title: GMC MEDICAL CONSULTING SERVICES, INC. (Doing business as REHAB TECHNOLOGIES CORP.) By: ---------------------------------------------------- Name: Title: GMC-LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: GMS INSURANCE SERVICES, INC. By: ---------------------------------------------------- Name: Title: 106 GMS MANAGEMENT - TUCKER, INC. By: ---------------------------------------------------- Name: Title: GMS MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: GOVERNOR'S HOUSE NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: GREENSPRING MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: GROTON ASSOCIATES OF CONNECTICUT, L.P. By: ---------------------------------------------------- Name: Title: 107 H.O. SUBSIDIARY, INC. (Formerly HEALTHOBJECTS, INC.) By: ---------------------------------------------------- Name: Title: HALLMARK HEALTHCARE LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: HEALTH CONCEPTS AND SERVICES, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF ACADEMY MANOR, INC. By: ---------------------------------------------------- Name: Title: 108 HEALTH RESOURCES OF ARCADIA, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF BOARDMAN, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF BRIDGETON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF BRIDGETON, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF BROOKLYN, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF CEDAR GROVE, INC. By: ---------------------------------------------------- Name: Title: 109 HEALTH RESOURCES OF CINNAMINSON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF CINNAMINSON, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF COLCHESTER, INC. HEALTH RESOURCES OF COLUMBUS, INC. (Formerly MRD REALTY, INC.) By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF CRANBURY, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF CUMBERLAND, INC. By: ---------------------------------------------------- Name: Title: 110 HEALTH RESOURCES OF EATONTOWN, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF EMERY, L.L.C, By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF ENGLEWOOD, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF ENGLEWOOD, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF EWING, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF EWING, L.L.C. By: ---------------------------------------------------- Name: Title: 111 HEALTH RESOURCES OF FAIRLAWN, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF FARMINGTON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF GARDNER, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF GLASTONBURY, INC. By: ---------------------------------------------------- Name: Title: 112 HEALTH RESOURCES OF GROTON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF JACKSON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF JACKSON, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF KARMENTA AND MADISON, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF LAKEVIEW, INC. By: ---------------------------------------------------- Name: Title: 113 HEALTH RESOURCES OF LAKEVIEW, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF LEMONT, MC, By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF LYNN, INC. (Formerly MARCELLA HOME HEALTH, INC.) By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF MARCELLA, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF MIDDLETOWN, (RI), INC. By: ---------------------------------------------------- Name: Title: 114 HEALTH RESOURCES OF MONTCLAIR, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF MORRISTOWN, INC. (Formerly P.W.O.N. ASSOCIATES, INC.) By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF NORFOLK, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF NORTH ANDOVER, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF NORWALK, INC. By: ---------------------------------------------------- Name: Title: 115 HEALTH RESOURCES OF PENNINGTON, INC. (Formerly EMERY MANOR HEALTH, INC.) By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF RIDGEWOOD, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF RIDGEWOOD, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF ROCKVILLE, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF SOLOMONT/BROOKLINE, INC. By: ---------------------------------------------------- Name: Title: 116 HEALTH RESOURCES OF SOUTH BRUNSWICK, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF TROY HILLS, INC. (Formerly F.L. ASSOCIATES, INC.) By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF VOORHEES, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF WALLINGFORD, INC. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF WARWICK, INC. (Formerly GANCI ACQUISITION CORP. and RAC ACQUISITION CORP.) By: ---------------------------------------------------- Name: Title: 117 HEALTH RESOURCES OF WEST ORANGE, L.L.C. By: ---------------------------------------------------- Name: Title: HEALTH RESOURCES OF WESTWOOD, INC. (Formerly HEALTH RESOURCES OF RHODE ISLAND, INC.) By: ---------------------------------------------------- Name: Title: HEALTHCARE REHAB SYSTEMS, INC. (Formerly ENCARE OF PENNSYLVANIA, INC.) By: ---------------------------------------------------- Name: Title: HEALTHCARE RESOURCES CORP. By: ---------------------------------------------------- Name: Title: HEALTHOBJECTS CORPORATION (Formerly NEIGHBORWARE HEALTH SYSTEMS, INC.) By: ---------------------------------------------------- Name: Title: 118 HELSTAT, INC. By: ---------------------------------------------------- Name: Title: HILLTOP HEALTH CARE CENTER, INC. By: ---------------------------------------------------- Name: Title: HMNH REALTY, INC. By: ---------------------------------------------------- Name: Title: HNCA, INC. By: ---------------------------------------------------- Name: Title: HOLLY MANOR ASSOCIATES OF NEW JERSEY, L.P. By: ---------------------------------------------------- Name: Title: 119 HORIZON ASSOCIATES, INC. By: ---------------------------------------------------- Name: Title: HORIZON MEDICAL EQUIPMENT AND SUPPLY, INC. By: ---------------------------------------------------- Name: Title: HORIZON MOBILE, INC. By: ---------------------------------------------------- Name: Title: HORIZON REHABILITATION, INC. By: ---------------------------------------------------- Name: Title: HR OF CHARLESTOWN, INC. By: ---------------------------------------------------- Name: Title: 120 HRWV HUNTINGTON, INC. By: ---------------------------------------------------- Name: Title: INNOVATIVE HEALTH CARE MARKETING, INC. By: ---------------------------------------------------- Name: Title: INNOVATIVE PHARMACY SERVICES, INC. By: ---------------------------------------------------- Name: Title: INSTITUTIONAL HEALTH CARE SERVICES, INC. By: ---------------------------------------------------- Name: Title: KEYSTONE NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: 121 KNOLLWOOD MANOR, INC. By: ---------------------------------------------------- Name: Title: KNOLLWOOD NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: LAKE MANOR, INC. By: ---------------------------------------------------- Name: Title: LAKE WASHINGTON, LTD. By: ---------------------------------------------------- Name: Title: LAKEWOOD HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: LAUREL HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: 122 LEHIGH NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: LIFE SUPPORT MEDICAL EQUIPMENT, INC. By: ---------------------------------------------------- Name: Title: LIFE SUPPORT MEDICAL, INC. By: ---------------------------------------------------- Name: Title: LINCOLN NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: LRC HOLDING COMPANY By: ---------------------------------------------------- Name: Title: 123 LWNR, INC. By: ---------------------------------------------------- Name: Title: MABRI CONVALESCENT CENTER, INC. By: ---------------------------------------------------- Name: Title: MADISON AVENUE ASSISTED LIVING, INC. By: ---------------------------------------------------- Name: Title: MAIN STREET PHARMACY, L.L.C. By: ---------------------------------------------------- Name: Title: MANOR MANAGEMENT CORPORATION OF GEORGIAN MANOR, INC. By: ---------------------------------------------------- Name: Title: 124 MARLINTON PARTNERSHIP HOLDING COMPANY, INC. By: ---------------------------------------------------- Name: Title: MARLTON ASSOCIATES, INC. By: ---------------------------------------------------- Name: Title: MARSHFLELD HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: MCKERLEY HEALTH CARE CENTER - CONCORD, INC. By: ---------------------------------------------------- Name: Title: MCKERLEY HEALTH CARE CENTERS, INC. By: ---------------------------------------------------- Name: Title: 125 MCKERLEY HEALTH FACILITIES By: ---------------------------------------------------- Name: Title: MEDICAL SERVICES GROUP, INC. By: ---------------------------------------------------- Name: Title: MERCERVILLE ASSOCIATES OF NEW JERSEY, L.P. By: ---------------------------------------------------- Name: Title: MERIDIAN EDGEWOOD LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: MERIDIAN HEALTH, INC. (Formerly MI ACQUISITION CORP.) By: ---------------------------------------------------- Name: Title: 126 MERIDIAN HEALTHCARE INVESTMENTS, INC. By: ---------------------------------------------------- Name: Title: MERIDIAN HEALTHCARE, INC. (Formerly MHC ACQUISITION CORP.) By: ---------------------------------------------------- Name: Title: MERIDIAN PERRING LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: MERIDIAN VALLEY LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: MERIDIAN VALLEY VIEW LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: 127 MERIDIAN/CONSTELLATION LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: METRO PHARMACEUTICALS, INC. By: ---------------------------------------------------- Name: Title: MHNR, INC. By: ---------------------------------------------------- Name: Title: MIDDLETOWN (RI) ASSOCIATES OF RHODE ISLAND, L.P. By: ---------------------------------------------------- Name: Title: MILLVILLE MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: 128 MNR, INC. By: ---------------------------------------------------- Name: Title: MONTGOMERY NURSING HOMES, INC. By: ---------------------------------------------------- Name: Title: MULTICARE AMC, INC. By: ---------------------------------------------------- Name: Title: MULTICARE ACQUISITION CORP. By: ---------------------------------------------------- Name: Title: THE MULTICARE COMPANIES, INC. (A/K/A CENTURY CARE CORPORATION IN NEW JERSEY) By: ---------------------------------------------------- Name: Title: 129 MULTICARE HOME HEALTH OF ILLINOIS, INC. By: ---------------------------------------------------- Name: Title: MULTICARE MEMBER HOLDING CORP. By: ---------------------------------------------------- Name: Title: MULTICARE PAYROLL CORP. By: ---------------------------------------------------- Name: Title: NATIONAL PHARMACY SERVICES, INC. By: ---------------------------------------------------- Name: Title: NEIGHBORCARE INFUSION SERVICES, INC. (Formerly VITALINK INFUSION SERVICES, INC.) By: ---------------------------------------------------- Name: Title: 130 NEIGHBORCARE OF INDIANA, INC. (Formerly TEAMCARE OF INDIANA, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE OF NORTHERN CALIFORNIA, INC. (Formerly COMPUPHARM OF NORTHERN CALIFORNIA, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE OF OKLAHOMA, INC. (Formerly VITALINK SUBSIDIARY, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE OF VIRGINIA, INC. (Formerly TEAMCARE OF VIRGINIA, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE OF WISCONSIN, INC. (Formerly GCI INNOVATIVE PHARMACY, INC.) By: ---------------------------------------------------- Name: Title: 131 NEIGHBORCARE PHARMACIES, INC. By: ---------------------------------------------------- Name: Title: NEIGHBORCARE PHARMACY SERVICES, INC. (Formerly VITALINK PHARMACY SERVICES, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE-MEDISCO, INC. (Formerly MEDISCO PHARMACIES, INC.) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE-ORCA, INC. (Formerly WHITE, MACK & WART, INC. and doing business as PROPAC PHARMACY) By: ---------------------------------------------------- Name: Title: NEIGHBORCARE-TCI, INC. By: ---------------------------------------------------- Name: Title: 132 NETWORK AMBULANCE SERVICES, INC. (Formerly LIFE SUPPORT AMBULANCE, INC.) By: ---------------------------------------------------- Name: Title: [NEWCO (FORMED TO ACQUIRED GEC/MULTICARE AND SUBS)] By: ---------------------------------------------------- Name: Title: NORRISTOWN NURSING & REHABILITATION CENTER ASSOCIATES, L.P. By: ---------------------------------------------------- Name: Title: NORTH MADISON, INC. By: ---------------------------------------------------- Name: Title: NORTHWESTERN MANAGEMENT SERVICES, INC. By: ---------------------------------------------------- Name: Title: 133 NURSING AND RETIREMENT CENTER OF THE ANDOVERS, INC. By: ---------------------------------------------------- Name: Title: PHARMACY EQUITIES, INC. By: ---------------------------------------------------- Name: Title: PHC OPERATING CORP. By: ---------------------------------------------------- Name: Title: PHILADELPHIA AVENUE ASSOCIATES By: ---------------------------------------------------- Name: Title: PHILADELPHIA AVENUE CORPORATION By: ---------------------------------------------------- Name: Title: 134 POCAHONTAS CONTINOUS CARE CENTER, INC. By: ---------------------------------------------------- Name: Title: POINT PLEASANT HAVEN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: POMPTON ASSOCIATES, L.P. By: ---------------------------------------------------- Name: Title: POMPTON CARE, INC By: ---------------------------------------------------- Name: Title: POMPTON CARE, L.L.C. By: ---------------------------------------------------- Name: Title: 135 PRESCOTT NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: PROFESSIONAL PHARMACY SERVICES, INC. By: ---------------------------------------------------- Name: Title: PROGRESSIVE REHABILITATION CENTERS, INC. (Formerly HEALTH RESOURCES OF LAKEWOOD, INC.) By: ---------------------------------------------------- Name: Title: PROSPECT PARK LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: PROVIDENCE FUNDING CORPORATION By: ---------------------------------------------------- Name: Title: 136 PROVIDENCE HEALTH CARE, INC. By: ---------------------------------------------------- Name: Title: PROVIDENCE MEDICAL, INC. By: ---------------------------------------------------- Name: Title: QUAKERTOWN MANOR CONVALESCENT AND REHABILITATION, INC. By: ---------------------------------------------------- Name: Title: RALEIGH MANOR LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: RESPIRATORY HEALTH SERVICES, L.L.C. By: ---------------------------------------------------- Name: Title: 137 REST HAVEN NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: RIDGELAND HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: RIVER PINES HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: RIVER STREET ASSOCIATES By: ---------------------------------------------------- Name: Title: RIVERSHORES HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: RLNR, INC. By: ---------------------------------------------------- Name: Title: 138 ROEPHEL CONVALESCENT CENTER, INC. By: ---------------------------------------------------- Name: Title: ROEPHEL CONVALESCENT CENTER, L.L.C. By: ---------------------------------------------------- Name: Title: ROMNEY HEALTH CARE CENTER LTD., LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: ROSE HEALTHCARE, INC. By: ---------------------------------------------------- Name: Title: ROSE VIEW MANOR, INC. By: ---------------------------------------------------- Name: Title: 139 ROXBOROUGH NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: RSNR, INC. By: ---------------------------------------------------- Name: Title: RVNR, INC. By: ---------------------------------------------------- Name: Title: S.T.B. INVESTORS, L.T.D. By: ---------------------------------------------------- Name: Title: SCHUYLKILL NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: SCHUYLKILL PARTNERSHIP ACQUISTION CORP. By: ---------------------------------------------------- Name: Title: 140 SCOTCHWOOD INSTITUTIONAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: SCOTCHWOOD MASS, HOLDING CO., INC. By: ---------------------------------------------------- Name: Title: SEMINOLE MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: SENIOR LIVING VENTURES, INC. By: ---------------------------------------------------- Name: Title: SENIOR SOURCE, INC. By: ---------------------------------------------------- Name: Title: 141 SISTERVILLE HAVEN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: SNOW VALLEY HEALTH RESOURCES, INC. By: ---------------------------------------------------- Name: Title: SOLOMONT FAMILY RIVER MEDFORD VENTURE, INC. By: ---------------------------------------------------- Name: Title: STAFFORD CONVALESCENT CENTER, INC. (Formerly MCV REALTY, INC.) By: ---------------------------------------------------- Name: Title: STATE STREET ASSOCIATES LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: 142 STATE STREET ASSOCIATES, INC. (Formerly GENESIS HEALTH VENTURES OF BRACKENRIDGE, INC.) By: ---------------------------------------------------- Name: Title: THE STRAUS GROUP-HOPKINS HOUSE, L.P. By: ---------------------------------------------------- Name: Title: THE STRAUS GROUP-OLD BRIDGE, L.P. By: ---------------------------------------------------- Name: Title: THE STRAUS GROUP-QUAKERTOWN MANOR, L.P. By: ---------------------------------------------------- Name: Title: THE STRAUS GROUP-RIDGEWOOD, L.P. By: ---------------------------------------------------- Name: Title: 143 SUBURBAN MEDICAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: SVNR, INC. By: ---------------------------------------------------- Name: Title: TEAYS VALLEY HAVEN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: THERAPY CARE SYSTEMS, L.P. By: ---------------------------------------------------- Name: Title: 144 THERAPY CARE, INC. By: ---------------------------------------------------- Name: Title: THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC. (Formerly TW ACQUISITION CORP.) By: ---------------------------------------------------- Name: Title: TMC ACQUISITION CORP. (Formerly TROY HILLS ASSISTED LIVING, INC.) By: ---------------------------------------------------- Name: Title: TOTAL REHABILITATION CENTER, L.L.C. By: ---------------------------------------------------- Name: Title: TRANSPORT SERVICES, INC. By: ---------------------------------------------------- Name: Title: TRI STATE MOBILE MEDICAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: 145 UNITED HEALTH CARE SERVICES, INC. By: ---------------------------------------------------- Name: Title: VALLEY MEDICAL SERVICES, INC. By: ---------------------------------------------------- Name: Title: VALLEY TRANSPORT AMBULANCE SERVICE, INC. By: ---------------------------------------------------- Name: Title: VERSALINK, INC. By: ---------------------------------------------------- Name: Title: VILLAS REALTY & INVESTMENTS, INC. By: ---------------------------------------------------- Name: Title: 146 VOLUSIA MERIDIAN LIMITED PARTNERSHIP By: ---------------------------------------------------- Name: Title: THE WALLINGFORD ASSOCIATES OF CONNECTICUT, L.P. By: ---------------------------------------------------- Name: Title: WALNUT LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: WARWICK ASSOCIATES OF RHODE ISLAND, L.P. By: ---------------------------------------------------- Name: Title: WAYSIDE NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: 147 WEISENFLUH AMBULANCE SERVICE, INC. By: ---------------------------------------------------- Name: Title: WEST PHILA. LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: WESTFORD NURSING AND RETIREMENT CENTER, INC. By: ---------------------------------------------------- Name: Title: WILLOW MANOR NURSING HOME, INC. By: ---------------------------------------------------- Name: Title: WYNCOTE HEALTHCARE CORP. By: ---------------------------------------------------- Name: Title: 148 YORK LTC MANAGEMENT, INC. By: ---------------------------------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee By: ---------------------------------------------------- Name: Title: 149 EXHIBIT A FORM OF NOTATION ON SENIOR NOTE RELATING TO GUARANTEE GUARANTEE Each guarantor (each a "Guarantor" and collectively the "Guarantors" including any successor Person under the Indenture) has unconditionally guaranteed, jointly and severally, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of, premium, if any and interest on the Senior Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 11 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Senior Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms and limitations of this Guarantee. [LIST OF SUBSIDIARIES] A-1 EXHIBIT B FORM OF NOTE (FACE OF NOTE) NUMBER __________ AMOUNT __________ CUSIP NUMBER ----- GENESIS HEALTH VENTURES, INC. SECOND PRIORITY SECURED NOTES DUE 2007 THE PRINCIPAL OF THIS NOTE IS PAYABLE IN PART OR IN WHOLE PRIOR TO MATURITY AS SET FORTH BELOW. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. Genesis Health Ventures Inc., a Pennsylvania corporation (the "Company", which term includes any successor corporation), for value received promises to pay to __________________or registered assigns, the principal sum of ____ Million Dollars ($_______), on ________. Interest Payment Dates: March 15, June 15, September 15 and December 15, commencing December 15, 2001. Record Dates: March 1, June 1, September 1, December 1. Reference is made to the further provisions of this Senior Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Senior Note to be signed manually or by facsimile by its duly authorized officers. GENESIS HEALTH VENTURES INC. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: B-1 Certificate of Authentication: This is one of the Second Priority Secured Notes due 2007 referred to in the within-mentioned Indenture Dated: __________________ THE BANK OF NEW YORK, as Trustee By: ____________________________ Authorized Signatory B-2 (REVERSE SIDE) GENESIS HEALTH VENTURES, INC. SECOND PRIORITY SECURED NOTES DUE 2007 1. INTEREST. (a) Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), promises to pay interest on the principal amount of the Senior Notes at the rate per annum, reset quarterly, equal to 3-month LIBOR (as defined below), plus 500 basis points, from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the Issue Date, until the principal thereof becomes due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same interest rate per annum, compounded quarterly, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing December 15, 2001 (each, an "Interest Payment Date"), to the person in whose name the Senior Notes are registered at the close of business on the regular record date for such interest installment, which shall be the first day of the month in which the relevant Interest Payment Date falls. (b) The interest rate on the Senior Notes for each quarter (or other period for which interest is payable) will be determined on the Determination Date (as defined below) for such quarter (or other period for which interest is payable) and will be a per annum rate reset quarterly equal to 3-month LIBOR (determined as set forth below) plus 500 basis points, and will be effective as of the first day of such quarter (or other period for which interest is payable). (c) On each Determination Date, the Calculation Agent will calculate the interest rate, based on 3-month LIBOR, for each interest period commencing on the second London Banking Day immediately following such Determination Date. "3-month LIBOR" means, with respect to an interest period relating to a Distribution Date, the London interbank offered rate for three-month, Eurodollar deposits determined in the following order of priority: (i) the rate (expressed as a percentage per annum) for Eurodollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date); (ii) if such rate does not appear on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date, 3-month LIBOR will be the arithmetic mean of the rates (expressed as percentages per annum) for Eurodollar deposits having a three-month maturity that appear on Reuters Monitor Money Rates Page LIBO ("Reuters Page LIBO") as of 11:00 a.m. (London time) on such Determination Date; (iii) if such rate does not appear on Reuters Page LIBO as of 11:00 a.m. (London time) on the related Determination Date, the Calculation Agent will request the principal London offices of four leading banks in the B-3 London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for Eurodollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-month LIBOR will be the arithmetic mean of such quotations; (iv) if fewer than two such quotations are provided as requested in clause (iii) above, the Calculation Agent will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in Eurodollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-month LIBOR will be the arithmetic mean of such quotations; and (v) if fewer than two such quotations are provided as requested in clause (iv) above, 3-month LIBOR will be 3-month LIBOR determined with respect to the interest period immediately preceding such current interest period. If the rate for Eurodollar deposits having a three-month maturity that initially appears on Telerate Page 3750 or Reuters Page LIBO, as the case may be, as of 11:00 a.m. (London time) on the related Determination Date is superceded on Telerate Page 3750 or Reuters Page LIBO, as the case may be, by a corrected rate before 12:00 noon (London time) on such Determination Date, the corrected rate as so substituted on the applicable page will be the applicable 3-month LIBOR for such Determination Date. As used herein: "Calculation Agent" means _________________. "Determination Date" means the date that is two London Banking Days preceding the first day of any quarter or other period for which an interest payment will be payable. "London Banking Day" means a day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits). (d) All percentages resulting from any calculations on the Senior Notes will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .09876555)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward). (e) On the Determination Date, the Calculation Agent shall notify the Company and the Paying Agent of the applicable interest rate in effect for the related interest rate period. The Calculation Agent shall, upon the request of a holder of Senior Notes, provide the interest rate then in B-4 effect. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the holders of the Senior Notes. (f) The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed and a 360-day year. 2. METHOD OF PAYMENT. The Company will pay interest on this Senior Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the first day of the month in which the relevant Interest Payment date falls (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments due on the Maturity Date. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Company may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to the Senior Notes, the Holders of which have given wire transfer instructions to the Paying Agent on or before the relevant record date, shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders of the Senior Notes. Neither the Company nor any of its Subsidiaries or Affiliates may act as Paying Agent but may act as registrar or co-registrar. 4. INDENTURE AND COLLATERAL DOCUMENTS. The Company issued this Senior Note under an Indenture dated as of October, 2001 (as such may be amended, supplemented, waived and modified from time to time, the "Indenture") by and among the Company, the Guarantors party thereto and the Trustee. The terms of this Senior Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 as in effect on the date of the Indenture. This Senior Note is subject to all such terms, and the Holder of this Senior Note is referred to the Indenture and said Trust Indenture Act for a statement of them. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes or the Guarantee. The Senior Notes are secured by certain collateral pursuant to the Collateral Documents and may be released pursuant to the terms thereof, subject to the terms of this Indenture. The Collateral Documents govern the rights in and to the Collateral of the holders from time to time of Senior Indebtedness and of the Trustee and the Holders. All capitalized terms in this Senior Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Senior Notes are secured obligations of the Company of up to $242,605,000 in aggregate principal amount, subject to adjustment as provided in the Indenture. The Indenture imposes certain restrictions on, among other things, the Company's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. B-5 5. OPTIONAL REDEMPTION. Subject to the terms of Section 3.7 of the Indenture, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the Redemption Date. 6. MANDATORY PARTIAL REDEMPTION. Subject to the terms of Section 3.8 of the Indenture, the Company will redeem in part each Senior Note outstanding on each October 1, by payment of 1% of the principal amount thereof outstanding on such Redemption Date, together with accrued and unpaid interest thereon to such Redemption Date. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 15 days but not more than 30 days prior to the Redemption Date to each Holder of Senior Notes to be redeemed at its registered address as it shall appear on the register of the Senior Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Senior Notes or portions thereof called for redemption unless the Company shall default in making the redemption payment thereon. 8. GUARANTEE. Payment of principal of, premium, if any, and interest (including interest on overdue principal and overdue interest (if lawful)) on the Senior Notes and all other obligations of the Company to the Holders and the Trustee will be unconditionally guaranteed by the Guarantors pursuant to, and subject to the terms of, Article 11 of the Indenture. 9. COLLATERAL TRUST AGREEMENT The Collateral Trust Agreement sets forth the relative rights of the Trustee and the Holders, on the one hand, and the holders of the Senior Indebtedness, on the other hand, as to the priority of payment of the Senior Indebtedness over the Senior Notes and related obligations in certain circumstances. The terms of the Senior Notes are subject to the terms of the Collateral Trust Agreement and each Holder, by accepting this Senior Note, agrees to all of the terms and provisions of the Collateral Trust Agreement, as the same may be amended from time to time pursuant to the provisions thereof and this Indenture. Without limiting the foregoing, each Holder, by accepting this Senior Note, acknowledges and agrees that its rights to payment of the obligations evidenced by the Senior Notes and the Guarantees are subject to the terms of the Collateral Trust Agreement, and authorizes the Trustee to give effect thereto and appoints the Trustee as attorney in fact for such purpose. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $100 and integral multiples thereof. A Holder may register the transfer or exchange of Senior Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate B-6 endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Senior Note selected for redemption or register the transfer of or exchange any Senior Note for a period of 15 days before the mailing of a notice of redemption of Senior Notes to be redeemed or any Senior Note after it is called for redemption in whole or in part, except the unredeemed portion of any Senior Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Senior Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Senior Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to money must look to the Company for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Senior Notes, the Guarantees or the Collateral Documents may be modified, amended or supplemented by the Company, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Senior Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Senior Notes then outstanding. Without the consent of Holders, the Company, the Guarantors and the Trustee may amend the Indenture, the Senior Notes, the Guarantees or the Collateral Documents or supplement the Indenture for certain specified purposes, including providing for uncertificated Senior Notes in addition to certificated Senior Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act to enter into additional or supplemental Collateral Documents, to adjust the principal amount of the Senior Notes issued pursuant to the Indenture and to otherwise comply with the terms of the Plan of Reorganization (as defined in the Indenture). 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Senior Notes and the Indenture and immediately before and thereafter no Default exists and certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.1(7) or (8) of the Indenture) occurs and is continuing, the Trustee by notice to the Company, or the Holders of not less than 25% in aggregate principal amount of the Senior Notes then outstanding by written notice to the Company and the Trustee, may declare to be immediately due and payable the entire principal amount of all the B-7 Senior Notes then outstanding plus accrued but unpaid interest to the date of acceleration and such amounts shall become immediately due and payable. In case an Event of Default specified in Section 6.1(7) or (8) of the Indenture occurs, such principal amount, together with premium, if any, and interest with respect to all of the Senior Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal, premium, if any, or interest) if it determines that withholding notice is in their interests. 16. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, any Guarantor or their Affiliates, and may otherwise deal with the Company, any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee, partner, affiliate, beneficiary or stockholder, as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Senior Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Senior Note by accepting this Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Senior Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Senior Note and for defeasance of certain covenants in the Indenture upon compliance by the Company with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Senior Notes. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. B-8 21. GOVERNING LAW. THE INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SENIOR NOTES. THE COMPANY WILL FURNISH TO ANY HOLDER OF A SENIOR NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO:________________________________________; ATTENTION: __________________. AUTHENTICATION. This Senior Note shall not be valid until the Trustee manually signs the Certificate of Authentication on the other side of this Senior Note. B-9 ASSIGNMENT I or we assign and transfer this Senior Note to: (Insert assignee's social security or tax I.D. number) --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- (Print or type name, address and zip code of assignee) and irrevocably appoint: --------------------------------------------------------- --------------------------------------------------------- Agent to transfer this Senior Note on the books of the Company. The Agent may substitute another to act for him. Date: -------------------------------------------------- Your Signature: ---------------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ----------------------------------- B-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Senior Note purchased by the Company pursuant to Section 4.9 of the Indenture, check the box: [ ] If you want to have only part of the Senior Note purchased by the Company pursuant to Section 4.9 of the Indenture, state the amount you elect to have purchased: $________ multiple of $100) Date: _____________________. Your Signature: ________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guaranteed - ---------------------------------------------- B-11 EXHIBIT C FORM OF LEGEND FOR GLOBAL NOTES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. LOAD-DATE: C-1 EX-10 7 ex10-17.txt EXHIBIT 10.17 Exhibit 10.17 Genesis Health Ventures, Inc. 2001 STOCK OPTION PLAN 1. Purpose of Plan The purpose of this 2001 Stock Option Plan (the "Plan") is to provide additional incentive to officers, other key employees, and directors of, and important consultants to, Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), and each present or future parent or subsidiary corporation, by encouraging them to invest in shares of the Company's common stock, par value $0.02 ("Common Stock"), and thereby acquire a proprietary interest in the Company and an increased personal interest in the Company's continued success and progress. 2. Aggregate Number of Shares The aggregate number of shares of the Company's Common Stock which may be issued under this Plan is 3,480,000 of which 3,305,000 shares may be issued to the persons eligible to receive options as specified in Section 3 hereof and 175,000 shares may be issued solely to directors. Notwithstanding the foregoing, in the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee (defined in Section 4(a)), deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan shall be appropriately adjusted in a manner determined in the sole discretion of the Committee. Reacquired shares of the Company's Common Stock, as well as unissued shares, may be used for the purpose of this Plan. Common Stock of the Company subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan. 3. Class of Persons Eligible to Receive Options All officers and key employees of the Company and of any present or future Company parent or subsidiary corporation are eligible to receive an option or options under this Plan. All directors of, and important consultants to, the Company and of any present or future Company parent or subsidiary corporation are also eligible to receive an option or options under this Plan. The individuals who shall, in fact, receive an option or options shall be selected by the Committee, in its sole discretion, except as otherwise specified in Section 4 hereof. No individual may receive options under this Plan for more than 80% of the total number of shares of the Company's Common Stock authorized for issuance under this Plan. 4. Administration of Plan (a) This Plan shall be administered by the Company's Board of Directors or by a Compensation Committee ("Committee") appointed by the Company's Board of Directors. The Committee shall consist of a minimum of two and a maximum of five members of the Board of Directors, each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as amended, or any future corresponding rule, except that the failure of the Committee for any reason to be composed solely of Non-Employee Directors shall not prevent an option from being considered granted under this Plan. The Committee shall, in addition to its other authority and subject to the provisions of this Plan, determine which individuals shall in fact be granted an option or options, whether the option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the number of shares to be subject to each of the options, the time or times at which the options shall be granted, the rate of option exercisability, and, subject to Section 5 hereof, the price at which each of the options is exercisable and the duration of the option. The term "Committee", as used in this Plan and the options granted hereunder, refers to either the Board of Directors or to the Committee, whichever is then administering this Plan. (b) The Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable. A majority of the members of the Committee shall constitute a quorum for all purposes. The vote or written consent of a majority of the members of the Committee on a particular matter shall constitute the act of the Committee on such matter. The Committee shall have the right to construe the Plan and the options issued pursuant to it, to correct defects and omissions and to reconcile inconsistencies to the extent necessary to effectuate the Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Committee or the Board of Directors shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of an authority or discretion granted in connection with the Plan to a Committee or the Board of Directors, or for the acts or omissions of any other members of a Committee or the Board of Directors. Subject to the numerical limitations on Committee membership set forth in Section 4(a) hereof, the Board of Directors may at any time appoint additional members of the Committee and may at any time remove any member of the Committee with or without cause. Vacancies in the Committee, however caused, may be filled by the Board of Directors, if it so desires. 5. Incentive Stock Options and Non-Qualified Stock Options (a) Options issued pursuant to this Plan may be either Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options granted pursuant to Section 5(c) hereof, as determined by the Committee. An "Incentive Stock Option" is an option which satisfies all of the requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option" is an option which either does not satisfy all of those requirements or the terms of the option provide that it will not be treated as an Incentive Stock Option. The Committee may grant both an Incentive Stock Option and a Non-Qualified Stock Option to the same person, or more than one of each type of option to the same person. The option price for options issued under this Plan shall be equal at least to the fair market value (as defined below) of the Company's Common Stock on the date of the grant of the option. The fair market value of the Company's Common Stock on any particular date shall mean the last reported sale price of a share of the Company's Common Stock on any stock exchange on which such stock is then listed or admitted to trading, or on the NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or Small Cap NASDAQ, or listed or admitted to trading on any stock exchange, the average of the bid and asked prices in the over-the-counter market on such date, or if none of the foregoing, a price determined in good faith by the Committee to equal the fair market value per share of the Common Stock. (b) Subject to the authority of the Committee set forth in Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix I hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Incentive Stock Options shall not be exercisable after the expiration of ten years from the date such options are granted, unless terminated earlier under the terms of the option, except that options granted to individuals described in Section 422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of the Code. At the time of the grant of an Incentive Stock Option hereunder, the Committee may, in its discretion, amend or supplement any of the option terms contained in Appendix I for any particular optionee, provided that the option as amended or supplemented satisfies the requirements of Section 422(b) of the Code and the regulations thereunder. Each of the options granted pursuant to this Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that term is defined in Section 422(b) of the Code and the regulations thereunder. In the event this Plan or any option granted pursuant to this Section 5(b) is in any way inconsistent with the applicable legal requirements of the Code or the regulations thereunder for an Incentive Stock Option, this Plan and such option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. (c) Subject to the authority of the Committee set forth in Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other key employees pursuant to this Plan shall be issued substantially in the form set forth in Appendix II hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Subject to the authority of the Committee set forth in Section 4(a) hereof, Non-Qualified Stock Options issued to directors and important consultants pursuant to this Plan shall be issued substantially in the form set forth in Appendix III hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Non-Qualified Stock Options shall expire ten years after the date they are granted, unless terminated earlier under the option terms. At the time of granting a Non-Qualified Stock Option hereunder, the Committee may, in its discretion, amend or supplement any of the option terms contained in Appendix II or Appendix III for any particular optionee. (d) Neither the Company nor any of its current or future parent, subsidiaries or affiliates, nor their officers, directors, shareholders, stock option plan committees, employees or agents shall have any liability to any optionee in the event (i) an option granted pursuant to Section 5(b) hereof does not qualify as an "Incentive Stock Option" as that term is used in Section 422(b) of the Code and the regulations thereunder; (ii) any optionee does not obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option." 6. Amendment, Supplement, Suspension and Termination Options shall not be granted pursuant to this Plan after the expiration of ten years from the date the Plan is adopted by the Board of Directors of the Company. The Board of Directors reserves the right at any time, and from time to time, to amend or supplement this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors; provided, however, that such action shall not, without the consent of the optionee, affect options granted under the Plan prior to the actual date on which such action occurred. If an amendment or supplement of this Plan is required by the Code or the regulations thereunder to be approved by the shareholders of the Company in order to permit the granting of "Incentive Stock Options" (as that term is defined in Section 422(b) of the Code and regulations thereunder) pursuant to the amended or supplemented Plan, such amendment or supplement shall also be approved by the shareholders of the Company in such manner as is prescribed by the Code and the regulations thereunder. If the Board of Directors voluntarily submits a proposed amendment, supplement, suspension or termination for shareholder approval, such submission shall not require any future amendments, supplements, suspensions or terminations (whether or not relating to the same provision or subject matter) to be similarly submitted for shareholder approval. 7. Effectiveness of Plan This Plan shall become effective on the date of its adoption by the Company's Board of Directors. 8. General Conditions (a) Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any employee the right to continue in the employ of the Company or any affiliated or subsidiary corporation or interfere in any way with the rights of the Company or any affiliated or subsidiary corporation to terminate his employment in any way. (b) Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any director or consultant the right to continue as a director of, or consultant to, the Company or any affiliated or subsidiary corporation or interfere in any way with the rights of the Company or any affiliated or subsidiary corporation, or their respective shareholders, to terminate the directorship of any such director or the consultancy relationship of any such consultant. (c) Corporate action constituting an offer of stock for sale to any person under the terms of the options to be granted hereunder shall be deemed complete as of the date when the Committee authorizes the grant of the option to the such person, regardless of when the option is actually delivered to such person or acknowledged or agreed to by him. (d) The terms "parent corporation" and "subsidiary corporation" as used throughout this Plan, and the options granted pursuant to this Plan, shall (except as otherwise provided in the option form) have the meaning that is ascribed to that term when contained in Section 422(b) of the Code and the regulations thereunder, and the Company shall be deemed to be the grantor corporation for purposes of applying such meaning. (e) References in this Plan to the Code shall be deemed to also refer to the corresponding provisions of any future United States revenue law. (f) The use of the masculine pronoun shall include the feminine gender whenever appropriate. APPENDIX I INCENTIVE STOCK OPTION To: __________________________________________________________ Name __________________________________________________________ Address Date of Grant: ___________________________________________________ You are hereby granted an option, effective as of the date hereof, to purchase __________ shares of common stock, par value $0.02 ("Common Stock"), of Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), at a price of $20.33 per share pursuant to the Company's Stock Option Plan (the "Plan"). This option shall terminate and is not exercisable after ten years from the date of its grant (the "Scheduled Termination Date"), except if terminated earlier as hereafter provided. Your option may be exercised on and after the dates and to the extent it has vested as provided below (minus the number of shares previously purchased by exercise of the option and as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board of Directors deems in its sole discretion to be similar circumstances): DATE NUMBER OF SHARES VESTING January 1, 2002 April 1, 2002 July 1, 2002 October 1, 2002 January 1, 2003 April 1, 2003 July 1, 2003 October 1, 2003 January 1, 2004 April 1, 2004 July 1, 2004 October 1, 2004 January 1, 2005 April 1, 2005 July 1, 2005 October 1, 2005 _____________________ TOTAL SHARES VESTING In the event of a "Change of Control" (as defined below) of the Company, your option may, from and after the date which is six months after the Change of Control, and notwithstanding the immediately preceding paragraph, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances) and your vesting date will accelerate accordingly. A "Change of Control" shall be deemed to have occurred upon the happening of any of the following events: 1. A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or 2. Any other event deemed to constitute a "Change of Control" by the Committee. You may exercise your option by giving written notice to the Secretary of the Company on forms supplied by the Company at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (a) cash, which may be evidenced by a check and includes cash received from a stock brokerage firm in a so-called "cashless exercise"; (b) (unless prohibited by the Committee) certificates representing shares of Common Stock of the Company, which will be valued by the Secretary of the Company at the fair market value per share of the Company's Common Stock (as determined in accordance with the Plan) on the date of delivery of such certificates to the Company, accompanied by an assignment of the stock to the Company; or (c) (unless prohibited by the Committee) any combination of cash and Common Stock of the Company valued as provided in clause (b). The use of the so-called attestation procedure to exercise a stock option may be permitted by the Committee. Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Company, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by the Company or a Company subsidiary corporation is terminated (whether such termination be voluntary or involuntary) other than by reason of disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, or death, in which case your option will terminate one year from the date of termination of employment due to disability or death (but in no event later than the Scheduled Termination Date). After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated. Provided you are willing to continue your employment for the Company or a successor after a Change of Control at the same compensation you enjoyed immediately prior to such Change of Control, if your employment is involuntarily terminated without cause after a Change of Control, you may exercise this option for the number of shares you would have had a right to purchase on the date of an Acceleration Event. If you are employed by a Company subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases to be a Company subsidiary corporation, unless you are on that date transferred to the Company or another Company subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from the Company to a Company subsidiary corporation, or vice versa, or from one Company subsidiary corporation to another Company subsidiary corporation. If you die while employed by the Company or a Company subsidiary corporation, your executor or administrator, as the case may be, may, at any time within one year after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your employment with the Company or a Company parent or subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 22(e)(3) of the Code and the regulations thereunder), you or your legal guardian or custodian may at any time within one year after the date of such termination (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Company prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Committee. In the event of a liquidation or proposed liquidation of the Company, including (but not limited to) a transfer of assets followed by a liquidation of the Company, or in the event of a Change of Control (as previously defined) or proposed Change of Control, the Committee shall have the right to require you to exercise this option upon thirty (30) days prior written notice to you. If at the time such written notice is given this option is not otherwise exercisable, the written notice will set forth your right to exercise this option even though it is not otherwise exercisable. In the event this option is not exercised by you within the thirty (30) day period set forth in such written notice, this option shall terminate on the last day of such thirty (30) day period, notwithstanding anything to the contrary contained in this option. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of the Company. The Company reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which the Company deems, in its sole discretion, that such delivery would violate a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (a) Until the Plan pursuant to which this option is granted is approved by the shareholders of the Company in the manner prescribed by the Code and the regulations thereunder; (b) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Company may deem necessary or desirable; (c) During any period of time in which the Company deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Company to be legally obligated to issue or sell more shares than the Company is legally entitled to issue or sell; or (d) Until you have paid or made suitable arrangements to pay (which may include payment through the surrender of Common Stock, unless prohibited by the Committee) (i) all federal, state and local income tax withholding required to be withheld by the Company in connection with the option exercise and (ii) the employee's portion of other federal, state and local payroll and other taxes due in connection with the option exercise. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: (a) The optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company to the effect that the proposed transaction will be exempt from such registration. The optionee shall execute such instruments, representations, acknowledgments and agreements as the Company may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. (b) The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state laws or upon receipt of any opinion of counsel acceptable to the Company that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of the Company and you that this option shall, if possible, be an "Incentive Stock Option" as that term is used in Section 422(b) of the Code and the regulations thereunder. In the event this option is in any way inconsistent with the legal requirements of the Code or the regulations thereunder for an "Incentive Stock Option," this option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. To the extent that the number of shares subject to this option which are exercisable for the first time exceed the $100,000 limitation contained in Section 422(d) of the Code, this option will not be considered an Incentive Stock Option. Nothing herein shall modify your status as an at-will employee of the Company. Further, nothing herein guarantees you employment for any specified period of time. This means that either you or the Company may terminate your employment at any time for any reason, with or without cause, or for no reason. You recognize that, for instance, you may terminate your employment or the Company may terminate your employment prior to the date on which your option becomes vested or exercisable. Any dispute or disagreement between you and the Company with respect to any portion of this option or its validity, construction, meaning, performance or your rights hereunder shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or its successor, as amended from time to time. However, prior to submission to arbitration you will attempt to resolve any disputes or disagreements with the Company over this option amicably and informally, in good faith, for a period not to exceed two weeks. Thereafter, the dispute or disagreement will be submitted to arbitration. At any time prior to a decision from the arbitrator(s) being rendered, you and the Company may resolve the dispute by settlement. You and the Company shall equally share the costs charged by the American Arbitration Association or its successor, but you and the Company shall otherwise be solely responsible for your own respective counsel fees and expenses. The decision of the arbitrator(s) shall be made in writing, setting forth the award, the reasons for the decision and award and shall be binding and conclusive on you and the Company. Further, neither you nor the Company shall appeal any such award. Judgment of a court of competent jurisdiction may be entered upon the award and may be enforced as such in accordance with the provisions of the award. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between the Company and you with respect to the subject matter hereof and no amendment, supplement or waiver of this option, in whole or in part, shall be binding upon the Company unless in writing and signed by the President of the Company. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. Please sign the copy of this option and return it to the Company's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. Genesis Health Ventures, Inc. By: _________________________ I hereby acknowledge receipt of a copy of the foregoing stock option and the Plan, and having read them hereby signify my understanding of, and my agreement with, their terms and conditions. I accept this option in full satisfaction of any previous written or verbal promises made to me by the Company with respect to option grants. ________________________________ __________________ (Signature) (Date) APPENDIX II NON-QUALIFIED STOCK OPTION FOR OFFICERS AND OTHER KEY EMPLOYEES To: ___________________________________________________________ Name ____________________________________________________________ Address Date of Grant: ___________________________________________________ You are hereby granted an option, effective as of the date hereof, to purchase __________ shares of common stock, par value $0.02 ("Common Stock"), of Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), at a price of $20.33 per share pursuant to the Company's Stock Option Plan (the "Plan"). This option shall terminate and is not exercisable after ten years from the date of its grant (the "Scheduled Termination Date"), except if terminated earlier as hereafter provided. Your option may be exercised on and after the dates and to the extent it has vested as provided below (minus the number of shares previously purchased by exercise of the option and as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board of Directors deems in its sole discretion to be similar circumstances): DATE NUMBER OF SHARES VESTING January 1, 2002 April 1, 2002 July 1, 2002 October 1, 2002 January 1, 2003 April 1, 2003 July 1, 2003 October 1, 2003 January 1, 2004 April 1, 2004 July 1, 2004 October 1, 2004 January 1, 2005 April 1, 2005 July 1, 2005 October 1, 2005 _____________________ TOTAL SHARES VESTING In the event of a "Change of Control" (as defined below) of the Company, your option may, from and after the date which is six months after the Change of Control, and notwithstanding the immediately preceding paragraph, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances) and your vesting date will accelerate accordingly. A "Change of Control" shall be deemed to have occurred upon the happening of any of the following events: 1. A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or 2. Any other event deemed to constitute a "Change of Control" by the Committee. You may exercise your option by giving written notice to the Secretary of the Company on forms supplied by the Company at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (a) cash, which may be evidenced by a check and includes cash received from a stock brokerage firm in a so-called "cashless exercise"; (b) (unless prohibited by the Committee) certificates representing shares of Common Stock of the Company, which will be valued by the Secretary of the Company at the fair market value per share of the Company's Common Stock (as determined in accordance with the Plan) on the date of delivery of such certificates to the Company, accompanied by an assignment of the stock to the Company; or (c) (unless prohibited by the Committee) any combination of cash and Common Stock of the Company valued as provided in clause (b). The use of the so-called attestation procedure to exercise a stock option may be permitted by the Committee. Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Company, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by the Company or a Company subsidiary corporation is terminated (whether such termination be voluntary or involuntary) other than by reason of disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, or death, in which case your option will terminate one year from the date of termination of employment due to disability or death (but in no event later than the Scheduled Termination Date). After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated. Provided you are willing to continue your employment for the Company or a successor after a Change of Control at the same compensation you enjoyed immediately prior to such Change of Control, if your employment is involuntarily terminated without cause after a Change of Control, you may exercise this option for the number of shares you would have had a right to purchase on the date of an Acceleration Event. If you are employed by a Company subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases to be a Company subsidiary corporation, unless you are on that date transferred to the Company or another Company subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from the Company to a Company subsidiary corporation, or vice versa, or from one Company subsidiary corporation to another Company subsidiary corporation. If you die while employed by the Company or a Company subsidiary corporation, your executor or administrator, as the case may be, may, at any time within one year after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your employment with the Company or a Company parent or subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 22(e)(3) of the Code and the regulations thereunder), you or your legal guardian or custodian may at any time within one year after the date of such termination (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Company prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Committee. In the event of a liquidation or proposed liquidation of the Company, including (but not limited to) a transfer of assets followed by a liquidation of the Company, or in the event of a Change of Control (as previously defined) or proposed Change of Control, the Committee shall have the right to require you to exercise this option upon thirty (30) days prior written notice to you. If at the time such written notice is given this option is not otherwise exercisable, the written notice will set forth your right to exercise this option even though it is not otherwise exercisable. In the event this option is not exercised by you within the thirty (30) day period set forth in such written notice, this option shall terminate on the last day of such thirty (30) day period, notwithstanding anything to the contrary contained in this option. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of the Company. The Company reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which the Company deems, in its sole discretion, that such delivery would violate a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (a) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Company may deem necessary or desirable; (b) During any period of time in which the Company deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Company to be legally obligated to issue or sell more shares than the Company is legally entitled to issue or sell; or (c) Until you have paid or made suitable arrangements to pay (which may include payment through the surrender of Common Stock, unless prohibited by the Committee) (i) all federal, state and local income tax withholding required to be withheld by the Company in connection with the option exercise and (ii) the employee's portion of other federal, state and local payroll and other taxes due in connection with the option exercise. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: (a) The optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company to the effect that the proposed transaction will be exempt from such registration. The optionee shall execute such instruments, representations, acknowledgements and agreements as the Company may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. (b) The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state laws or upon receipt of any opinion of counsel acceptable to the Company that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of the Company and you that this option shall not be an "Incentive Stock Option" as that term is used in Section 422(b) of the Code and the regulations thereunder. Nothing herein shall modify your status as an at-will employee of the Company. Further, nothing herein guarantees you employment for any specified period of time. This means that either you or the Company may terminate your employment at any time for any reason, with or without cause, or for no reason. You recognize that, for instance, you may terminate your employment or the Company may terminate your employment prior to the date on which your option becomes vested or exercisable. Any dispute or disagreement between you and the Company with respect to any portion of this option or its validity, construction, meaning, performance or your rights hereunder shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or its successor, as amended from time to time. However, prior to submission to arbitration you will attempt to resolve any disputes or disagreements with the Company over this option amicably and informally, in good faith, for a period not to exceed two weeks. Thereafter, the dispute or disagreement will be submitted to arbitration. At any time prior to a decision from the arbitrator(s) being rendered, you and the Company may resolve the dispute by settlement. You and the Company shall equally share the costs charged by the American Arbitration Association or its successor, but you and the Company shall otherwise be solely responsible for your own respective counsel fees and expenses. The decision of the arbitrator(s) shall be made in writing, setting forth the award, the reasons for the decision and award and shall be binding and conclusive on you and the Company. Further, neither you nor the Company shall appeal any such award. Judgment of a court of competent jurisdiction may be entered upon the award and may be enforced as such in accordance with the provisions of the award. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between the Company and you with respect to the subject matter hereof and no amendment, supplement or waiver of this option, in whole or in part, shall be binding upon the Company unless in writing and signed by the President of the Company. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. Please sign the copy of this option and return it to the Company's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. Genesis Health Ventures, Inc. By:__________________________ I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions. ______________________________ _____________________________ (Signature) (Date) APPENDIX III NON-QUALIFIED STOCK OPTION FOR DIRECTORS AND IMPORTANT CONSULTANTS To: ___________________________________________________________ Name ____________________________________________________________ Address Date of Grant: ___________________________________________________ You are hereby granted an option, effective as of the date hereof, to purchase __________ shares of common stock, par value $0.02 ("Common Stock"), of Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), at a price of $20.33 per share pursuant to the Company's Stock Option Plan (the "Plan"). This option shall terminate and is not exercisable after ten years from the date of its grant (the "Scheduled Termination Date"), except if terminated earlier as hereafter provided. Your option may be exercised on and after the dates and to the extent it has vested as provided below (minus the number of shares previously purchased by exercise of the option and as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board of Directors deems in its sole discretion to be similar circumstances): DATE NUMBER OF SHARES VESTING January 1, 2002 April 1, 2002 July 1, 2002 October 1, 2002 January 1, 2003 April 1, 2003 July 1, 2003 October 1, 2003 January 1, 2004 April 1, 2004 July 1, 2004 October 1, 2004 January 1, 2005 April 1, 2005 July 1, 2005 October 1, 2005 ________________________ TOTAL SHARES VESTING In the event of a "Change of Control" (as defined below) of the Company, your option may, from and after the date which is six months after the Change of Control, and notwithstanding the immediately preceding paragraph, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances) and your vesting date will accelerate accordingly. A "Change of Control" shall be deemed to have occurred upon the happening of any of the following events: 1. A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or 2. Any other event deemed to constitute a "Change of Control" by the Committee. You may exercise your option by giving written notice to the Secretary of the Company on forms supplied by the Company at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (a) cash, which may be evidenced by a check and includes cash received from a stock brokerage firm in a so-called "cashless exercise"; (b) (unless prohibited by the Committee) certificates representing shares of Common Stock of the Company, which will be valued by the Secretary of the Company at the fair market value per share of the Company's Common Stock (as determined in accordance with the Plan) on the date of delivery of such certificates to the Company, accompanied by an assignment of the stock to the Company; or (c) (unless prohibited by the Committee) any combination of cash and Common Stock of the Company valued as provided in clause (b). The use of the so-called attestation procedure to exercise a stock option may be permitted by the Committee. Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Company, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which you cease for any reason to be a director of, or consultant to, the Company or a subsidiary corporation (whether by death, disability, resignation, removal, failure to be reappointed, reelected or otherwise, or the expiration of any consulting arrangement, and regardless of whether the failure to continue as a director or consultant was for cause or without cause or otherwise), but in no event later than ten years from the date this option is granted. After the date you cease to be a director or consultant, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date you ceased to be a director or consultant. Provided you are willing to continue your employment for the Company or a successor after a Change of Control at the same compensation you enjoyed immediately prior to such Change of Control, if your employment is involuntarily terminated without cause after a Change of Control, you may exercise this option for the number of shares you would have had a right to purchase on the date of an Acceleration Event. If you are a director of, or consultant to, a subsidiary corporation, your directorship or consultancy shall be deemed to have terminated on the date such company ceases to be a subsidiary corporation, unless you are also a director of, or consultant to, the Company or another subsidiary corporation, or on that date became a director of, or consultant to, the Company or another subsidiary corporation. Your directorship or consultancy shall not be deemed to have terminated if you cease being a director of, or consultant to, the Company or a subsidiary corporation but are or concurrently therewith become a director of, or consultant to, the Company or another subsidiary corporation. In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Committee. In the event of a liquidation or proposed liquidation of the Company, including (but not limited to) a transfer of assets followed by a liquidation of the Company, or in the event of a Change of Control (as previously defined) or proposed Change of Control, the Committee shall have the right to require you to exercise this option upon thirty (30) days prior written notice to you. If at the time such written notice is given this option is not otherwise exercisable, the written notice will set forth your right to exercise this option even though it is not otherwise exercisable. In the event this option is not exercised by you within the thirty (30) day period set forth in such written notice, this option shall terminate on the last day of such thirty (30) day period, notwithstanding anything to the contrary contained in this option. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of the Company. The Company reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which the Company deems, in its sole discretion, that such delivery would violate a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (a) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Company may deem necessary or desirable; (b) During any period of time in which the Company deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Company to be legally obligated to issue or sell more shares than the Company is legally entitled to issue or sell; or (c) Until you have paid or made suitable arrangements to pay (which may include payment through the surrender of Common Stock, unless prohibited by the Committee) (i) all federal, state and local income tax withholding required to be withheld by the Company in connection with the option exercise and (ii) the employee's portion of other federal, state and local payroll and other taxes due in connection with the option exercise. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: (a) The optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company to the effect that the proposed transaction will be exempt from such registration. The optionee shall execute such instruments, representations, acknowledgments and agreements as the Company may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. (b) The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to the Company that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state laws or upon receipt of any opinion of counsel acceptable to the Company that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of the Company and you that this option shall not be an "Incentive Stock Option" as that term is used in Section 422(b) of the Code and the regulations thereunder. Nothing herein guarantees your term as a director of, or consultant to, the Company for any specified period of time. This means that either you or the Company may terminate your relationship with the Company at any time for any reason, with or without cause, or for no reason. You recognize that, for instance, the Company may terminate your relationship with the Company prior to the date on which your option becomes vested or exercisable. Any dispute or disagreement between you and the Company with respect to any portion of this option or its validity, construction, meaning, performance or your rights hereunder shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or its successor, as amended from time to time. However, prior to submission to arbitration you will attempt to resolve any disputes or disagreements with the Company over this option amicably and informally, in good faith, for a period not to exceed two weeks. Thereafter, the dispute or disagreement will be submitted to arbitration. At any time prior to a decision from the arbitrator(s) being rendered, you and the Company may resolve the dispute by settlement. You and the Company shall equally share the costs charged by the American Arbitration Association or its successor, but you and the Company shall otherwise be solely responsible for your own respective counsel fees and expenses. The decision of the arbitrator(s) shall be made in writing, setting forth the award, the reasons for the decision and award and shall be binding and conclusive on you and the Company. Further, neither you nor the Company shall appeal any such award. Judgment of a court of competent jurisdiction may be entered upon the award and may be enforced as such in accordance with the provisions of the award. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between the Company and you with respect to the subject matter hereof and no amendment, supplement or waiver of this option, in whole or in part, shall be binding upon the Company unless in writing and signed by the President of the Company. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. Please sign the copy of this option and return it to the Company's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. Genesis Health Ventures, Inc. By: _________________________ I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions. ___________________________ _____________________________ (Signature) (Date) EX-10 8 ex10-18.txt EXHIBIT 10.18 Exhibit 10.18 EMPLOYMENT AGREEMENT This Agreement is made as of this 2nd day of October, 2001, by and between GENESIS HEALTH VENTURES, INC., a Delaware corporation (the "Company"), and MICHAEL R. WALKER ("Executive"). WHEREAS, the Company desires to continue to employ Executive, and Executive desires to remain employed by the Company, in accordance with the terms and conditions stated below; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Employment. The Company agrees to continue to employ Executive, and Executive agrees to remain an employee of the Company, for the period stated in Section 2 hereof and upon the terms and conditions herein provided. 2. Term. 2.1 Relevant Dates. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 6, continue for a three year period (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2.2, and if the Term has not been terminated pursuant to Section 6, on the first anniversary of this Agreement and on each successive anniversary thereafter (each such anniversary an "Automatic Extension") the Term shall be extended for an additional period of one year . 2.2 Non-Renewal Procedure. The Company (with the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or Executive may elect to terminate the automatic extension of this Agreement described in Section 2.1 by giving written notice of such election. Any notice given hereunder must be given not less than sixty (60) days prior to the applicable Automatic Extension Date. 3. Position and Responsibilities. 3.1 Position. The Company agrees to employ Executive in the position of Chief Executive Officer and as Chairman of its Board of Directors ("Board"), and Executive agrees to perform such services and have such duties and responsibilities, not inconsistent with his position as Chief Executive Officer or as Chairman, customarily associated with and incidental to such positions and as may from time to time be reasonably assigned to him by the Board. Executive further agrees to serve as an executive officer or director of any subsidiaries of the Company without additional compensation. 3.2 Duties. During the period of his employment hereunder Executive shall devote all of his business time, attention, skill and efforts to the earnest and faithful performance of his duties; provided, however, that Executive may serve as a member of the board of directors of corporations or similar positions with other organizations which, in the Board's judgment, will not present any conflict of interest with the Company or any of its subsidiaries, or materially interfere with the performance of Executive's services, duties or responsibilities pursuant to this Agreement. Executive has disclosed to the Board all current boards of directors on which he is a member and shall disclose any additional boards of directors that Executive desires to join. 3.3 Place of Employment. Executive shall perform his duties hereunder at the Company's executive office located in Kennett Square, Pennsylvania, and shall travel to the Company's other offices or locations as may be necessary or appropriate for him to perform his duties hereunder. 4. Compensation and Benefits. 4.1 Salary. For all services rendered by Executive as Chief Executive Officer, as Chairman or as an officer or director of any subsidiary of the Company during his employment under this Agreement, the Company shall pay Executive a base salary at the annual rate of $850,000. During the Term, Executive's base salary shall be reviewed at least annually, with the first such annual review on the first anniversary of this Agreement. Such review shall be conducted by a committee comprised of individuals designated by the Board from its members (the "Compensation Committee"), and the Compensation Committee may increase said base salary. The annual base salary payable to Executive in any year is referred to herein as the "Base Salary" for such year. 4.2 Annual Bonus. For each fiscal year of the Company during the term of this Agreement, the Company shall afford Executive the opportunity to earn an incentive bonus ("Bonus") under the terms of the Genesis Health Venture, Inc. Incentive Program or similar program. The aggregate target Bonus payable to Executive under such program(s) shall equal at least 50% of the Base Salary for such fiscal year, and shall be payable at the discretion of the Compensation Committee, upon the achievement of certain targets (which shall be set by the Compensation Committee within the first three (3) months of such year). 4.3 Equity Incentive. (a) Stock Option. The Company shall, pursuant to the terms of its stock option plan or any similar plan, grant to Executive as of the Effective Date one or more options to acquire an aggregate of 225,000 shares of common stock of the Company ("Company Stock"). The exercise price of the shares shall be established at the time of the grant and shall be less than or equal to the fair market value of the stock at the time of the grant. The stock options shall vest with respect to the shares subject thereto in equal installments on each of the first three (3) anniversaries of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, the stock options shall fully and immediately vest on (i) a Change in Control (as defined in Section 6.5), (ii) any termination of Executive's employment with the Company by the Company without Cause (as defined in Section 6.3(b) or because of Executive's death or Disability (as defined in Section 6.2), or (iii) any termination of Executive's employment by Executive's resignation for Good Reason (as defined in Section 6.4). The stock options shall have a ten (10) year term subject to earlier termination of such options on account of (i) Executive's termination of employment for any reason or (ii) a Change in Control in which the stock options are not assumed or replaced by the Company or its successor. The stock options shall be "incentive stock options" to the fullest extent permitted. PAGE 2 (b) Restricted Stock Award. The Company shall make a restricted stock award to Executive as of the Effective Date of 150,000 shares of Company Stock. The shares underlying the restricted stock award shall vest in equal quarterly installments (7,500 shares per installment) over a five (5) year period, commencing three months after the anniversary of the Effective Date and continuing every three months thereafter until the fifth anniversary of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, all shares of Company Stock underlying the restricted stock award shall fully and immediately vest on (i) a Change in Control, (ii) any termination of Executive's employment with the Company by the Company without Cause or because of Executive's death or Disability, or (iii) any termination of Executive's employment by Executive's resignation for Good Reason. 4.4 Participation in Benefit Plans and Perquisites. Executive shall be entitled to participate in each employee benefit plan or perquisite applicable generally to executive officers of the Company (including health, life insurance, long-term disability and deferred compensation benefits, but excluding any severance benefit or termination pay plan) in accordance with the provisions thereof. Notwithstanding the foregoing, Executive shall not be entitled to receive any additional benefits or awards under discretionary plans or programs of the Company unless the Executive Board of the Company (or the Compensation Board) exercises the necessary discretion to provide Executive with such benefits or awards. 4.5 Executive Life Insurance. The Company shall provide Executive with term life insurance providing a death benefit of at least $6,000,000 to Executive's designated beneficiaries. 4.6 Vacation and Holidays. Executive shall be entitled to vacation in accordance with the Company's vacation policy in effect from time to time for its executive officers, but not less than five (5) weeks in each full calendar year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days that are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. PAGE 3 5. Reimbursement of Expenses. The Company shall pay or reimburse Executive for all reasonable business expenses incurred by Executive in performing his obligations under this Agreement in accordance with its business expense policies in effect from time to time. 6. Events of Termination of Employment. 6.1 Expiration of Term. Executive's employment with the Company and its subsidiaries (including his appointment as Chairman) shall cease automatically on the expiration of the term of this Agreement pursuant to Section 2 hereof. 6.2 Death or Disability. Executive's employment with the Company and its subsidiaries shall automatically terminate on Executive's death. Executive's employment shall terminate thirty (30) days after Executive is notified that his employment is terminated for Disability (provided Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period). For purposes of this Agreement, "Disability" means an incapacity due to a physical or mental condition which causes Executive to be unable to substantially perform his duties under this Agreement on a full-time basis for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating more than six (6) months in any twelve (12) month period. "Disabling Condition" shall mean such an incapacity that does not meet the time requirements for Disability. The Company may temporarily relieve Executive from his duties and responsibilities during any period that he has a Disabling Condition, provided that Executive shall be immediately restored to his duties and responsibilities if Executive is able to resume his duties on a full-time basis prior to his termination for Disability. Executive agrees to submit to reasonable medical examination upon the reasonable request, and at the expense, of the Company during any period when he (or his representative) claims that he has a Disabling Condition. 6.3 Termination by Company for Cause. (a) The Company may, following any determination by the Board that Cause exists, terminate Executive's employment with the Company and its subsidiaries (including his appointment as Chairman) for Cause by notice to Executive describing the reasons for such termination. In the event the Board believes Cause may exist for termination of Executive's employment, the Board shall provide written notice to Executive describing the basis for such belief. Executive shall be afforded a reasonable period of time to and shall fully and promptly address, to the extent of Executive's knowledge, any concerns raised by the Board regarding the existence of Cause. The Company may temporarily relieve Executive from his duties and responsibilities pending the outcome of any proceeding of the Board to determine if Cause exists; provided that Executive shall be immediately restored to his duties and responsibilities if the Board determines that Cause does not exist or fails to render a prompt determination following the substantial completion of its investigation. The final determination that Executive's employment shall be terminated for Cause shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board at a meeting of the Board duly called and held upon at least fifteen (15) days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel are entitled to be present and are given a reasonable opportunity to be heard). PAGE 4 (b) For purposes of this Section 6.3, "Cause" means any of the following events with respect to Executive: (i) Executive has been convicted of, or pleads guilty or nolo contendere to, any crime or offense constituting a felony under applicable law (whether or not involving the Company or any of its subsidiaries), including, without limitation, embezzlement, theft, larceny or any crime of moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment; (ii) Executive's commission of a material act of fraud or dishonesty against the Company or any of its subsidiaries, or Executive's willful engaging in conduct which is significantly injurious to the Company or any of its subsidiaries, monetarily or otherwise; (iii) Executive's abuse of illegal drugs and other controlled substances or Executive's habitual intoxication, which conduct continues after written demand for cessation of such conduct is delivered to Executive by the Board; (iv) Any willful, continuous or gross neglect of or refusal to perform Executive's duties or responsibilities, in each case which continues after detailed written notice thereof has been given to Executive; or (v) The willful taking of actions by Executive which directly and materially impair Executive's ability to perform his duties and responsibilities hereunder, or willful misconduct (including gross and willful violation of any written policies of the Company), provided, however, that "Cause" shall not include a bona fide disagreement over corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. PAGE 5 6.4 Resignation by Executive for Good Reason. Upon the occurrence of any event described in this Section 6.4 below, Executive shall have the right to elect to terminate his employment under this Agreement from all (but not less than all) positions with the Company and its subsidiaries by resignation, upon not less than thirty (30) days' prior written notice given within ninety (90) days after the event purportedly giving rise to Executive's right to elect; provided, however, that the Company has not cured or otherwise corrected such event prior to the expiration of such 30-day period. (a) Any reduction by the Company of Executive's Base Salary; (b) Any relocation of Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location more than forty-five (45) miles beyond the Borough of Kennett Square, Pennsylvania; (c) The assignment to Executive by the Company of any duties inconsistent with Executive's status with the Company or a substantial alteration in the nature of status of Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in Executive's titles or offices as in effect immediately prior to the date hereof or any removal of Executive from, or any failure to elect, re-elect or appoint Executive to any such positions (including, without limitation, the positions of Chief Executive Officer and Chairman of the Board), other than as a result of Executive's death, termination of employment (and other than as a result of Executive's Disabling Condition or pending a determination that Cause exists), or the failure to restore Executive to his responsibilities following his recovery from a Disabling Condition prior to his employment termination or following a determination that Cause does not exist; (d) Any liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the same persons in substantially the same proportions as such persons' ownership immediately prior to such liquidation or dissolution, and such ongoing entity assumes all existing obligations of the Company to Executive under this Agreement; (e) Any material breach of this Agreement by the Company; or (f) Any determination by the Board not to automatically extend the term of this Agreement pursuant to Section 2.2 6.5 Resignation by Executive Following A Change in Control. Executive may resign from the Company's employ during the thirty (30) day period commencing on the first anniversary following a Change in Control of the Company for any reason by providing the Company with a written notice of termination. Should Executive notify the Company that Good Reason exists at any time within the twenty-four (24) months following a Change in Control and should the event constituting Good Reason continue for more than ten (10) days following Executive's notice, Executive may, at his option, immediately resign or resign at any time during such twenty-four month period and any such resignation shall be treated as a resignation for Good Reason under this Agreement. For purposes of this Agreement, a Change in Control of the Company means the occurrence of one of the following events: PAGE 6 (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes, after the Effective Date, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the Company's then outstanding securities eligible to vote for the election of the Company's Board of Directors (the "Company Voting Securities"); provided, that an event described in this paragraph (a) shall not be a Change in Control if any of the following becomes such a beneficial owner: (i) the Company or any majority-owned subsidiary of the Company (a "Subsidiary"), (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) any underwriter temporarily holding securities pursuant to an offering of such securities, (iv) [Goldman Sachs Capital Partners, Highland Capital and Van Kampen], (v) Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive),or (vi) a beneficial owner of less than twenty-five percent (25%) of the Company Voting Securities that becomes a beneficial owner of twenty-five percent (25%) or more of the Company Voting Securities solely by reason of redemption of such securities by the Company; (b) the consummation of a merger, consolidation or reorganization of the Company (a "Business Combination"), unless, following such Business Combination, the owners of the Company Voting Securities immediately prior to such Business Combination (or their affiliates) beneficially own, directly or indirectly, fifty percent (50%) or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the directors of the corporation resulting from such Business Combination (a "Non- Qualifying Transaction"); or (c) during any period of twenty-four (24) consecutive months after the Effective Date, the failure (for any reason other than death) of individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") to constitute at least a majority of the Board; provided that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director is elected by, or on the recommendation of (i) or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such twenty-four (24) month period) or by prior operation of this Section 6.5(c) or (ii) any person described in clause (iv) of Section 6.5(a) above pursuant to contractual rights as of the Effective Date with respect to Company Voting Securities owned by such person.) The initial public offering of common stock of the Company pursuant to a registration statement filed under the Securities Act of 1933, as amended (a "Public Offering"), the commencement of proceedings under the Bankruptcy Code with respect to the Company, or the acquisition of equity in the Company or its successor pursuant to a plan of reorganization approved by a bankruptcy court with respect to the Company shall not be treated as a Change in Control for purposes of this Agreement. PAGE 7 6.6 Termination by the Company without Cause. In addition to any termination of Executive's employment with the Company and its subsidiaries for reasons described in the foregoing provisions of this Section 6, the Company may terminate such employment at any time without Cause. Such determination shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors ("Board") at a meeting of the Board called and held for such purpose. The Board shall provide Executive with written determination of its decision no less than thirty (30) days prior to the effective date of such employment termination.. 7. Severance Upon an Event of Termination. 7.1 General Provision. Upon termination of Executive's employment by the Company during the Term, Executive shall be entitled to no further compensation hereunder other than (i) Executive's accrued and unpaid Base Salary through the date of termination, (ii) any benefits accrued and vested under the terms of the Company's employee benefit plans and programs through the date of termination and (iii) any other payments or benefits specifically provided in Section 7 of this Agreement. 7.2 Termination Due to Death or Disability. Upon Executive's employment termination due to his death or Disability, the Company shall pay to Executive (or to his estate) (i) Executive's Base Salary and benefits as if Executive's employment had terminated on the last day of the month; (ii) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (iii) if any bonus, under any bonus plan shall be payable in respect of any years ending prior to the date Executive's employment terminates, the bonus(es) set forth in section 7.2 (ii) above shall be further pro-rated from the beginning of the fiscal year to the last day of the month of Executive's employment termination. In addition, all restricted stock, stock options and performance share awards made to Executive shall automatically become fully vested and immediately exercisable as of the date of death (or in the case of Disability, as of the date employment terminates). 7.3 Termination for Cause. Upon Executive's employment termination for Cause, the Company shall pay to Executive all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. 7.4 Severance. Upon Executive's employment termination by the Company without Cause or by the Executive for Good Reason or by Executive in accordance with Section 6.5 following a Change in Control, the Company shall, subject to the provisions of Section 10 and 11 below, provide the following to Executive (or, in the event of Executive's subsequent death, his beneficiary or beneficiaries or his estate, as provided): PAGE 8 (a) Accrued Bonuses. The Company shall pay to Executive (or his estate) any accrued and unpaid bonuses in respect of years ending prior to the date of termination, and a pro rata bonus for the portion of the year preceding the date of termination in the actual amount that would have been earned based on the Company's actual performance for the year, (b) Severance Pay. The Company shall provide to Executive (or his estate) as severance pay (the "Severance Payments") three (3) times the Executive's Termination Base Salary (as defined below) plus three (3) times the Executive's Average Incentive Compensation Award (as defined below). "Termination Base Salary" means the highest Base Salary paid to Executive in the three (3) years preceding his employment termination. "Incentive Compensation Award" means all cash bonuses awarded in consideration of services for the three (3) most recent fiscal years, divided by three (3), or if there was no cash incentive program in any of the three (3) most recent fiscal years, divided by the number of fiscal years for which such cash incentive program existed. For purposes of this calculation the "restructuring payment" which is payable upon the effective date of the Company's chapter 11 plan of reorganization in accordance with the February 23, 2001 Order of the Bankruptcy Court (the "Bankruptcy Order") shall be treated as a cash bonus for the fiscal year in which such bonus is paid. The Incentive Compensation Award may not exceed 100% of Executive's Termination Base Salary. Payment under this section 7.4 (b) shall be made as follows: (i) In the event that Executive's employment is terminated pursuant to section 6.5 herein, Executive shall be paid his severance in a lump sum at the time of his termination; (i) In the event that Executive's employment is terminated pursuant to sections 6.4 or 6.6 herein, the Company has the discretion to pay Executive his severance in either a lump sum at the time of his termination or in equal monthly installments over a thirty-six (36) month period. In the event that the Executive is paid in equal monthly installments over a thirty-six (36) month period, the severance funds shall be placed in escrow at the time of termination with an escrow agent to be agreed upon by both parties. In no event shall such payments be reduced for any reason, including the fact that Executive is employed by any other entity. PAGE 9 (c) Benefit Continuation. The Company shall continue to provide, on the same basis as executive officers generally, the health and life insurance benefits (but excluding disability benefits) provided to Executive and his spouse and eligible dependants immediately prior to his date of termination for a period of two (2) years following the date of termination (provided that Executive continues to make all required employee contributions). In the event that Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to Executive an amount equal to the annual contribution, payments, credits or allocation made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if Executive's participation in any health, medical, or life insurance plan or program is barred, the Company shall obtain and pay for, on Executive's behalf, individual insurance plans, policies or programs that provide to Executive health, medical and life insurance coverage which is equivalent to the insurance coverage to which Executive was entitled prior to the date of termination. (d) Equity. All restricted stock, stock option and performance share awards made to Executive shall fully vest and be immediately exercisable for a period of ninety (90) days following the termination of Executive's employment. [8. Potential Change in Control. Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) that contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described in clause (i) or (ii), could result in a Change in Control, all restricted stock, stock option and performance share awards made to Executive shall become automatically fully vested and exercisable in order to provide Executive with a reasonable period to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and performance awards shall be deemed restored to the vesting and exercisability schedules in effect at the time of execution of such definitive agreement, and any action taken in contemplation of the consummation of the transactions anticipated to result in a Change in Control shall be null and void.] 9. Certain Tax Matters. The Company shall indemnify and hold Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made or benefit provided by the Company or a subsidiary (including any payment made under this paragraph) and any interest, penalties, and additions to tax imposed in connection therewith, and (ii) any federal, state or local income or employment tax imposed on any payment made pursuant to this paragraph. Executive shall not take the position on any tax return or other filing that any payment made or benefit provided by the Company is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment or benefit is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment, benefit or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, Executive shall contest such claim; provided, however, that the Company shall advance to Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. PAGE 10 10. Duties Upon Termination. Executive agrees that he will, upon termination of his employment with the Company for any reason whatsoever, deliver to the Company any and all records, forms, contracts, memoranda, work papers, lists of names or other customer data and any other articles or papers which have come into his possession by reason of his employment with the Company or which he holds for the Company, regardless of whether or not any of said items were prepared by him, and he shall not retain memoranda or copies of any of said items. Executive shall assign to the Company all rights to trade secrets and the products relating to the Company's business developed by him alone or in conjunction with others at any time alike employed by the Company. Notwithstanding anything herein to the contrary, Executive may retain this Agreement, any documents relating to this Agreement and any documents relating to Executive's compensation, benefits, retirement plans and deferred compensation plans. 11. Post-Termination Obligations. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with the following provisions. 11.1 Confidential Information. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries or its affiliates, or to any businesses operated by them, including, without limitation, any customer lists; and Executive confirms that such information constitutes the exclusive property of the Company. For purposes of this Section 11.1, confidential information shall not include any information that is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, during the term of this Agreement, Executive may reveal information, as necessary, pursuant to his conducting Company business. PAGE 11 11.2 Competitive Conduct. During the term of this Agreement and for a further period of two (2) years thereafter, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity for the benefit of any person: (a) solicit any person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of the Company, in any manner which interferes or might interfere with such person's relationship with the Company, or in an effort to obtain such person as a customer, supplier, employee, salesman, agent or representative of any business in competition with the Company which business conducts operations within fifteen (15) miles of any office or facility owned, leased or operated by the Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (b) establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent (1%) of the stock of a corporation whose shares are publicly traded) management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person in any business in competition with the Company if such person has any office or facility, at any location within fifteen (15) miles of any office or facility owned, leased or operated by the Company or conducts substantial business in any county, or similar political subdivision in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of the Company. 11.3 Failure of Executive to Comply. If for any reason other than death or disability, Executive shall, without written consent of the Company, fail to comply with the provisions of this Section 11, his rights to any future payments or other benefits hereunder shall terminate (without prejudice to any other rights, including recovery of damages of the Company), and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this Section 11 shall be deemed to have occurred unless and until Executive receives written notice from the Company specifying the conduct alleged to constitute such failure. 11.4 Remedies. Executive agrees that monetary damages would not be adequate compensation for any loss incurred by the Company by reason of a breach of the provisions of Sections 10 and 11 of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, agreements and other provisions of Sections 10 and 11 specifically performed by Executive, and the Company shall have the right to obtain preliminary injunctive relief to secure specific performance and to prevent a breach of Section 10 or 11. The existence of any claim or cause of action which Executive or any other person may have against the Company shall not constitute a defense or bar to the enforcement of Section 10 or 11. If the Company is obliged to resort to litigation to enforce a covenant in Section 10 or 11 that contains a fixed term, then such fixed term shall be extended for a period of time equal to the period during which a material breach of such covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such covenant. PAGE 12 11.5 Consideration. Executive expressly acknowledges that the covenants contained in Sections 10 and 11 are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the covenants contained in such sections, the Company would not have agreed to enter into this Agreement. 11.6 Scope. If any portion of the covenants contained in Section 10 or 11 or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the such covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such covenant shall then be enforceable in its reduced or limited for. 12. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and, upon effectiveness of this Agreement pursuant to Section 2 hereof, supersedes all prior agreements and discussions between the Company and Executive but is not in any way intended to supersede the Bankruptcy Order. 13. General Provisions. 13.1 Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitration shall be selected by alternatively striking form a list of five (5) arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys' fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, expert witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorneys' fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other that then arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorneys' fees related to such action. PAGE 13 13.2 Legal Expenses. Except as otherwise provided in Section 13.1, in the event Executive prevails as to any material issue in any legal proceeding to enforce the terms of this Agreement, the Company shall reimburse Executive for reasonable legal costs incurred in connection therewith. 13.3 Mitigation. Executive shall not be obligated to seek other employment or take any other action to mitigate any severance benefits hereunder. 13.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Company and Executive and his heirs, executors, legal representatives, successors and permitted assigns. Unless clearly inapplicable, reference herein to the Company shall be deemed to include its successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void, without effect. 13.5 Severability. In the event any provision of this Agreement or any part hereof is held invalid, such invalidity shall not affect any remaining part of such provision or any other provision, and to this end, the provisions of this Agreement are intended to be and shall be deemed severable. If any court construes any provision of this Agreement to be illegal, void or unenforceable because of the duration or the area or matter covered thereby, such court shall reduce the duration, area or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced. 13.6 Withholding. Employer may withhold from any amounts payable under this Agreement such taxes and governmentally required withholdings as may be required to be withheld pursuant to any applicable law or regulation. 14. Modification and Waiver. 14.1 Amendment of Agreement. Except for increases in compensation made as provided in Section 4.1, this Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. PAGE 14 14.2 Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 15. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: Michael R. Walker 228 N. Garfield Street Kennett Square, PA 19348 with a copy: To the Company at: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department And with a copy to: [Members of/The Chairman of ]the Compensation Committee 16. Governing Law. The parties hereto intend that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, all as of the day and year first above written. GENESIS HEALTH VENTURES, INC. /s/ James Wankmiller ------------------------------------------ By: Name: James Wankmiller Title: Sr. Vice President, General Counsel and Corporate Secretary /s/ Michael R. Walker ------------------------------------------ MICHAEL R. WALKER Acknowledged on Behalf of the Board: /s/ James Wankmiller - ------------------------------------------ Name: James Wankmiller Title: Sr. Vice President, General Counsel and Corporate Secretary PAGE 15 EX-10 9 ex10-19.txt EXHIBIT 10.19 Exhibit 10.19 EMPLOYMENT AGREEMENT This Agreement is made as of this 2nd day of October, 2001, by and between GENESIS HEALTH VENTURES, INC., a Delaware corporation (the "Company"), and GEORGE V. HAGER, JR. ("Executive"). WHEREAS, the Company desires to continue to employ Executive, and Executive desires to remain employed by the Company, in accordance with the terms and conditions stated below; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Employment. The Company agrees to continue to employ Executive, and Executive agrees to remain an employee of the Company, for the period stated in Section 2 hereof and upon the terms and conditions herein provided. 2. Term. 2.1 Relevant Dates. The period of Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 6, continue for a three year period (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2.2, and if the Term has not been terminated pursuant to Section 6, on the first anniversary of this Agreement and on each successive anniversary thereafter (each such anniversary an "Automatic Extension") the Term shall be extended for an additional period of one year. 2.2 Non-Renewal Procedure. The Company (with the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or Executive may elect to terminate the automatic extension of this Agreement described in Section 2.1 by giving written notice of such election. Any notice given hereunder must be given not less than sixty (60) days prior to the applicable Automatic Extension Date. 3. Position and Responsibilities. 3.1 Position. The Company agrees to employ Executive in the position of Chief Financial Officer of the Company, and Executive agrees to perform such services and have such duties and responsibilities, not inconsistent with his position as Chief Financial Officer, customarily associated with and incidental to such positions and as may from time to time be reasonably assigned to him by the Board. Executive further agrees to serve as an executive officer or director of any subsidiaries of the Company without additional compensation. 3.2 Duties. During the period of his employment hereunder Executive shall devote all of his business time, attention, skill and efforts to the earnest and faithful performance of his duties; provided, however, that Executive may serve as a member of the board of directors of corporations or similar positions with other organizations which, in the Board's judgment, will not present any conflict of interest with the Company or any of its subsidiaries, or materially interfere with the performance of Executive's services, duties or responsibilities pursuant to this Agreement. Executive has disclosed to the Board all current boards of directors on which he is a member and shall disclose any additional boards of directors that Executive desires to join. 3.3 Place of Employment. Executive shall perform his duties hereunder at the Company's executive office located in Kennett Square, Pennsylvania, and shall travel to the Company's other offices or locations as may be necessary or appropriate for him to perform his duties hereunder. 4. Compensation and Benefits. 4.1 Salary. For all services rendered by Executive as Chief Financial Officer, or as an officer or director of any subsidiary of the Company during his employment under this Agreement, the Company shall pay Executive a base salary at the annual rate of $400,000. During the Term, Executive's base salary shall be reviewed at least annually, with the first such annual review on the first anniversary of this Agreement. Such review shall be conducted by a committee comprised of individuals designated by the Board from its members (the "Compensation Committee"), and the Compensation Committee may increase said base salary. The annual base salary payable to Executive in any year is referred to herein as the "Base Salary" for such year. 4.2 Annual Bonus. For each fiscal year of the Company during the term of this Agreement, the Company shall afford Executive the opportunity to earn an incentive bonus ("Bonus") under the terms of the Genesis Health Venture, Inc. Incentive Program or similar program. The aggregate target Bonus payable to Executive under such program(s) shall equal at least 50% of the Base Salary for such fiscal year, and shall be payable at the discretion of the Compensation Committee, upon the achievement of certain targets (which shall be set by the Compensation Committee within the first three (3) months of such year). 4.3 Equity Incentive. (a) Stock Option. The Company shall, pursuant to the terms of its stock option plan or any similar plan, grant to Executive as of the Effective Date one or more options to acquire an aggregate of 75,000 shares of common stock of the Company ("Company Stock"). The exercise price of the shares shall be established at the time of the grant and shall be less than or equal to the fair market value of the stock at the time of the grant. The stock options shall vest with respect to the shares subject thereto in equal installments on each of the first three (3) anniversaries of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, the stock options shall fully and immediately vest on (i) a Change in Control (as defined in Section 6.5), (ii) any termination of Executive's employment with the Company by the Company without Cause (as defined in Section 6.3(b) or because of Executive's death or Disability (as defined in Section 6.2), or (iii) any termination of Executive's employment by Executive's resignation for Good Reason (as defined in Section 6.4). The stock options shall have a ten (10) year term subject to earlier termination of such options on account of (i) Executive's termination of employment for any reason or (ii) a Change in Control in which the stock options are not assumed or replaced by the Company or its successor. The stock options shall be "incentive stock options" to the fullest extent permitted. PAGE 2 (b) Restricted Stock Award. The Company shall make a restricted stock award to Executive as of the Effective Date of 75,000 shares of Company Stock. The shares underlying the restricted stock award shall vest in equal quarterly installments (3,750 shares per installment) over a five (5) year period, commencing three months after the anniversary of the Effective Date and continuing every three months thereafter until the fifth anniversary of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, all shares of Company Stock underlying the restricted stock award shall fully and immediately vest on (i) a Change in Control, (ii) any termination of Executive's employment with the Company by the Company without Cause or because of Executive's death or Disability, or (iii) any termination of Executive's employment by Executive's resignation for Good Reason. 4.4 Participation in Benefit Plans and Perquisites. Executive shall be entitled to participate in each employee benefit plan or perquisite applicable generally to executive officers of the Company (including health, life insurance, long-term disability and deferred compensation benefits, but excluding any severance benefit or termination pay plan) in accordance with the provisions thereof. Notwithstanding the foregoing, Executive shall not be entitled to receive any additional benefits or awards under discretionary plans or programs of the Company unless the Executive Board of the Company (or the Compensation Board) exercises the necessary discretion to provide Executive with such benefits or awards. 4.5 Vacation and Holidays. Executive shall be entitled to vacation in accordance with the Company's vacation policy in effect from time to time for its executive officers, but not less than five (5) weeks in each full calendar year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days that are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. 4.6 Forgiveness of Note. As a condition to continued employment in 1998, Executive was required to purchase a substantial amount of the Company's common stock based on and exceeding Executive's annual salary. In connection therewith, Executive borrowed funds from the Company for such stock purchases and executed a promissory note in favor of the Company (the "Note"). A copy of the Note is annexed hereto as Exhibit "A". Pursuant to the February 23, 2001 Order of the Bankruptcy Court (the "Bankruptcy Order"), in the event that (i) Executive remains employed by the Company for one (1) year following the date of this Agreement or, (ii) Executive's employment is terminated because of (A) his death or Disability (pursuant to Section 6.2 of this Agreement), (B) his termination for cause (pursuant to Section 6.3 of this Agreement) (C) his resignation for Good Reason (pursuant to Section 6.4 of this Agreement), (D) his resignation following a Change in Control (pursuant to Section 6.5 of this Agreement) or (E) termination by the Company without Cause (pursuant to Section 6.6 of this Agreement), the Company will release Executive from his obligations under the Note and cancel any related indebtedness and will also reimburse Executive for any federal or state income taxes he owes as a result of such release and cancellation. PAGE 3 5. Reimbursement of Expenses. The Company shall pay or reimburse Executive for all reasonable business expenses incurred by Executive in performing his obligations under this Agreement in accordance with its business expense policies in effect from time to time. 6. Events of Termination of Employment. 6.1 Expiration of Term. Executive's employment with the Company and its subsidiaries shall cease automatically on the expiration of the term of this Agreement pursuant to Section 2 hereof. 6.2 Death or Disability. Executive's employment with the Company and its subsidiaries shall automatically terminate on Executive's death. Executive's employment shall terminate thirty (30) days after Executive is notified that his employment is terminated for Disability (provided Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period). For purposes of this Agreement, "Disability" means an incapacity due to a physical or mental condition which causes Executive to be unable to substantially perform his duties under this Agreement on a full-time basis for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating more than six (6) months in any twelve (12) month period. "Disabling Condition" shall mean such an incapacity that does not meet the time requirements for Disability. The Company may temporarily relieve Executive from his duties and responsibilities during any period that he has a Disabling Condition, provided that Executive shall be immediately restored to his duties and responsibilities if Executive is able to resume his duties on a full-time basis prior to his termination for Disability. Executive agrees to submit to reasonable medical examination upon the reasonable request, and at the expense, of the Company during any period when he (or his representative) claims that he has a Disabling Condition. PAGE 4 6.3 Termination by Company for Cause. (a) The Company may, following any determination by the Board that Cause exists, terminate Executive's employment with the Company and its subsidiaries for Cause by notice to Executive describing the reasons for such termination. In the event the Board believes Cause may exist for termination of Executive's employment, the Board shall provide written notice to Executive describing the basis for such belief. Executive shall be afforded a reasonable period of time to and shall fully and promptly address, to the extent of Executive's knowledge, any concerns raised by the Board regarding the existence of Cause. The Company may temporarily relieve Executive from his duties and responsibilities pending the outcome of any proceeding of the Board to determine if Cause exists; provided that Executive shall be immediately restored to his duties and responsibilities if the Board determines that Cause does not exist or fails to render a prompt determination following the substantial completion of its investigation. The final determination that Executive's employment shall be terminated for Cause shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board at a meeting of the Board duly called and held upon at least fifteen (15) days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel are entitled to be present and are given a reasonable opportunity to be heard). (b) For purposes of this Section 6.3, "Cause" means any of the following events with respect to Executive: (i) Executive has been convicted of, or pleads guilty or nolo contendere to, any crime or offense constituting a felony under applicable law (whether or not involving the Company or any of its subsidiaries), including, without limitation, embezzlement, theft, larceny or any crime of moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment; (ii) Executive's commission of a material act of fraud or dishonesty against the Company or any of its subsidiaries, or Executive's willful engaging in conduct which is significantly injurious to the Company or any of its subsidiaries, monetarily or otherwise; (iii) Executive's abuse of illegal drugs and other controlled substances or Executive's habitual intoxication, which conduct continues after written demand for cessation of such conduct is delivered to Executive by the Board; (iv) Any willful, continuous or gross neglect of or refusal to perform Executive's duties or responsibilities, in each case which continues after detailed written notice thereof has been given to Executive; or PAGE 5 (v) The willful taking of actions by Executive which directly and materially impair Executive's ability to perform his duties and responsibilities hereunder, or willful misconduct (including gross and willful violation of any written policies of the Company), provided, however, that "Cause" shall not include a bona fide disagreement over corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 6.4 Resignation by Executive for Good Reason. Upon the occurrence of any event described in this Section 6.4 below, Executive shall have the right to elect to terminate his employment under this Agreement from all (but not less than all) positions with the Company and its subsidiaries by resignation, upon not less than thirty (30) days' prior written notice given within ninety (90) days after the event purportedly giving rise to Executive's right to elect; provided, however, that the Company has not cured or otherwise corrected such event prior to the expiration of such 30-day period. (a) Any reduction by the Company of Executive's Base Salary; (b) Any relocation of Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location more than forty-five (45) miles beyond the Borough of Kennett Square, Pennsylvania; (c) The assignment to Executive by the Company of any duties inconsistent with Executive's status with the Company or a substantial alteration in the nature of status of Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in Executive's titles or offices as in effect immediately prior to the date hereof or any removal of Executive from, or any failure to elect, re-elect or appoint Executive to any such positions (including, without limitation, the position of Vice Chairman, other than as a result of Executive's death, termination of employment (and other than as a result of Executive's Disabling Condition or pending a determination that Cause exists), or the failure to restore Executive to his responsibilities following his recovery from a Disabling Condition prior to his employment termination or following a determination that Cause does not exist; (d) Any liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the same persons in substantially the same proportions as such persons' ownership immediately prior to such liquidation or dissolution, and such ongoing entity assumes all existing obligations of the Company to Executive under this Agreement; PAGE 6 (e) Any material breach of this Agreement by the Company; or (f) Any determination by the Board not to automatically extend the term of this Agreement pursuant to Section 2.2 6.5 Resignation by Executive Following A Change in Control. Executive may resign from the Company's employ during the thirty (30) day period commencing on the first anniversary following a Change in Control of the Company for any reason by providing the Company with a written notice of termination. Should Executive notify the Company that Good Reason exists at any time within the twenty-four (24) months following a Change in Control and should the event constituting Good Reason continue for more than ten (10) days following Executive's notice, Executive may, at his option, immediately resign or resign at any time during such twenty-four month period and any such resignation shall be treated as a resignation for Good Reason under this Agreement. For purposes of this Agreement, a Change in Control of the Company means the occurrence of one of the following events: (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes, after the Effective Date, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the Company's then outstanding securities eligible to vote for the election of the Company's Board of Directors (the "Company Voting Securities"); provided, that an event described in this paragraph (a) shall not be a Change in Control if any of the following becomes such a beneficial owner: (i) the Company or any majority-owned subsidiary of the Company (a "Subsidiary"), (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) any underwriter temporarily holding securities pursuant to an offering of such securities, (iv) [Goldman Sachs Capital Partners, Highland Capital and Van Kampen], (v) Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive),or (vi) a beneficial owner of less than twenty-five percent (25%) of the Company Voting Securities that becomes a beneficial owner of twenty-five percent (25%) or more of the Company Voting Securities solely by reason of redemption of such securities by the Company; (b) the consummation of a merger, consolidation or reorganization of the Company (a "Business Combination"), unless, following such Business Combination, the owners of the Company Voting Securities immediately prior to such Business Combination (or their affiliates) beneficially own, directly or indirectly, fifty percent (50%) or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the directors of the corporation resulting from such Business Combination (a "Non- Qualifying Transaction"); or PAGE 7 (c) during any period of twenty-four (24) consecutive months after the Effective Date, the failure (for any reason other than death) of individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") to constitute at least a majority of the Board; provided that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director is elected by, or on the recommendation of (i) or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such twenty-four (24) month period) or by prior operation of this Section 6.5(c) or (ii) any person described in clause (iv) of Section 6.5(a) above pursuant to contractual rights as of the Effective Date with respect to Company Voting Securities owned by such person.) The initial public offering of common stock of the Company pursuant to a registration statement filed under the Securities Act of 1933, as amended (a "Public Offering"), the commencement of proceedings under the Bankruptcy Code with respect to the Company, or the acquisition of equity in the Company or its successor pursuant to a plan of reorganization approved by a bankruptcy court with respect to the Company shall not be treated as a Change in Control for purposes of this Agreement. 6.6 Termination by the Company without Cause. In addition to any termination of Executive's employment with the Company and its subsidiaries for reasons described in the foregoing provisions of this Section 6, the Company may terminate such employment at any time without Cause. Such determination shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors ("Board") at a meeting of the Board called and held for such purpose. The Board shall provide Executive with written determination of its decision no less than thirty (30) days prior to the effective date of such employment termination.. 7. Severance Upon an Event of Termination. 7.1 General Provision. Upon termination of Executive's employment by the Company during the Term, Executive shall be entitled to no further compensation hereunder other than (i) Executive's accrued and unpaid Base Salary through the date of termination, (ii) any benefits accrued and vested under the terms of the Company's employee benefit plans and programs through the date of termination and (iii) any other payments or benefits specifically provided in Sections 4.7 and 7 of this Agreement. 7.2 Termination Due to Death or Disability. Upon Executive's employment termination due to his death or Disability, the Company shall pay to Executive (or to his estate) (i) Executive's Base Salary and benefits as if Executive's employment had terminated on the last day of the month; (ii) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (iii) if any bonus, under any bonus plan shall be payable in respect of any years ending prior to the date Executive's employment terminates, the bonus(es) set forth in section 7.2 (ii) above shall be further pro-rated from the beginning of the fiscal year to the last day of the month of Executive's employment termination. In addition, all restricted stock, stock options and performance share awards made to Executive shall automatically become fully vested and immediately exercisable as of the date of death (or in the case of Disability, as of the date employment terminates). PAGE 8 7.3 Termination for Cause. Upon Executive's employment termination for Cause, the Company shall pay to Executive all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. 7.4 Severance. Upon Executive's employment termination by the Company without Cause or by Executive for Good Reason or by Executive in accordance with Section 6.5 following a Change in Control, the Company shall, subject to the provisions of Section 10 and 11 below, provide the following to Executive (or, in the event of Executive's subsequent death, his beneficiary or beneficiaries or his estate, as provided): (a) Accrued Bonuses. The Company shall pay to Executive (or his estate) any accrued and unpaid bonuses in respect of years ending prior to the date of termination, and a pro rata bonus for the portion of the year preceding the date of termination in the actual amount that would have been earned based on the Company's actual performance for the year, (b) Severance Pay. The Company shall provide to Executive (or his estate) as severance pay (the "Severance Payments") three (3) times Executive's Termination Base Salary (as defined below) plus three (3) times Executive's Average Incentive Compensation Award (as defined below). "Termination Base Salary" means the highest Base Salary paid to Executive in the three (3) years preceding his employment termination. "Incentive Compensation Award" means all cash bonuses awarded in consideration of services for the three (3) most recent fiscal years, divided by three (3), or if there was no cash incentive program in any of the three (3) most recent fiscal years, divided by the number of fiscal years for which such cash incentive program existed. For purposes of this calculation the "restructuring payment" which is payable upon the effective date of the Company's chapter 11 plan of reorganization in accordance with the Bankruptcy Order shall be treated as a cash bonus for the fiscal year in which such bonus is paid. The Incentive Compensation Award may not exceed 100% Executive's Termination Base Salary. PAGE 9 Payment under this section 7.4 (b) shall be made as follows: (i) In the event that Executive's employment is terminated pursuant to section 6.5 herein, Executive shall be paid his severance in a lump sum at the time of his termination; (ii) In the event that Executive's employment is terminated pursuant to sections 6.4 or 6.6 herein, the Company has the discretion to pay Executive his severance in either a lump sum at the time of his termination or in equal monthly installments over a thirty-six (36) month period. In the event that the Executive is paid in equal monthly installments over a thirty-six (36) month period, the severance funds shall be placed in escrow at the time of termination with an escrow agent to be agreed upon by both parties. In no event shall such payments be reduced for any reason, including the fact that Executive is employed by any other entity. (c) Benefit Continuation. The Company shall continue to provide, on the same basis as executive officers generally, the health and life insurance benefits (but excluding disability benefits) provided to Executive and his spouse and eligible dependants immediately prior to his date of termination for a period of two (2) years following the date of termination (provided that Executive continues to make all required employee contributions). In the event that Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to Executive an amount equal to the annual contribution, payments, credits or allocation made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if Executive's participation in any health, medical, or life insurance plan or program is barred, the Company shall obtain and pay for, on Executive's behalf, individual insurance plans, policies or programs that provide to Executive health, medical and life insurance coverage which is equivalent to the insurance coverage to which Executive was entitled prior to the date of termination. (d) Equity. All restricted stock, stock option and performance share awards made to Executive shall fully vest and be immediately exercisable for a period of ninety (90) days following the termination of Executive's employment. [8. Potential Change in Control. Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) that contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described in clause (i) or (ii), could result in a Change in Control, all restricted stock, stock option and performance share awards made to Executive shall become automatically fully vested and exercisable in order to provide Executive with a reasonable period to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and performance awards shall be deemed restored to the vesting and exercisability schedules in effect at the time of execution of such definitive agreement, and any action taken in contemplation of the consummation of the transactions anticipated to result in a Change in Control shall be null and void.] PAGE 10 9. Certain Tax Matters. The Company shall indemnify and hold Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made or benefit provided by the Company or a subsidiary (including any payment made under this paragraph) and any interest, penalties, and additions to tax imposed in connection therewith, and (ii) any federal, state or local income or employment tax imposed on any payment made pursuant to this paragraph. Executive shall not take the position on any tax return or other filing that any payment made or benefit provided by the Company is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment or benefit is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment, benefit or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, Executive shall contest such claim; provided, however, that the Company shall advance to Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 10. Duties Upon Termination. Executive agrees that he will, upon termination of his employment with the Company for any reason whatsoever, deliver to the Company any and all records, forms, contracts, memoranda, work papers, lists of names or other customer data and any other articles or papers which have come into his possession by reason of his employment with the Company or which he holds for the Company, regardless of whether or not any of said items were prepared by him, and he shall not retain memoranda or copies of any of said items. Executive shall assign to the Company all rights to trade secrets and the products relating to the Company's business developed by him alone or in conjunction with others at any time alike employed by the Company. Notwithstanding anything herein to the contrary, Executive may retain this Agreement, any documents relating to this Agreement and any documents relating to Executive's compensation, benefits, retirement plans and deferred compensation plans. PAGE 11 11. Post-Termination Obligations. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with the following provisions. 11.1 Confidential Information. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries or its affiliates, or to any businesses operated by them, including, without limitation, any customer lists; and Executive confirms that such information constitutes the exclusive property of the Company. For purposes of this Section 11.1, confidential information shall not include any information that is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, during the term of this Agreement, Executive may reveal information, as necessary, pursuant to his conducting Company business. 11.2 Competitive Conduct. During the term of this Agreement and for a further period of two (2) years thereafter, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity for the benefit of any person: (a) solicit any person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of the Company, in any manner which interferes or might interfere with such person's relationship with the Company, or in an effort to obtain such person as a customer, supplier, employee, salesman, agent or representative of any business in competition with the Company which business conducts operations within fifteen (15) miles of any office or facility owned, leased or operated by the Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (b) establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent (1%) of the stock of a corporation whose shares are publicly traded) management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person in any business in competition with the Company if such person has any office or facility, at any location within fifteen (15) miles of any office or facility owned, leased or operated by the Company or conducts substantial business in any county, or similar political subdivision in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of the Company. 11.3 Failure of Executive to Comply. If for any reason other than death or disability, Executive shall, without written consent of the Company, fail to comply with the provisions of this Section 11, his rights to any future payments or other benefits hereunder shall terminate (without prejudice to any other rights, including recovery of damages of the Company), and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this Section 11 shall be deemed to have occurred unless and until Executive receives written notice from the Company specifying the conduct alleged to constitute such failure. PAGE 12 11.4 Remedies. Executive agrees that monetary damages would not be adequate compensation for any loss incurred by the Company by reason of a breach of the provisions of Sections 10 and 11 of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, agreements and other provisions of Sections 10 and 11 specifically performed by Executive, and the Company shall have the right to obtain preliminary injunctive relief to secure specific performance and to prevent a breach of Section 10 or 11. The existence of any claim or cause of action which Executive or any other person may have against the Company shall not constitute a defense or bar to the enforcement of Section 10 or 11. If the Company is obliged to resort to litigation to enforce a covenant in Section 10 or 11 that contains a fixed term, then such fixed term shall be extended for a period of time equal to the period during which a material breach of such covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such covenant. 11.5 Consideration. Executive expressly acknowledges that the covenants contained in Sections 10 and 11 are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the covenants contained in such sections, the Company would not have agreed to enter into this Agreement. 11.6 Scope. If any portion of the covenants contained in Section 10 or 11 or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the such covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such covenant shall then be enforceable in its reduced or limited for. 12. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and, upon effectiveness of this Agreement pursuant to Section 2 hereof, supersedes all prior agreements and discussions between the Company and Executive but is not in any way intended to supersede the Bankruptcy Order. 13. General Provisions. 13.1 Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitration shall be selected by alternatively striking form a list of five (5) arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys' fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, expert witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorneys' fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other that then arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorneys' fees related to such action. PAGE 13 13.2 Legal Expenses. Except as otherwise provided in Section 13.1, in the event Executive prevails as to any material issue in any legal proceeding to enforce the terms of this Agreement, the Company shall reimburse Executive for reasonable legal costs incurred in connection therewith. 13.3 Mitigation. Executive shall not be obligated to seek other employment or take any other action to mitigate any severance benefits hereunder. 13.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Company and Executive and his heirs, executors, legal representatives, successors and permitted assigns. Unless clearly inapplicable, reference herein to the Company shall be deemed to include its successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void, without effect. 13.5 Severability. In the event any provision of this Agreement or any part hereof is held invalid, such invalidity shall not affect any remaining part of such provision or any other provision, and to this end, the provisions of this Agreement are intended to be and shall be deemed severable. If any court construes any provision of this Agreement to be illegal, void or unenforceable because of the duration or the area or matter covered thereby, such court shall reduce the duration, area or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced. PAGE 14 13.6 Withholding. Employer may withhold from any amounts payable under this Agreement such taxes and governmentally required withholdings as may be required to be withheld pursuant to any applicable law or regulation. 14. Modification and Waiver. 14.1 Amendment of Agreement. Except for increases in compensation made as provided in Section 4.1, this Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 14.2 Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 15. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: George V. Hager, Jr. 320 Bellevue Avenue Haddonfield, NJ 08033 with a copy: To the Company at: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department And with a copy to: [Members of/The Chairman of] the Compensation Committee PAGE 15 16. Governing Law. The parties hereto intend that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, all as of the day and year first above written. GENESIS HEALTH VENTURES, INC. /s/ Michael R. Walker ------------------------------------ By: Name: Michael R. Walker Title: Chief Executive Officer /s/ George V. Hager, Jr. ------------------------------------ GEORGE V. HAGER, JR. Acknowledged on Behalf of the Board: /s/ James Wankmiller - ------------------------------------------ Name: James Wankmiller Title: Sr. Vice President, General Counsel and Corporate Secretary PAGE 16 EX-10 10 ex10-20.txt EXHIBIT 10.20 Exhibit 10.20 EMPLOYMENT AGREEMENT This Agreement is made as of this 2nd day of October, 2001, by and between GENESIS HEALTH VENTURES, INC., a Delaware corporation (the "Company"), and RICHARD R. HOWARD ("Executive"). WHEREAS, the Company desires to continue to employ Executive, and Executive desires to remain employed by the Company, in accordance with the terms and conditions stated below; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Employment. The Company agrees to continue to employ Executive, and Executive agrees to remain an employee of the Company, for the period stated in Section 2 hereof and upon the terms and conditions herein provided. 2. Term. 2.1 Relevant Dates. The period of Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 6, continue for a three year period (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2.2, and if the Term has not been terminated pursuant to Section 6, on the first anniversary of this Agreement and on each successive anniversary thereafter (each such anniversary an "Automatic Extension") the Term shall be extended for an additional period of one year. 2.2 Non-Renewal Procedure. The Company (with the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or Executive may elect to terminate the automatic extension of this Agreement described in Section 2.1 by giving written notice of such election. Any notice given hereunder must be given not less than sixty (60) days prior to the applicable Automatic Extension Date. 3. Position and Responsibilities. 3.1 Position. The Company agrees to employ Executive in the position of Vice Chairman of the Company , and Executive agrees to perform such services and have such duties and responsibilities, not inconsistent with his position as Vice Chairman, customarily associated with and incidental to such positions and as may from time to time be reasonably assigned to him by the Board. Executive further agrees to serve as an executive officer or director of any subsidiaries of the Company without additional compensation. 3.2 Duties. During the period of his employment hereunder Executive shall devote all of his business time, attention, skill and efforts to the earnest and faithful performance of his duties; provided, however, that Executive may serve as a member of the board of directors of corporations or similar positions with other organizations which, in the Board's judgment, will not present any conflict of interest with the Company or any of its subsidiaries, or materially interfere with the performance of Executive's services, duties or responsibilities pursuant to this Agreement. Executive has disclosed to the Board all current boards of directors on which he is a member and shall disclose any additional boards of directors that Executive desires to join. 3.3 Place of Employment. Executive shall perform his duties hereunder at the Company's executive office located in Kennett Square, Pennsylvania, and shall travel to the Company's other offices or locations as may be necessary or appropriate for him to perform his duties hereunder. 4. Compensation and Benefits. 4.1 Salary. For all services rendered by Executive as Vice Chairman or as an officer or director of any subsidiary of the Company during his employment under this Agreement, the Company shall pay Executive a base salary at the annual rate of $500,000. During the Term, Executive's base salary shall be reviewed at least annually, with the first such annual review on the first anniversary of this Agreement. Such review shall be conducted by a committee comprised of individuals designated by the Board from its members (the "Compensation Committee"), and the Compensation Committee may increase said base salary. The annual base salary payable to Executive in any year is referred to herein as the "Base Salary" for such year. 4.2 Annual Bonus. For each fiscal year of the Company during the term of this Agreement, the Company shall afford Executive the opportunity to earn an incentive bonus ("Bonus") under the terms of the Genesis Health Venture, Inc. Incentive Program or similar program. The aggregate target Bonus payable to Executive under such program(s) shall equal at least 50% of the Base Salary for such fiscal year, and shall be payable at the discretion of the Compensation Committee, upon the achievement of certain targets (which shall be set by the Compensation Committee within the first three (3) months of such year). 4.3 Equity Incentive. (a) Stock Option. The Company shall, pursuant to the terms of its stock option plan or any similar plan, grant to Executive as of the Effective Date one or more options to acquire an aggregate of 75,000 shares of common stock of the Company ("Company Stock"). The exercise price of the shares shall be established at the time of the grant and shall be less than or equal to the fair market value of the stock at the time of the grant. The stock options shall vest with respect to the shares subject thereto in equal installments on each of the first three (3) anniversaries of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, the stock options shall fully and immediately vest on (i) a Change in Control (as defined in Section 6.5), (ii) any termination of Executive's employment with the Company by the Company without Cause (as defined in Section 6.3(b) or because of Executive's death or Disability (as defined in Section 6.2), or (iii) any termination of Executive's employment by Executive's resignation for Good Reason (as defined in Section 6.4). The stock options shall have a ten (10) year term subject to earlier termination of such options on account of (i) Executive's termination of employment for any reason or (ii) a Change in Control in which the stock options are not assumed or replaced by the Company or its successor. The stock options shall be "incentive stock options" to the fullest extent permitted. (b) Restricted Stock Award. The Company shall make a restricted stock award to Executive as of the Effective Date of 75,000 shares of Company Stock. The shares underlying the restricted stock award shall vest in equal quarterly installments (3,750 shares per installment) over a five (5) year period, commencing three months after the anniversary of the Effective Date and continuing every three months thereafter until the fifth anniversary of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, all shares of Company Stock underlying the restricted stock award shall fully and immediately vest on (i) a Change in Control, (ii) any termination of Executive's employment with the Company by the Company without Cause or because of Executive's death or Disability, or (iii) any termination of Executive's employment by Executive's resignation for Good Reason. 4.4 Participation in Benefit Plans and Perquisites. Executive shall be entitled to participate in each employee benefit plan or perquisite applicable generally to executive officers of the Company (including health, life insurance, long-term disability and deferred compensation benefits, but excluding any severance benefit or termination pay plan) in accordance with the provisions thereof. Notwithstanding the foregoing, Executive shall not be entitled to receive any additional benefits or awards under discretionary plans or programs of the Company unless the Executive Board of the Company (or the Compensation Board) exercises the necessary discretion to provide Executive with such benefits or awards. 4.5 Executive Life Insurance. The Company shall provide Executive with term life insurance providing a death benefit of at least $3,000,000 to Executive's designated beneficiaries. 4.6 Vacation and Holidays. Executive shall be entitled to vacation in accordance with the Company's vacation policy in effect from time to time for its executive officers, but not less than five (5) weeks in each full calendar year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days that are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. 4.7 Forgiveness of Note. As a condition to continued employment in 1998, Executive was required to purchase a substantial amount of the Company's common stock based on and exceeding Executive's annual salary. In connection therewith, Executive borrowed funds from the Company for such stock purchases and executed a promissory note in favor of the Company (the "Note"). A copy of the Note is annexed hereto as Exhibit "A". Pursuant to the February 23, 2001 Order of the Bankruptcy Court (the "Bankruptcy Order"), in the event that (i) Executive remains employed by the Company for one (1) year following the date of this Agreement or, (ii) Executive's employment is terminated because of (A) his death or Disability (pursuant to Section 6.2 of this Agreement), (B) his termination for cause (pursuant to Section 6.3 of this Agreement) (C) his resignation for Good Reason (pursuant to Section 6.4 of this Agreement), (D) his resignation following a Change in Control (pursuant to Section 6.5 of this Agreement) or (E) termination by the Company without Cause (pursuant to Section 6.6 of this Agreement), the Company will release Executive from his obligations under the Note and cancel any related indebtedness and will also reimburse Executive for any federal or state income taxes he owes as a result of such release and cancellation. 5. Reimbursement of Expenses. The Company shall pay or reimburse Executive for all reasonable business expenses incurred by Executive in performing his obligations under this Agreement in accordance with its business expense policies in effect from time to time. 6. Events of Termination of Employment. 6.1 Expiration of Term. Executive's employment with the Company and its subsidiaries shall cease automatically on the expiration of the term of this Agreement pursuant to Section 2 hereof. 6.2 Death or Disability. Executive's employment with the Company and its subsidiaries shall automatically terminate on Executive's death. Executive's employment shall terminate thirty (30) days after Executive is notified that his employment is terminated for Disability (provided Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period). For purposes of this Agreement, "Disability" means an incapacity due to a physical or mental condition which causes Executive to be unable to substantially perform his duties under this Agreement on a full-time basis for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating more than six (6) months in any twelve (12) month period. "Disabling Condition" shall mean such an incapacity that does not meet the time requirements for Disability. The Company may temporarily relieve Executive from his duties and responsibilities during any period that he has a Disabling Condition, provided that Executive shall be immediately restored to his duties and responsibilities if Executive is able to resume his duties on a full-time basis prior to his termination for Disability. Executive agrees to submit to reasonable medical examination upon the reasonable request, and at the expense, of the Company during any period when he (or his representative) claims that he has a Disabling Condition. 6.3 Termination by Company for Cause. (a) The Company may, following any determination by the Board that Cause exists, terminate Executive's employment with the Company and its subsidiaries for Cause by notice to Executive describing the reasons for such termination. In the event the Board believes Cause may exist for termination of Executive's employment, the Board shall provide written notice to Executive describing the basis for such belief. Executive shall be afforded a reasonable period of time to and shall fully and promptly address, to the extent of Executive's knowledge, any concerns raised by the Board regarding the existence of Cause. The Company may temporarily relieve Executive from his duties and responsibilities pending the outcome of any proceeding of the Board to determine if Cause exists; provided that Executive shall be immediately restored to his duties and responsibilities if the Board determines that Cause does not exist or fails to render a prompt determination following the substantial completion of its investigation. The final determination that Executive's employment shall be terminated for Cause shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board at a meeting of the Board duly called and held upon at least fifteen (15) days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel are entitled to be present and are given a reasonable opportunity to be heard). (b) For purposes of this Section 6.3, "Cause" means any of the following events with respect to Executive: (i) Executive has been convicted of, or pleads guilty or nolo contendere to, any crime or offense constituting a felony under applicable law (whether or not involving the Company or any of its subsidiaries), including, without limitation, embezzlement, theft, larceny or any crime of moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment; (ii) Executive's commission of a material act of fraud or dishonesty against the Company or any of its subsidiaries, or Executive's willful engaging in conduct which is significantly injurious to the Company or any of its subsidiaries, monetarily or otherwise; (iii) Executive's abuse of illegal drugs and other controlled substances or Executive's habitual intoxication, which conduct continues after written demand for cessation of such conduct is delivered to Executive by the Board; (iv) Any willful, continuous or gross neglect of or refusal to perform Executive's duties or responsibilities, in each case which continues after detailed written notice thereof has been given to Executive; or (v) The willful taking of actions by Executive which directly and materially impair Executive's ability to perform his duties and responsibilities hereunder, or willful misconduct (including gross and willful violation of any written policies of the Company), provided, however, that "Cause" shall not include a bona fide disagreement over corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 6.4 Resignation by Executive for Good Reason. Upon the occurrence of any event described in this Section 6.4 below, Executive shall have the right to elect to terminate his employment under this Agreement from all (but not less than all) positions with the Company and its subsidiaries by resignation, upon not less than thirty (30) days' prior written notice given within ninety (90) days after the event purportedly giving rise to Executive's right to elect; provided, however, that the Company has not cured or otherwise corrected such event prior to the expiration of such 30-day period. (a) Any reduction by the Company of Executive's Base Salary; (b) Any relocation of Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location more than forty-five (45) miles beyond the Borough of Kennett Square, Pennsylvania; (c) The assignment to Executive by the Company of any duties inconsistent with Executive's status with the Company or a substantial alteration in the nature of status of Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in Executive's titles or offices as in effect immediately prior to the date hereof or any removal of Executive from, or any failure to elect, re-elect or appoint Executive to any such positions (including, without limitation, the position of Vice Chairman, other than as a result of Executive's death, termination of employment (and other than as a result of Executive's Disabling Condition or pending a determination that Cause exists), or the failure to restore Executive to his responsibilities following his recovery from a Disabling Condition prior to his employment termination or following a determination that Cause does not exist; (d) Any liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the same persons in substantially the same proportions as such persons' ownership immediately prior to such liquidation or dissolution, and such ongoing entity assumes all existing obligations of the Company to Executive under this Agreement; (e) Any material breach of this Agreement by the Company; or (f) Any determination by the Board not to automatically extend the term of this Agreement pursuant to Section 2.2 6.5 Resignation by Executive Following A Change in Control. Executive may resign from the Company's employ during the thirty (30) day period commencing on the first anniversary following a Change in Control of the Company for any reason by providing the Company with a written notice of termination. Should Executive notify the Company that Good Reason exists at any time within the twenty-four (24) months following a Change in Control and should the event constituting Good Reason continue for more than ten (10) days following Executive's notice, Executive may, at his option, immediately resign or resign at any time during such twenty-four month period and any such resignation shall be treated as a resignation for Good Reason under this Agreement. For purposes of this Agreement, a Change in Control of the Company means the occurrence of one of the following events: (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes, after the Effective Date, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the Company's then outstanding securities eligible to vote for the election of the Company's Board of Directors (the "Company Voting Securities"); provided, that an event described in this paragraph (a) shall not be a Change in Control if any of the following becomes such a beneficial owner: (i) the Company or any majority-owned subsidiary of the Company (a "Subsidiary"), (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) any underwriter temporarily holding securities pursuant to an offering of such securities, (iv) [Goldman Sachs Capital Partners, Highland Capital and Van Kampen], (v) Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive),or (vi) a beneficial owner of less than twenty-five percent (25%) of the Company Voting Securities that becomes a beneficial owner of twenty-five percent (25%) or more of the Company Voting Securities solely by reason of redemption of such securities by the Company; (b) the consummation of a merger, consolidation or reorganization of the Company (a "Business Combination"), unless, following such Business Combination, the owners of the Company Voting Securities immediately prior to such Business Combination (or their affiliates) beneficially own, directly or indirectly, fifty percent (50%) or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the directors of the corporation resulting from such Business Combination (a "Non- Qualifying Transaction"); or (c) during any period of twenty-four (24) consecutive months after the Effective Date, the failure (for any reason other than death) of individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") to constitute at least a majority of the Board; provided that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director is elected by, or on the recommendation of (i) or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such twenty-four (24) month period) or by prior operation of this Section 6.5(c) or (ii) any person described in clause (iv) of Section 6.5(a) above pursuant to contractual rights as of the Effective Date with respect to Company Voting Securities owned by such person.) The initial public offering of common stock of the Company pursuant to a registration statement filed under the Securities Act of 1933, as amended (a "Public Offering"), the commencement of proceedings under the Bankruptcy Code with respect to the Company, or the acquisition of equity in the Company or its successor pursuant to a plan of reorganization approved by a bankruptcy court with respect to the Company shall not be treated as a Change in Control for purposes of this Agreement. 6.6 Termination by the Company without Cause. In addition to any termination of Executive's employment with the Company and its subsidiaries for reasons described in the foregoing provisions of this Section 6, the Company may terminate such employment at any time without Cause. Such determination shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors ("Board") at a meeting of the Board called and held for such purpose. The Board shall provide Executive with written determination of its decision no less than thirty (30) days prior to the effective date of such employment termination.. 7. Severance Upon an Event of Termination. 7.1 General Provision. Upon termination of Executive's employment by the Company during the Term, Executive shall be entitled to no further compensation hereunder other than (i) Executive's accrued and unpaid Base Salary through the date of termination, (ii) any benefits accrued and vested under the terms of the Company's employee benefit plans and programs through the date of termination and (iii) any other payments or benefits specifically provided in Sections 4.7 and 7 of this Agreement. 7.2 Termination Due to Death or Disability. Upon Executive's employment termination due to his death or Disability, the Company shall pay to Executive (or to his estate) (i) Executive's Base Salary and benefits as if Executive's employment had terminated on the last day of the month; (ii) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (iii) if any bonus, under any bonus plan shall be payable in respect of any years ending prior to the date Executive's employment terminates, the bonus(es) set forth in section 7.2 (ii) above shall be further pro-rated from the beginning of the fiscal year to the last day of the month of Executive's employment termination. In addition, all restricted stock, stock options and performance share awards made to Executive shall automatically become fully vested and immediately exercisable as of the date of death (or in the case of Disability, as of the date employment terminates). 7.3 Termination for Cause. Upon Executive's employment termination for Cause, the Company shall pay to Executive all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. 7.4 Severance. Upon Executive's employment termination by the Company without Cause or by Executive for Good Reason or by Executive in accordance with Section 6.5 following a Change in Control, the Company shall, subject to the provisions of Section 10 and 11 below, provide the following to Executive (or, in the event of Executive's subsequent death, his beneficiary or beneficiaries or his estate, as provided): (a) Accrued Bonuses. The Company shall pay to Executive (or his estate) any accrued and unpaid bonuses in respect of years ending prior to the date of termination, and a pro rata bonus for the portion of the year preceding the date of termination in the actual amount that would have been earned based on the Company's actual performance for the year, (b) Severance Pay. The Company shall provide to Executive (or his estate) as severance pay (the "Severance Payments") three (3) times Executive's Termination Base Salary (as defined below) plus three (3) times Executive's Average Incentive Compensation Award (as defined below). "Termination Base Salary" means the highest Base Salary paid to Executive in the three (3) years preceding his employment termination. "Incentive Compensation Award" means all cash bonuses awarded in consideration of services for the three (3) most recent fiscal years, divided by three (3), or if there was no cash incentive program in any of the three (3) most recent fiscal years, divided by the number of fiscal years for which such cash incentive program existed. For purposes of this calculation the "restructuring payment" which is payable upon the effective date of the Company's chapter 11 plan of reorganization in accordance with the Bankruptcy Order shall be treated as a cash bonus for the fiscal year in which such bonus is paid. The Incentive Compensation Award may not exceed 100% Executive's Termination Base Salary. Payment under this section 7.4 (b) shall be made as follows: (i) In the event that Executive's employment is terminated pursuant to section 6.5 herein, Executive shall be paid his severance in a lump sum at the time of his termination; (ii) In the event that Executive's employment is terminated pursuant to sections 6.4 or 6.6 herein, the Company has the discretion to pay Executive his severance in either a lump sum at the time of his termination or in equal monthly installments over a thirty-six (36) month period. In the event that the Executive is paid in equal monthly installments over a thirty-six (36) month period, the severance funds shall be placed in escrow at the time of termination with an escrow agent to be agreed upon by both parties. In no event shall such payments be reduced for any reason, including the fact that Executive is employed by any other entity. (c) Benefit Continuation. The Company shall continue to provide, on the same basis as executive officers generally, the health and life insurance benefits (but excluding disability benefits) provided to Executive and his spouse and eligible dependants immediately prior to his date of termination for a period of two (2) years following the date of termination (provided that Executive continues to make all required employee contributions). In the event that Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to Executive an amount equal to the annual contribution, payments, credits or allocation made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if Executive's participation in any health, medical, or life insurance plan or program is barred, the Company shall obtain and pay for, on Executive's behalf, individual insurance plans, policies or programs that provide to Executive health, medical and life insurance coverage which is equivalent to the insurance coverage to which Executive was entitled prior to the date of termination. (d) Equity. All restricted stock, stock option and performance share awards made to Executive shall fully vest and be immediately exercisable for a period of ninety (90) days following the termination of Executive's employment. [8. Potential Change in Control. Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) that contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described in clause (i) or (ii), could result in a Change in Control, all restricted stock, stock option and performance share awards made to Executive shall become automatically fully vested and exercisable in order to provide Executive with a reasonable period to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and performance awards shall be deemed restored to the vesting and exercisability schedules in effect at the time of execution of such definitive agreement, and any action taken in contemplation of the consummation of the transactions anticipated to result in a Change in Control shall be null and void.] 9. Certain Tax Matters. The Company shall indemnify and hold Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made or benefit provided by the Company or a subsidiary (including any payment made under this paragraph) and any interest, penalties, and additions to tax imposed in connection therewith, and (ii) any federal, state or local income or employment tax imposed on any payment made pursuant to this paragraph. Executive shall not take the position on any tax return or other filing that any payment made or benefit provided by the Company is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment or benefit is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment, benefit or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, Executive shall contest such claim; provided, however, that the Company shall advance to Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 10. Duties Upon Termination. Executive agrees that he will, upon termination of his employment with the Company for any reason whatsoever, deliver to the Company any and all records, forms, contracts, memoranda, work papers, lists of names or other customer data and any other articles or papers which have come into his possession by reason of his employment with the Company or which he holds for the Company, regardless of whether or not any of said items were prepared by him, and he shall not retain memoranda or copies of any of said items. Executive shall assign to the Company all rights to trade secrets and the products relating to the Company's business developed by him alone or in conjunction with others at any time alike employed by the Company. Notwithstanding anything herein to the contrary, Executive may retain this Agreement, any documents relating to this Agreement and any documents relating to Executive's compensation, benefits, retirement plans and deferred compensation plans. 11. Post-Termination Obligations. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with the following provisions. 11.1 Confidential Information. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries or its affiliates, or to any businesses operated by them, including, without limitation, any customer lists; and Executive confirms that such information constitutes the exclusive property of the Company. For purposes of this Section 11.1, confidential information shall not include any information that is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, during the term of this Agreement, Executive may reveal information, as necessary, pursuant to his conducting Company business. 11.2 Competitive Conduct. During the term of this Agreement and for a further period of two (2) years thereafter, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity for the benefit of any person: (a) solicit any person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of the Company, in any manner which interferes or might interfere with such person's relationship with the Company, or in an effort to obtain such person as a customer, supplier, employee, salesman, agent or representative of any business in competition with the Company which business conducts operations within fifteen (15) miles of any office or facility owned, leased or operated by the Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (b) establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent (1%) of the stock of a corporation whose shares are publicly traded) management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person in any business in competition with the Company if such person has any office or facility, at any location within fifteen (15) miles of any office or facility owned, leased or operated by the Company or conducts substantial business in any county, or similar political subdivision in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of the Company. 11.3 Failure of Executive to Comply. If for any reason other than death or disability, Executive shall, without written consent of the Company, fail to comply with the provisions of this Section 11, his rights to any future payments or other benefits hereunder shall terminate (without prejudice to any other rights, including recovery of damages of the Company), and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this Section 11 shall be deemed to have occurred unless and until Executive receives written notice from the Company specifying the conduct alleged to constitute such failure. 11.4 Remedies. Executive agrees that monetary damages would not be adequate compensation for any loss incurred by the Company by reason of a breach of the provisions of Sections 10 and 11 of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, agreements and other provisions of Sections 10 and 11 specifically performed by Executive, and the Company shall have the right to obtain preliminary injunctive relief to secure specific performance and to prevent a breach of Section 10 or 11. The existence of any claim or cause of action which Executive or any other person may have against the Company shall not constitute a defense or bar to the enforcement of Section 10 or 11. If the Company is obliged to resort to litigation to enforce a covenant in Section 10 or 11 that contains a fixed term, then such fixed term shall be extended for a period of time equal to the period during which a material breach of such covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such covenant. 11.5 Consideration. Executive expressly acknowledges that the covenants contained in Sections 10 and 11 are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the covenants contained in such sections, the Company would not have agreed to enter into this Agreement. 11.6 Scope. If any portion of the covenants contained in Section 10 or 11 or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the such covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such covenant shall then be enforceable in its reduced or limited for. 12. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and, upon effectiveness of this Agreement pursuant to Section 2 hereof, supersedes all prior agreements and discussions between the Company and Executive but is not in any way intended to supersede the Bankruptcy Order. 13. General Provisions. 13.1 Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitration shall be selected by alternatively striking form a list of five (5) arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys' fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, expert witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorneys' fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other that then arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorneys' fees related to such action. 13.2 Legal Expenses. Except as otherwise provided in Section 13.1, in the event Executive prevails as to any material issue in any legal proceeding to enforce the terms of this Agreement, the Company shall reimburse Executive for reasonable legal costs incurred in connection therewith. 13.3 Mitigation. Executive shall not be obligated to seek other employment or take any other action to mitigate any severance benefits hereunder. 13.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Company and Executive and his heirs, executors, legal representatives, successors and permitted assigns. Unless clearly inapplicable, reference herein to the Company shall be deemed to include its successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void, without effect. 13.5 Severability. In the event any provision of this Agreement or any part hereof is held invalid, such invalidity shall not affect any remaining part of such provision or any other provision, and to this end, the provisions of this Agreement are intended to be and shall be deemed severable. If any court construes any provision of this Agreement to be illegal, void or unenforceable because of the duration or the area or matter covered thereby, such court shall reduce the duration, area or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced. 13.6 Withholding. Employer may withhold from any amounts payable under this Agreement such taxes and governmentally required withholdings as may be required to be withheld pursuant to any applicable law or regulation. 14. Modification and Waiver. 14.1 Amendment of Agreement. Except for increases in compensation made as provided in Section 4.1, this Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 14.2 Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 15. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: Richard R. Howard 2280 S. Chester Springs Road Chester Springs, PA 19425 with a copy: To the Company at: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department And with a copy to: [Members of/The Chairman of] the Compensation Committee 16. Governing Law. The parties hereto intend that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, all as of the day and year first above written. GENESIS HEALTH VENTURES, INC. /s/ Michael R. Walker ------------------------------------ By: Name: Michael R. Walker Title: Chief Executive Officer /s/ Richard R. Howard ------------------------------------ RICHARD R. HOWARD Acknowledged on Behalf of the Board: /s/ James Wankmiller - ------------------------------------------ Name: James Wankmiller Title: Sr. Vice President, General Counsel and Corporate Secretary EX-10 11 ex10-21.txt EXHIBIT 10.21 Exhibit 10.21 EMPLOYMENT AGREEMENT This Agreement is made as of this 2nd day of October, 2001, by and between GENESIS HEALTH VENTURES, INC., a Delaware corporation (the "Company"), and DAVID C. BARR ("Executive"). WHEREAS, the Company desires to continue to employ Executive, and Executive desires to remain employed by the Company, in accordance with the terms and conditions stated below; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Employment. The Company agrees to continue to employ Executive, and Executive agrees to remain an employee of the Company, for the period stated in Section 2 hereof and upon the terms and conditions herein provided. 2. Term. 2.1 Relevant Dates. The period of Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 6, continue for a three year period (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2.2, and if the Term has not been terminated pursuant to Section 6, on the first anniversary of this Agreement and on each successive anniversary thereafter (each such anniversary an "Automatic Extension") the Term shall be extended for an additional period of one year. 2.2 Non-Renewal Procedure. The Company (with the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or Executive may elect to terminate the automatic extension of this Agreement described in Section 2.1 by giving written notice of such election. Any notice given hereunder must be given not less than sixty (60) days prior to the applicable Automatic Extension Date. 3. Position and Responsibilities. 3.1 Position. The Company agrees to employ Executive in the position of Vice Chairman of the Company , and Executive agrees to perform such services and have such duties and responsibilities, not inconsistent with his position as Vice Chairman, customarily associated with and incidental to such positions and as may from time to time be reasonably assigned to him by the Board. Executive further agrees to serve as an executive officer or director of any subsidiaries of the Company without additional compensation. 3.2 Duties. During the period of his employment hereunder Executive shall devote all of his business time, attention, skill and efforts to the earnest and faithful performance of his duties; provided, however, that Executive may serve as a member of the board of directors of corporations or similar positions with other organizations which, in the Board's judgment, will not present any conflict of interest with the Company or any of its subsidiaries, or materially interfere with the performance of Executive's services, duties or responsibilities pursuant to this Agreement. Executive has disclosed to the Board all current boards of directors on which he is a member and shall disclose any additional boards of directors that Executive desires to join. 3.3 Place of Employment. Executive shall perform his duties hereunder at the Company's executive office located in Kennett Square, Pennsylvania, and shall travel to the Company's other offices or locations as may be necessary or appropriate for him to perform his duties hereunder. 4. Compensation and Benefits. 4.1 Salary. For all services rendered by Executive as Vice Chairman or as an officer or director of any subsidiary of the Company during his employment under this Agreement, the Company shall pay Executive a base salary at the annual rate of $500,000. During the Term, Executive's base salary shall be reviewed at least annually, with the first such annual review on the first anniversary of this Agreement. Such review shall be conducted by a committee comprised of individuals designated by the Board from its members (the "Compensation Committee"), and the Compensation Committee may increase said base salary. The annual base salary payable to Executive in any year is referred to herein as the "Base Salary" for such year. 4.2 Annual Bonus. For each fiscal year of the Company during the term of this Agreement, the Company shall afford Executive the opportunity to earn an incentive bonus ("Bonus") under the terms of the Genesis Health Venture, Inc. Incentive Program or similar program. The aggregate target Bonus payable to Executive under such program(s) shall equal at least 50% of the Base Salary for such fiscal year, and shall be payable at the discretion of the Compensation Committee, upon the achievement of certain targets (which shall be set by the Compensation Committee within the first three (3) months of such year). 4.3 Equity Incentive. (a) Stock Option. The Company shall, pursuant to the terms of its stock option plan or any similar plan, grant to Executive as of the Effective Date one or more options to acquire an aggregate of 75,000 shares of common stock of the Company ("Company Stock"). The exercise price of the shares shall be established at the time of the grant and shall be less than or equal to the fair market value of the stock at the time of the grant. The stock options shall vest with respect to the shares subject thereto in equal installments on each of the first three (3) anniversaries of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, the stock options shall fully and immediately vest on (i) a Change in Control (as defined in Section 6.5), (ii) any termination of Executive's employment with the Company by the Company without Cause (as defined in Section 6.3(b) or because of Executive's death or Disability (as defined in Section 6.2), or (iii) any termination of Executive's employment by Executive's resignation for Good Reason (as defined in Section 6.4). The stock options shall have a ten (10) year term subject to earlier termination of such options on account of (i) Executive's termination of employment for any reason or (ii) a Change in Control in which the stock options are not assumed or replaced by the Company or its successor. The stock options shall be "incentive stock options" to the fullest extent permitted. PAGE 2 (b) Restricted Stock Award. The Company shall make a restricted stock award to Executive as of the Effective Date of 75,000 shares of Company Stock. The shares underlying the restricted stock award shall vest in equal quarterly installments (3,750 shares per installment) over a five (5) year period, commencing three months after the anniversary of the Effective Date and continuing every three months thereafter until the fifth anniversary of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, all shares of Company Stock underlying the restricted stock award shall fully and immediately vest on (i) a Change in Control, (ii) any termination of Executive's employment with the Company by the Company without Cause or because of Executive's death or Disability, or (iii) any termination of Executive's employment by Executive's resignation for Good Reason. 4.4 Participation in Benefit Plans and Perquisites. Executive shall be entitled to participate in each employee benefit plan or perquisite applicable generally to executive officers of the Company (including health, life insurance, long-term disability and deferred compensation benefits, but excluding any severance benefit or termination pay plan) in accordance with the provisions thereof. Notwithstanding the foregoing, Executive shall not be entitled to receive any additional benefits or awards under discretionary plans or programs of the Company unless the Executive Board of the Company (or the Compensation Board) exercises the necessary discretion to provide Executive with such benefits or awards. 4.5 Executive Life Insurance. The Company shall provide Executive with term life insurance providing a death benefit of at least $3,000,000 to Executive's designated beneficiaries. 4.6 Vacation and Holidays. Executive shall be entitled to vacation in accordance with the Company's vacation policy in effect from time to time for its executive officers, but not less than five (5) weeks in each full calendar year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days that are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. PAGE 3 4.7 Forgiveness of Note. As a condition to continued employment in 1998, Executive was required to purchase a substantial amount of the Company's common stock based on and exceeding Executive's annual salary. In connection therewith, Executive borrowed funds from the Company for such stock purchases and executed a promissory note in favor of the Company (the "Note"). A copy of the Note is annexed hereto as Exhibit "A". Pursuant to the February 23, 2001 Order of the Bankruptcy Court (the "Bankruptcy Order"), in the event that (i) Executive remains employed by the Company for one (1) year following the date of this Agreement or, (ii) Executive's employment is terminated because of (A) his death or Disability (pursuant to Section 6.2 of this Agreement), (B) his termination for cause (pursuant to Section 6.3 of this Agreement) (C) his resignation for Good Reason (pursuant to Section 6.4 of this Agreement), (D) his resignation following a Change in Control (pursuant to Section 6.5 of this Agreement) or (E) termination by the Company without Cause (pursuant to Section 6.6 of this Agreement), the Company will release Executive from his obligations under the Note and cancel any related indebtedness and will also reimburse Executive for any federal or state income taxes he owes as a result of such release and cancellation. 5. Reimbursement of Expenses. The Company shall pay or reimburse Executive for all reasonable business expenses incurred by Executive in performing his obligations under this Agreement in accordance with its business expense policies in effect from time to time. 6. Events of Termination of Employment. 6.1 Expiration of Term. Executive's employment with the Company and its subsidiaries shall cease automatically on the expiration of the term of this Agreement pursuant to Section 2 hereof. 6.2 Death or Disability. Executive's employment with the Company and its subsidiaries shall automatically terminate on Executive's death. Executive's employment shall terminate thirty (30) days after Executive is notified that his employment is terminated for Disability (provided Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period). For purposes of this Agreement, "Disability" means an incapacity due to a physical or mental condition which causes Executive to be unable to substantially perform his duties under this Agreement on a full-time basis for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating more than six (6) months in any twelve (12) month period. "Disabling Condition" shall mean such an incapacity that does not meet the time requirements for Disability. The Company may temporarily relieve Executive from his duties and responsibilities during any period that he has a Disabling Condition, provided that Executive shall be immediately restored to his duties and responsibilities if Executive is able to resume his duties on a full-time basis prior to his termination for Disability. Executive agrees to submit to reasonable medical examination upon the reasonable request, and at the expense, of the Company during any period when he (or his representative) claims that he has a Disabling Condition. PAGE 4 6.3 Termination by Company for Cause. (a) The Company may, following any determination by the Board that Cause exists, terminate Executive's employment with the Company and its subsidiaries for Cause by notice to Executive describing the reasons for such termination. In the event the Board believes Cause may exist for termination of Executive's employment, the Board shall provide written notice to Executive describing the basis for such belief. Executive shall be afforded a reasonable period of time to and shall fully and promptly address, to the extent of Executive's knowledge, any concerns raised by the Board regarding the existence of Cause. The Company may temporarily relieve Executive from his duties and responsibilities pending the outcome of any proceeding of the Board to determine if Cause exists; provided that Executive shall be immediately restored to his duties and responsibilities if the Board determines that Cause does not exist or fails to render a prompt determination following the substantial completion of its investigation. The final determination that Executive's employment shall be terminated for Cause shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board at a meeting of the Board duly called and held upon at least fifteen (15) days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel are entitled to be present and are given a reasonable opportunity to be heard). (b) For purposes of this Section 6.3, "Cause" means any of the following events with respect to Executive: (i) Executive has been convicted of, or pleads guilty or nolo contendere to, any crime or offense constituting a felony under applicable law (whether or not involving the Company or any of its subsidiaries), including, without limitation, embezzlement, theft, larceny or any crime of moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment; (ii) Executive's commission of a material act of fraud or dishonesty against the Company or any of its subsidiaries, or Executive's willful engaging in conduct which is significantly injurious to the Company or any of its subsidiaries, monetarily or otherwise; (iii) Executive's abuse of illegal drugs and other controlled substances or Executive's habitual intoxication, which conduct continues after written demand for cessation of such conduct is delivered to Executive by the Board; (iv) Any willful, continuous or gross neglect of or refusal to perform Executive's duties or responsibilities, in each case which continues after detailed written notice thereof has been given to Executive; or PAGE 5 (v) The willful taking of actions by Executive which directly and materially impair Executive's ability to perform his duties and responsibilities hereunder, or willful misconduct (including gross and willful violation of any written policies of the Company), provided, however, that "Cause" shall not include a bona fide disagreement over corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 6.4 Resignation by Executive for Good Reason. Upon the occurrence of any event described in this Section 6.4 below, Executive shall have the right to elect to terminate his employment under this Agreement from all (but not less than all) positions with the Company and its subsidiaries by resignation, upon not less than thirty (30) days' prior written notice given within ninety (90) days after the event purportedly giving rise to Executive's right to elect; provided, however, that the Company has not cured or otherwise corrected such event prior to the expiration of such 30-day period. (a) Any reduction by the Company of Executive's Base Salary; (b) Any relocation of Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location more than forty-five (45) miles beyond the Borough of Kennett Square, Pennsylvania; (c) The assignment to Executive by the Company of any duties inconsistent with Executive's status with the Company or a substantial alteration in the nature of status of Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in Executive's titles or offices as in effect immediately prior to the date hereof or any removal of Executive from, or any failure to elect, re-elect or appoint Executive to any such positions (including, without limitation, the position of Vice Chairman, other than as a result of Executive's death, termination of employment (and other than as a result of Executive's Disabling Condition or pending a determination that Cause exists), or the failure to restore Executive to his responsibilities following his recovery from a Disabling Condition prior to his employment termination or following a determination that Cause does not exist; (d) Any liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the same persons in substantially the same proportions as such persons' ownership immediately prior to such liquidation or dissolution, and such ongoing entity assumes all existing obligations of the Company to Executive under this Agreement; PAGE 6 (e) Any material breach of this Agreement by the Company; or (f) Any determination by the Board not to automatically extend the term of this Agreement pursuant to Section 2.2 6.5 Resignation by Executive Following A Change in Control. Executive may resign from the Company's employ during the thirty (30) day period commencing on the first anniversary following a Change in Control of the Company for any reason by providing the Company with a written notice of termination. Should Executive notify the Company that Good Reason exists at any time within the twenty-four (24) months following a Change in Control and should the event constituting Good Reason continue for more than ten (10) days following Executive's notice, Executive may, at his option, immediately resign or resign at any time during such twenty-four month period and any such resignation shall be treated as a resignation for Good Reason under this Agreement. For purposes of this Agreement, a Change in Control of the Company means the occurrence of one of the following events: (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes, after the Effective Date, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the Company's then outstanding securities eligible to vote for the election of the Company's Board of Directors (the "Company Voting Securities"); provided, that an event described in this paragraph (a) shall not be a Change in Control if any of the following becomes such a beneficial owner: (i) the Company or any majority-owned subsidiary of the Company (a "Subsidiary"), (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) any underwriter temporarily holding securities pursuant to an offering of such securities, (iv) [Goldman Sachs Capital Partners, Highland Capital and Van Kampen], (v) Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive),or (vi) a beneficial owner of less than twenty-five percent (25%) of the Company Voting Securities that becomes a beneficial owner of twenty-five percent (25%) or more of the Company Voting Securities solely by reason of redemption of such securities by the Company; (b) the consummation of a merger, consolidation or reorganization of the Company (a "Business Combination"), unless, following such Business Combination, the owners of the Company Voting Securities immediately prior to such Business Combination (or their affiliates) beneficially own, directly or indirectly, fifty percent (50%) or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the directors of the corporation resulting from such Business Combination (a "Non- Qualifying Transaction"); or PAGE 7 (c) during any period of twenty-four (24) consecutive months after the Effective Date, the failure (for any reason other than death) of individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") to constitute at least a majority of the Board; provided that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director is elected by, or on the recommendation of (i) or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such twenty-four (24) month period) or by prior operation of this Section 6.5(c) or (ii) any person described in clause (iv) of Section 6.5(a) above pursuant to contractual rights as of the Effective Date with respect to Company Voting Securities owned by such person.) The initial public offering of common stock of the Company pursuant to a registration statement filed under the Securities Act of 1933, as amended (a "Public Offering"), the commencement of proceedings under the Bankruptcy Code with respect to the Company, or the acquisition of equity in the Company or its successor pursuant to a plan of reorganization approved by a bankruptcy court with respect to the Company shall not be treated as a Change in Control for purposes of this Agreement. 6.6 Termination by the Company without Cause. In addition to any termination of Executive's employment with the Company and its subsidiaries for reasons described in the foregoing provisions of this Section 6, the Company may terminate such employment at any time without Cause. Such determination shall be made by the affirmative vote of two-thirds (2/3) of the non-management membership of the Board of Directors ("Board") at a meeting of the Board called and held for such purpose. The Board shall provide Executive with written determination of its decision no less than thirty (30) days prior to the effective date of such employment termination.. 7. Severance Upon an Event of Termination. 7.1 General Provision. Upon termination of Executive's employment by the Company during the Term, Executive shall be entitled to no further compensation hereunder other than (i) Executive's accrued and unpaid Base Salary through the date of termination, (ii) any benefits accrued and vested under the terms of the Company's employee benefit plans and programs through the date of termination and (iii) any other payments or benefits specifically provided in Sections 4.7 and 7 of this Agreement. 7.2 Termination Due to Death or Disability. Upon Executive's employment termination due to his death or Disability, the Company shall pay to Executive (or to his estate) (i) Executive's Base Salary and benefits as if Executive's employment had terminated on the last day of the month; (ii) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (iii) if any bonus, under any bonus plan shall be payable in respect of any years ending prior to the date Executive's employment terminates, the bonus(es) set forth in section 7.2 (ii) above shall be further pro-rated from the beginning of the fiscal year to the last day of the month of Executive's employment termination. In addition, all restricted stock, stock options and performance share awards made to Executive shall automatically become fully vested and immediately exercisable as of the date of death (or in the case of Disability, as of the date employment terminates). PAGE 8 7.3 Termination for Cause. Upon Executive's employment termination for Cause, the Company shall pay to Executive all deferred compensation of any kind. In addition, Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company and relating specifically to Executive. 7.4 Severance. Upon Executive's employment termination by the Company without Cause or by Executive for Good Reason or by Executive in accordance with Section 6.5 following a Change in Control, the Company shall, subject to the provisions of Section 10 and 11 below, provide the following to Executive (or, in the event of Executive's subsequent death, his beneficiary or beneficiaries or his estate, as provided): (a) Accrued Bonuses. The Company shall pay to Executive (or his estate) any accrued and unpaid bonuses in respect of years ending prior to the date of termination, and a pro rata bonus for the portion of the year preceding the date of termination in the actual amount that would have been earned based on the Company's actual performance for the year, (b) Severance Pay. The Company shall provide to Executive (or his estate) as severance pay (the "Severance Payments") three (3) times Executive's Termination Base Salary (as defined below) plus three (3) times Executive's Average Incentive Compensation Award (as defined below). "Termination Base Salary" means the highest Base Salary paid to Executive in the three (3) years preceding his employment termination. "Incentive Compensation Award" means all cash bonuses awarded in consideration of services for the three (3) most recent fiscal years, divided by three (3), or if there was no cash incentive program in any of the three (3) most recent fiscal years, divided by the number of fiscal years for which such cash incentive program existed. For purposes of this calculation the "restructuring payment" which is payable upon the effective date of the Company's chapter 11 plan of reorganization in accordance with the Bankruptcy Order shall be treated as a cash bonus for the fiscal year in which such bonus is paid. The Incentive Compensation Award may not exceed 100% Executive's Termination Base Salary. Payment under this section 7.4 (b) shall be made as follows: PAGE 9 (i) In the event that Executive's employment is terminated pursuant to section 6.5 herein, Executive shall be paid his severance in a lump sum at the time of his termination; (ii) In the event that Executive's employment is terminated pursuant to sections 6.4 or 6.6 herein, the Company has the discretion to pay Executive his severance in either a lump sum at the time of his termination or in equal monthly installments over a thirty-six (36) month period. In the event that the Executive is paid in equal monthly installments over a thirty-six (36) month period, the severance funds shall be placed in escrow at the time of termination with an escrow agent to be agreed upon by both parties. In no event shall such payments be reduced for any reason, including the fact that Executive is employed by any other entity. (c) Benefit Continuation. The Company shall continue to provide, on the same basis as executive officers generally, the health and life insurance benefits (but excluding disability benefits) provided to Executive and his spouse and eligible dependants immediately prior to his date of termination for a period of two (2) years following the date of termination (provided that Executive continues to make all required employee contributions). In the event that Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to Executive an amount equal to the annual contribution, payments, credits or allocation made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if Executive's participation in any health, medical, or life insurance plan or program is barred, the Company shall obtain and pay for, on Executive's behalf, individual insurance plans, policies or programs that provide to Executive health, medical and life insurance coverage which is equivalent to the insurance coverage to which Executive was entitled prior to the date of termination. (d) Equity. All restricted stock, stock option and performance share awards made to Executive shall fully vest and be immediately exercisable for a period of ninety (90) days following the termination of Executive's employment. [8. Potential Change in Control. Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" or voting agreement with any of the Company's principal stockholders) that contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described in clause (i) or (ii), could result in a Change in Control, all restricted stock, stock option and performance share awards made to Executive shall become automatically fully vested and exercisable in order to provide Executive with a reasonable period to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. Such restricted stock options and performance share awards shall become automatically exercisable and shall remain exercisable through their original terms with all rights; provided, however, in the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and performance awards shall be deemed restored to the vesting and exercisability schedules in effect at the time of execution of such definitive agreement, and any action taken in contemplation of the consummation of the transactions anticipated to result in a Change in Control shall be null and void.] PAGE 10 9. Certain Tax Matters. The Company shall indemnify and hold Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made or benefit provided by the Company or a subsidiary (including any payment made under this paragraph) and any interest, penalties, and additions to tax imposed in connection therewith, and (ii) any federal, state or local income or employment tax imposed on any payment made pursuant to this paragraph. Executive shall not take the position on any tax return or other filing that any payment made or benefit provided by the Company is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment or benefit is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment, benefit or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, Executive shall contest such claim; provided, however, that the Company shall advance to Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 10. Duties Upon Termination. Executive agrees that he will, upon termination of his employment with the Company for any reason whatsoever, deliver to the Company any and all records, forms, contracts, memoranda, work papers, lists of names or other customer data and any other articles or papers which have come into his possession by reason of his employment with the Company or which he holds for the Company, regardless of whether or not any of said items were prepared by him, and he shall not retain memoranda or copies of any of said items. Executive shall assign to the Company all rights to trade secrets and the products relating to the Company's business developed by him alone or in conjunction with others at any time alike employed by the Company. Notwithstanding anything herein to the contrary, Executive may retain this Agreement, any documents relating to this Agreement and any documents relating to Executive's compensation, benefits, retirement plans and deferred compensation plans. PAGE 11 11. Post-Termination Obligations. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with the following provisions. 11.1 Confidential Information. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries or its affiliates, or to any businesses operated by them, including, without limitation, any customer lists; and Executive confirms that such information constitutes the exclusive property of the Company. For purposes of this Section 11.1, confidential information shall not include any information that is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, during the term of this Agreement, Executive may reveal information, as necessary, pursuant to his conducting Company business. 11.2 Competitive Conduct. During the term of this Agreement and for a further period of two (2) years thereafter, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity for the benefit of any person: (a) solicit any person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of the Company, in any manner which interferes or might interfere with such person's relationship with the Company, or in an effort to obtain such person as a customer, supplier, employee, salesman, agent or representative of any business in competition with the Company which business conducts operations within fifteen (15) miles of any office or facility owned, leased or operated by the Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (b) establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent (1%) of the stock of a corporation whose shares are publicly traded) management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person in any business in competition with the Company if such person has any office or facility, at any location within fifteen (15) miles of any office or facility owned, leased or operated by the Company or conducts substantial business in any county, or similar political subdivision in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of the Company. 11.3 Failure of Executive to Comply. If for any reason other than death or disability, Executive shall, without written consent of the Company, fail to comply with the provisions of this Section 11, his rights to any future payments or other benefits hereunder shall terminate (without prejudice to any other rights, including recovery of damages of the Company), and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this Section 11 shall be deemed to have occurred unless and until Executive receives written notice from the Company specifying the conduct alleged to constitute such failure. PAGE 12 11.4 Remedies. Executive agrees that monetary damages would not be adequate compensation for any loss incurred by the Company by reason of a breach of the provisions of Sections 10 and 11 of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, agreements and other provisions of Sections 10 and 11 specifically performed by Executive, and the Company shall have the right to obtain preliminary injunctive relief to secure specific performance and to prevent a breach of Section 10 or 11. The existence of any claim or cause of action which Executive or any other person may have against the Company shall not constitute a defense or bar to the enforcement of Section 10 or 11. If the Company is obliged to resort to litigation to enforce a covenant in Section 10 or 11 that contains a fixed term, then such fixed term shall be extended for a period of time equal to the period during which a material breach of such covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such covenant. 11.5 Consideration. Executive expressly acknowledges that the covenants contained in Sections 10 and 11 are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the covenants contained in such sections, the Company would not have agreed to enter into this Agreement. 11.6 Scope. If any portion of the covenants contained in Section 10 or 11 or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the such covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such covenant shall then be enforceable in its reduced or limited for. 12. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and, upon effectiveness of this Agreement pursuant to Section 2 hereof, supersedes all prior agreements and discussions between the Company and Executive but is not in any way intended to supersede the Bankruptcy Order. PAGE 13 13. General Provisions. 13.1 Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitration shall be selected by alternatively striking form a list of five (5) arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys' fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, expert witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorneys' fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other that then arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorneys' fees related to such action. 13.2 Legal Expenses. Except as otherwise provided in Section 13.1, in the event Executive prevails as to any material issue in any legal proceeding to enforce the terms of this Agreement, the Company shall reimburse Executive for reasonable legal costs incurred in connection therewith. 13.3 Mitigation. Executive shall not be obligated to seek other employment or take any other action to mitigate any severance benefits hereunder. 13.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Company and Executive and his heirs, executors, legal representatives, successors and permitted assigns. Unless clearly inapplicable, reference herein to the Company shall be deemed to include its successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void, without effect. 13.5 Severability. In the event any provision of this Agreement or any part hereof is held invalid, such invalidity shall not affect any remaining part of such provision or any other provision, and to this end, the provisions of this Agreement are intended to be and shall be deemed severable. If any court construes any provision of this Agreement to be illegal, void or unenforceable because of the duration or the area or matter covered thereby, such court shall reduce the duration, area or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced. PAGE 14 13.6 Withholding. Employer may withhold from any amounts payable under this Agreement such taxes and governmentally required withholdings as may be required to be withheld pursuant to any applicable law or regulation. 14. Modification and Waiver. 14.1 Amendment of Agreement. Except for increases in compensation made as provided in Section 4.1, this Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 14.2 Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 15. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: David C. Barr 45 Blue Stone Drive Chadds Ford, PA 19317 with a copy: To the Company at: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department And with a copy to: [Members of/The Chairman of] the Compensation Committee 16. Governing Law. The parties hereto intend that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, all as of the day and year first above written. GENESIS HEALTH VENTURES, INC. /s/ Michael R. Walker ------------------------------------ By: Name: Michael R. Walker Title: Chief Executive Officer /s/ David C. Barr ------------------------------------ DAVID C. BARR Acknowledged on Behalf of the Board: /s/ James Wankmiller - ------------------------------------------ Name: James Wankmiller Title: Sr. Vice President, General Counsel and Corporate Secretary PAGE 15 EX-10 12 ex10-22.txt EXHIBIT 10.22 EXHIBIT 10.22 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of July 1, 2001 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company"), and Robert A. Smith (the "Executive"). WITNESSETH The Company desires to employ the Executive as an employee of the Company, and the Executive desires to provide services to the Company, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Offer and Acceptance of Employment. The Company hereby agrees to employ the Executive as President, NeighborCare. The Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. The Executive will perform such other duties as may from time to time be reasonably assigned to him by the Board, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. Nothing in this Agreement shall preclude Executive from serving as a director, trustee, officer of, or partner in, any other firm, trust, corporation or partnership or from pursuing personal investments, as long as such activities do not interfere with Executive's performance of his duties hereunder. 2. Period of Employment. (a) Period of Employment. The period of the Executive's employment under this Agreement shall commence on the date hereof and shall, unless sooner terminated pursuant to Section 4, terminate on June 30, 2003 (such period, as extended from time to time, herein referred to as the "Term"). Subject to Section 2(b), and if the Term has not been terminated pursuant to Section 4, on June 20, 2003 and on each July 1st thereafter (each such July 1st, an "Automatic Extension Date") the Term shall be extended for an additional period of one year. (b) Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 180 days prior to the applicable Automatic Extension Date. 3. Compensation and Benefits. (a) Base Salary. As long as Executive remains an employee of Company, Executive will be paid a base salary, which shall continue at the rate currently in effect, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed on an annual basis and the Company shall increase such base salary, by an amount, if any, it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described below, is referred to herein as "Base Salary". Executive's Base Salary, as in effect from time to time, may not be reduced by the Company without Executive's consent, provided that the Base Salary payable under this paragraph shall be reduced to the extent Executive elects to defer or reduce such salary under the terms of any deferred compensation or savings plan or other employee benefit arrangement maintained or established by the Company. The Company shall pay Executive the portion of his Base Salary not deferred in accordance with its customary periodic payroll practices. (b) Incentive Compensation. Executive shall be eligible to participate in stock option, incentive compensation and other plans at a level consistent with Executive's position with the Company and the Company's then current policies and practices. (c) Benefits, Perquisites and Expenses. (i) Benefits. During the Term, Executive shall be eligible to participate in (1) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (2) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. With respect to the pension or retirement benefits payable to Executive, Executive's service credited for purposes of determining Executive's benefits and vesting shall be determined in accordance with the terms of the applicable plan or program. Nothing in this Section 3(c), in or of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement. (ii) Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each anniversary year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any anniversary year. The executive shall also be entitled to all paid holidays given by the Company to its senior officers. Vacation days which are not used during any calendar year may not be accrued, nor shall Executive be entitled to compensation for unused vacation days. (iii) Perquisities. During the term, Executive shall be entitled to receive such perquisites (e.g., fringe benefits) as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (iv) Business Expenses. During the Term, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may reasonably require and in accordance with the generally applicable policies and practices of the Company. 4. Employment Termination. The Term of employment under this Agreement may be earlier terminated only as follows: (a) Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of at least two-thirds of the members of the Board of Directors of the Company at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. (b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the non-management membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 90 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. (c) Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of twelve consecutive months, or (ii) for shorter periods aggregating more than twelve months in any twenty-four month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. (d) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) the assignment to the Executive by the Company of any duties inconsistent with the Executive's status with the Company or a substantial alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date hereof, or a reduction in the Executive's titles or offices as in effect immediately prior to the date hereof, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions, except in connection with the termination of his employment for Disability or Cause or as a result of the Executive's death or by the Executive other than for Good Reason, or the termination by the Company's Board of Directors of the Automatic Extension; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement; (iii) a relocation of Company's principal office or corporate headquarters to a location outside the Borough of Kennett Square, Pennsylvania; (iv) any material failure by the Company to comply with any of the provisions of this Agreement; (v) any termination of the Executive's employment for reasons other than death, Disability or Cause; and (vi) the termination by the Board of Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement.. (e) Notice of Termination. Any termination, except for death, pursuant to this Section 4 shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated by the Company for disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), (ii) if Executive's employment is terminated due to Executive's death, on the date of death; (iii) if the Executive's employment is terminated for Good Reason as a result of a Change of Control, as set forth in Section 6 hereof or if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which shall not be less than 90 nor more than 180 days from the date such Notice of Termination is given). 5. Payments upon Termination. (a) Termination Due to Death or Disability. Upon the death or Disability of the Executive (i) the Company shall pay to the Executive or his estate (1) his full Base Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability, (2) all deferred compensation of any kind, including, without limitation, any amounts earned under any bonus plan, and (3) if any bonus, under any bonus plan, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (ii) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. (b) Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive: (i) his full Base Salary through the Date of Termination (as defined in Section 4(f)) at the rate in effect at the time Notice of Termination (as defined in Section 4(e)) is given, and (ii) all deferred compensation of any kind. The Company shall have no further obligations to the Executive under this Agreement. (c) Termination by Executive for Good Reason or by the Company for Reasons other than for Cause or Death. (i) In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to two times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent two years (including the current year) divided by (y) two. "Executive's Average Assumed Cash Incentive Compensation" means (x) the sum of (i) the value as of the dates of grant (using a Black-Scholes valuation method) of all stock options granted to Executive in consideration for services in any of the two most recent fiscal years plus (ii) the amount of any cash bonus awarded to the Executive in consideration for services in any of the two most recent fiscal years divided by (y) two; provided that the Executive's Average Assumed Cash Incentive Compensation shall not exceed 60% of the Executive's Average Base Salary. (ii) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the then current Term without giving effect to such termination or (y) two (2) years, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6. Certain Tax Matters. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, independent tax counsel reasonably acceptable to the Company determines after consultation with counsel for the Company that there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 7. Executive's Covenants. (a) Nondisclosure. At all times during and after the Term, Executive shall keep confidential and shall not, except with Company's express prior written consent, or except in the proper course of his employment with Company, directly or indirectly, communicate, disclose, divulge, publish, or otherwise express, to any Person, or use for his own benefit or the benefit of any Person, any trade secrets, confidential or proprietary knowledge or information, no matter when or how acquired concerning the conduct and details of Company's business, including without limitation, names of customers and suppliers, marketing methods, trade secrets, policies, prospects and financial condition. For purposes of this Section 8, confidential information shall not include any information which is now known by or readily available to the general public or which becomes known by or readily available to the general public other than as a result of any improper act or omission of Executive. (b) Non-Competition. During the Term hereof and for a period of two (2) years thereafter, Executive shall not, except with Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any Person: (i) Solicit any Person who is or during such period becomes a customer, supplier, employee, salesman, agent or representative of Company, in any manner which interferes or might interfere with such Person's relationship with Company, or in an effort to obtain such Person as a customer, supplier, employee, salesman, agent, or representative of any business in competition with Company which conducts operations within 15 miles of any office or facility owned, leased or operated by Company or in any county, or similar political subdivision, in which the Company conducts substantial business. (ii) Establish, engage, own, manage, operate, join or control, or participate in the establishment, ownership (other than as the owner of less than one percent of the stock of a corporation whose shares are publicly traded), management, operation or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any Person in any business in competition with Company, if such Person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by Company or conducts substantial business in any county, or similar political subdivision, in which the Company conducts substantial business, or act or conduct himself in any manner which he would have reason to believe inimical or contrary to the best interests of Company. (c) Enforcement. Executive acknowledges that any breach by him of any of the covenants and agreements of this Section 7 ("Covenants") will result in irreparable injury to Company for which money damages could not adequately compensate Company, and therefore, in the event of any such breach, Company shall be entitled, in addition to all other rights and remedies which Company may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Executive and/or all other Persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other Person may have against Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If Company is obliged to resort to litigation to enforce any of the Covenants which has a fixed term, then such term shall be extended for a period of time equal to the period during which a material breach of such Covenant was occurring, beginning on the date of a final court order (without further right of appeal) holding that such a material breach occurred, or, if later, the last day of the original fixed term of such Covenant. (d) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by Company and, without the agreement of Executive to be bound by the Covenants, Company would not have agreed to enter into this Agreement. (e) Scope. If any portion of any Covenant or its application is construed to be invalid, illegal or unenforceable, then the other portions and their application shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or similar factor, then the court making such determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. 8. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. The amounts payable to Executive under Section 5 hereof shall not be treated as damages but as severance compensation to which Executive is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 9. Miscellaneous. (a) Notices. All notices, requests, demands, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) delivered personally, (ii) mailed by first class certified mail, return receipt requested, postage prepaid, or (iii) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (iv) delivered by telecopy (with receipt, and with original delivered in accordance with any of (i), (ii) or (iii) above) to the parties at their respective addresses stated below or to such other addresses of which the parties may give notice in accordance with this Section. If to Company, to: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attention: Law Department Attention: Chairman and Chief Executive Officer with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Stephen E. Luongo, Esquire If to Executive, to: Robert Smith 1718 Oakdale Drive Cooksville, MD 21723 (b) Entire Understanding. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous, written, oral, expressed or implied, communications, agreements and understandings with respect to the subject matter hereof. (c) Modification. This Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless approved by a majority of the Board of Directors. (d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the date hereof as fully performed on both sides. (e) Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void without effect. (f) Severability. If any provision of this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. (h) Section Headings. Section and subsection headings in this Agreement are inserted for convenience of reference only, and shall neither constitute a part of this Agreement nor affect its construction, interpretation, meaning or effect. (i) References. All words used in this Agreement shall be construed to be of such number and gender as the context requires or permits. (j) Controlling Law. This Agreement is made under, and shall be governed by, construed and enforced in accordance with, the substantive laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely therein. (k) Settlement of Disputes. The Company and Executive agree that any claim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by the Company (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in Chester County, Pennsylvania (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. (l) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Directors. (m) Indulgences, Etc. Neither the failure nor delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall the single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (n) Legal Expenses. In the event that the Executive institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, the Executive, if he is the prevailing party, shall be entitled to recover from the Company any actual expenses for attorney's fees and disbursements incurred by him IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above mentioned, under seal, intending to be legally bound hereby. Attest: COMPANY: /s/ James Wankmiller By: /s/ Michael R. Walker -------------------- --------------------- Secretary Name: Michael R. Walker Title: Chairman and CEO Witness: EXECUTIVE /s/ Betty Phelps /s/ Robert A. Smith ---------------- ------------------- Name: Robert A. Smith Title: President, NeighborCare AMENDMENT TO THE EMPLOYMENT AGREEMENT THIS AMENDMENT TO THE EMPLOYMENT AGREEMENT (this "Amendment Agreement") is made as of October 2, 2001, between Genesis Health Ventures, Inc., a Pennsylvania corporation with its principal place of business at 101 East State Street, Kennett Square, PA 19348 (the "Company") and Robert A. Smith (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an employment agreement (the "Employment Agreement"); WHEREAS, on June 22, 2000, the Company and certain of its direct and indirect subsidiaries (collectively with the Company, the "Debtors") commenced a case in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"); WHEREAS, on or around October 2, 2001 it is anticipated that the Company's Plan of Reorganization will be confirmed; WHEREAS, the Executive and the Company both desire to make certain changes to the Executive's Employment Agreement, to include the granting of stock options and restrictive shares of stock. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 3. Section 2 (b) of the Employment Agreement shall be amended to read as follows: Termination of Automatic Extension by Notice. The Company (with the affirmative vote of two-thirds of the non-management membership of the Board of Directors at a meeting of the Board of Directors called and held for such purpose) or the Executive may elect to terminate the automatic extension of the Term set forth in Section 2(a) ("Automatic Extension") by giving written notice of such election. Any notice given hereunder must be given not less than 60 days prior to the applicable Automatic Extension Date. 4. Section 4 (b) of the Employment Agreement shall be amended to read as follows: Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company (with the affirmative vote of two-thirds of the non-management membership of the Board at a meeting of the Board called and held for the purpose) may, at any time after at least 30 days' prior written notice in accordance with Section 4(e) hereof to the Executive, terminate the Executive's employment hereunder without Cause. 5. Section 4 (c) of the Employment Agreement shall be amended to read as follows: Death or Disability. If Executive dies, his employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment hereunder. As used in this Agreement, the term "disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of six consecutive months, or (ii) for shorter periods aggregating more than six months in any twelve month period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company. 6. Section 4 (d) (iii) of the Employment Agreement shall be amended to read as follows: Any relocation of Executive's principal place of employment or the relocation of the Company's principal office or corporate headquarters to a location more than forty-five (45) miles beyond the Borough of Kennett Square, Pennsylvania; 7. Section 5 (c) (i) of the Employment Agreement shall be amended to read as follows: In the event (1) the Company terminates the Term without cause, or (2) the Executive terminates the Term for Good Reason, then (I) the Company shall make a lump-sum payment to the Executive equal to two times the sum of (x) Executive's Average Base Salary (as defined below) plus (y) Executive's Average Assumed Cash Incentive Compensation (as defined below); and (II) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable for a period of ninety (90) days following the termination of Executive's employment. "Executive's Average Base Salary" means the (x) Executive's Base Salary for the most recent two years (including the current year) divided by (y) two. "Executive's Average Assumed Cash Incentive Compensation" means all cash bonuses awarded in consideration of services for the two (2) most recent fiscal years, divided by two (3), or if there was no cash incentive program in any of the two (2) most recent fiscal years, divided by the number of fiscal years for which such cash incentive program existed. For purposes of this calculation the special recognition bonus payments which were paid to the Executive in 2000 and 2001 shall be treated as a cash bonus for the fiscal year in which such bonus is paid. The Incentive Compensation Award may not exceed 60% of Executive's Termination Base Salary. 8. In consideration for the foregoing amendments to the Employment Agreement, Executive shall be entitled to receive stock options and restrictive stock grants as follows: (a) Stock Option. The Company shall, pursuant to the terms of its stock option plan or any similar plan, grant to Executive as of the Effective Date one or more options to acquire an aggregate of 50,000 shares of common stock of the Company ("Company Stock"). The exercise price of the shares shall be established at the time of the grant and shall be less than or equal to the fair market value of the stock at the time of the grant. The stock options shall vest in equal quarterly installments (3,125 shares per installment) over a four (4) year period, with the first installment vesting on January 1, 2002 and the subsequent installments vesting on the first day of each calendar quarter thereafter, provided that Executive remains employed with the Company on such anniversary. In addition, the stock options shall fully and immediately vest on (i) any termination of Executive's employment with the Company by the Company without Cause (as defined in Section 4 (b)) or because of Executive's death or Disability (as defined in Section 4 (c)), or (ii) any termination of Executive's employment by Executive's resignation for Good Reason (as defined in Section 4 (d)). The stock options shall have a ten (10) year term subject to earlier termination of such options on account of Executive's termination of employment for any reason. (b) Restricted Stock Award. The Company shall make a restricted stock award to Executive as of the Effective Date of 15,000 shares of Company Stock. The shares underlying the restricted stock award shall vest in equal quarterly installments (750 shares per installment) over a five (5) year period, commencing three months after the anniversary of the Effective Date and continuing every three months thereafter until the fifth anniversary of the Effective Date; provided that Executive remains employed with the Company on such anniversary. In addition, all shares of Company Stock underlying the restricted stock award shall fully and immediately vest on (i) any termination of Executive's employment with the Company by the Company without Cause or because of Executive's death or Disability, or (ii) any termination of Executive's employment by Executive's resignation for Good Reason. 9. This Amendment Agreement shall at all times be governed by and construed, interpreted and enforced in accordance with the internal substantive laws of the Commonwealth of Pennsylvania without giving effect to any choice or conflict of law, provision or rule that would cause the application of the laws of any jurisdiction other than the Commonwealth of Pennsylvania. 10. This Amendment Agreement may be executed with counterpart signature pages or in one or more counterparts, all of which shall be deemed one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to all the parties. IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. Attest: COMPANY: /s/ James Wankmiller By: /s/ Michael R. Walker -------------------- --------------------- Secretary Name: Michael R. Walker Title: Chairman and CEO Witness: EXECUTIVE /s/ Richard Sunderland Jr. /s/ Robert A. Smith -------------------------- -------------------- Name: Robert A. Smith Title: President, NeighborCare EX-10 13 ex10-23.txt EXHIBIT 10.23 Exhibit 10.23 Warrant Agreement WARRANT AGREEMENT by and between GENESIS HEALTH VENTURES, INC. and MELLON INVESTOR SERVICES LLC as Warrant Agent 4,559,475 Warrants Dated as of October 2, 2001 TABLE OF CONTENTS
Page ---- Article 1 DEFINITIONS................................................................................1 Article 2 ISSUANCE OF WARRANTS.......................................................................3 2.1 Initial Issuance...............................................................................3 2.2 Initial Share Amount...........................................................................3 2.3 Form of Warrant Certificates...................................................................4 2.4 Execution of Warrant Certificates..............................................................4 2.5 Countersignature of Warrant Certificates.......................................................4 Article 3 EXERCISE PERIOD............................................................................5 Article 4 EXERCISE OF WARRANTS.......................................................................5 4.1 The Exercise Price.............................................................................5 4.2 Manner of Exercise.............................................................................5 4.3 When Exercise Effective........................................................................5 4.4 Delivery of Certificates, Etc..................................................................6 4.5 Fractional Shares..............................................................................6 Article 5 ADJUSTMENT OF THE AMOUNT OF COMMON STOCK ISSUABLE AND THE EXERCISE PRICE UPON EXERCISE.....7 5.1 Adjustment for Change in Capital Stock.........................................................7 5.2 Distributions..................................................................................7 5.3 Adjustments for Mergers and Consolidations.....................................................8 5.4 No De Minimis Adjustments; Calculation to Nearest Cent and One-hundredth of Share..............8 5.5 Notice of Adjustment; Warrant Agent's Disclaimer...............................................8 5.6 Other Notices..................................................................................9 5.7 No Change in Warrant Terms on Adjustment.......................................................9 5.8 Section 305 Issues.............................................................................9 5.9 Other Eventst..................................................................................9 Article 6 MERGER, CONSOLIDATION, ETC................................................................10 Article 7 NOTIFICATION OF CERTAIN EVENTS............................................................10 7.1 Corporate Action..............................................................................10 7.2 Available Information.........................................................................11 Article 8 RESERVATION OF STOCK......................................................................11 Article 9 LOSS OR MUTILATION........................................................................12
Page ---- Article 10 WARRANT REGISTRATION......................................................................12 10.1 Registration..................................................................................12 10.2 Transfer or Exchange..........................................................................13 10.3 Valid and Enforceable.........................................................................13 10.4 Endorsement...................................................................................13 10.5 No Service Charge.............................................................................13 10.6 Treatment of Holders of Warrant Certificates..................................................13 10.7 Cancellation..................................................................................13 Article 11 WARRANT AGENT.............................................................................13 11.1 Obligations Binding...........................................................................13 11.2 No Liability..................................................................................14 11.3 Instructions..................................................................................14 11.4 Agents........................................................................................15 11.5 Cooperation...................................................................................15 11.6 Agent Only....................................................................................15 11.7 Right to Counsel..............................................................................15 11.8 Compensation..................................................................................15 11.9 Accounting....................................................................................16 11.10 No Conflict...................................................................................16 11.11 Resignation; Termination......................................................................16 11.12 Change of Warrant Agent.......................................................................17 11.13 Successor Warrant Agent.......................................................................17 Article 12 REMEDIES, ETC.............................................................................18 Article 13 MISCELLANEOUS.............................................................................18 13.1 Notices.......................................................................................18 13.2 Governing Law and Consent to Forum............................................................19 13.3 Benefits of this Agreement....................................................................19 13.4 Agreement of Holders of Warrant Certificates..................................................19 13.5 Counterparts..................................................................................19 13.6 Amendments....................................................................................19 13.7 Consent to Jurisdiction.......................................................................20 13.8 Headings......................................................................................20
3 EXHIBITS Exhibit A: Form of Warrant Certificate 4 WARRANT AGREEMENT THIS WARRANT AGREEMENT is made and entered into as of October 2, 2001 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey limited liability company, as Warrant Agent (the "Warrant Agent"). WITNESSETH: WHEREAS, in connection with the financial restructuring of the Company, pursuant to the Joint Plan of Reorganization, of the Company, The Multicare Companies, Inc. and certain of their respective subsidiaries, dated as of June 5, 2001 (the "Plan"), the Company is issuing warrants which are exercisable to purchase up to 4,559,475 shares of Common Stock (as defined herein), subject to adjustment as provided herein (the "Warrants"), to the holders of certain allowed claims of the Company (the "Claims") in partial exchange for such Claims and in accordance with the Plan; WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company and the Warrant Agent is willing to act, in connection with the issuance, transfer, exchange, replacement and exercise of the Warrant Certificates (as defined herein) and other matters as provided herein; and WHEREAS, the Company desires to enter into this Agreement to set forth the terms and conditions of the Warrants and the rights of the holders thereof; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements set forth herein, the Company and the Warrant Agent hereby agree as follows: ARTICLE 1 DEFINITIONS ----------- As used herein, the following terms have the following respective meanings: "Agreement" means this Warrant Agreement, as the same may be amended or modified from time to time hereafter. "Bankruptcy Court" means the United States Bankruptcy Court for the District of Delaware that has jurisdiction of the chapter 11 case of the Company under title 11 of the United States Code. "Business Day" means any day other than a Saturday or a Sunday or a day on which commercial banking institutions in New York City, New York or the State of New Jersey are authorized or required by law to be closed; provided, that, in determining the period within which certificates or Warrants 5 are to be issued and delivered at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Fair Value of any securities listed or admitted to trading on any national securities exchange or in the over-the-counter market, "Business Day" shall mean any day when the principal exchange on which such securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such market is open for trading; and provided, further, that any reference in this Agreement to "days" (unless Business Days are specified) shall mean calendar days. "Claims" has the meaning specified in the recitals hereto. "Commission" means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act of 1933, as amended, or the Exchange Act, whichever is the relevant statute for the particular purpose. "Common Stock" means the Company's Common Stock, par value $.02 per share. "Company" has the meaning specified in the preamble hereof. "Exchange Act" means the Securities Exchange Act of 1934, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be amended and in effect at the time. Any reference herein to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such successor Federal statute. "Exercise Period" means the period commencing on the Effective Date (as defined in the Plan) and ending at 5:00 P.M., New York time, on the first anniversary of the Effective Date. "Exercise Price" has the meaning specified in Section 4.1 hereof. "Fair Value" means (i) with respect to Common Stock or any Other Security, in each case, if such security is listed on one or more stock exchanges or quoted on the National Market System or Small Cap Market of NASDAQ (the "NASDAQ Market"), the average of the closing or last reported sales prices of a share of Common Stock or, if an Other Security in the minimum denomination in which such security is traded, on the primary national or regional stock exchange on which such security is listed or on the NASDAQ Market if quoted thereon or (ii) if the Common Stock or Other Security, as the case may be, is not so listed or quoted but is traded in the over-the-counter market (other than the NASDAQ Market), the average of the closing bid and asked prices of a share of such Common Stock or Other Security, in each case quoted for the 30 Business Days (or such lesser number of Business Days as such Common Stock (or Other Security) shall have been so listed, quoted or traded) next preceding the date of measurement; provided, however, that if no such sales price or bid and asked prices have been quoted during the preceding 30-day period or there is otherwise no established trading market for such security, then "Fair Value" means the 6 value of such Common Stock or Other Security as determined reasonably and in good faith by the Board of Directors of the Company. Anything herein to the contrary notwithstanding, in case the Company shall issue any shares of Common Stock, rights, options, or Other Securities in connection with the acquisition by the Company of the stock or assets of any other Person or the merger of any other Person into the Company, the Fair Value of the Common Stock or Other Securities so issued shall be determined as of the date the number of shares of Common Stock, rights, options or Other Securities was determined (as set forth in a written agreement between the Company and the other party to the transaction) rather than on the date of issuance of such shares of Common Stock, rights, options or Other Securities. "Original Issue Date" means the Effective Date (as defined in the Plan). "Other Securities" or "Other Security" means any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) that the holders of the Warrants at any time shall be entitled to receive or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities. "Other Shares" has the meaning specified in Section 5.2 hereof. "Person" means any individual, partnership, association, joint venture, corporation, limited liability company, business trust, unincorporated organization, government or department, agency or subdivision thereof, or other person or entity, and shall include any successor (by merger or otherwise) of any such Person. "Plan" has the meaning specified in the recitals hereto. "Warrant Agent" has the meaning specified in the preamble hereof. "Warrant Certificates" has the meaning specified in Section 2.3 hereof. "Warrants" has the meaning set forth in the recitals hereto. ARTICLE 2 ISSUANCE OF WARRANTS -------------------- 2.1 Initial Issuance. On the date hereof (the "Original Issue Date"), the Company shall, pursuant to the Plan, deliver to the Company's disbursing agent under the Plan for re-distribution to the holders of the certain claims against the Company a global certificate for an aggregate of 4,559,475 Warrants. 2.2 Initial Share Amount. The number of shares of Common Stock purchasable upon exercise of the Warrants shall be one (1) share of Common Stock to one (1) Warrant, subject to adjustments from and after the Original Issue Date as provided in Article 5 of this Agreement. 7 2.3 Form of Warrant Certificates. The Warrants shall be evidenced by certificates substantially in the form attached hereto as Exhibit A (the "Warrant Certificates") or may, if the Company so directs, be issued in book-entry form. Each Warrant Certificate shall be dated as of the Original Issue Date or, in the event of a division, exchange, substitution or transfer of any of the Warrants, on the date of such event. The Warrant Certificate may have such further legends and endorsements stamped, printed, lithographed or engraved thereon as the Company may deem appropriate (which do not affect the rights, duties or responsibilities of the Warrant Agent) and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation pursuant thereto or with any rule or regulation of any securities exchange, market or trading facility on which the Warrants may be listed or admitted for trading. 2.4 Execution of Warrant Certificates. Warrant Certificates shall be executed on behalf of the Company by its Chairman of the Board, Chief Executive Officer, President, any Senior Vice President, any Vice President, Treasurer or Secretary, either manually or by facsimile signature printed thereon. In case any such officer of the Company whose signature shall have been placed upon any Warrant Certificate shall cease to be such officer of the Company before countersignature by the Warrant Agent or issuance and delivery thereof, such Warrant Certificate nevertheless may be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of the Company. The term "holder" or "holder of a Warrant Certificate" as used herein shall mean any Person in whose name at the time any Warrant Certificate shall be registered upon the books to be maintained by the Warrant Agent for that purpose. 2.5 Countersignature of Warrant Certificates. Upon the execution of this Agreement, the Company will execute and deliver to the Warrant Agent one or more Warrant Certificates representing the number of Warrants issued pursuant to the Plan. Upon receipt of written instructions from an authorized signatory of the Company, Warrant Certificates shall be manually countersigned by an authorized signatory of the Warrant Agent and shall not be valid for any purpose unless so countersigned. Such manual countersignature shall constitute conclusive evidence of such authorization. No Warrant Certificate shall be valid for any purpose, and no Warrant evidenced thereby shall be exercisable, until such Warrant Certificate has been countersigned by the manual signature of the Warrant Agent. The Warrant Agent is hereby authorized to countersign, in accordance with the provisions of this Section 2.5, and deliver any new Warrant Certificates, as directed in writing by the Company pursuant to Section 2.1 and as and when required pursuant to the provisions of Articles 9 and 10. Each Warrant Certificate shall, when manually countersigned by an authorized signatory of the Warrant Agent, entitle the registered holder thereof to exercise the rights as the holder of the number of Warrants set forth thereon, subject to the provisions of this Agreement. 8 ARTICLE 3 EXERCISE PERIOD --------------- Each Warrant shall entitle the holder thereof to purchase from the Company one (1) share of Common Stock (subject to the adjustments provided herein), at any time during the Exercise Period. Any Warrant not exercised during the Exercise Period shall become null and void, and all rights of the holder of the Warrant Certificate evidencing such Warrant under the Warrant Certificate or this Agreement shall cease. ARTICLE 4 EXERCISE OF WARRANTS -------------------- 4.1 The Exercise Price. The exercise price of each Warrant is $20.33 per share of Common Stock (the "Exercise Price"). The Exercise Price is subject to adjustment pursuant to Article 5 hereof. 4.2 Manner of Exercise. (a) During the Exercise Period, all or any whole number of Warrants represented by a Warrant Certificate may be exercised by the registered holder thereof during normal business hours on any Business Day, by surrendering such Warrant Certificate, with the subscription form set forth therein duly completed and executed by such holder, by hand, by overnight courier or by mail to the Warrant Agent at its office addressed to Mellon Investor Services LLC, 85 Challenger Road, Ridgefield Park, New Jersey 07660. Such Warrant Certificate shall be accompanied by payment in full in respect of each Warrant that is exercised, which shall be made by certified or official bank or bank cashier's check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Warrant Agent for the benefit of the Company, except as otherwise provided herein. Such payment shall be in an amount equal to the product of the number of shares of Common Stock (without giving effect to any adjustment therein) designated in such subscription form multiplied by the Exercise Price for the Warrants being exercised (plus such additional consideration as may be provided herein). Upon such surrender and payment prior to the expiration of the Exercise Period, such holder shall thereupon be entitled to receive the number of duly authorized, validly issued, registered, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in Articles 2 and 3, and as and if adjusted pursuant to Article 5. 4.3 When Exercise Effective. Each exercise of any Warrant pursuant to Section 4.2 shall be deemed to have been effected immediately prior to the close of business on the Business Day on which the Warrant Certificate representing such Warrant, duly executed, with accompanying payment, shall have been delivered as provided in Section 4.2, and at such time the Person or Persons in whose name or names the certificate or certificates for Common Stock (or Other Securities) shall be issuable upon such exercise as provided in Section 4.4 shall be deemed to have become the holder or holders of record thereof. 9 4.4 Delivery of Certificates, Etc. (a) As promptly as practicable after the exercise of any Warrant, and in any event within three (3) Business Days thereafter, the Company at its expense (other than as to payment of taxes or governmental charges which will be paid by the holder) will cause to be issued and delivered to such holder, or as such holder may otherwise direct in writing (subject to Article 11), (i) a certificate or certificates for the number of shares of Common Stock (or Other Securities) to which such holder is entitled, and (ii) if less than all the Warrants represented by a Warrant Certificate are exercised, a new Warrant Certificate or Certificates of the same tenor and for the aggregate number of Warrants that were not exercised, executed and countersigned in accordance with Sections 2.4 and 2.5. (b) The Warrant Agent shall countersign any new Warrant Certificate, register it in such name or names as may be directed in writing by such holder, and shall deliver it to the Person entitled to receive the same in accordance with this Section 4.4. The Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates executed on behalf of the Company for such purpose. (c) Upon any exercise of Warrants, the Warrant Agent shall, from time to time, as promptly as practicable, advise the Treasurer of the Company or his or her designee of (i) the number of Warrants exercised, (ii) the instruction of each holder of the Warrant Certificates evidencing such Warrants with respect to delivery of the Common Stock to which such holder is entitled upon such exercise, (iii) the timing of delivery of Warrant Certificates evidencing the balance, if any, of the Warrants remaining after such exercise, and (iv) such other information as the Company shall reasonably require. (d) The Company shall not be required to pay any stamp or other tax or other governmental charge required to be paid in connection with any transfer involved in the issue of the Common Stock to a Person other than a registered holder; and in the event that any such transfer is involved, the Company shall not be required to issue or deliver any Warrant Certificate or share of Common Stock until such tax or other charge shall have been paid or it has been established to the Company's reasonable satisfaction that no such tax or other charge is due. The Warrant Agent shall have no duty or obligation under this Section 4 or any other similar provision of this Agreement unless and until it is satisfied that all such taxes and/or governmental charges have been paid in full. 4.5 Fractional Shares. No fractional shares of Common Stock (or Other Securities) shall be issued upon the exercise of any Warrant. If more than one Warrant Certificate shall be delivered for exercise at one time by the same holder, the number of full shares or securities that shall be issuable upon 10 exercise shall be computed on the basis of the aggregate number of Warrants exercised. As to any fraction of a share of Common Stock (or Other Securities), the Company shall pay a cash adjustment in respect thereto in an amount equal to the product of the Fair Value per share of Common Stock (or Other Securities) as of the Business Day next preceding the date of such exercise multiplied by such fraction of a share. The Warrant Agent shall have no duty or obligation under this Section 4.5 (including but not limited to the payment, calculation or valuation of any fraction of a share of Common Stock) unless and until the Company has provided or caused to be provided to the Warrant Agent sufficient cash necessary to satisfy the Company's obligations with respect to any fraction of a share of Common Stock. ARTICLE 5 ADJUSTMENT OF THE AMOUNT OF COMMON STOCK ISSUABLE AND THE EXERCISE PRICE UPON EXERCISE --------------------------------------------- 5.1 Adjustment for Change in Capital Stock. If the Company shall (i) declare or pay a dividend on its outstanding shares of Common Stock or make a distribution to holders of its Common Stock, in either case in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, then the number of shares of Common Stock issuable for each Warrant and the Exercise Price in effect immediately prior thereto shall be adjusted so that the holder of any Warrants thereafter exercised shall be entitled to receive the number and kind of shares of Common Stock or other securities that the holder would have owned or been entitled to receive after the happening of any of the events described above had such Warrants been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 5.1 shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. Such adjustment shall be made successively. 5.2 Distributions. If after the date hereof the Company shall distribute to all holders of its shares of Common Stock evidences of its indebtedness, shares of another class of capital stock ("Other Shares"), assets (excluding cash distributions made as a dividend payable out of earnings or out of surplus legally available for dividends under the laws of the jurisdiction of incorporation of the Company) or rights to subscribe to shares of Common Stock, then in each such case, unless the Company elects to reserve such indebtedness, assets, rights or shares for distribution to each holder of a Warrant upon the exercise of the Warrants so that such holder will receive upon such exercise, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such indebtedness, assets, rights or shares which such holder would have received if such holder had, immediately prior to the record date for the distribution of such indebtedness, assets, rights or shares, exercised the Warrants and received Common Stock, the Exercise Price in effect immediately prior to such distribution shall be decreased to an amount determined by 11 multiplying such Exercise Price by a fraction, the numerator of which is the Fair Value of a share of the Common Stock at the date of such distribution less the fair value of the evidences of indebtedness, Other Shares, assets or subscription rights as the case may be, so distributed (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive, and described in a reasonably detailed statement filed with the Warrant Agent) and the denominator of which is the Fair Value of a share of Common Stock at such date. Such adjustment shall be made whenever any such distribution is made, and shall become effective retroactively on the date immediately after the record date for the determination of stockholders entitled to receive such distribution. 5.3 Adjustments for Mergers and Consolidations. In case the Company, after the date hereof, shall merge or consolidate (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any change in the shares of Common Stock) with another Person, then, in the case of any such transaction, proper provision shall be made so that, upon the basis and terms and in the manner provided in this Agreement, the holders of the Warrants, upon the exercise thereof at any time after the consummation of such transaction (subject to the Exercise Period), shall be entitled to receive (at the aggregate Exercise Price in effect at the time of the transaction for all Common Stock or Other Securities issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock or Other Securities issuable upon such exercise prior to such consummation, the greatest amount of securities, cash or other property to which such holder would have been entitled as a holder of Common Stock (or Other Securities) upon such consummation if such holder had exercised the rights represented by the Warrants held by such holder immediately prior thereto. 5.4 No De Minimis Adjustments; Calculation to Nearest Cent and One-hundredth of Share. No adjustment in the Exercise Price shall be required under this Article 5 unless such adjustment would require an increase or decrease of at least one percent (1%) of such price. All calculations under this Article 5 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 5.5 Notice of Adjustment; Warrant Agent's Disclaimer. (a) Whenever the Exercise Price and securities issuable shall be adjusted as provided in this Article 5, the Company shall forthwith file with the Warrant Agent a statement, signed by the Chairman of the Board, Chief Executive Officer, President, any Senior Vice President, any Vice President, the Treasurer or Secretary of the Company, stating in detail the facts and computations requiring such adjustment, the method of calculation thereof, the Exercise Price that will be effective after such adjustment and the impact of such adjustment on the number and kind of securities issuable upon exercise of the Warrants. The Company shall also cause the Warrant Agent to mail (first class, postage prepaid) a notice setting forth any such adjustments to each registered holder of Warrants at its last address appearing on the Warrant register. (b) Except as provided in paragraph (a) above, the Warrant Agent shall have no duty with respect to any statement filed with it except to keep the same on file and available for inspection by registered holders of Warrants during 12 reasonable business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of a Warrant to determine whether any facts exist which may require any adjustment to the Exercise Price or securities issuable, or with respect to the nature or extent of any adjustment of the Exercise Price or securities issuable when made or with respect to the method employed in making such adjustment. The Warrant Agent shall not be responsible for the Company's failure to comply with any provision of this Article 5. The Warrant Agent shall have no duty or obligation with respect to this Article 5 unless and until it has received specific instructions (and sufficient cash, if required) from the Company with respect to its duties and obligations under such Article. 5.6 Other Notices. In case the Company after the date hereof shall propose to take any action of the type described in Section 5.1 or 5.2 of this Article 5, the Company shall give notice to the Warrant Agent and to each registered holder of a Warrant in the manner set forth in Section 5.5 of this Article 5, which notice shall specify the date on which a record shall be taken with respect to any such action. Such notice shall be given at least ten (10) days prior to the record date with respect thereto. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. Where appropriate, such notice may be given in advance and may be included as part of a notice required to be mailed under the provision of Section 5.5 of this Article 5. 5.7 No Change in Warrant Terms on Adjustment. Irrespective of any adjustments in the Exercise Price or the number of shares of Common Stock (or any inclusion of Other Securities) issuable upon exercise, Warrants theretofore or thereafter issued may continue to express the same prices and number of shares as are stated in the similar Warrants issuable initially, or at some subsequent time, pursuant to this Agreement, and the Exercise Price and such number of shares issuable upon exercise specified thereon shall be deemed to have been so adjusted. 5.8 Section 305 Issues. Anything in this Article 5 to the contrary notwithstanding, the Company shall be entitled, but not required, to make such reductions in the Exercise Price, in addition to those required by Section 5.2, as it in its discretion shall determine to be advisable in order that any dividend in or distribution of shares of Common Stock or shares of capital stock or any class other than Common Stock, subdivision, reclassification or combination of shares of Common Stock, issuance of rights or warrants, or any other transaction having similar effect, shall not be treated as a distribution of property by the Company to its shareholders under Section 305 of the Internal Revenue Code of 1986, as amended, or any successor provision and shall not be taxable to them. 5.9 Other Events. If any event occurs that would adversely affect each holder's rights but not expressly provided for by this Section (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Exercise Price so as to protect each holder's rights; provided, however, that no such adjustment will 13 increase the Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 5.9. ARTICLE 6 MERGER, CONSOLIDATION, ETC. Notwithstanding anything contained herein to the contrary, the Company will not effect a merger or consolidation unless, prior to the consummation of such transaction, each Person (other than the Company) which may be required to deliver any Common Stock, Other Securities, securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to the Warrant Agent, the obligations of the Company under this Agreement and under each of the Warrants, including, without limitation, the obligation to deliver such shares of Common Stock, Other Securities, cash or property as may be required pursuant to Article 5 hereof or the certificate or articles of incorporation or other constituent document, shall be equivalent to the adjustments provided for in Article 5 hereof. ARTICLE 7 NOTIFICATION OF CERTAIN EVENTS ------------------------------ 7.1 Corporate Action. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (excluding cash distributions made as a dividend payable out of earnings or out of surplus legally available for dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution of any kind, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right or interest of any kind; or (b) (i) any capital reorganization of the Company, (ii) any reclassification of the capital shares of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a split-up or combination), (iii) the consolidation or merger of the Company with or into any other corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the shares of Common Stock), (iv) the sale or transfer of the properties and assets of the Company as, or substantially as, an entirety to another Person, or (v) an exchange offer for Common Stock (or Other Securities); or (c) the voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall cause to be filed with the Warrant Agent and mailed to each holder of a Warrant a notice specifying (x) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of any such dividend, distribution or right, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, 14 distribution, or right are to be determined, and the amount and character of such dividend, distribution or right, or (y) the date or expected date on which any such reorganization, reclassification, consolidation, merger, sale, transfer, exchange offer, dissolution, liquidation or winding up is expected to become effective, and the time, if any such time is to be fixed, as of which holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, exchange offer, dissolution, liquidation or winding up. Such notice shall be delivered not less than twenty (20) days prior to such date therein specified, in the case of any such date referred to in clause (x) of the preceding sentence, and not less than thirty (30) days prior to such date therein specified, in the case of any such date referred to in clause (y) of the preceding sentence. Failure to give such notice within the time provided or any defect therein shall not affect the legality or validity of any such action. 7.2 Available Information. The Company shall promptly file with the Warrant Agent copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not required to make such filings, the Company shall promptly deliver to the Warrant Agent copies of any annual, quarterly or other reports and financial statements that are generally provided to holders of equity or debt securities of the Company (other than bank or similar institutional debt) in their capacity as holders of such securities. ARTICLE 8 RESERVATION OF STOCK -------------------- The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock (or out of authorized Other Securities), solely for issuance and delivery upon exercise of Warrants, the full number of shares of Common Stock (and Other Securities) from time to time issuable upon the exercise of all Warrants and any other outstanding warrants, options or similar rights, from time to time outstanding. All shares of Common Stock (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be duly and validly issued, and (in the case of shares) fully paid and nonassessable, and free from all taxes, liens, charges, security interests, encumbrances and other restrictions created by or through the Company. ARTICLE 9 LOSS OR MUTILATION ------------------ Upon receipt by the Company and the Warrant Agent of evidence reasonably satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and of an indemnity bond reasonably satisfactory to them in form or amount, and (in the case of 15 mutilation) upon surrender and cancellation thereof, then, in the absence of written notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and deliver to the Warrant Agent and, upon the Company's request, an authorized signatory of the Warrant Agent shall manually countersign and deliver, to the registered holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Article 9, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Warrant Agent) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Article 9 in lieu of any lost, stolen or destroyed Warrant Certificate shall be entitled to the same benefits of this Agreement equally and proportionately with any and all other Warrant Certificates, whether or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone. The provisions of this Article 9 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. ARTICLE 10 WARRANT REGISTRATION -------------------- 10.1 Registration. The Warrant Certificates shall be issued in registered form only and shall be registered in the names of the record holders of the Warrant Certificates to whom they are to be delivered (any such delivery to a registered holder of a Warrant will be at its last address as shown on the register of the Company). The Warrant Agent shall maintain or cause to be maintained a register in which, subject to such reasonable regulations as it may prescribe, the Warrant Agent shall provide for the registration of Warrants and of transfers or exchanges of Warrant Certificates as provided in this Agreement. Such register shall be maintained at the office of the Warrant Agent located at the respective address therefor as provided in Section 13.1. Such register shall be open for inspection upon notice at all reasonable times by the Warrant Agent and each holder of a Warrant. 10.2 Transfer or Exchange. At the option of the holder, Warrant Certificates may be exchanged or transferred for other Warrant Certificates for a like aggregate number of Warrants, upon surrender of the Warrant Certificates to be exchanged at the office of the Warrant Agent maintained for such purpose at the respective address therefor as provided in Section 13.1, and upon payment of the taxes and charges herein provided. Whenever any Warrant Certificates are so surrendered for exchange or transfer, the Company shall execute, and an authorized signatory of the Warrant Agent shall manually countersign and deliver, the Warrant Certificates that the holder making the exchange is entitled to receive. 16 10.3 Valid and Enforceable. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. 10.4 Endorsement. Every Warrant Certificate surrendered for registration of transfer or exchange shall (if so required by the Company or the Warrant Agent) be duly endorsed, or be accompanied by an instrument of transfer in form reasonably satisfactory to the Company and the Warrant Agent and duly executed by the registered holder thereof or such holder's officer or representative duly authorized in writing. 10.5 No Service Charge. No service charge shall be made to the Warrant Holder for any registration of transfer or exchange of Warrant Certificates. 10.6 Treatment of Holders of Warrant Certificates. The Company and the Warrant Agent may treat the registered holder of a Warrant Certificate as the absolute owner thereof for any purpose and as the Person entitled to exercise the rights represented by the Warrants evidenced thereby, any notice to the contrary notwithstanding. 10.7 Cancellation. Any Warrant Certificate surrendered for registration of transfer, exchange or the exercise of the Warrants represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent. Any such Warrant Certificate shall not be reissued and, except as provided in this Article 10 in case of an exchange or transfer, in Article 9 in case of a mutilated Warrant Certificate and in Article 4 in case of the exercise of less than all the Warrants represented thereby, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such cancelled Warrant Certificates in a manner reasonably satisfactory to the Company. ARTICLE 11 WARRANT AGENT ------------- 11.1 Obligations Binding. The Warrant Agent undertakes the duties and obligations expressly imposed by this Agreement (and no implied duties or obligations) upon the terms and conditions set forth in this Article 11. The Company, and the holders of Warrants by their acceptance thereof, shall be bound by all of such terms and conditions. 11.2 No Liability. The Warrant Agent shall not by countersigning Warrant Certificates or by any other act hereunder be accountable with respect to or be deemed to make any representations as to the validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon), as to the validity, authorization or value (or kind or amount) of any 17 Common Stock or of any Other Securities or other property delivered or deliverable upon exercise of any Warrant, or as to the purchase price of such Common Stock, securities or other property. The Warrant Agent shall not (i) be liable for any recital or statement of fact contained herein or in the Warrant Certificates or for any action taken, suffered or omitted by the Warrant Agent in good faith in the belief that any Warrant Certificate or any other document or any signature is genuine or properly authorized, (ii) be responsible for determining whether any facts exist that may require any adjustment of the purchase price and the number of shares of Common Stock purchasable upon exercise of Warrants, or with respect to the nature or extent of any such adjustments when made, or with respect to the method of adjustment employed, (iii) be responsible for any failure on the part of the Company to issue, transfer or deliver any Common Stock or Other Securities or property upon the surrender of any Warrant for the purpose of exercise or to comply with any other of the Company's covenants and obligations contained in this Agreement or in the Warrant Certificates or (iv) be liable for any action taken, suffered or omitted to be taken in connection with this Agreement except for its own bad faith, gross negligence or willful misconduct (each as finally determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction). Anything to the contrary notwithstanding, in no event shall the Warrant Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the likelihood of such loss or damage. Any liability of the Warrant Agent under this Agreement will be limited to the amount of fees paid by the Company to the Warrant Agent. 11.3 Instructions. The Warrant Agent is hereby authorized to accept advice or instructions with respect to the performance of its duties hereunder from the Chairman of the Board, Chief Executive Officer, President, any Senior Vice President, any Vice President, Treasurer or any Assistant Treasurer of the Company and to apply to any such officer for advice or instructions. The Warrant Agent shall be fully protected and authorized in relying upon the most recent advice or instructions received by any such officer. The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with the advice or instructions of any such officer, except to the extent that it is determined in a final judgment by a court of competent jurisdiction that such action or omission resulted directly from the Warrant Agent's gross negligence. 11.4 Agents. The Warrant Agent may execute and exercise any of the rights and powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, absent gross negligence or willful misconduct (each as finally determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction) in the selection and in the continued employment of any such attorney, agent or employee. The Warrant Agent shall not be under any obligation or duty to institute, appear in, or defend any action, suit or legal proceeding in respect hereof, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper. The Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or proceeding instituted against the Warrant Agent arising out of or in connection with this Agreement. 18 11.5 Cooperation. The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further acts, instruments and assurances as may reasonably be required by the Warrant Agent in order to enable the Warrant Agent to carry out or perform its duties under this Agreement. Whenever in the performance of its duties hereunder the Warrant Agent is unsure of or has questions as to what action it is required to take under this Agreement, the Warrant Agent shall promptly seek clarification thereof from the Company, and the Warrant Agent shall be fully protected and incur no liability in not taking any such action prior to receiving a written response from the Company. 11.6 Agent Only. The Warrant Agent shall act solely as agent for the Company in accordance with the terms and conditions hereof. The Warrant Agent shall not be liable except for the performance of such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Agreement against the Warrant Agent, whose duties and obligations shall be determined solely by the express provisions hereof. 11.7 Right to Counsel. The Warrant Agent may at any time consult with legal counsel satisfactory to it (who may be legal counsel for the Company), and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant holder for any action taken, suffered or omitted by the Warrant Agent in good faith in accordance with the opinion or advice of such counsel. 11.8 Compensation. The Company agrees to pay the Warrant Agent reasonable compensation for all services rendered by it hereunder and to reimburse the Warrant Agent for its reasonable expenses and counsel fees and other disbursements incurred in the preparation; delivery, amendment, administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company further agrees to indemnify the Warrant Agent and hold it harmless against any and all liabilities, including, but not limited to, any loss, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense (including, without limitation, reasonable counsel fees), incurred without the Warrant Agent's bad faith, gross negligence or willful misconduct (each as finally determined by a non-appealable order, judgment, decree or ruling of a court of competent jurisdiction), for any action taken, suffered or omitted by the Warrant Agent in connection with the acceptance, administration, exercise and performance of its duties under this Agreement and the Warrants, including the costs and expenses of defending against any claim of liability in the premises. The indemnities provided herein shall survive the termination of this Agreement, the termination and the expiration of the Warrants, and the resignation or removal of the Warrant Agent. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. 11.9 Accounting. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all moneys received by the Warrant Agent on behalf of the Company on the purchase of shares of Common Stock (or Other Securities) through the exercise of Warrants. The Warrant Agent shall advise the Company by telephone at the end of each day on which a payment for the exercise of Warrants is received of the 19 amount so deposited to such account. The Warrant Agent shall as soon as practicable confirm such telephone advice to the Company in writing. 11.10 No Conflict. The Warrant Agent and any stockholder, affiliate, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other Person. 11.11 Resignation; Termination. The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's bad faith, negligence or willful misconduct) after giving thirty (30) days' prior written notice to the Company. The Company may remove the Warrant Agent upon thirty (30) days' written notice, and the Warrant Agent shall thereupon in like manner be discharged from all further duties and liabilities hereunder, except as to liabilities arising as a result of the Warrant Agent's bad faith, negligence or willful misconduct. The Company shall cause to be mailed promptly (by first class mail, postage prepaid) to each registered holder of a Warrant at such holder's last address as shown on the register of the Company, at the Company's expense, a copy of such notice of resignation or notice of removal, as the case may be. Upon such resignation or removal the Company shall promptly appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation by the resigning Warrant Agent or after such removal, then the holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. Any successor warrant agent, whether appointed by the Company or by such a court, shall be (i) a Person, incorporated under the laws of the United States or of any state thereof and authorized under such laws to conduct shareholder services business, be subject to supervision and examination by Federal or state authority, and have a combined capital and surplus of not less than $50,000,000 as set forth in its most recent published annual report of condition; or (ii) an affiliate of such a Person described above. After acceptance in writing of such appointment by the new warrant agent it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent. Not later than the effective date of any such appointment the Company shall file notice thereof with the resigning or removed Warrant Agent and shall forthwith cause a copy of such notice to be mailed (by first class, postage prepaid) to each registered holder of a Warrant at such holder's last address as shown on the register of the Company. Failure to give any notice provided for in this Section 11.11, or any defect in any such notice, shall not 20 affect the legality or validity of the resignation of the Warrant Agent or the appointment of a new warrant agent, as the case may be. 11.12 Change of Warrant Agent. If at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant Certificates so countersigned; and if at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force and effect provided in the Warrant Certificates and this Agreement. 11.13 Successor Warrant Agent. Any Person into which the Warrant Agent or any new warrant agent may be merged or any Person resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any Person succeeding to all or substantially all the agency business of the Warrant Agent or any new warrant agent shall be a successor Warrant Agent under this Agreement without any further act, provided that such Person would be eligible for appointment as a new warrant agent under the provisions of Section 11.11 of this Article 11. The Company shall promptly cause the successor Warrant Agent to mail notice of its succession as Warrant Agent (by first class mail, postage prepaid) to each registered holder of a Warrant at its last address as shown on the register of the Company. ARTICLE 12 REMEDIES, ETC. -------------- Prior to the exercise of the Warrants represented thereby, no holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders, and no such holder shall be entitled to receive notice of any proceedings of the Company except as provided in this Agreement. Nothing contained in this Agreement shall be construed as imposing any liabilities on such holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. ARTICLE 13 MISCELLANEOUS ------------- 13.1 Notices. Any notice, demand or delivery authorized by this Agreement shall be sufficiently given or made if sent by first class mail, postage prepaid, delivered by hand or delivered by overnight courier, in each case addressed to any registered holder of a Warrant at such holder's last known address appearing on the register of the Company or the Warrant Agent, and to the Company or the Warrant Agent as follows, or delivered by facsimile (in the 21 case of notices to any registered holder, to the last known facsimile number of such holder appearing on the register of the Company or the Warrant Agent): If to the Company: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attn: General Counsel Telephone: (610) 444-6350 Facsimile: (610) 444-3365 If to the Warrant Agent: MELLON INVESTOR SERVICES LLC 85 Challenger Road, Ridgefield Park, New Jersey 07660 Attn: Relationship Manager and General Counsel Telephone: (___) ___-______ Facsimile: (___) ___-______ or such other address as shall have been furnished in writing, in accordance with this Section 13.1, to the party giving or making such notice, demand or delivery. 13.2 Governing Law and Consent to Forum. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY AND THE WARRANT AGENT EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PERSON TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. 13.3 Benefits of this Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Agent and their respective successors and assigns, and the registered and beneficial holders from time to time of the Warrants and of holders of the Common Stock, where applicable. Nothing in this Agreement is intended or shall be construed to confer upon any other Person, any right, remedy or claim under or by reason of this Agreement or any part hereof. 22 13.4 Agreement of Holders of Warrant Certificates. Every holder of a Warrant Certificate, by accepting the same, covenants and agrees with the Company, the Warrant Agent and with every other holder of a Warrant Certificate that the Warrant Certificates are transferable on the registry books of the Warrant Agent only upon the terms and conditions set forth in this Agreement, and the Company and the Warrant Agent may deem and treat the Person in whose name the Warrant Certificate is registered as the absolute owner for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. 13.5 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 13.6 Amendments. This Agreement may be amended by the parties hereto, without the consent of the holder of any Warrant Certificate, for the purpose of curing any manifest error, or of curing, correcting or supplementing any defective provision contained herein, or making any other provisions with respect to matters or questions arising under this Agreement as the Company and the Warrant Agent may mutually deem necessary or desirable; provided, that such action shall not adversely affect the interests of the holders of the Warrant Certificates. Any other amendment shall require the consent of the holders of Warrants representing a majority in number of the then outstanding Warrants. Any such modification or amendment will be conclusive and binding on all present and future holders of Warrant Certificates whether or not they have consented to such modification or amendment or waiver and whether or not notation of such modification or amendment is made upon such Warrant Certificates. Any instrument given by or on behalf of any holder of a Warrant Certificate in connection with any consent to any modification or amendment will be conclusive and binding on all subsequent holders of such Warrant Certificate. 13.7 Consent to Jurisdiction. Notwithstanding anything to the contrary contained in Section 13.2 hereof, (a) the parties hereby expressly acknowledge and agree that, to the extent permitted by applicable law, the Bankruptcy Court shall have exclusive jurisdiction to hear and determine any and all disputes concerning the distribution of Warrants hereunder to holders of Claims pursuant to the Plan, and (b) the Warrant Agent hereby consents to the jurisdiction of the Bankruptcy Court with respect to any such disputes and waives any argument of lack of such jurisdiction. 13.8 Headings. The table of contents hereto and the descriptive headings of the several sections hereof are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. GENESIS HEALTH VENTURES, INC. By: /s/ James V. McKeon -------------------------------------------------- Name: James V. McKeon ---------------------------------------------- Title: Senior Vice President and Corporate Controller ---------------------------------------------- MELLON INVESTOR SERVICES LLC By: /s/ Constance Adams ------------------------------------------------ Name: Constance Adams ------------------------------------------ Title: Assistant Vice President ----------------------------------------- 24 EXHIBIT A FORM OF WARRANT CERTIFICATE A-1 [FORM OF FACE OF WARRANT CERTIFICATE] CUSIP No. ___________ Warrant No. 1 Number of Warrant(s): 4,559,475 --------------- --------- Exercisable During the Period that Commences at 9:00 a.m., New York City time, on October 2, 2001 and Terminates at 5:00 p.m., New York City time, on October 2, 2002 except as provided below. WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $.02 PER SHARE, OF GENESIS HEALTH VENTURES, INC. This certifies that or registered assigns, is the registered owner of the number of warrants set forth above (the "Warrants"), each of which represents the right, at any time after October 2, 2001 (the "Original Issue Date") and on or before 5:00 p.m., New York City time, on October 2, 2002 (the "Exercise Period"), to purchase from Genesis Health Ventures, Inc., a Delaware corporation (the "Company"), at the price per share of $20.33 (the "Exercise Price"), one share of Common Stock, $.02 par value, of the Company as such stock was constituted as of the Original Issue Date, subject to adjustment as provided in the Warrant Agreement hereinafter referred to, upon surrender hereof, with the subscription form on the reverse hereof duly executed, by hand or by mail to Mellon Investor Services LLC, 85 Challenger Road, Ridgefield Park, New Jersey 07660, or to any successor thereto, as the warrant agent under the Warrant Agreement, at the office of such successor maintained for such purpose (any such warrant agent being herein called the "Warrant Agent") (or, if such exercise shall be in connection with an underwritten public offering of shares of such Common Stock (or Other Securities) (as such term and other capitalized terms used herein are defined in the Warrant Agreement) subject to the Warrant Agreement, at the location at which the Company shall have agreed to deliver such securities), and simultaneous payment in full (by certified or official bank or bank cashier's check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Warrant Agent for the benefit of the Company) of the Exercise Price in respect of each Warrant represented by this Warrant Certificate that is so exercised, all subject to the terms and conditions hereof and of the Warrant Agreement. Upon any partial exercise of the Warrants represented by this Warrant Certificate, there shall be issued to the holder hereof a new Warrant Certificate representing the Warrants that were not exercised. No fractional shares may be issued upon the exercise of rights to purchase hereunder, and as to any fraction of a share otherwise issuable, the Company will make a cash payment in lieu of such issuance, as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement, dated as of October 2, 2001 (the "Warrant Agreement"), between the Company and Mellon Investor Services LLC, as Warrant Agent, and is subject to the terms and provisions contained therein. The Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the registered holders of the Warrants. The holder of this Warrant Certificate consents to all terms and provisions of the Warrant Agreement by acceptance hereof. Copies of the Warrant Agreement are on file at the above-mentioned office of the Warrant Agent and may be obtained by writing to the Warrant Agent. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent. Dated : October 2, 2001 GENESIS HEALTH VENTURES, INC. By: --------------------------------------------- Name: ---------------------------------- Title: --------------------------------- Countersigned: MELLON INVESTOR SERVICES LLC, as Warrant Agent By: --------------------------------------------- Name: ---------------------------------- Title: --------------------------------- 2 [FORM OF REVERSE OF WARRANT CERTIFICATE] GENESIS HEALTH VENTURES, INC. The transfer of this Warrant Certificate and all rights hereunder is registrable by the registered holder hereof, in whole or in part, on the register of the Company upon surrender of this Warrant Certificate at the office or agency of the Company or the office of the Warrant Agent maintained for such purpose at 85 Challenger Road, Ridgefield Park, New Jersey 07660, duly endorsed or accompanied by a written instrument of transfer duly executed and in form satisfactory to the Company and the Warrant Agent, by the registered holder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer or registration thereof. Upon any partial transfer the Company will cause to be delivered to such holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. This Warrant Certificate may be exchanged at the office or agency of the Company or the office of the Warrant Agent maintained for such purpose at 85 Challenger Road, Ridgefield Park, New Jersey 07660, attention: Compliance Department, for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant Certificate, as such, shall not be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders, and shall not be entitled to receive notice of any proceedings of the Company except as provided in the Warrant Agreement. Nothing contained herein shall be construed as imposing any liabilities upon the holder of this Warrant Certificate to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. This Warrant Certificate shall be void and all rights represented hereby shall cease unless exercised before the close of business on October 2, 2002. This Warrant Certificate shall not be valid for any purpose until it shall have been manually countersigned by an authorized signatory of the Warrant Agent. Witness the facsimile seal of the Company and the signature of its duly authorized officer. 3 SUBSCRIPTION FORM (To be executed only upon exercise of warrant) TO GENESIS HEALTH VENTURES, INC. Mellon Investor Services LLC, a New Jersey limited liability company, as Warrant Agent Attention: ____________________ The undersigned (i) irrevocably exercises ___ Warrants represented by the within Warrant Certificate, (ii) purchases one share of common stock, par value $.02 per share, of Genesis Health Ventures, Inc. (before giving effect to the adjustments provided in the Warrant Agreement referred to in the within Warrant Certificate) for each Warrant so exercised and herewith makes payment in full of the purchase price of $20.33 per share, in respect of each Warrant so exercised as provided in the Warrant Agreement (such payment being by certified or official bank or bank cashier's check payable to the order of Genesis Health Ventures, Inc., or by wire transfer of immediately available funds to an account designated by the Warrant Agent for the benefit of Genesis Health Ventures, Inc.), all on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement, (iii) surrenders this Warrant Certificate and all right, title and interest therein to Genesis Health Ventures, Inc. and (iv) directs that the securities or other property deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated: _________________ , 200_ -------------------------------------------- (Owner)* -------------------------------------------- (Signature of Authorized Representative) -------------------------------------------- (Street Address) -------------------------------------------- (City) (State) (Zip Code) 4 Securities or property to be issued and delivered to: -------------------------------------------- Signature Guaranteed** Please insert social security or other identifying number -------------------- Name ------------------------------------------------------------------------- Street Address --------------------------------------------------------------- City, State and Zip Code ----------------------------------------------------- *The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. **The signature must be guaranteed by a Securities Transfer Association medallion program ("stamp") participant or an institution receiving prior approval from the Warrant Agent. 5 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant Certificate hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant Certificate, with respect to the number of warrants set forth below: Name of Address No. of Assignee ------- Warrants -------- -------- Please insert social security or other identifying number of Assignee - ------------------- and does hereby irrevocably constitute and appoint __________ attorney to make such transfer on the books of Genesis Health Ventures, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ____________, 200_ Name * ---------------------------------------- Signature of Authorized Representative Signature Guaranteed ** ------------------------- * The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. ** The signature must be guaranteed by a Securities Transfer Association medallion program ("stamp") participant or an institution receiving prior approval from the Warrant Agent. 6 EX-10 14 ex10-24.txt EXHIBIT 10.24 Exhibit 10.24 GENESIS HEALTH VENTURES, INC. REGISTRATION RIGHTS AGREEMENT Dated October 2, 2001 TABLE OF CONTENTS
Page 1. Introduction...................................................................................1 2. Registration under Securities Act, etc.........................................................1 2.1 Registration on Request...............................................................1 2.2 Incidental Registration...............................................................4 2.3 Registration Procedures...............................................................5 2.4 Underwritten Offerings................................................................9 2.5 Preparation; Reasonable Investigation................................................10 2.6 Indemnification......................................................................11 2.7 Adjustments Affecting Registrable Securities.........................................14 2.8 Nomination of Directors..............................................................14 3. Definitions...................................................................................14 4. Rules 144 and 144A............................................................................17 5. Amendments and Waivers........................................................................17 6. Nominees for Beneficial Owners................................................................17 7. Notices.......................................................................................17 8. Assignment....................................................................................19 9. Descriptive Headings..........................................................................19 10. GOVERNING LAW.................................................................................19 11. Counterparts..................................................................................19 12. Entire Agreement..............................................................................19 13. SUBMISSION TO JURISDICTION....................................................................19 14. Severability..................................................................................20
i REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of October 2, 2001, between Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), and Goldman Sachs & Co., a Delaware corporation, and Highland Capital Management L.P. (each an "Investor" and together, the "Investors"). 1. Introduction. Pursuant to the Joint Plan of Reorganization of Genesis Health Ventures, Inc. and its affiliated Debtors and Debtors in Possession (the "Plan"), dated July 6, 2001, the Company has agreed, among other things, to issue 41,000,000 million shares of new common stock, par value $0.02 per share of the Company (the "Common Stock"). This Agreement shall become effective upon the issuance of such securities pursuant to the Plan. Certain capitalized terms used in this Agreement are defined in Section 3 hereof; references to sections shall be to sections of this Agreement. WHEREAS, the Company has agreed to grant to Investors the registration rights set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 2. Registration under Securities Act, etc. 2.1 Registration on Request (a) Request. An Investor holding at least 4,100,000 shares of Common Stock which constitute Registrable Securities, or Investors holding at least 8,200,000 shares of Common Stock which constitute Registrable Securities in the aggregate, of the outstanding Common Stock of the Company, subject to Section 2.1(c) hereof, may request, in writing, registration under the Securities Act, of all or part of their Registrable Securities. Within 10 days after receipt of any such request, the Company will give notice of such request to the other Investors. Any Investor that sells or disposes of securities pursuant to a registration statement of the Company is referred to herein as a "Participating Investor." The Company will use all commercially reasonable efforts to effect the registration on an appropriate form under the Securities Act and will include in such registration, subject to Section 2.1(c) hereof, all Registrable Securities held by any Participating Investor with respect to which the Company has received a written request for inclusion therein within 15 days after the receipt of the Company's notice. All registrations initiated by a Participating Investor pursuant to this Section 2.1(a) are referred to herein as "Demand Registrations." (b) Priority in Registration. If the Company includes in any underwritten Demand Registration any securities which are not Registrable Securities and the Managing Underwriters advise the Company in writing that in their opinion the number of Registrable Securities proposed to be included exceeds the number of Registrable Securities and other securities which can be sold in such offering, the Company will include in such registration: (i) first, the Registrable Securities requested to be included which, in the opinion of such underwriters, can be sold, by the Participating Investor or Investors pro rata based upon the total number of Registrable Securities which such Investor proposes to include in such registration and (ii) second, the securities proposed to be included in such registration by any other holders as determined by the Company and the Managing Underwriters. (c) Registration Statement Form. Registrations under this Section 2.1 shall be on such appropriate registration form of the Commission (i) as shall be selected by the Company and, as shall be reasonably acceptable to each Participating Investor and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. If, in connection with any registration under this Section 2.1 which is proposed by the Company to be on Form S-3 or any similar short form registration statement which is a successor to Form S-3, the Managing Underwriters, if any, shall advise the Company in writing that in their opinion the use of another permitted form is of material importance to the success of the offering, then such registration shall be on such other permitted form. (d) Expenses. The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.1 prior to the time at which three such registrations shall have been effected in which all of the Registrable Securities requested to be included in such registration shall have been registered pursuant to this Section 2.1. The Registration Expenses (and underwriting discounts and commissions and transfer taxes, if any) in connection with each other registration requested under this Section 2.1 shall be paid by Investor. (e) Effective Registration Statement. A Demand Registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has been declared effective by the Commission, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of a Participating Investor (other than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of a Participating Investor unless such Participating Investor shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, or (iii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than by reason of some act or omission by Investor. A Participating Investor shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration; provided that in the event of, and concurrently with such withdrawal, the Participating Investor or Participating Investors responsible for such Demand Registration shall either (x) pay or reimburse the Company for all fees and expenses (including counsel fees and expense) incurred by them and the Company prior to such withdrawal or (y) agree to forfeit one of the Demand Registrations with respect to which the Company is obligated to pay Registration Expenses pursuant to Section 2.1(d) hereof. 2 (f) Selection of Underwriters. If a Demand Registration pursuant to this Section 2.1 involves an underwritten offering, the underwriter or underwriters thereof shall be selected by the Participating Investors holding a majority of the Registrable Securities held by all Participating Investors with the consent of the Company, which consent shall not be unreasonably withheld or delayed. (g) Exceptions to Registration on Request. Notwithstanding anything in Section 2.1(a) above to the contrary, the Company shall not be obligated to take any action to effect any such registration pursuant to Section 2.1(a) above: (i) During the period starting with the date forty-five (45) days prior to the Company's estimated date of filing of, and ending on the ninetieth (90th) day immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (ii) During the 180-day period following the effectiveness of a registration statement with respect to which any Investor had a right to have its Registrable Securities included pursuant to Section 2 hereof; (iii) If (A) the number of Registrable Securities identified in the Demand Registration shall be less than five percent (5%) of the then outstanding shares of Common Stock or (B) the Registrable Securities identified in the Demand Registration shall have a current market value as of the date of the demand of less than $30,000,000; (iv) If the Company determines in good faith that the registration and distribution of Registrable Securities (or the use of the registration statement or related prospectus) resulting from a Demand Registration would (i) materially and adversely interfere with any previously announced business combination transaction involving the Company pursuant to which the Company would issue, in connection with such transaction, shares of Common Stock to some or all of the equity owners of the counter-party to such business combination transaction, or (ii) result in the premature disclosure of any pending financing, acquisition, corporate reorganization or any other corporate development involving the Company or any of its subsidiaries, and, in either such event, the Company shall promptly give Participating Investors written notice of such determination, then the Company shall be entitled to (x) postpone the filing of the registration statement otherwise required to be prepared and filed by the Company pursuant to Section 2.1(a) hereof, or (y) elect that the effective registration statement not be used, in either case for a reasonable period of time, but not to exceed ninety (90) days after the date that the demand by the Company of the Investor not to sell the securities was made (a "Blackout Period"); provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Any such written notice shall contain a general statement of the reasons for such postponement or restriction on use and an estimate of the anticipated delay. The Company shall promptly notify each Participating Investor of the expiration or earlier termination of such Blackout Period. 3 2.2 Incidental Registration (a) Right to Include Registrable Securities. If the Company at any time proposes to register any securities substantially similar to the Registrable Securities under the Securities Act (other than by a registration on Form S-4 or S-8, or any successor or similar forms and other than securities registered to effect the acquisition of or combination with another person or pursuant to Section 2.1 hereof), whether or not for sale for its own account, it will each such time give prompt written notice to each Participating Investor of its intention to do so and of such Participating Investor's rights under this Section 2.2. Upon the written request of any Investor made within 30 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Participating Investor and the intended method of disposition thereof), the Company will, subject to Sections 2.2(b) hereof, effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Participating Investor, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Participating Investor and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any Participating Investor to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. 4 (b) Priority in Incidental Registrations. If (i) a registration pursuant to this Section 2.2 involves an underwritten offering of the securities so being registered, for sale for the account of the Company or any other entity, to be distributed (on a firm commitment basis) by or through one or more Managing Underwriters, (ii) the Registrable Securities so requested to be registered for sale for the account of a Participating Investor are not also to be included in such underwritten offering (because the Company has not been requested so to include such Registrable Securities pursuant to Section 2.4(b) or, if requested to do so, is not obligated to do so under Sections 2.2(b)(iii) and (iv) hereof), and (iii) the Managing Underwriter of such underwritten offering shall inform the Company and each Participating Investor by letter of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in (or during the time of) such offering, (A) first, securities proposed by the Company to be sold for its own account and (B) second, the Registrable Securities requested to be included in such registration, pro rata based upon the total number of Registrable Securities which such Participating Investor requested to be included. 2.3 Registration Procedures. (a) If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 2.1 and 2.2 the Company shall, as expeditiously as possible: (i) prepare and (in the case of a registration pursuant to Section 2.1, such filing to be made within 45 days after the initial request of Investor or in any event as soon thereafter as possible) file with the Commission the requisite registration statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter cause such registration statement to become and remain effective, provided however that the Company may discontinue any registration of its securities which are not Registrable Securities (and, under the circumstances specified in Section 2.2(a), its securities which are Registrable Securities) at any time prior to the effective date of the registration statement relating thereto, provided further that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the Participating Investors copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; 5 (iii) furnish to each Participating Investor and each underwriter, if any, such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such Participating Investor and such underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; (iv) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any seller thereof and any underwriter of the securities being sold by such seller shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (v) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) furnish to each Participating Investor a signed counterpart, addressed to such Participating Investor and the underwriters, if any, of (x) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), reasonably satisfactory in form and substance to such Participating Investor and the underwriters, and (y) a "comfort" letter (or, in the case of any such Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter), dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter of like kind dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35) and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as Investor (or the underwriters, if any) may reasonably request; 6 (vii) notify each Participating Investor and the managing underwriter or underwriters, if any, promptly and confirm such advice in writing promptly thereafter (v) when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; (w) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (x) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; (y) if at any time the representations and warranties of the Company made as contemplated by Section 2.4 below cease to be true and correct; and (z) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (viii) notify each Participating Investor, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any Participating Investor promptly prepare and furnish to such seller or Participating Investor and each underwriter, if any, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (ix) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; 7 (x) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the Company's first full calendar quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and will furnish to each Participating Investor at least five business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus and shall not file any thereof to which such Participating Investor shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (xi) make available for inspection by a representative or representatives of each Participating Investor, any underwriter participating in any disposition pursuant to the registration statement and any attorney or accountant retained by any Participating Investor or such underwriter (each, an "Inspector"), all financial and other records, pertinent corporate documents and properties of the Company (the "Records"), and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration in order to permit a reasonable investigation within the meaning of Section 11 of the Securities Act; (xii) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and (xiii) use its best efforts to provide a CUSIP number for the Registrable Securities, not later than the effective date of the registration statement. (b) The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. (c) The Company will not file any registration statement covering the Registrable Securities or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which Investor or the underwriter or underwriters, if any, shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel. (d) The Investors agree by acquisition of the Registrable Securities that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (viii) of this Section 2.3(a), the Investors will forthwith discontinue their respective dispositions of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until each such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 2.3(a) and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Investor's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. 8 (e) If any such registration statement to be filed pursuant to this Agreement refers to any Investor by name or otherwise as the holder of any securities of the Company, then such Investor shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Investor, to the effect that the holding by such Investor of such securities is not to be construed as a recommendation by such Investor of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Investor will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Investor by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Investor. 2.4 Underwritten Offerings. (a) Requested Underwritten Offerings. If requested by the Managing Underwriters for any underwritten offering by any Investor pursuant to a registration requested under Section 2.1, the Company will enter into an underwriting agreement with such Managing Underwriters for such offering, such agreement to be satisfactory in substance and form to the Company, such Participating Investors and the Managing Underwriters, and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 2.6. The Participating Investors will cooperate with the Company in the negotiation of the underwriting agreement and will give consideration to the reasonable suggestions of the Company regarding the form thereof, provided that nothing herein contained shall diminish the foregoing obligations of the Company. The Participating Investors shall be party to such underwriting agreement and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Managing Underwriters shall also be made to and for the benefit of such Participating Investors and that any or all of the conditions precedent to the obligations of such Managing Underwriters under such underwriting agreement be conditions precedent to the obligations of such Participating Investors. A Participating Investor shall not be required to make any representations or warranties to or agreements with the Company or the Managing Underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in such registration statement or agreements regarding such Participating Investors, the Participating Investor's Registrable Securities and the Participating Investor's intended method of distribution and any other representation required by law. 9 (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one or more Managing Underwriters, the Company will, if requested by an Investor or Investors as provided in Section 2.2 and subject to the provisions of Section 2.2(b), use its best efforts to arrange for such Managing Underwriters to include all the Registrable Securities to be offered and sold by any Participating Investor among the securities to be distributed by such underwriters. Each such Participating Investor shall be party to the underwriting agreement between the Company and such Managing Underwriters and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Managing Underwriters shall also be made to and for the benefit of any Participating Investor and that any or all of the conditions precedent to the obligations of such Managing Underwriters under such underwriting agreement be conditions precedent to the obligations of such Participating Investor. A Participating Investor shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Investor, such Participating Investor's Registrable Securities and such Participating Investor's intended method of distribution and any other representation required by law. (c) Holdback Agreements. The Company agrees (x) if so required by the Managing Underwriter not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to and the 90 days after any underwritten registration pursuant to Section 2.1 or 2.2 has become effective, except as part of such underwritten registration and except pursuant to registrations on Form S-4, S-8, or any successor or similar forms thereto, and (y) to cause each holder (other than a Participating Investor) of its securities or any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a public offering) to agree not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of such securities during such period except as part of such underwritten registration. (d) Participation in Underwritten Offerings. No Person may participate in any underwritten offering hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by each Participating Investor and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require a Participating Investor to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in the related registration statement or agreements regarding such Participating Investor, such Participating Investor's Registrable Securities and such Participating Investor's intended method of distribution and any other representation required by law. 10 2.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give any Participating Investor, its underwriters, if any, and their counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does agree to, indemnify and hold harmless (i) in the case of any registration statement filed pursuant to Section 2.1 or 2.2, a Participating Investor, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Participating Investor or any such underwriter within the meaning of the Securities Act, and (ii) in the case of any registration statement of the Company, a Participating Investor, its directors and officers and each other Person, if any, who controls such Participating such Participating Investor within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Participating Investor or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Participating Investor and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by a Participating Investor specifically stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a Participating Investor or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by any Participating Investor. 11 (b) Indemnification by Investor. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2.1 or 2.2, that the Company shall have received an undertaking satisfactory to it from each Participating Investor, severally and not jointly, will indemnify and hold harmless the Company (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.6), each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Participating Investor specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; and, subject to the limitation set forth immediately preceding this clause, shall reimburse the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by Investor. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. 12 (d) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 2.6 (with appropriate modifications) shall be given by the Company and any Participating Investor with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) Indemnification Payments. The indemnification required by this Section 2.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) Contribution. If the indemnification provided for in the preceding subdivisions of this Section 2.6 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability. In determining the amount of contribution to which the indemnified party is entitled, there shall be considered with respect to any Persons involved the relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.6, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (a) or (b) of this Section 2.6 had been available under the circumstances. 13 The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if a Participating Investor and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 2.6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), neither a Participating Investor nor underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of a Participating Investor, the net proceeds received from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that a Participating Investor or such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 2.7 Adjustments Affecting Registrable Securities. The Company will not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in any registration of its securities contemplated by this Section 2 or the marketability of such Registrable Securities under any such registration. 2.8 Nomination of Directors. Goldman Sachs & Co. ("Goldman") shall have the right so long as Goldman maintains beneficial ownership of at least ten percent (10%) of the then outstanding Common Stock to nominate one person to serve on the Board of Directors of the Company (the "Company Board"); provided, however, Goldman shall not have the right to nominate such person to serve on the Company Board for so long as the number of shares of Common Stock beneficially owned by Goldman is less than ten percent (10%) of the then outstanding Common Stock. Subject to the terms of this Section 2.8 and the fiduciary duties of the Board as required under applicable law, the Company agrees to cause such nominee to be included in the Company Board and management slate of nominees presented to stockholders of the Company for election as directors and to recommend to stockholders their election to the Company Board. Notwithstanding any provisions to the contrary in this Agreement, Goldman's right to nominate one person to serve on the Company Board is not assignable and any purported assignment of such right shall be null and void. 14 3. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Agreement. As defined in the introductory paragraph of this Agreement. Blackout Period. As defined in Section 2.1(f). Commission: The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. Common Stock: As defined in Section 1. Company: As defined in the introductory paragraph of this Agreement. Company Board. As defined in Section 2.8. Exchange Act: The Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. Goldman: As defined in Section 2.8. Inspector. As defined in Section 2.3. Investor: As defined in the introductory paragraph of this Agreement. Managing Underwriters: Any investment banker or investment bankers and manager or managers that administer the offering of Registrable Securities covered by any registration statement. Person: A corporation, an association, a partnership, an organization, business, an individual, a governmental or political subdivision thereof or a governmental agency. Plan: As defined in Section 1. 15 Records. As defined in Section 2.3. Registrable Securities: Any shares of Common Stock issued to any Investor pursuant to the Plan, any shares of Common Stock issuable upon conversion of convertible preferred stock issued to any Investor pursuant to the Plan and any securities issued or issuable with respect to any Common Stock referred to above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (d) they shall be sold by the applicable Investor to the public pursuant to Section 1145 of title 11 of the United States Code, as amended, or (e) they shall have ceased to be outstanding. Notwithstanding anything herein to the contrary, the registration rights granted hereunder shall terminate as to each Investor and with respect to such Securities upon the date that such Common Stock is no longer Registrable Securities. Registration Expenses: All expenses incident to the Company's performance of or compliance with Section 2, including, without limitation, all registration, filing and NASD fees, all stock exchange listing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of one (1) counsel representing all Investors and accountants retained by Investors, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. 16 Securities Act: The Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as of the same shall be in effect at the time. References to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar Federal statute. 4. Rules 144. The Company shall use its best efforts to file in a timely manner the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any Participating Investor, make publicly available other information) and will take such further action as such Investor may reasonably request, all to the extent required from time to time to enable such Participating Investor to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Investor, the Company will deliver to such Investor a written statement as to whether it has complied with the requirements of this Section 4. 5. Amendments and Waivers. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of each Investor. Investors shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 17 7. Notices. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of the Company, addressed in the manner set forth below, or (b) in the case of any other Person, at the address that such Person shall have furnished to the Company in writing. If to the Company: Genesis Health Ventures, Inc. 101 East State Street Kennett Square Pennsylvania Facsimile: Attn: James J. Wankmiller, Esq. If to the Investors: At the address provided to the Company: [Address] Facsimile: Attn: Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by air courier), when delivered at the address specified above, provided that any such notice, request or communication to Investor shall not be effective until receipt is acknowledged in a writing reasonably satisfactory to both parties. 8. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. This Agreement shall not be assigned by any Investor, provided that an Investor shall have the right, upon prior written notice to the Company, to assign its rights and obligations under the Agreement to a purchaser of Registrable Securities from such Investor that purchases either (1) the entire amount of such Investor's initial issuance of Common Stock under the Plan or (2) a number of shares of Common Stock equal to at least three and a half percent (3.5%) of the then outstanding shares of Common Stock. 18 9. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER. 11. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 12. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Company and Investor relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. THE COMPANY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF TO THE COMPANY BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE COMPANY AT ITS ADDRESS SPECIFIED IN SECTION 7. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 14. Severability. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, illegal or unenforceable the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, illegal or unenforceable, shall not be affected thereby. 19 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. GENESIS HEALTH VENTURES, INC. By /s/ James V. McKeon ------------------------------------- Name: James V. McKeon Title: Senior Vice President GOLDMAN SACHS & CO. By /s/ John Urban ------------------------------------- Name: John Urban Title: Managing Director HIGHLAND CAPITAL MANAGEMENT L.P. By /s/ Mark K. Okade ------------------------------------- Name: Mark K. Okade CFA Title: Executive Vice President Highland Capital Management L.P. 20 EX-10 15 ex10-25.txt EXHIBIT 10.25 Exhibit 10.25 GENESIS HEALTH VENTURES, INC. REGISTRATION RIGHTS AGREEMENT Dated October 2, 2001
1. Introduction...................................................................................1 2. Registration under Securities Act, etc.........................................................1 2.1 Shelf Registration Statement..........................................................1 2.2 Registration Procedures...............................................................4 2.3 Preparation; Reasonable Investigation.................................................6 2.4 Indemnification.......................................................................6 3. Definitions...................................................................................10 4. Rules 144.....................................................................................12 5. Amendments and Waivers........................................................................12 6. Nominees for Beneficial Owners................................................................12 7. Notices.......................................................................................13 8. Assignment....................................................................................14 9. Descriptive Headings..........................................................................14 10. GOVERNING LAW.................................................................................14 11. Counterparts..................................................................................14 12. Entire Agreement..............................................................................14 13. SUBMISSION TO JURISDICTION....................................................................15 14. Severability..................................................................................15
REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of October 2, 2001, between Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Company"), and Goldman Sachs & Co., a Delaware corporation, and Highland Capital Management L.P. (each an "Investor" and together, the "Investors"). 1. Introduction. Pursuant to the Joint Plan of Reorganization of Genesis Health Ventures, Inc. and its affiliated Debtors and Debtors in Possession (the "Plan"), dated July 6, 2001, the Company has agreed, among other things, to issue new senior notes in the aggregate principle amount of $ 242,605,000 of the Company (the "New Senior Notes"). This Agreement shall become effective upon the issuance of such securities pursuant to the Plan. Certain capitalized terms used in this Agreement are defined in Section 3 hereof; references to sections shall be to sections of this Agreement. WHEREAS, the Company has agreed to grant to Investors the registration rights set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 2. Registration under Securities Act, etc. 2.1 Shelf Registration Statement (a) Request. An Investor holding New Senior Notes of at least $24,260,500 in aggregate principle amount which constitute Registrable Securities, or Investors holding New Senior Notes of at least $48,521,000 in aggregate principle amount which constitute Registrable Securities, may request, in writing, registration under the Securities Act, of all or part of their Registrable Securities. Within 10 days after receipt of such request, the Company will give notice of such request to the other Investors. Any Investor that sells or disposes of securities covered by a registration statement affected by the Company pursuant to this Agreement is referred to herein as a "Participating Investor." The Company will include in such registration, all Registrable Securities held by any Participating Investor with respect to which the Company has received a written request for inclusion therein within 15 days after the receipt of the Company's notice. 1 (b) Filing. The Company agrees to prepare and, not later than 90 days following the date in which it would receive a written request pursuant to Section 2.1(a) hereof, to file with the Commission, one registration statement for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adapted by the Commission, covering all of the Registrable Securities held by the Participating Investors (the "Shelf Registration Statement"). The Shelf Registration Statement shall be on Form S-3 under the Securities Act or another appropriate form selected by the Company permitting registration of such Registrable Securities for resale by the Participating Investors in the manner or manners reasonably designated by them (not including underwritten offerings). The Company shall use all reasonable efforts to cause the Shelf Registration Statement to be declared effective pursuant to the Securities Act within 165 days after the date a request for registration is made, and to keep the Shelf Registration Statement continuously effective under the Securities Act until the earlier of (i) the date on which all the New Senior Notes covered by such registration statement have been disposed of or otherwise cease to be Registrable Securities and (ii) such date on which such registration statement has been effective for a period of twenty four (24) months, (the "Effectiveness Period"). (c) Limitation on Shelf Registration Statement. In no event shall the Company be required to effect more than one registration statement pursuant to this Agreement. (d) Selling Securityholder Information. The Company may require each Participating Investor to furnish to the Company such information regarding the Participating Investor and the distribution of the Registrable Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Registrable Securities of any Participating Investor that fails to furnish such information within a reasonable time after receiving such request. Each Investor agrees to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Investor not misleading. (e) Expenses. The Company will pay all Registration Expenses in connection with the Shelf Registration Statement. (f) Exceptions to Registration. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated to take any action to effect a registration statement pursuant to this Agreement: (i) During the period starting with the date forty-five (45) days prior to the Company's estimated date of filing of, and ending on the ninetieth (90th) day immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; 2 (ii) If the Company determines in good faith that the registration and distribution of Registrable Securities (or the use of the Shelf Registration Statement or related prospectus) would (i) materially and adversely interfere with any previously announced business combination transaction involving the Company or (ii) result in the premature disclosure of any pending financing, acquisition, corporate reorganization or any other corporate development involving the Company or any of its subsidiaries, and, in either such event, the Company shall promptly give Participating Investors written notice of such determination, then the Company shall be entitled to (x) postpone the filing of the Shelf Registration Statement, or (y) postpone the effectiveness of the Shelf Registration Statement, or (z) elect that the effective Shelf Registration Statement not be used, in either case for a reasonable period of time, but not to exceed ninety (90) days after the date of such written notice (a "Blackout Period"); provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Any such written notice shall contain a general statement of the reasons for such postponement or restriction on use and an estimate of the anticipated delay. The Company shall promptly notify each Participating Investor of the expiration or earlier termination of such Blackout Period. (g) Objection by Participating Investor. The Company will not file any registration statement covering the Registrable Securities or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which Participating Investor shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel. (h) Upon (A) the issuance by the Commission of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "Material Event") as a result of which any Shelf Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (including, in any such case, as a result of the non-availability of financial statements), or (C) the occurrence or existence of any pending corporate development that, in the judgment of the Company, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related prospectus, (i) in the case of clause (B) above, subject to the next sentence, as promptly as practicable prepare and file a post-effective amendment to such Shelf Registration Statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Shelf Registration Statement and prospectus so that such Shelf Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Shelf Registration Statement, subject to the next sentence, use all reasonable efforts to cause it to be declared effective as promptly as is reasonably practicable, and (ii) give notice to the Participating Investors that the availability of the Shelf Registration Statement is suspended (a "Deferral Notice") and, upon receipt of any Deferral Notice, no Participating Investor shall be permitted to sell any Registrable Securities pursuant to the Shelf Registration Statement until such Participating Investor's receipt of copies of the supplemented or amended prospectus provided for in clause (i) above, or until such Participating Investor is advised in writing by the Company that the prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus. The Company will use reasonable efforts to ensure that the use of the prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as reasonably practicable thereafter and (z) in the case of clause (C) above, as soon as, in the discretion of the Company, such suspension is no longer appropriate. 3 (i) Discontinued Use of Prospectus. The Investors agree by acquisition of the Registrable Securities that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 2.1(h) hereof, the Participating Investors will forthwith discontinue their respective dispositions of Registrable Securities pursuant to the Shelf Registration Statement until each such Participating Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.1(h) hereof and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Investor's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. (j) Information Regarding Participating Investors. If the Shelf Registration Statement refers to any Participating Investor by name or otherwise as the holder of any securities of the Company, then such Investor shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Investor, to the effect that the holding by such Investor of such securities is not to be construed as a recommendation by such Investor of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Investor will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Investor by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Investor. 4 2.2 Registration Procedures. If and whenever the Company is required to effect a Shelf Registration Statement as provided in Sections 2.1, the Company shall, as expeditiously as possible: (i) furnish before filing such registration statement or any amendments thereto, copies of all such documents proposed to be filed to the counsel selected by the Participating Investors, which documents will be subject to the review of such counsel; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such registration statement until the end of the Effectiveness Period. (iii) furnish to each Participating Investor such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such Participating Investor, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; (iv) use its best efforts to register or qualify all Registrable Securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any seller thereof shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (v) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; 5 (vi) furnish to each Participating Investor a signed counterpart, addressed to such Participating Investor, of (x) an opinion of counsel for the Company, dated the effective date of such registration statement, reasonably satisfactory in form and substance to such Participating Investor, and (y) a "comfort" letter (or, in the case of any such Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter), dated the effective date of such registration statement, signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35) and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as the Participating Investors may reasonably request; (vii) notify each Participating Investor, promptly and confirm such advice in writing promptly thereafter (v) when such registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (w) of any request by the Commission for amendments or supplements to such registration statement or the prospectus or for additional information; (x) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings by any Person for that purpose; and (y) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (viii) notify each Participating Investor, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any Participating Investor promptly prepare and furnish to such Participating Investor, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (ix) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such registration statement at the earliest possible moment; 6 (x) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the Company's first full calendar quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and will furnish to each Participating Investor at least five business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus related thereto and shall not file any thereof to which such Participating Investor shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (xi) make available for inspection by a representative or representatives of each Participating Investor and any attorney or accountant retained by any Participating Investor (each, an "Inspector"), all financial and other records, pertinent corporate documents and properties of the Company (the "Records"), and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration in order to permit a reasonable investigation within the meaning of Section 11 of the Securities Act; (xii) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and (xiii) use its best efforts to provide a CUSIP number for the Registrable Securities, not later than the effective date of such registration statement. 2.3 Preparation; Reasonable Investigation. In connection with the preparation and filing of the Shelf Registration Statement pursuant to this Agreement, the Company will give any Participating Investor, their counsel and accountants, the opportunity to participate in the preparation of such registration statement, each related prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Investors' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 7 2.4 Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless a Participating Investor, its directors and officers, and each other Person, if any, who controls such Participating Investor within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Participating Investor or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Participating Investor and each such director, officer, and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by a Participating Investor specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a Participating Investor or any such director, officer, or controlling person and shall survive the transfer of such securities by any Participating Investor. (b) Indemnification by Investor. The Company may require, as a condition to including any Registrable Securities in the Shelf Registration Statement, that the Company shall have received an undertaking satisfactory to it from each Participating Investor, severally and not jointly, will indemnify and hold harmless the Company (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.4) each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Participating Investor specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; and, subject to the limitation set forth immediately preceding this clause, shall reimburse the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by Investor. 8 (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.4, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.4, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. (d) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 2.4 (with appropriate modifications) shall be given by the Company and any Participating Investor with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) Indemnification Payments. The indemnification required by this Section 2.4 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) Contribution. If the indemnification provided for in the preceding subdivisions of this Section 2.4 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability. In determining the amount of contribution to which the indemnified party is entitled, there shall be considered with respect to any Persons involved the relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.4, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (a) or (b) of this Section 2.4 had been available under the circumstances. 9 The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if a Participating Investor were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 2.4, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), no Participating Investor shall be required to contribute any amount in excess of the amount by which in the case of a Participating Investor, the net proceeds received from the sale of Registrable Securities has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 3. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Agreement. As defined in the introductory paragraph of this Agreement. Blackout Period. As defined in Section 2.1(f). Commission: The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. 10 Company: As defined in the introductory paragraph of this Agreement. Deferral Notice: As defined in Section 2.1(h). Effectiveness Period: As defined in Section 2.1(b). Exchange Act: The Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. Inspector. As defined in Section 2.2. Investor: As defined in the introductory paragraph of this Agreement. Material Event: As defined in Section 2.1(h). New Senior Notes: As defined in Section 1. Participating Investor: As defined in Section 2.1(a). Person: A corporation, an association, a partnership, an organization, business, an individual, a governmental or political subdivision thereof or a governmental agency. Plan: As defined in Section 1. Records. As defined in Section 2.2. 11 Registrable Securities: Any New Senior Notes issued to any Investor pursuant to the Plan. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (d) they shall be sold by the applicable Investor to the public pursuant to Section 1145 of title 11 of the United States Code, as amended, or (e) they shall have ceased to be outstanding. Notwithstanding anything herein to the contrary, the registration rights granted hereunder shall terminate as to each Investor and with respect to such New Senior Notes upon the date that such notes are no longer Registrable Securities. Registration Expenses: All expenses incident to the Company's performance of or compliance with Section 2, including, without limitation, all registration, filing and NASD fees, all stock exchange listing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of one (1) counsel representing all Investors and accountants retained by Investors, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. Securities Act: The Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as of the same shall be in effect at the time. References to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar Federal statute. Shelf Registration Statement: As defined in Section 2.1(b). 12 4. Rules 144. The Company shall use its best efforts to file in a timely manner the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any Investor, make publicly available other information) and will take such further action as such Investor may reasonably request, all to the extent required from time to time to enable such Investor to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Investor, the Company will deliver to such Investor a written statement as to whether it has complied with the requirements of this Section 4. 5. Amendments and Waivers. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of each Investor. Investors shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 7. Notices. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of the Company, addressed in the manner set forth below, or (b) in the case of any other Person, at the address that such Person shall have furnished to the Company in writing. 13 If to the Company: Genesis Health Ventures, Inc. 101 East State Street Kennett Square Pennsylvania Facsimile: Attn: James J. Wankmiller, Esq. If to the Investors: At the address provided to the Company: [Address] Facsimile: Attn: Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by air courier), when delivered at the address specified above, provided that any such notice, request or communication to Investor shall not be effective until receipt is acknowledged in a writing reasonably satisfactory to both parties. 8. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. This Agreement shall not be assigned by any Investor, provided that an Investor shall have the right, upon prior written notice to the Company, to assign its rights and obligations under the Agreement to a purchaser of Registrable Securities from such Investor that purchases either (1) the entire amount of such Investor's initial issuance of New Senior Notes under the Plan or (2) New Senior Notes of aggregate principle amount equal to at least three and a half percent (3.5%) of the aggregate principle amount of the then outstanding New Senior Notes. 9. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER. 11. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 14 12. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Company and Investor relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. THE COMPANY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF TO THE COMPANY BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE COMPANY AT ITS ADDRESS SPECIFIED IN SECTION 7. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 14. Severability. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, illegal or unenforceable the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, illegal or unenforceable, shall not be affected thereby. 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. GENESIS HEALTH VENTURES, INC. By /s/ James V. McKeon ------------------------------------------ Name: James V. McKeon Title: Senior Vice President and Corporate Controller GOLDMAN SACHS & CO.. By /s/ John Urban ------------------------------------------ Name: John Urban Title: Managing Director HIGHLAND CAPITAL MANAGEMENT L.P. By /s/ Mark K. Okade ------------------------------------------ Name: Mark K. Okade CFA Title: Executive Vice President Highland Capital Management L.P. 16 EX-10 16 ex10-28.txt EXHIBIT 10.28 Exhibit 10.28 ================================================================================ CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT Dated as of October 2, 2001 among GENESIS HEALTH VENTURES, INC. as Borrower and THE GUARANTORS REFERRED TO HEREIN and THE LENDERS REFERRED TO HEREIN and FIRST UNION SECURITIES, INC. as Co-Lead Arranger GOLDMAN SACHS CREDIT PARTNERS L.P. as Co-Lead Arranger and Syndication Agent FIRST UNION NATIONAL BANK as Administrative Agent and Collateral Agent GENERAL ELECTRIC CAPITAL CORPORATION as Collateral Monitoring Agent and Co-Documentation Agent and CITICORP USA, INC. as Co-Documentation Agent ================================================================================ Schedules 1.2 Excluded Properties 1.3 Non-Core Assets 1.4 Specified Payments 3.1(a) List of jurisdictions where the Borrower is qualified/not in good standing 3.1(b) List of jurisdictions where each Credit Party is qualified/not in good standing 3.3(c) Governmental Approvals 3.7(a) Credit Parties and Subsidiaries Information 3.7(b) Beneficial Interests in Persons other than a Credit Party 3.7(c) Joint Venture and Partnership Interests 3.8 Proprietary Rights 3.9 Fictitious Names 3.10(a) Title to Properties 3.10(d) Rights of First Refusal/Option Rights 3.12(a) Litigation 3.12(c) Investigations/Medicare-Medicaid Claims 3.15 Taxes 3.17(b) Agreements 3.18(a) Filing Offices for UCC-1 Financing Statements 3.18(b) Filing Offices for the Mortgages and Fixture Filings 3.20 Environmental Matters 3.21(a) Pledged Securities 3.21(c) Restrictions on Transfer of the Pledged Securities 3.24(a) Owned Real Property Assets 3.24(b) Leased Real Property Assets 3.26 Labor Matters 3.28 Bank Accounts 4.1(b)(iv) List of Subsidiary Good Standing Certificates 4.1(c) Local Counsel Opinions 4.1(gg) Appraised Real Property Assets 6.1 Existing Indebtedness 6.2 Existing Liens 6.3 Certain Guaranties by Borrower 6.4 Existing Investments 8.3(b) Concentration Accounts 8.3(c) Government Concentration Accounts ii Exhibits A Form of Assignment and Acceptance B-1 Form of Borrowing Certificate B-2 Form of Borrowing Base Certificate C Form of Instrument of Assumption and Joinder D Form of Mortgage E Form of Note F Form of Closing Certificate G Form of Intercreditor and Collateral Agency Agreement H Form of Contribution Agreement iii CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT, dated as of October 2, 2001 (as this agreement may be further amended, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time, the "Credit Agreement"), among (i) Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Borrower"); (ii) the Guarantors referred to herein; (iii) the Lenders referred to herein; (iv) Goldman Sachs Credit Partners L.P., as Co-Lead Arranger and Syndication Agent; (v) First Union National Bank, as Administrative Agent and Collateral Agent; (vi) First Union Securities, Inc., as Co-Lead Arranger; (vii) General Electric Capital Corporation, as Collateral Monitoring Agent and Co-Documentation Agent; and (viii) Citicorp USA, Inc., as Co-Documentation Agent. INTRODUCTORY STATEMENT ---------------------- All terms not otherwise defined above or in this Introductory Statement are as defined in Article 1 hereof or as defined elsewhere herein. Subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower: (a) Revolving Credit Loans in the amount of $150,000,000, (b) the B Term Loans in the amount of $285,000,000 and (c) Delayed Draw Term Loans in the amount of $80,000,000, and other financial accommodations provided for in this Credit Agreement. To provide assurance for the repayment of the Loans hereunder and the other Obligations (as such term is hereinafter defined) of the Borrower hereunder, the Borrower will, among other things, provide or cause to be provided to the Collateral Agent, for the benefit of the Secured Parties, the following (each as more fully described herein): (i) a guaranty of the Obligations by each of the Guarantors pursuant to Article 9 hereof; (ii) a security interest in the Collateral from each of the Credit Parties pursuant to Article 8 hereof; (iii) a pledge by each of the Pledgors of the Pledged Collateral owned by it pursuant to Article 10 hereof; and (iv) a Mortgage with respect to certain Real Property Assets owned or leased by the Credit Parties. Subject to the terms and conditions set forth herein, the Administrative Agent is willing to act as administrative agent for the Lenders, the Collateral Agent is willing to act as collateral agent for the Lenders, the Collateral Monitoring Agent is willing to act as collateral monitoring agent for the Lenders, the Issuing Bank is willing to issue Letters of Credit as provided herein, and each Lender is willing to make Loans and to participate in Letters of Credit to the Borrower as provided herein, in an aggregate principal amount at any one time outstanding not in excess of the Total Credit Commitments hereunder. Accordingly, the parties hereto hereby agree as follows: 1. DEFINITIONS For the purposes hereof unless the context otherwise requires, all references to Sections, Exhibits and Schedules shall be deemed references to Sections of, and Exhibits and Schedules to, this Credit Agreement, the following terms shall have the meanings indicated, all accounting terms not otherwise defined herein shall have the respective meanings accorded to them under GAAP and all terms defined in the UCC and not otherwise defined herein shall have the respective meanings accorded to them therein. Whenever the context may require, any pronoun shall include the masculine, feminine and neuter forms. Unless the context otherwise requires, any of the following terms may be used in the singular or the plural, depending on the reference: "Adjusted LIBO Rate" shall mean with respect to any Eurodollar Loan for any Interest Period, the rate per annum equal to the quotient (rounded upwards, if necessary, to the next 1/100 of 1%) of (i) the LIBO Rate for such Eurodollar Loan for such Interest Period divided by (ii) one minus the applicable statutory reserve requirements of the Administrative Agent, expressed as a decimal (including without duplication or limitation, basic, supplemental, marginal and emergency reserves), from time to time in effect under Regulation D or similar regulations of the Board. It is agreed that for purposes of this definition, Eurodollar Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities as defined in Regulation D and to be subject to the reserve requirements of Regulation D (for so long as such requirements are in effect). "Administrative Agent" shall mean First Union National Bank, in its capacity as administrative agent for the Lenders hereunder or such successor Administrative Agent as may be appointed pursuant to Section 12.12 hereof. "Affiliate" shall mean with respect to any Person (including a Credit Party), any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" another Person if such latter Person possesses, directly or indirectly, power either to (i) vote fifteen percent (15%) or more of the securities or other ownership interests having ordinary voting power for the election of directors (or the equivalent) of such controlled Person or (ii) direct or cause the direction of the management and policies of such controlled Person whether by contract or otherwise. "Affiliated Group" shall mean a group of Persons, each of which is an Affiliate of some other Person in the group. 2 "AGE Claim" shall mean the claim of the Borrower and its Subsidiaries against related nursing home owners affiliated with AGE Holdings, Inc. for, among other things, unpaid receivables. "Agents" shall mean collectively, the Administrative Agent, the Collateral Agent and the Collateral Monitoring Agent. "Applicable Interest Margin" shall mean: (i) in the case of Base Rate Loans that are Term Loans, 2.50% per annum; (ii) in the case of Eurodollar Loans that are Term Loans, 3.50% per annum; (iii) from the Closing Date until the six month anniversary thereof, (A) in the case of Base Rate Loans that are Revolving Credit Loans, 2.00% per annum and (B) in the case of Eurodollar Loans that are Revolving Credit Loans, 3.00% per annum; and (iv) from and after the six month anniversary of the Closing Date, the Applicable Interest Margin for Revolving Credit Loans shall be determined in accordance with the following grid:
Eurodollar Loan Base Rate Loan Applicable Interest Total Leverage Ratio Applicable Interest Margin Margin -------------------- -------------------------- ------------------- Greater than 3.25:1 2.25% 3.25% Greater than 2.75:1, but 2.00% 3.00% Less than or equal to 3.25:1 Greater than 2.25:1, but 1.75% 2.75% Less than or equal to 2.75:1 Greater than 1.75:1, but 1.50% 2.50% Less than or equal to 2.25:1 Less than or equal to 1.75:1 1.25% 2.25%
"Applicable Law" shall mean all applicable provisions of statutes, rules, regulations and orders of the United States, any state thereof or municipality therein or of any foreign governmental body or of any regulatory agency applicable to the Person in question, and all orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party. "APS Acquisition" shall mean the acquisition from Mariner Post-Acute Network, Inc., Mariner Health Group, Inc. and certain of their Affiliates of the assets of such entities' pharmacy businesses and certain assets related thereto pursuant to that certain Purchase Agreement, dated as of September 24, 2001, together with any amendments thereto, which if material, are in form and substance satisfactory to the Administrative Agent and the Co-Lead Arrangers. 3 "Assignment and Acceptance" shall mean an agreement substantially in the form of Exhibit A hereto, executed by the assignor, the assignee and the other parties as contemplated hereby or thereby. "Authorized Officer" shall mean, with respect to the Borrower or any other Credit Party, the president, vice president, chief financial officer, chief accounting officer, secretary, treasurer or the general partner or managing member of such entity (or of the general partner or managing member of such entity, if not a natural person), as the case may be. "B Term Loan" shall have the meaning given to such term in Section 2.1 hereof. "Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as heretofore and hereafter amended, as codified at 11 U.S.C. ss. 101 et seq. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the District of Delaware. "Base Rate" shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect for such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum established from time to time by the Administrative Agent as its prime rate, which rate may not be the lowest rate of interest charged by the Administrative Agent to its customers. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, on such day, as published on the next succeeding Business Day by the Federal Reserve Bank of New York; provided, that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. If the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including (without limitation) the inability or failure of the Administrative Agent to obtain quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "Base Rate Loan" shall mean a Loan based on the Base Rate in accordance with the provisions of Article 2 hereof. 4 "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" shall have the meaning given to such term in the initial paragraph of this Credit Agreement. "Borrowing" shall mean a Loan or group of Loans of the same Tranche and Interest Rate Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" shall mean as of any date of determination thereof an amount equal to the sum of (i) eighty-five percent (85%) of the net amount of Eligible Receivables plus (ii) fifty percent (50%) of the Net Value of Eligible Real Estate. The Borrowing Base shall be computed as of the end of each fiscal month; provided, that so long as no Event of Default has occurred and is continuing under Section 7(e) (with respect to Section 5.1(k)), the Borrowing Base in effect at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered in accordance with Section 5.1(k), absent any error in such Borrowing Base Certificate. For purposes hereof, "the net amount of Eligible Receivables" at any time shall be the face amount (or portion of the face amount thereof in the case of Receivables referred to in clause (vii) of the definition of Eligible Receivable) of such Eligible Receivables less (without duplication to the extent deducted under the definition of Receivable) any and all rebates, discounts, credits, allowances, sales or excise taxes of any nature at any time issued, owing, claimed, granted, outstanding or payable in connection with such Receivables at such time. "Borrowing Base Certificate" shall mean a certificate, substantially in the form of Exhibit B-2 hereto, appropriately completed by an Authorized Officer of the Borrower with respect to the Borrowing Base. "Borrowing Certificate" shall mean a borrowing certificate, substantially in the form of Exhibit B-1 hereto, to be delivered by the Borrower to the Administrative Agent in connection with each Borrowing. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in the States of New York or North Carolina; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits on the London Interbank Market. "Capital Expenditures" shall mean, with respect to any Person for any period, the aggregate of all expenditures (whether paid in cash or accrued as a liability) by such Person during that period which, in accordance with GAAP, are or should be included in "additions to property, plant or equipment" or similar items reflected in the statement of cash flows of such Person (other than expenditures incurred in connection with the APS Acquisition or any other acquisition permitted under Section 6.7 hereof). 5 "Capital Lease", as applied to any Person, shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" shall mean (i) with respect to corporate stock, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock, including without limitation, any Preferred Stock or (ii) with respect to any other evidence of beneficial ownership of any entity which is not a corporation, any and all partnership interests or any other equity interests or evidences of beneficial ownership, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) a partnership interest or other equity interest or evidence of beneficial ownership. "Cardinal" shall mean Cardinal Health, Inc., an Ohio corporation, and its subsidiaries. "Cardinal Lien" shall mean a security interest in certain inventory in favor of Cardinal securing trade payables of up to $50,000,000 pursuant to that certain Prime Vendor Agreement between certain Credit Parties and Cardinal Distribution dated as of May 5, 1999, as amended, and that certain Prime Vendor Agreement between certain Credit Parties and Cardinal Distribution dated as of September 28, 2001. "Cash Collateral Account" shall have the meaning given to such term in Section 11.1 hereof. "Cash Equivalents" shall mean any of the following: (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) time deposits and certificates of deposit having a final maturity of not more than one year after the date of issuance thereof 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 $1,000,000,000.00 and with a senior unsecured debt credit rating of at least "A" by Moody's or "A" by S&P; (iii) commercial paper of companies, banks, trust companies or national banking associations incorporated or doing business under the laws of the United States of America or one of the States thereof, in each case having a remaining term until maturity of not more than one hundred eighty (180) days from the date such investment is made and rated at least P-1 by Moody's or at least A-1 by S&P; (iv) repurchase agreements with any financial institution having combined capital and surplus of not less than $1,000,000,000.00 with a term of not more than seven (7) days for underlying securities of the type referred to in clause (i) above; and (v) money market funds which invest primarily in the Cash Equivalents set forth in the preceding clauses (i) - (iv). "CHAMPUS" shall mean, collectively, the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation, and all laws, rules, regulations, manuals, orders, guidelines or requirements pertaining to such program including (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss.1071-1106 or elsewhere) affecting such program; and (b) all rules, regulations (including 32 C.F.R. ss.199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Authorities promulgated in connection with such program (whether or not having the force of law), in each case as the same may be amended, supplemented or otherwise modified from time to time. 6 "CHAMPUS Receivable" shall mean a Receivable payable to a Credit Party pursuant to CHAMPUS. "CHAMPVA" shall mean, collectively, the Civilian Health and Medical Program of the Department of Veteran Affairs, a program of medical benefits covering retirees and dependents of former members of the armed services administered by the United States Department of Veteran Affairs, and all laws, rules, regulations, manuals, orders, guidelines or requirements pertaining to such program including (a) all federal statutes (whether set forth in 38 U.S.C. ss.1713 or elsewhere) affecting such program or, to the extent applicable to CHAMPVA; and (b) all rules, regulations (including 38 C.F.R. ss.17.54), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Authorities promulgated in connection with such program (whether or not having the force of law), in each case as the same may be amended, supplemented or otherwise modified from time to time. "CHAMPVA Receivable" shall mean a Receivable payable to a Credit Party pursuant to CHAMPVA. "Change in Control" shall mean (i) any Person, Affiliated Group or group (such term being used as defined in the Securities Exchange Act of 1934, as amended), acquiring ownership or control of in excess of 35% of equity securities having voting power to vote in the election of the Board of Directors of the Borrower either on a fully diluted basis or based solely on the voting stock then outstanding, (ii) if at any time, individuals who at the date hereof constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Borrower, as the case may be, was approved by a vote of the majority of the directors then still in office who were either directors at the date hereof or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office, (iii) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Borrower to any Person or (iv) the adoption of a plan relating to the liquidation or dissolution of the Borrower. "Closing Date" shall mean the date on which the conditions precedent set forth in Section 4.1 hereof have been satisfied or waived. "CMS" shall mean The Center for Medicare and Medicaid Services, formerly known as the Health Care Financing Administration, the entity within the United States Department of Health and Human Services responsible for administering the Medicare program and the federal aspects of the Medicaid programs, directly and through its fiscal intermediaries and agents. 7 "Co-Lead Arrangers" shall mean First Union Securities, Inc. and Goldman Sachs Credit Partners L.P. in their capacities as co-lead arrangers. "Code" shall mean the Internal Revenue Code of 1986, as heretofore and hereafter amended, as codified at 26 U.S.C. ss. 1 et seq., and the applicable regulations promulgated thereunder, or any successor provision thereto. "Collateral" shall mean with respect to each Credit Party, all of such Credit Party's right, title and interest in and to (i) all personal property, tangible and intangible, wherever located or situated and whether now owned, presently existing or hereafter acquired or created, including but not limited to, all goods, accounts, health-care insurance receivables, instruments, intercompany obligations, contract rights, partnership and joint venture interests, interests in limited liability companies, documents, chattel paper, electronic chattel paper, general intangibles, goodwill, equipment, machinery, inventory, investment property, copyrights, trademarks, trade names, patents, insurance proceeds, cash, deposit accounts, letter of credit rights, supporting obligations, fixtures, Non-Government Receivables, Rights to Government Receivables and the Pledged Securities, and any proceeds or products of, income from, any of the foregoing, in any form, including, without limitation, any claims against third parties for loss or damage to or destruction of any or all of the foregoing, excluding any personal property located in or appurtenant to the Excluded Properties or any Non-Core Assets (other than Receivables or other intangibles related to such Excluded Properties or Non-Core Assets so long as the grant of a security interest in such Receivables or other intangibles is not prohibited or restricted by Applicable Law or any contract or agreement); (ii) all books, records, ledger cards, computer tapes and diskettes wherever located, related to the Collateral described in clause (i) or (iii) of this definition or any of the Real Property Assets; and (iii) the Pledged Collateral. "Collateral Agent" shall mean First Union National Bank in its capacity as collateral agent for the Lenders hereunder or such successor Collateral Agent as may be appointed pursuant to Section 12.12 hereof. "Collateral Monitoring Agent" shall mean General Electric Capital Corporation in its capacity as collateral monitoring agent for the Lenders hereunder or such successor Collateral Monitoring Agent as may be appointed pursuant to Section 12.12 hereof. "Commitment" shall mean any of the commitments of a Lender to make Loans, i.e., whether the Term Loan B Commitment, the Delayed Draw Term Loan Commitment or the Revolving Credit Commitment. "Commitment Fees" shall mean collectively, the Revolving Credit Commitment Fee and the Delayed Draw Term Loan Commitment Fee. "Concentration Accounts" shall mean the concentration accounts established by the Credit Parties for deposit of all collections on Receivables other than Medicare Receivables as set forth on Schedule 8.3(b) hereto. "Consolidated EBITDA" shall mean, for any period, all as determined in accordance with GAAP, the Consolidated Net Income (or net loss) of the Borrower and its Consolidated Subsidiaries for such period, plus (a) the sum for such period for Borrower and its Consolidated Subsidiaries determined on a consolidated basis of (i) depreciation expense, (ii) amortization expense, (iii) other non-cash expenses, (iv) provision for LIFO adjustment for inventory valuation, (v) net total Federal, state and local income tax expenses, (vi) Consolidated Interest Expense, (vii) extraordinary losses, (viii) any non-recurring charge or restructuring charge, and (ix) the cumulative effect of any change in accounting principles less (b) extraordinary gains for such period for Borrower and its Consolidated Subsidiaries determined on a consolidated basis to the extent included in the definition of Consolidated Net Income. 8 "Consolidated EBITDAR" shall mean, for any period, Consolidated EBITDA for such period plus Consolidated Rental Expense for such period. "Consolidated Fixed Charge Coverage Ratio" shall mean, at any date for which such ratio is to be determined, the ratio of Consolidated EBITDAR for the Rolling Four Quarter period ended on such date to the sum of the following for such period: (i) Consolidated Interest Expense plus (ii) Consolidated Rental Expense plus (iii) scheduled principal payments on all Indebtedness of the Borrower and its Consolidated Subsidiaries, including, without limitation, any Indebtedness under any B Term Loans, Delayed Draw Term Loans, the Rollover Notes and any Mortgage Loans. "Consolidated Interest Expense" shall mean, for any period, the gross interest expense, whether paid or accrued (including the interest component of Capital Lease obligations) of the Borrower and its Consolidated Subsidiaries on a consolidated basis for such period, including, without limitation or duplication, (i) interest expense in respect of the Loans and all other outstanding Indebtedness, (ii) amortization of the discount or issuance cost of any Indebtedness (including, without limitation, any original issue discount attributable to any issuance of debt securities), (iii) commissions, discounts and other fees and charges payable in connection with letters of credit, (iv) net payments payable in connection with all Interest Rate Protection Agreements (including amortization of any discount) and (v) any interest which is capitalized, all as determined in conformity with GAAP. "Consolidated Net Income" shall mean, for any period for which such amount is being determined, the net income or loss of the Borrower and its Consolidated Subsidiaries during such period determined on a consolidated basis for such period taken as a single accounting period in accordance with GAAP; provided, that (i) there shall be excluded (x) the income (or loss) of any Person (other than a Consolidated Subsidiary) in which the Borrower or any of its Consolidated Subsidiaries has an equity investment or comparable interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Consolidated Subsidiaries by such Person during such period and (y) the income of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Consolidated Subsidiary of its income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Consolidated Subsidiary; and (ii) there shall be included or excluded (as applicable) on a Pro Forma Basis the income (or loss) of any Person which becomes a Consolidated Subsidiary of the Borrower, is merged into or consolidated with the Borrower or any of its Consolidated Subsidiaries or assets are acquired or sold or otherwise disposed of by the Borrower or any of its Consolidated Subsidiaries during such period. 9 "Consolidated Net Working Assets" shall mean for any date for which it is to be determined, (i) the total assets of the Borrower and its Consolidated Subsidiaries which may properly be classified as current assets in accordance with GAAP (excluding cash and Cash Equivalents), minus (ii) the total liabilities of the Borrower and its Consolidated Subsidiaries which may properly be classified as current liabilities in accordance with GAAP (excluding current maturities of all long term Indebtedness), determined on a consolidated basis in accordance with GAAP. "Consolidated Rental Expense" shall mean, for any period, the aggregate rental obligations of the Borrower and its Consolidated Subsidiaries on a consolidated basis for such period payable in respect of any leases (other than Capital Leases) including, without limitation, obligations for taxes, insurance, maintenance and similar costs which the lessee is obligated to pay under the terms of such leases and which are attributable to the leases for such period (whether such amounts are accrued or paid during such period). "Consolidated Subsidiaries" shall mean all Subsidiaries of a Person which are required or permitted to be consolidated with such Person for financial reporting purposes in accordance with GAAP. "Consolidated Net Worth" shall mean at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of the Borrower and its Consolidated Subsidiaries on a consolidated after-tax basis determined in accordance with GAAP. "Contribution Agreement" shall mean a contribution agreement among the Credit Parties, substantially in the form of Exhibit H hereto, as such agreement may be amended, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time. "Credit Agreement" shall have the meaning given to such term in the initial paragraph of this agreement. "Credit and Collection Policy" shall mean those credit and collection policies and practices relating to Receivables in existence on the date hereof and as modified in compliance with Section 6.20. "Credit Exposure" shall mean, with respect to any Lender, an amount equal to (i) the aggregate principal amount of outstanding Loans owed to such Lender hereunder, plus (ii) such Lender's pro rata share of any L/C Exposure (if applicable), plus (iii) the unused amount of the Revolving Credit Commitment and the Delayed Draw Term Loan Commitment, as applicable, of such Lender then in effect. "Credit Party" shall mean the Borrower and each of the Guarantors. 10 "Debtor Relief Laws" shall mean the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States of America or other applicable jurisdictions from time to time in effect affecting the rights of creditors generally. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" shall mean, at any time, any Lender which shall not have theretofore made available to the Administrative Agent or the Issuing Bank, as applicable, any amounts required to be made available by such Lender hereunder or otherwise failed to pay any obligation owing by such Lender pursuant to this Credit Agreement. "Delayed Draw Term Loan" shall have the meaning given to such term in Section 2.3 hereof. "Delayed Draw Term Loan Availability Period" shall mean the period commencing on the Closing Date and ending on the Delayed Draw Term Loan Commitment Termination Date. "Delayed Draw Term Loan Commitment" shall mean the Commitment of each Lender to make Delayed Draw Term Loans to the Borrower up to an aggregate principal amount, at any one time, not in excess of the amount set forth (i) under such Lender's name opposite the row entitled "Delayed Draw Term Loan Commitment" on the signature pages hereto or (ii) in any applicable Assignment and Acceptance(s) to which it is a party, as the case may be, as such amount may be reduced from time to time in accordance with the terms of this Credit Agreement. "Delayed Draw Term Loan Commitment Fee" shall have the meaning given to such term in Section 2.8(b) hereof. "Delayed Draw Term Loan Commitment Termination Date" shall mean the earliest to occur of (i) the first anniversary of the Closing Date, (ii) the date on which the fifth draw is made under the Delayed Draw Term Loan Commitment, (iii) the date on which the full amount of the Delayed Draw Term Loan Commitment has been borrowed and (iv) the date on which the Delayed Draw Term Loan Commitment shall terminate in accordance with Section 2.9 or Article 7 hereof. "Delayed Draw Term Loan Lender" shall mean any Lender holding a Delayed Draw Term Loan Commitment hereunder. "DIP Facility" shall mean collectively, each of the following debtor-in-possession financing agreements: (i) the Revolving Credit and Guaranty Agreement, dated as of June 22, 2000, among Genesis Health Ventures, Inc., debtor and debtor-in-possession, as borrower, the subsidiaries of the borrower named therein, each a debtor and debtor-in-possession, as guarantors, the banks named therein, Mellon Bank, N.A., as administrative agent and arranger, First Union National Bank, as syndication agent, Goldman Sachs Credit Partners, L.P., as documentation agent, and JP Morgan Chase (formerly The Chase Manhattan Bank), as co-agent, and (ii) the Revolving Credit and Guaranty Agreement, dated as of June 22, 2000, among The Multicare Companies, Inc., debtor and debtor-in-possession, as borrower, the subsidiaries of the borrower named therein, each a debtor and debtor-in-possession, as guarantors, the banks named therein, Mellon Bank, N.A., as administrative agent and arranger, First Union National Bank, as syndication agent, Goldman Sachs Credit Partners, L.P., as documentation agent, and JP Morgan Chase (formerly The Chase Manhattan Bank), as co-agent. 11 "Dollars" and "$" shall mean lawful money of the United States of America. "ElderTrust" shall mean ElderTrust, a Maryland real estate investment trust. "Eligible Assignee" shall mean (i) any Lender, any Affiliate of any Lender (which, for purposes of this definition, shall include any investment or similar fund that is owned, managed or controlled by such Lender) and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit, buys loans and is in the business of lending as one of its businesses; provided, that no Affiliate of the Borrower (other than Goldman Sachs Credit Partners L.P. and its Affiliates) shall be an Eligible Assignee. "Eligible Receivable" shall mean a Receivable which the Collateral Agent and the Collateral Monitoring Agent, in their reasonable discretion based upon customary credit considerations of the Collateral Agent and Collateral Monitoring Agent deem to be an Eligible Receivable. Without limiting the generality of the foregoing, no Receivable (or portion thereof in the case of clause (vii) below) of a Credit Party is to be an Eligible Receivable if: (i) it arises out of a sale made by such Credit Party to any director, officer, employee or Subsidiary; (ii) it is unpaid more than one hundred twenty (120) days after the original invoice due date; (iii) it is a Receivable that has been prebilled for future services; (iv) any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached; (v) the account debtor is also such Credit Party's creditor or supplier, or has commenced a litigation disputing liability with respect to such Receivable, or the Receivable otherwise is subject to any right of setoff by the account debtor, to the extent of the amount of any offset, dispute or claim; (vi) the account debtor has voluntarily or involuntarily become subject to any Debtor Relief Laws except for Receivables on which the account debtor is Mariner Post-Acute Network, Inc. and the invoice date for the Receivable is less than thirty (30) days before the date on which chargeability is being determined; (vii) it is payable by an account debtor who has applied for Medicaid but for whom Medicaid has not been approved; provided that only fifteen percent (15%) of the face amount of each such Receivable shall not be deemed an Eligible Receivable; (viii) it arises from a transaction with an account debtor outside the United States; (ix) the Collateral Agent and the Collateral Monitoring Agent, in their reasonable discretion based upon customary credit considerations of the Collateral Agent and the Collateral Monitoring Agent, believe that collection of such Receivable is doubtful or will be delayed by reason of the account debtor's financial condition; (x) except in the case of a Government Receivable, it is the obligation of an account debtor that is the United States government or a political subdivision thereof, or any state, county or municipality or department, agency or instrumentality thereof; (xi) the account debtor is located in any state in which such Credit Party is deemed to be doing business under the laws of such state and which denies creditors access to its courts in the absence of qualification to transact business in such state or of the filing of any reports with such state, unless such Credit Party has qualified as a foreign corporation authorized to transact business in such state or has filed all required reports; (xii) except in the case of Government Receivables, the Collateral Agent does not have a duly perfected first priority security interest therein or the Receivable is otherwise subject to any Lien, other than a Permitted Lien; (xiii) the Receivable is evidenced by chattel paper or an instrument, or has been reduced to judgment; (xiv) such Credit Party has made any agreement with the account debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Receivable; (xv) the Receivable is due from a credit card clearing house; (xvi) except in the case of Government Receivables, such Credit Party's right to receive payment under the Receivable is not absolute or is contingent upon the fulfillment of any condition whatsoever; (xvii) such Credit Party is not able to bring suit or otherwise enforce its remedies against the account debtor through judicial process; (xviii) the Receivable represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the account debtor's obligation to pay that invoice is subject to such Credit Party's completion of further performance under such contract; or (xix) the Receivable or any portion thereof is a private pay patient account representing amounts not covered by third party payors to the extent not so covered. In determining which accounts are Eligible Receivables, the Collateral Agent and the Collateral Monitoring Agent may rely on all statements and representations made by any Credit Party with respect to any Receivable or Receivables. 12 "Environment" shall mean any surface or subsurface water, groundwater, water vapor, surface or subsurface land, air, fish, wildlife, microorganisms and all other natural resources. "Environmental Claim" shall mean any and all administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any Person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (i) violation of or liability under any Environmental Law, (ii) violation of any Environmental Permit, or (iii) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, damage, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the Environment, of any Hazardous Materials at any location, including, but not limited to, any Premises or any location other than any Premises to which Hazardous Materials or materials containing Hazardous Materials were sent for handling, storage, treatment, or disposal. 13 "Environmental Clean-up Site" shall mean any location which is listed or proposed for listing on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any pending action, suit, proceeding, or investigation related to or arising from any alleged violation of any Environmental Law, or at which there has been a Release, or a threatened or suspected Release of a Hazardous Material. "Environmental Laws" shall mean any and all applicable federal, state, local or municipal or foreign laws, rules, orders, regulations, statutes, ordinances, codes, common law doctrines, decrees or requirements of any Governmental Authority regulating, relating to, or imposing liability or standards of conduct concerning, any Hazardous Material or environmental protection or worker health and safety, as now or at any time hereafter in effect, including without limitation, the Clean Water Act also known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C.ss.1251 et seq., the Clean Air Act ("CAA"), 42 U.S.C.ss.ss.7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C.ss.ss. 136 et seq., the Surface Mining Control and Reclamation Act ("SMCRA"), 30 U.S.C.ss.ss.1201 et seq., the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.ss.9601 et seq., the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act ("ECPCRKA"), 42 U.S.C.ss.11001 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.ss.6901 et seq., the Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C.ss.655 andss.657, together, in each case, with any amendment thereto, and the regulations adopted and the publications promulgated thereunder and all substitutions thereof. "Environmental Permit" shall mean any federal, state, local, provincial, or foreign permits, licenses, approvals, consents or authorizations required by any Governmental Authority under or in connection with any Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental Authority under any applicable Environmental Law. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as heretofore and hereafter amended, as codified at 29 U.S.C. ss. 1001 et seq., and applicable regulations promulgated thereunder, or any successor provision thereto. "ERISA Affiliate" shall mean each Person (as defined in Section 3(9) of ERISA) which is treated as a single employer with any Credit Party under Section 414(b), (c), (m) or (o) of the Code. "Eurodollar Loan" shall mean a Loan based on the LIBO Rate in accordance with the provisions of Article 2 hereof. "Event of Default" shall have the meaning given to such term in Article 7 hereof. "Excess Cash Flow" shall mean for any period for which it is to be determined, the sum of (i) Consolidated Net Income, (ii) to the extent Consolidated Net Income has been reduced thereby, amortization expense, depreciation expense, and other non-cash expenses and (iii) the negative change, if any, in Consolidated Net Working Assets during such period minus the sum of (w) non-cash items increasing Consolidated Net Income, (x) principal repayments by the Borrower or any of its Consolidated Subsidiaries on their Indebtedness, including principal repayments on the Loans and the principal portion of payments under Capital Leases (but exclusive of mandatory payments during the period based upon the amount of Excess Cash Flow during prior periods, payments made from the proceeds of any asset sales, insurance proceeds, new equity securities issued by the Borrower or Indebtedness incurred by the Borrower or any of its Consolidated Subsidiaries and any payments that can be reborrowed), (y) the net positive change, if any, in Consolidated Net Working Assets during such period, and (z) Capital Expenditures permitted hereunder, to the extent paid in cash from sources other than secured purchase money financing, all as determined for such period in conformity with GAAP and without any double-counting. 14 "Excluded Properties" shall mean those properties listed on Schedule 1.2 hereto. "Facility Purchase Options" shall mean the purchase options held by the Borrower or its Subsidiaries permitting it to purchase the properties known as the Ansted Health Care Center, the Hilltop Nursing Center, and Knollwood Manor. "Facility Termination Date" shall mean the date on which all of the Obligations have been indefeasibly paid in full in cash, the Total Revolving Credit Commitment, the Total Term Loan B Commitment and the Total Delayed Draw Term Loan Commitment have been permanently terminated in their entirety and all Letters of Credit shall have expired or been terminated, canceled or cash collateralized in an amount equal to 105% of the then current L/C Exposure. "Federal Funds Rate" shall have the meaning given to such term in the definition of "Base Rate" set forth in this Article 1. "Fee Letters" shall mean those certain letter agreements, one dated as of July 13, 2001, between the Borrower and the Administrative Agent, two dated as of July 13, 2001, between the Borrower and the Co-Lead Arrangers and one dated as of August 6, 2001 between the Borrower and the Collateral Monitoring Agent, relating to the payment of certain fees, as any of such letter agreements may be amended, modified or supplemented from time to time by a written instrument executed by the parties thereto. "Fees" shall mean all fees payable pursuant to the Fee Letters and pursuant to the terms of this Credit Agreement. "Final Order" shall mean an order of the Bankruptcy Court not subject to a stay pending appeal. "Fundamental Documents" shall mean this Credit Agreement, any note issued to evidence any Loan hereunder, any Letter of Credit, any Mortgage, the Contribution Agreement, UCC financing statements, the Fee Letters and any other documentation which is required to be or is otherwise executed by any Credit Party and delivered in connection with this Credit Agreement or any of the documents listed above. 15 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time, consistently applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements); provided, however, that for purposes of determining compliance with any covenant set forth in Article 6 hereof, GAAP shall mean generally accepted accounting principles in the United States of America as in effect on the Closing Date, applied on a basis consistent with the application used in the financial statements referred to in Section 3.6 hereof. "Genesis Medicare Claim" shall mean the claim filed by the Borrower against the federal government with respect to disputed Medicare Receivables where the dispute is related to "related party issues" or "employee benefits costs". "Governmental Authority" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States or any foreign jurisdiction. "Government Receivables" shall mean, collectively, any and all Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c) TRICARE Receivables, (d) CHAMPVA Receivables, (e) CHAMPUS Receivables; or (f) any other Receivables payable by a Governmental Authority and approved by the Collateral Agent and the Collateral Monitoring Agent in their sole discretion. "Guarantors" shall mean the guarantors signatory hereto as of the date hereof and any other direct or indirect Subsidiary of a Credit Party acquired or created after the date hereof, which Subsidiary becomes a signatory to this Credit Agreement as a Guarantor as required by Section 5.12 hereof. "Guaranty" shall mean, as to any Person, any direct or indirect obligation of such Person guaranteeing or intending to guarantee, or otherwise providing credit support, for any Indebtedness, Capital Lease, dividend or other monetary obligation ("primary obligation") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, by contract, as a general partner or otherwise, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (c) to purchase property, securities or services from the primary obligor or other Person, in each case, primarily for the purpose of assuring the performance of the primary obligor of any such primary obligation or assuring the owner of any such primary obligation of the repayment of such primary obligation. The amount of any Guaranty shall be deemed to be an amount equal to (x) the stated or determinable amount of the primary obligation in respect of which such Guaranty is made (or, if the amount of such primary obligation is not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder)) or (y) the stated maximum liability under such Guaranty, whichever is less. 16 "Hazardous Materials" shall mean any chemicals, materials, substances or wastes in any amount or concentration which are now or hereafter become defined as or included in the definition of "hazardous substances," "hazardous materials," "hazardous wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "pollutants," "regulated substances," "solid wastes," or "contaminants" or words of similar import, under any Environmental Law, including petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products, radioactive materials, asbestos or asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing materials, polychlorinated biphenyls. "Hedging Agreements" shall mean any Interest Rate Protection Agreement entered into from time to time among a Lender and the Borrower as permitted by this Credit Agreement; provided, that the Administrative Agent shall have received written notice thereof from such Lender within ten (10) Business Days after execution of such Interest Rate Protection Agreement. "Hedging Banks" shall mean any Lender or Lenders which have entered into a Hedging Agreement. "Hedging Obligations" shall mean all the obligations of the Borrower to Hedging Banks under the Hedging Agreements. "High Yield Unsecured Debt" shall mean unsecured Indebtedness of the Borrower that is issued pursuant to written agreements containing interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies and other material terms in form and substance satisfactory to the Administrative Agent, the Collateral Monitoring Agent and the Co-Lead Arrangers. "Indebtedness" shall mean (without double counting), at any time and with respect to any Person, (i) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services purchased (other than amounts constituting trade payables arising in the ordinary course of business and payable in accordance with customary trading terms not in excess of 90 days); (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument (whether or not disbursed in full in the case of a construction loan); (iii) indebtedness of others which such Person has directly or indirectly assumed or guaranteed or otherwise provided credit support therefor; (iv) indebtedness of others secured by a Lien on assets of such Person, whether or not such Person shall have assumed such indebtedness (provided, that if such Person has not assumed such indebtedness of another Person then the amount of indebtedness of such Person pursuant to this clause (iv) for purposes of this Credit Agreement shall be equal to the lesser of the amount of the indebtedness of the other Person or the fair market value of the assets of such Person which secures such other indebtedness); (v) obligations of such Person in respect of letters of credit, acceptance facilities, or drafts or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (vi) any Guaranty by such Person; (vii) obligations of such Person under Capital Leases; (viii) all obligations of such Person under any Interest Rate Protection Agreement; and (ix) deferred payment obligations of such Person resulting from the adjudication or settlement of any litigation. 17 "Initial Date" shall mean (i) in the case of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank, the Closing Date, (ii) in the case of each Lender which is an original party to this Credit Agreement, the Closing Date and (iii) in the case of any other Lender, the effective date of the Assignment and Acceptance pursuant to which it became a Lender. "Instrument of Assumption and Joinder" shall mean an Assumption and Joinder Agreement substantially in the form of Exhibit C hereto. "Intercreditor Agreement" shall mean the Intercreditor and Collateral Agency Agreement executed by the Collateral Agent, the Administrative Agent and the Rollover Note Trustee substantially in the form of Exhibit G hereto. "Interest Deficit" shall have the meaning given to such term in Section 2.19 hereof. "Interest Payment Date" shall mean (i) as to any Base Rate Loan, the last Business Day of each March, June, September and December (commencing the last Business Day of December 2001) and (ii) as to any Eurodollar Loan the last day of the applicable Interest Period; provided, that in the case of an Interest Period with a duration in excess of three (3) months an Interest Payment Date shall occur on each date occurring at three (3) month intervals after the first day of such Interest Period. "Interest Period" shall mean as to any Eurodollar Loan, the period commencing on the date such Loan is made, continued or converted or the last day of the preceding Interest Period and ending on the numerically corresponding day (or if there is no corresponding day, then the last day) in the calendar month that is one, two, three or six months thereafter as the Borrower may elect; provided, however, that (i) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case, such Interest Period shall end on the next preceding Business Day, (ii) no Interest Period with respect to a Term Loan or a Revolving Credit Loan (in each case constituting a Eurodollar Loan) may be selected which would end later than the Term Loan Maturity Date or the Revolving Credit Commitment Termination Date, respectively, (iii) interest shall accrue from and including the first day of such Interest Period to but excluding the last date of such Interest Period and (iv) no Interest Period with respect to any portion of the B Term Loans or the Delayed Draw Term Loans constituting a Eurodollar Loan may be selected which extends beyond the date under which a mandatory repayment of such Tranche will be required to be made under Section 2.12 hereof if the aggregate principal amount of Eurodollar Loans which are B Term Loans or Delayed Draw Term Loans, as applicable, which have Interest Periods ending after such date, will be in excess of the aggregate principal amount of the B Term Loans or the Delayed Draw Term Loans (as applicable) outstanding less the aggregate amount of such mandatory prepayment on the applicable Tranche. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, synthetic cap, collar or floor or other financial agreement or arrangement designed to protect a Credit Party against fluctuations in interest rates or to reduce the effect of any such fluctuations. 18 "Interest Rate Type" shall have the meaning given to such term in Section 2.5 hereof. "Investment" shall mean any stock, evidence of indebtedness or other security of any Person, any loan, advance, contribution of capital, extension of credit or commitment therefor (including, without limitation, the Guaranty of loans made to others, but excluding current trade and customer accounts receivable arising in the ordinary course of business and payable in accordance with customary trading terms in the ordinary course of business or periodic payments made pursuant to settlements for satisfaction of outstanding Receivables entered into in the ordinary course of business), and any purchase of (i) any security of another Person or (ii) a line of business, or all or substantially all of the assets, of any Person or any commitment to make any such purchase. "Issuing Bank" shall mean First Union National Bank or any other Revolving Credit Lender which agrees to serve as issuer of Letters of Credit hereunder. "JCAHO" shall mean the Joint Commission on Accreditation of Healthcare Organizations. "Joint Venture" shall mean any Person (other than a wholly owned Subsidiary of a Credit Party) in which an equity interest is, at the time any determination is being made, owned or controlled by a Credit Party as permitted by this Credit Agreement. "L/C Exposure" shall mean, at any time, the amount expressed in Dollars of the aggregate face amount of all drafts which may then or thereafter be presented by beneficiaries under all Letters of Credit then outstanding plus (without duplication), the face amount of all drafts which have been presented or accepted under all Letters of Credit but have not yet been paid or have been paid but not reimbursed, whether directly or from the proceeds of a Revolving Credit Loan hereunder. "Lender" and "Lenders" shall mean the financial institutions whose names appear on the signature pages hereof and any assignee of a Lender pursuant to Section 13.3 hereof, and their respective successors. "Lending Office" shall mean, with respect to any of the Lenders, the branch or branches (or Affiliate or Affiliates) from which such Lender's Eurodollar Loans or Base Rate Loans, as the case may be, are made or maintained and for the account of which all payments of principal of, and interest on, such Lender's Eurodollar Loans or Base Rate Loans are made, as notified to the Administrative Agent from time to time. "Letter of Credit" shall mean a standby letter of credit issued by the Issuing Bank pursuant to Section 2.21 hereof. 19 "Letter of Credit Fees" shall mean the fees payable in respect of Letters of Credit pursuant to Section 2.21 hereof. "LIBO Rate" shall mean, with respect to any Borrowing consisting of Eurodollar Loans for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) appearing on Telerate Page 3750 (or on any successor page) as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Interest Period with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Borrowing of Eurodollar Loans for such Interest Period shall be the rate per annum at which, as determined by the Administrative Agent, dollars in an amount comparable to the amount of such Borrowing are being offered to leading banks at approximately 11:00 a.m. (London time) two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind whatsoever (including, without limitation, any conditional sale or other title retention agreement, any agreement to grant a security interest at a future date, any lease in the nature of security, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code of any jurisdiction). "Loans" shall mean, collectively, the B Term Loans, the Delayed Draw Term Loans and the Revolving Credit Loans. A "Loan" shall mean any one of such Loans individually. "LTM EBITDA" shall mean as of the date of determination thereof with respect to any Swapped Facility or Real Property Asset exchanged for a Swapped Facility unadjusted EBITDA for the prior twelve fiscal months calculated solely for such Swapped Facility or Real Property Asset in accordance with GAAP. "Management Agreement" shall mean all management agreements to which any Credit Party is a party providing for (i) the operation and management by a third party of a healthcare facility owned or leased by such Credit Party or (ii) the operation and management by such Credit Party of a healthcare facility owned or leased by a third party. "Margin Stock" shall be as defined in Regulation U of the Board. "Material Adverse Effect" shall mean any event or condition that (i) has a material adverse effect on the business, assets, properties, performance, operations, condition (financial or otherwise) or prospects of the Credit Parties taken as a whole or of the Borrower, (ii) materially impairs the ability of the Borrower or any Credit Party to perform its respective obligations under any Fundamental Document to which it is or will be a party or (iii) materially and adversely affects the Liens granted to the Collateral Agent (for the benefit of Secured Parties) or materially impairs the validity or enforceability of, or materially impairs the rights, remedies or benefits available to the Collateral Agent or the Secured Parties; provided, however, that any event or condition will be deemed to have a "Material Adverse Effect" if such event or condition when taken together with all other events and conditions occurring or in existence at such time (including all other events and conditions which, but for the fact that a representation, warranty or covenant is subject to a "Material Adverse Effect" exception, would cause such representation or warranty contained herein to be untrue or such covenant to be breached) would result in a "Material Adverse Effect", even though, individually, such event or condition would not do so. 20 "Maximum Revolving Credit Amount" shall mean as of any date of determination the lesser of (i) the Total Revolving Credit Commitment and (ii) the amount by which the aggregate Borrowing Base exceeds the outstanding principal amount of Term Loans as of such date of determination. "Medicaid" shall mean collectively, the healthcare assistance program established by Title XIX of the Social Security Act (42 U.S.C. ss.ss.1396 et seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders, guidelines or requirements pertaining to such program including (a) all federal statutes (whether set forth in Title XIX of the Social Security Act or elsewhere) affecting such program; (b) all state statutes and plans for medical assistance enacted in connection with such program and federal rules and regulations promulgated in connection with such program; and (c) all applicable provisions of all rules, regulations, manuals, orders and administrative, reimbursement, guidelines and requirements of all Governmental Authorities promulgated in connection with such program (whether or not having the force of law), in each case as the same may be amended, supplemented or otherwise modified from time to time. "Medicaid Receivable" shall mean a Receivable payable to a Credit Party (i) pursuant to a Medicaid Provider Agreement or (ii) pursuant to an assignment to such Credit Party under a Medicaid Provider Agreement. "Medicaid Provider Agreement" shall mean an agreement entered into between a health care facility, supplier or physician and CMS or any federal or state agency or other entity administering Medicaid in such state, or any other grant of authority by CMS or any federal or state agency or other entity administering Medicaid in such state, under which the health care facility, supplier or physician is authorized to provide medical goods and services to Medicaid recipients and to be reimbursed by Medicaid for such goods and services. "Medicare" shall mean collectively, the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. ss.ss.1395 et seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders or guidelines pertaining to such program including (a) all federal statutes (whether set forth in Title XVIII of the Social Security Act or elsewhere) affecting such program; and (b) all applicable provisions of all rules, regulations, manuals, orders and administrative, reimbursement, guidelines and requirements of all Governmental Authorities promulgated in connection with such program (whether or not having the force of law), in each case as the same may be amended, supplemented or otherwise modified from time to time. 21 "Medicare Receivable" shall mean a Receivable payable to a Credit Party (i) pursuant to a Medicare Provider Agreement or (ii) pursuant to an assignment to such Credit Party under a Medicare Provider Agreement. "Medicare Receivable Concentration Accounts" shall mean concentration accounts established by the Credit Parties for the deposit of all collections on Medicare Receivables as set forth on Schedule 8.3(c) hereto. "Medicare Provider Agreement" shall mean an agreement entered into between a health care facility, supplier or physician and CMS or any federal or state agency or other entity administering Medicare in such state, or other grant of authority by CMS or any federal or state agency or other entity administering Medicare in such state, under which the health care facility, supplier or physician is authorized to provide medical goods and services to Medicare patients and to be reimbursed by Medicare for such goods and services. "Moody's" shall mean Moody's Investors Service, Inc. or if such company shall cease to issue ratings, another nationally recognized statistical rating company selected in good faith by mutual agreement of the Administrative Agent and the Borrower. "Mortgage" shall mean a Mortgage, Open End Mortgage, Deed of Trust, Trust Deed, Deed to Secure Debt, Credit Line Deed of Trust, Assignment, Security Agreement and Financing Statement, substantially in the form of Exhibit D hereto, executed and delivered by any Credit Party to the Collateral Agent (for the benefit of the Secured Parties) and in each case, as such document may be amended, amended and restated, supplemented or otherwise modified, renewed or replaced from time to time. "Mortgage Loan" shall mean a loan made to a Credit Party for which the primary collateral is a Real Property Asset of such Credit Party. "Multiemployer Plan" shall mean a plan described in Section 4001(a)(3) of ERISA to which any Credit Party or ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the five (5) preceding plan years made or accrued an obligation to make contributions. "Net Cash Proceeds" shall mean (a) the aggregate cash proceeds received by a Credit Party or any Subsidiary thereof in a transaction permitted under Section 6.7 hereof (including, without limitation, as applicable, all cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received) and minus (b) reasonable and customary brokerage commissions and other reasonable and customary fees and direct expenses (including reasonable and customary fees and expenses of counsel and investment bankers actually paid by the applicable Credit Party or Subsidiary) related to such transaction, minus (c) payments made to retire Indebtedness (other than the Loans) secured by any assets being sold or otherwise disposed of where payment of such Indebtedness is required in connection with such sale or disposition, and minus (d) Restricted Payments required to be made as a result of such sale or disposition to the extent permitted to be made pursuant to Section 6.5(c) hereof (without duplication); provided, that with respect to taxes, expenses shall only include taxes to the extent that taxes are payable in cash in the current year or in the next succeeding year with respect to the current year as a direct result of the applicable transaction. 22 "Net Offering Proceeds" shall mean all cash received by the Borrower or any Subsidiary as a result of the sale of any Capital Stock or issuance of any Indebtedness, minus customary costs and discounts of issuance paid by the Borrower, other than proceeds received by the Borrower from the exercise of any warrant issued pursuant to the Plan of Reorganization, the proceeds of which are used in accordance with the terms of Sections 2.11(m) and 6.5(e) hereof to redeem Rollover Preferred Stock. "Net Value of Eligible Real Estate" shall mean the aggregate net value of all Real Property Assets, excluding Real Property Assets which are not currently utilized for ongoing operations or are subject to a Mortgage Loan, based (i) upon a price per licensed bed enterprise valuation of (x) $45,000 per bed with respect to Real Property Assets owned and operated by a Credit Party and (y) $22,500 per bed with respect to Real Property Assets leased to and operated by a Credit Party as such amounts per bed may be (A) increased from time to time by the Collateral Agent, the Co-Lead Arrangers and the Collateral Monitoring Agent in their sole discretion or (B) decreased from time to time by the Collateal Agent, the Co-Lead Arrangers and the Collateral Monitoring Agent, as the Collateral Agent, the Co-Lead Arrangers and the Collateral Monitoring Agent may in their sole discretion deem appropriate based upon changed market conditions or other changes in circumstances and (ii) in the case of Real Property Assets other than health care facilities, the value of such Real Property Assets as set forth in an appraisal report in form and substance satisfactory to the Collateral Agent, the Collateral Monitoring Agent and the Co-Lead Arrangers in their sole discretion. "Non-Core Asset" shall be as described on Schedule 1.3 hereto. "Non-Government Receivables" shall mean with respect to each Credit Party, the Receivables of such Credit Party, other than Government Receivables, together with any and all rights to receive payments due thereon, and all proceeds thereof in any way derived, whether directly or indirectly. "Obligations" shall mean (a) all obligations, whether direct or indirect, contingent or absolute, of every type or description and at any time existing, of the Borrower to make due and punctual payment of (i) principal of and all interest on the Loans, the Fees, the Letter of Credit Fees, any reimbursement obligations in respect of Letters of Credit, costs and attorneys' fees and all other monetary obligations of the Borrower to the Agents, the Issuing Bank, any Lender or any other Secured Party under or in respect of this Credit Agreement, any note evidencing any of the Loans hereunder, any other Fundamental Document or the Fee Letters, (ii) all Hedging Obligations and (iii) amounts payable to First Union National Bank or any Lender in connection with any bank account maintained by the Borrower or any other Credit Party at First Union National Bank or any Lender or any other banking services (including, without limitation, cash management services) provided to the Borrower or any other Credit Party by First Union National Bank or any Lender with respect to, or in any way related to or otherwise required by, any of the Fundamental Documents (including, without limitation, interest accruing at the then applicable rate provided in this Credit Agreement after the maturity of any of the Loans, and interest accruing at the then applicable rate provided in this Credit Agreement after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower or any other Credit Party, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) and (b) all other obligations of the Borrower or any other Credit Party pursuant to this Credit Agreement or any other Fundamental Document. 23 "Opt-Out Lender" shall have the meaning given to such term in Section 2.11(h) hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Percentage" shall mean with respect to any Lender, the percentage of the Total Credit Exposure represented by such Lender's Credit Exposure, or the percentage of the specified Commitments or Tranche of Loans held by such Lender, as the context may require. "Permitted Liens" shall mean Liens permitted under Section 6.2 hereof. "Person" shall mean any natural person, corporation, division of a corporation, partnership, limited liability partnership, limited liability company, trust, joint venture, association, company, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan" shall mean an employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, maintained or contributed to by any Credit Party, or any ERISA Affiliate, or otherwise pursuant to which any Credit Party could have liability. "Plan of Reorganization" shall mean the plan of reorganization filed with the Bankruptcy Court and confirmed by the order dated September 20, 2001 with respect to those certain cases pending under Chapter 11 of the Bankruptcy Code in the District of Delaware filed by (i) the Borrower and certain of its subsidiaries (Case Nos. 00-02691 through 00-2836 (JHW), which cases are jointly administered as Case No. 00-2692 (JHW)) and (ii) Multicare AMC, Inc. and certain of its subsidiaries (Case Nos. 00-2494 through 00-2690 (JHW) which cases are jointly administered as Case No. 00-2494 (JHW)), with such amendments as may be approved by the Agents and the Co-Lead Arrangers. "Pledged Collateral" shall mean the Pledged Securities and any proceeds or products thereof or income therefrom, in any form, together with (i) all profits, dividends and distributions to which a Pledgor shall at any time be entitled in respect of its Pledged Securities; (ii) all other payments, if any, due or to become due to a Pledgor in respect of its Pledged Securities, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of a Pledgor's claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under or arising out of the ownership of such Pledgor's Pledged Securities; (iv) all present and future claims, if any, of a Pledgor against the applicable entity in which such Pledgor owns its Pledged Securities or under or arising out of the applicable partnership or operating agreement, as applicable, for monies loaned or advanced, for services rendered or otherwise; (v) to the extent permitted by Applicable Law, all of a Pledgor's rights, if any, under the applicable partnership or operating agreement, as applicable, or at law, to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to its Pledged Securities, including, without limitation, any power to terminate, cancel or modify the applicable partnership or operating agreement, as applicable, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of its Pledged Securities and the entity in which such Pledgor owns its Pledged Securities, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce or collect any of the foregoing or any property of the applicable entity, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; and (vi) to the extent not otherwise included, any and all proceeds (as defined in Section 9-102(a)(64) of the UCC) of any or all of the foregoing. 24 "Pledged Securities" shall mean (i) the issued and outstanding Capital Stock of those Subsidiaries directly or indirectly owned or controlled by a Credit Party and initially listed on Schedule 3.21(a) hereto or hereafter acquired by such Credit Party and (ii) all other equity interests now or hereafter owned by a Credit Party initially listed on Schedule 3.21(a) hereto, in each case, under the heading "Pledged Capital Stock and Other Pledged Equity Interests." "Pledgor" shall mean a Credit Party that owns any of the Pledged Securities. "Preferred Stock" shall mean Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of the issuer thereof, over shares of Capital Stock of any other class of such issuer. "Premises" shall mean any real property currently or formerly owned, leased or operated by any Credit Party or any Subsidiary of any Credit Party, including, but not limited to, all soil, surface water, or groundwater thereat. "Prepayment Date" shall have the meaning given to such term in Section 2.11(l) hereof. "Prime Rate" shall have the meaning given to such term in the definition of "Base Rate" set forth in this Article 1. "Pro Forma Basis" shall mean in connection with any transaction for which a determination on a Pro Forma Basis is required to be made hereunder, such determination shall be made (i) after giving effect to any issuance of Indebtedness, any acquisition, any disposition or any other transaction, as applicable, and (ii) assuming that the issuance of Indebtedness, acquisition, disposition or other transaction and, if applicable, the application of proceeds therefrom, occurred at the beginning of the most recent Rolling Four Quarter period ending at least thirty (30) days prior to the date on which such issuance of Indebtedness, acquisition, disposition or other transaction occurred in accordance with Article 11 of Regulation S-X of the Securities Exchange Act of 1934, as amended. 25 "Proprietary Rights" shall have the meaning given to such term in Section 3.8(a) hereof. "Purchasing Lender" shall have the meaning given to such term in Section 2.16(e). "Real Property Assets" shall mean as of any time, all parcels of real property, owned and all health care facilities leased at such time directly or indirectly by any Credit Party or any Subsidiary of a Credit Party, together with in each case, all buildings, improvements, appurtenant fixtures and equipment, easements and other property and rights incidental to the ownership or lease (as applicable) of such parcel of real property or any of the foregoing other than Excluded Properties. "Receivables" shall mean all rights to receive payment from an obligor for services rendered by the Credit Parties in the ordinary course of business, including but not limited to those which, consistent with such Credit Party's past accounting practice are classified as (i) Medicare Receivables, (ii) CHAMPUS Receivables, (iii) CHAMPVA Receivables, (iv) Medicaid Receivables, (v) TRICARE Receivables, (vi) Blue Cross/Blue Shield patient receivables, (vii) non-contract patient receivables due from commercial insurance companies, (viii) contract patient receivables due from health maintenance organizations, prepaid plans, exclusive provider organizations, preferred provider organizations and other managed care programs or (ix) private patient receivables representing balances due from patients for deductibles, coinsurance, copayments and services not otherwise covered by third party payors, which in any instance is not evidenced by an instrument or chattel paper. Such amounts shall include all interest, finance charges or other amounts legally payable by an obligor in respect thereof. Calculations regarding the amount of any "Receivable" for purposes of this definition shall be reduced (without duplication) by the following adjustments determined in a manner consistent with the Credit and Collection Policy: (i) contractual adjustments and discounts to the extent necessary to reduce patient receivables to their respective net realizable values based upon government mandated or contractually agreed upon reimbursement levels, (ii) patient credit balances resulting from duplication of payments, (iii) reserves for potential or actual payables to other non-governmental third party payors and (iv) to the extent not reflected in the foregoing adjustments, any other reserves and adjustments which are reflected on such Credit Party's books and records (other than reserves relating to uncollectible accounts). "Register" shall have the meaning given to such term in Section 13.3(e). "Regulation D" shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. 26 "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulatory Licenses" shall mean any and all licenses, including provisional licenses, certificates of need, JCAHO and/or other accreditations, permits, franchising rights to conduct business, approvals by a Governmental Authority or otherwise, consents, qualifications, operating authority and/or any other authorizations necessary for a Credit Party or any of its Subsidiaries to operate their business. "Reimbursement Approvals" shall mean, with respect to all Third Party Payor Arrangements, any and all certifications, provider numbers, provider agreements, (including, without limitation, Medicare Provider Agreements and Medicaid Provider Agreements) participation agreements, accreditations (including JCAHO accreditation) and/or any other agreements with or approvals by organizations and Governmental Authorities, including, without limitation, the right to reimbursement on a current basis and without suspension, offset or recoupment, or in due course, as otherwise provided under law or contract. "Related Fund" shall mean, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Release" shall mean any discharging, disposing, emitting, leaking, pumping, pouring, emptying, injecting, escaping, leaching, dumping or spilling of any Hazardous Material into the Environment. "Reportable Event" shall mean any reportable event as defined in Section 4043(c) of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "Required Lenders" shall mean Lenders having Credit Exposure greater than fifty percent (50%) of the Total Credit Exposure; provided, that for purposes of this definition, the Credit Exposure of a Lender shall be disregarded if and for so long as such Lender shall be a Defaulting Lender. "Required Revolving Credit Lenders" shall mean (i) Revolving Credit Lenders holding greater than fifty percent (50%) of the unpaid principal amount, if any, of the Revolving Credit Loans and L/C Exposure then outstanding or (ii) if no Revolving Credit Loans and no Letters of Credit are then outstanding, Revolving Credit Lenders holding greater than fifty percent (50%) of the Total Revolving Credit Commitment; provided, that for purposes of this definition, the Revolving Credit Loans, the pro rata portion of L/C Exposure or the Revolving Credit Commitment of a Revolving Credit Lender shall be disregarded if and for so long as such Revolving Credit Lender shall be a Defaulting Lender. "Requirements" shall mean all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements of every Governmental Authority having jurisdiction over any Real Property Asset and all restrictive covenants applicable to any Real Property Asset. 27 "Restricted Payment" shall mean (i) any distribution, dividend or other direct or indirect payment on account of shares of any class of Capital Stock of a Credit Party, (ii) any redemption or other acquisition, re-acquisition or retirement by a Credit Party of any shares of any class of its own Capital Stock or the Capital Stock of another Credit Party or an Affiliate, now or hereafter outstanding, including, without limitation, the Rollover Preferred Stock, (iii) any payment made to retire, or obtain the surrender of, any outstanding warrants, puts or options or other rights to purchase or otherwise acquire shares of any Capital Stock of a Credit Party or an Affiliate, now or hereafter outstanding, (iv) any payment by a Credit Party of principal of, premium, if any, or interest on, or any redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, the Rollover Notes, any High Yield Unsecured Debt and any Indebtedness now or hereafter outstanding which Indebtedness is subordinated to any of the Obligations, and (v) any payment under any Synthetic Purchase Agreement. "Revolving Credit Commitment" shall mean the commitment of each Lender to make Revolving Credit Loans to the Borrower and to participate in Letters of Credit from the Initial Date applicable to such Lender through the Revolving Credit Commitment Termination Date up to an aggregate principal amount, at any one time, not in excess of the amount set forth (i) under such Lender's name opposite the column entitled "Revolving Credit Commitment" on the signature pages hereto or (ii) in any applicable Assignment and Acceptance(s) to which it may be a party, as the case may be, as such amount may be reduced from time to time in accordance with the terms of this Credit Agreement. "Revolving Credit Commitment Fee" shall have the meaning given to such term in Section 2.8(a) hereof. "Revolving Credit Commitment Termination Date" shall mean the earlier of (i) the Revolving Credit Loan Maturity Date, and (ii) the date on which the Total Revolving Credit Commitment shall terminate in accordance with Section 2.9 or Article 7 hereof. "Revolving Credit Lender" shall mean any Lender holding a Revolving Credit Commitment hereunder. "Revolving Credit Loan Maturity Date" shall mean the fifth anniversary of the Closing Date. "Rights" shall mean, with respect to the Government Receivables of any Credit Party, the right to receive proceeds therefrom, as permitted by Applicable Law. "Revolving Credit Loans" shall have the meaning given to such term in Section 2.2 hereof. "Rolling Four Quarters" shall mean, with respect to any date of determination, the fiscal quarter then ended and the three (3) immediately preceding fiscal quarters considered as a single period. "Rollover Noteholders" shall mean those entities holding Rollover Notes. 28 "Rollover Notes" shall mean those certain notes issued under the Rollover Note Indenture. "Rollover Note Indenture" shall mean the Indenture dated as of October 2, 2001 pursuant to which the Borrower has issued up to $242,605,000 of Second Priority Secured Notes due 2007 in accordance with the Plan of Reorganization, as such agreement may be further amended, amended and restated, supplemented, modified, renewed or replaced from time to time. "Rollover Note Trustee" shall mean The Bank of New York, or its successor as trustee for the benefit of the Rollover Noteholders pursuant to the Rollover Note Indenture. "Rollover Preferred Stock" shall mean the 6% Convertible Preferred Stock of the Borrower issued pursuant to the Plan of Reorganization. "S&P" shall mean Standard & Poor's Ratings Group (a division of The McGraw-Hill Companies, Inc.) or, if such company shall cease to issue ratings, another nationally recognized statistical rating company selected in good faith by mutual agreement of the Administrative Agent and the Borrower. "Secured Parties" shall mean the Agents, the Issuing Bank, the Lenders, the Hedging Banks and each of their respective successors and assigns. "Senior Debt" shall mean the Indebtedness outstanding under this Credit Agreement, and any other Indebtedness secured in whole or in part by a mortgage or security interest or other Lien on assets of the Borrower or any of its Subsidiaries (other than the Rollover Notes but including, without limitation, the principal portion of any synthetic lease entered into by the Borrower or any of its Subsidiaries). "Senior Leverage Ratio" shall mean, at any date for which such ratio is to be determined, the ratio of Senior Debt at such date to Consolidated EBITDA for the most recent Rolling Four Quarter period. "Specified Payments" shall mean payments in connection with the transactions set forth on Schedule 1.4. "Subordinated Debt" shall mean all Indebtedness of any of the Credit Parties that is subordinated to the Obligations pursuant to written agreements, containing interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to the Collateral Monitoring Agent and the Co-Lead Arrangers. "Subsidiary" shall mean with respect to any Person, any corporation, association, joint venture, partnership or other business entity (whether now existing or hereafter organized) of which at least a majority of the voting stock or other ownership interests having ordinary voting power for the election of directors (or the equivalent) is, at the time as of which any determination is being made, owned or controlled by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person. 29 "Swapped Facility" shall have the meaning given to such term in Section 6.7(a)(x). "Synthetic Purchase Agreement" shall mean any swap, derivative or other agreement or combination of agreements pursuant to which any Credit Party is or may become obligated to make (i) any payment in connection with a purchase by any third party from a Person other than a Credit Party of any Capital Stock in any Credit Party or any Subordinated Debt or (ii) any payment (other than on account of a permitted purchase by it of any Capital Stock in any Credit Party or any Subordinated Debt) the amount of which is determined by reference to the price or value at any time of any Capital Stock in any Credit Party or any Subordinated Debt; provided, that no phantom stock or similar plan providing for payments only to current or former directors, officers or employees of a Credit Party (or to their heirs or estates) shall be deemed to be a Synthetic Purchase Agreement. "Term Loans" shall mean, collectively, the B Term Loans and the Delayed Draw Term Loans. A "Term Loan" shall mean any one of such Loans individually. "Term Loan B Commitment" shall mean the commitment of each Lender to make B Term Loans to the Borrower up to an aggregate principal amount, at any one time, not in excess of the amount set forth (i) under such Lender's name opposite the row entitled "Term Loan B Commitment" on the schedule pages hereto or (ii) in any applicable Assignment and Acceptance(s) to which it may be a party, as the case may be, as such amount may be reduced from time to time in accordance with the terms of this Credit Agreement. "Term Loan B Lender" shall mean any Lender holding a Term Loan B Commitment hereunder. "Term Loan Maturity Date" shall mean the earlier of (i) six months after the fifth anniversary of the Closing Date and (ii) the date on which the Term Loans shall become due and payable pursuant to Article 7 hereof. "Third Party Payor Arrangements" shall mean any and all arrangements with Medicare, Medicaid, CHAMPUS, CHAMPVA, TRICARE and any other Governmental Authority, or quasi-public agency, Blue Cross, Blue Shield, any and all managed care plans and organizations, including but not limited to health maintenance organizations and preferred provider organizations, private commercial insurance companies, employee assistance programs and/or any other third party arrangements, plans or programs for payment or reimbursement in connection with health care services, products or supplies. "Title Company" shall mean LANDAMERICA or any other title insurance company of recognized national standing which is acceptable to the Collateral Agent in its sole discretion. 30 "Total Credit Commitments" shall mean the sum of the Total Term Loan B Commitment, the Total Delayed Draw Term Loan Commitment and the Total Revolving Credit Commitment. "Total Credit Exposure" shall mean an amount equal to (i) the aggregate principal amount of all outstanding Loans hereunder, plus (ii) the then current amount of L/C Exposure, plus (iii) the aggregate amount of the unused Total Credit Commitments then in effect. "Total Delayed Draw Term Loan Commitment" shall mean the aggregate amount of the Delayed Draw Term Loan Commitments then in effect of all Delayed Draw Term Loan Lenders as such amount may be reduced or modified from time to time in accordance with the terms of this Credit Agreement. "Total Funded Debt" shall mean with respect to the Borrower and its Subsidiaries, all Indebtedness of the Borrower and its Subsidiaries which (i) as of the date of the creation or incurrence thereof, by its terms matures in, or at the Borrower's or such Subsidiary's option can be extended for, one year or more from such date of creation or incurrence (including current portions of such long-term Indebtedness), including all hedging agreements and letters of credit entered into in connection with such Indebtedness and (ii) should be shown on the consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP. The term "Total Funded Debt" shall include, without limitation, Mortgage Loans, the Rollover Notes, and the principal portion of any synthetic lease entered into by the Borrower or any of its Subsidiaries. "Total Leverage Ratio" shall mean, at any date for which such ratio is to be determined, the ratio of Total Funded Debt of the Borrower and its Consolidated Subsidiaries at such date to Consolidated EBITDA for the most recent Rolling Four Quarter period. "Total Revolving Credit Commitment" shall mean the aggregate amount of the Revolving Credit Commitments then in effect of all of the Revolving Credit Lenders, as such amount may be reduced or modified from time to time in accordance with the terms of this Credit Agreement. "Total Term Loan B Commitment" shall mean the aggregate amount of the Term Loan B Commitments then in effect of all the Term Loan B Lenders as such amount may be reduced or modified from time to time in accordance with the terms of this Credit Agreement. "Tranche" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Credit Loans, Delayed Draw Term Loans or B Term Loans. "TRICARE" shall mean, collectively, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation, which program was formerly known as the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), and all laws, rules, regulations, manuals, orders and administrative, reimbursement and other guidelines of all Governmental Authorities promulgated in connection with such program (whether or not having the force of law), in each case as the same may be amended, supplemented or otherwise modified from time to time. 31 "TRICARE Receivable" shall mean a Receivable payable to a Credit Party pursuant to TRICARE. "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. "Uniform Customs" shall have the meaning given to such term in Section 2.21(c) hereof. 2. THE LOANS SECTION 2.1 B Term Loans. (a) Each Term Loan B Lender, severally and not jointly, agrees, upon the terms and subject to the conditions hereinafter set forth to make a term loan (each a "B Term Loan" and collectively the "B Term Loans") to the Borrower on the Closing Date in a single draw in a principal amount up to such Term Loan B Lender's Term Loan B Commitment. (b) The B Term Loans shall be used to finance the Borrower's obligations under the Plan of Reorganization (including refinancing the DIP Facility, satisfying subclass G1-17 Claims (as set forth in the Final Order approving the Plan of Reorganization) and payment of administrative claims), Fees and other expenses incurred in connection with this Credit Agreement and for general corporate purposes (including working capital expenditures) in accordance with the provisions of this Credit Agreement. (c) The B Term Loans shall be made by each Term Loan B Lender ratably in accordance with its Term Loan B Percentage. (d) Once repaid, no B Term Loans may be re-borrowed. SECTION 2.2 Revolving Credit Loans. (a) Each Revolving Credit Lender, severally and not jointly, agrees, upon the terms and subject to the conditions hereinafter set forth, to make loans equal to such Revolving Credit Lender's Revolving Credit Commitment (each a "Revolving Credit Loan" and collectively, the "Revolving Credit Loans") to the Borrower on any Business Day and from time to time from the Closing Date to but excluding the Revolving Credit Commitment Termination Date; provided, that such Revolving Credit Loans when added to the aggregate principal amount of all Revolving Credit Loans then outstanding to the Borrower from all Revolving Credit Lenders, plus all Revolving Credit Lenders' Revolving Credit Percentage of the then current L/C Exposure, does not exceed the Maximum Revolving Credit Amount (after giving effect to all Revolving Credit Loans repaid and all reimbursements of Letters of Credit made concurrently with the making of any Revolving Credit Loans). (b) The Revolving Credit Loans shall be used to finance the Borrower's obligations under the Plan of Reorganization (including refinancing the DIP Facility and payment of administrative claims), Fees and other expenses incurred in connection with this Credit Agreement and for general corporate purposes (including working capital expenditures) in accordance with the provisions of this Credit Agreement. 32 (c) Each Revolving Credit Loan requested hereunder on any date shall be made by each Revolving Credit Lender ratably in accordance with its Revolving Credit Percentage. (d) Subject to the terms and conditions of this Credit Agreement, at any time prior to the Revolving Credit Commitment Termination Date, the Borrower may borrow, repay and re-borrow amounts constituting the Revolving Credit Loans. SECTION 2.3 Delayed Draw Term Loans. (a) Each Delayed Draw Term Loan Lender, severally and not jointly, agrees, upon the terms and subject to the conditions hereinafter set forth to make a term loan (each a "Delayed Draw Term Loan" and collectively, the "Delayed Draw Term Loans"), to the Borrower in up to five (5) draws on any Business Day during the Delayed Draw Term Loan Availability Period in a principal amount up to such Delayed Draw Term Loan Lender's Delayed Draw Term Loan Commitment. (b) The Delayed Draw Term Loans shall be used solely, (i) to make the APS Acquisition, (ii) to pay the outstanding balance owed to ElderTrust or its Affiliates on certain loans secured by mortgages on certain properties owned by the Borrower or its Consolidated Subsidiaries, (iii) in connection with the exercise of the Facility Purchase Options and the purchase of the facilities that are the subject thereof and any fees and expenses incurred in connection therewith and (iv) to make Specified Payments. (c) The Delayed Draw Term Loans shall be made by each Delayed Draw Term Loan Lender ratably in accordance with its Delayed Draw Term Loan Percentage. (d) Once repaid, no Delayed Draw Term Loans may be re-borrowed. SECTION 2.4 Disbursement of Funds and Notice of Borrowing. (a) The Borrower shall give the Administrative Agent prior written, facsimile or telephonic (promptly confirmed in writing) notice of each Borrowing hereunder; such notice shall be irrevocable and to be effective, must be received by the Administrative Agent not later than 12:00 noon (Eastern time), (i) in the case of Base Rate Loans, on the Business Day on which such Loan is to be made and (ii) in the case of Eurodollar Loans, on the third Business Day preceding the date on which such Loan is to be made. Each such written notice or written confirmation of telephonic notice shall be given in substantially the form of the Borrowing Certificate appropriately completed to specify (A) the amount and Tranche of the proposed Borrowing, (B) the date thereof (which shall be a Business Day) and (C) whether the Loan(s) then being requested are to be (or what portion or portions thereof are to be) a Base Rate Loan or a Eurodollar Loan and the Interest Period or Interest Periods with respect thereto in the case of Eurodollar Loans. In the case of a Eurodollar Loan, if no election of an Interest Period is specified in such notice, such notice shall be deemed a request for an Interest Period of one month. If no election is made as to the Interest Rate Type of any Loan, such notice shall be deemed a request for a Base Rate Loan. 33 (b) The Administrative Agent shall promptly notify each Lender of its proportionate share of each Borrowing, the date of such Borrowing, the Interest Rate Type of each Loan being requested and the Interest Periods applicable thereto. On the borrowing date specified in such notice, each Lender shall make its proportionate share of the Borrowing available at the office of the Administrative Agent, 201 South College Street, Charlotte, NC 28288, Attention: Syndication Agency Services for credit to Genesis Health Ventures, Inc. and in each case, no later than 2:00 p.m. Eastern time in the case of a Borrowing consisting of Base Rate Loans and 1:00 p.m. Eastern time in the case of a Borrowing consisting of Eurodollar Loans, in Federal or other immediately available funds. (c) Notwithstanding any provision to the contrary in this Credit Agreement, the Borrower shall not, in any notice of Borrowing under this Section 2.4 request any Eurodollar Loan which, if made, would result in an aggregate of more than seven (7) separate Eurodollar Loans (whether such Eurodollar Loans are Revolving Credit Loans or Term Loans) of any Lender being outstanding hereunder at any one time. For purposes of the foregoing, Eurodollar Loans having Interest Periods commencing and ending on the same days shall be considered one (1) single Eurodollar Loan. (d) The aggregate amount of any Borrowing of a Loan consisting of a Eurodollar Loan shall be in a minimum aggregate principal amount of $5,000,000 or such greater amount which is an integral multiple of $1,000,000, and the aggregate amount of any Borrowing of a Loan consisting of a Base Rate Loan shall be in a minimum aggregate principal amount of $2,000,000 or such greater amount which is an integral multiple of $1,000,000 (or such lesser amount as shall equal (i) the available but unused portion of the Total Credit Commitment then in effect or (ii) the amount necessary to fund a drawing under a Letter of Credit). (e) The Administrative Agent shall disburse the proceeds of Loans by depositing them (other than a Revolving Credit Loan used to fund a drawing under a Letter of Credit) on the date of the Borrowing in an account of the Borrower as the Borrower may specify to the Administrative Agent in writing. SECTION 2.5 Interest Rate Type of the Loans. Each Loan shall be either a Base Rate Loan or Eurodollar Loan (each such type of Loan, an "Interest Rate Type") as the Borrower may request either (i) in its notice of Borrowing delivered to the Administrative Agent pursuant to Section 2.4(a) hereof or (ii) as such Loan may be continued or converted pursuant to the provisions of Section 2.14 hereof). Subject to Sections 2.16(d) and 2.18(g) hereof, each Lender may at its option fulfill its obligations hereunder with respect to any Eurodollar Loan by causing a foreign Lending Office to make such Loan; provided, that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms hereof and of any note evidencing such Loan. Subject to the other provisions of Section 2.4, Section 2.13(b) and Section 2.17, Loans of more than one Interest Rate Type may be outstanding at the same time. SECTION 2.6 Repayment; Evidence of Debt; Administration. (a) The Loans shall be subject to voluntary prepayment as provided in Section 2.10 hereto, to mandatory prepayment as provided in Section 2.11 hereof, amortization as provided in Section 2.12 hereof and acceleration as provided in Article 7 hereof. 34 (b) The outstanding principal balance of the Revolving Credit Loans shall be payable in full on the Revolving Credit Commitment Termination Date, and the outstanding principal balance of the Term Loans shall be payable in full on the Term Loan Maturity Date. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (d) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each outstanding Loan hereunder, the Interest Rate Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (e) The entries made in the accounts maintained pursuant to paragraph (c) or (d) of this Section 2.6 shall be prima facie evidence of the existence and amounts of the Obligations recorded therein; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans and other Obligations in accordance with the terms of this Credit Agreement. (f) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall promptly prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns), in substantially the form of Exhibit E hereto. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 13.3 hereof) be represented by one or more promissory notes in such form payable to the order of the payee named therein. (g) All amounts received by the Administrative Agent from or on behalf of the Borrower as a payment or prepayment of, or interest on, the B Term Loans, the Delayed Draw Loans or the Revolving Credit Loans shall be applied among the Lenders holding the B Term Loans, the Delayed Draw Loans or the Revolving Credit Loans, as the case may be, ratably in accordance with the outstanding B Term Loans, the Delayed Draw Loans or the Revolving Credit Loans (as the case may be) owed to each such Lender. SECTION 2.7 Interest. (a) In the case of a Base Rate Loan, interest shall be payable at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate plus the Applicable Interest Margin. Interest shall be payable in arrears on each Base Rate Loan on each Interest Payment Date, on the Term Loan Maturity Date (in the case of a Base Rate Loan which is a Term Loan), and on the Revolving Credit Commitment Termination Date (in the case of a Base Rate Loan which is a Revolving Credit Loan). 35 (b) In the case of a Eurodollar Loan, interest shall be payable at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Adjusted LIBO Rate plus the Applicable Interest Margin. Interest shall be payable on each Eurodollar Loan on each Interest Payment Date, on the Term Loan Maturity Date (in the case of a Eurodollar Loan which is a Term Loan), and on the Revolving Credit Commitment Termination Date (in the case of a Eurodollar Loan which is a Revolving Credit Loan). The Administrative Agent shall determine the applicable Adjusted LIBO Rate for each Interest Period as soon as practicable on the date when such determination is to be made in respect of such Interest Period and shall promptly notify the Borrower and the Lenders of the applicable interest rate so determined. Such determination shall be conclusive absent manifest error. (c) Interest in respect of any Loan hereunder shall accrue from and including the date of such Loan to but excluding the date on which such Loan is paid or, if applicable, converted to a Loan of a different Interest Rate Type. (d) Anything in this Credit Agreement or in any note evidencing any Loan hereunder to the contrary notwithstanding, the interest rate on the Loans or with respect to any drawing under a Letter of Credit shall in no event be in excess of the maximum rate permitted by Applicable Law. SECTION 2.8 Commitment Fees, Facility Fee and Other Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender quarterly in arrears on the last Business Day of each March, June, September and December (commencing the last Business Day of December 2001) prior to the Revolving Credit Commitment Termination Date, on the date of any termination or reduction of the Total Revolving Credit Commitment, and on the Revolving Credit Commitment Termination Date, a fee (the "Revolving Credit Commitment Fee") at a rate per annum set forth below on the average daily amount during the preceding period by which such Revolving Credit Lender's Revolving Credit Commitment (as such Revolving Credit Commitment may be modified in accordance with the provisions of this Credit Agreement) exceeded the sum of (i) the product of such Revolving Credit Lender's Revolving Credit Percentage and the L/C Exposure, and (ii) the aggregate principal amount of such Revolving Credit Lender's outstanding Revolving Credit Loans. The Revolving Credit Commitment Fee shall be paid at a rate per annum (computed on the basis of the actual number of days elapsed during the period over a year of 360 days) determined in accordance with the following: 36 Percentage of Revolving Credit Revolver Usage Commitment Fee -------------- ---------------- less than or equal to 33% 1.00% greater than 33% but less 0.75% than or equal to 66% greater than 66% 0.50% (b) From and after the Closing Date, until the last day of the Delayed Draw Term Loan Availability Period, the Borrower agrees to pay to the Administrative Agent for the account of each Delayed Draw Term Loan Lender a commitment fee (the "Delayed Draw Term Loan Commitment Fee") on any undrawn portion of such Lender's Delayed Draw Term Loan Commitment at a rate per annum of 3.50% (computed on the basis of the actual number of days elapsed during the preceding period over a year of 360 days). The Delayed Draw Term Loan Commitment Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December (commencing the last Business Day of December 2001), on the date of any termination or reduction of the Total Delayed Draw Term Loan Commitment and on the last day of the Delayed Draw Term Loan Availability Period. (c) The Commitment Fees shall commence to accrue on the Closing Date. (d) The Borrower agrees to pay to the applicable party, on the Closing Date, any and all Fees, expenses and other amounts that are then due and payable pursuant to the Fee Letters and, thereafter, any and all Fees, expenses and other amounts payable thereunder when due and payable. SECTION 2.9 Termination and/or Reduction of the Total Revolving Credit Commitment, the Total Term Loan B Commitment and the Total Delayed Draw Term Loan Commitment. (a) Upon at least three (3) Business Days' prior written, facsimile or telephonic notice (provided, that such telephonic notice is immediately followed by written confirmation) to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Revolving Credit Commitment or the Total Delayed Draw Term Loan Commitment. In the case of a partial reduction, each such reduction shall be in a minimum aggregate principal amount of $5,000,000 or an integral multiple thereof; provided, however, that the Total Revolving Credit Commitment may not be reduced to an amount less than the aggregate principal amount of all Revolving Credit Loans then outstanding, plus the then current L/C Exposure. (b) The Total Term Loan B Commitment shall automatically terminate on the Closing Date (after giving effect to the making of any B Term Loans on the Closing Date). (c) The Total Delayed Draw Term Loan Commitment shall automatically terminate on the last day of the Delayed Draw Term Loan Availability Period (after giving effect to the making of any Delayed Draw Term Loans on such date). 37 (d) The Total Revolving Credit Commitment shall automatically and permanently reduce, on the date of any mandatory prepayment or repayment of Revolving Credit Loans, pursuant to Section 2.11(g) or 2.11(i) hereof, in an amount equal to such mandatory prepayment or repayment of Revolving Credit Loans. (e) Any partial reduction of the Total Revolving Credit Commitment and the Total Delayed Draw Term Loan Commitment, respectively, hereunder shall be made among the Revolving Credit Lenders and the Delayed Draw Term Loan Lenders, respectively, ratably in accordance with their respective Revolving Credit Percentages and Delayed Draw Term Loan Percentages, as applicable. (f) Simultaneously with each termination or reduction of the Total Revolving Credit Commitment or the Total Delayed Draw Term Loan Commitment, the Borrower shall pay to the Administrative Agent for the benefit of the Revolving Credit Lenders and the Delayed Draw Term Loan Lenders, as applicable, all accrued and unpaid Commitment Fees on the amount of the Total Revolving Credit Commitment or the Total Delayed Draw Term Loan Commitment so terminated or reduced through the date of such termination or reduction. SECTION 2.10 Voluntary Prepayments. The Borrower shall have the right at its option at any time and from time to time to prepay (i) any Base Rate Loan, in whole or in part, upon same day prior written, facsimile, or telephonic (promptly confirmed in writing) notice to the Administrative Agent received not later than 11:30 a.m. (Eastern time) on such day, in the principal amount of $2,000,000 or such greater amount which is an integral multiple of $1,000,000 if prepaid in part, and (ii) any Eurodollar Loan, in whole or in part, upon same day prior written, facsimile, or telephonic (promptly confirmed in writing) notice received not later than 11:30 a.m. (Eastern time) on such day, in the principal amount of $5,000,000 or such greater amount which is an integral multiple of $1,000,000 if prepaid in part; provided, that in the case of Eurodollar Loans the Borrower pays any amounts required to be paid under Section 2.15 as a result of such prepayment. Each notice of prepayment shall specify the prepayment date, each Loan to be prepaid and the principal amount thereof, shall be irrevocable and shall commit the Borrower to prepay each such Loan in the amount and on the date stated therein. Except to the extent a Lender elects to opt-out of such prepayment of a Term Loan pursuant to Section 2.11(h), all prepayments under this Section 2.10 on account of Term Loans shall be applied ratably to each Tranche of Loans in accordance with each Lender's proportionate share of each such Tranche of Loans and against scheduled amortization payments of the Term Loans in inverse order of the maturity thereof. 38 SECTION 2.11 Mandatory Prepayments. (a) If at any time (i) the sum of the aggregate principal amount of all Revolving Credit Loans outstanding, plus the then current L/C Exposure shall exceed the Maximum Revolving Credit Amount, the Borrower will immediately prepay such Revolving Credit Loans to the extent necessary to eliminate such excess, and (ii) after giving effect to such prepayment of Revolving Credit Loans, then to the extent that the aggregate principal amount of all Term Loans outstanding exceeds the Borrowing Base, the Borrower will immediately prepay such Term Loans to the extent necessary to eliminate such excess. (b) On or before December 31 in each year (commencing on December 31, 2002), the Borrower shall prepay Loans in an amount equal to 75% of the Excess Cash Flow for the immediately preceding fiscal year. Concurrently with the making of each such prepayment, the Borrower shall deliver to the Administrative Agent, a certificate in such form as may be reasonably satisfactory to the Administrative Agent, signed by the chief financial officer of the Borrower, setting forth in reasonable detail the calculation of Excess Cash Flow for the immediately preceding fiscal year. (c) Within two (2) Business Days of the receipt of any Net Cash Proceeds by the Borrower or any Credit Party, the Borrower shall prepay Loans in an amount equal to 100% of the Net Cash Proceeds received by such Credit Party; provided, that no prepayment shall be required to the extent such Net Cash Proceeds (x) result from the sale of an asset (other than a Real Property Asset) in the ordinary course of business of the Borrower and its Subsidiaries, (y) are reinvested in the purchase assets to be used in the business of Credit Parties within 180 days of the receipt of such Net Cash Proceeds so long as pending such reinvestment any such Net Cash Proceeds are held in the Cash Collateral Account and the aggregate amount so held does not at any time exceed $5,000,000 or (z) result from the sale or other disposition of any Non-Core Asset and are actually used to redeem the Rollover Preferred Stock at par to the extent permitted under Sections 2.11(m) and 6.7 hereof. (d) Within two (2) Business Days following the receipt by the Borrower or any other Credit Party (or by the Collateral Agent as loss payee) of any payment of proceeds of any insurance (other than business interruption insurance) required to be maintained pursuant to this Credit Agreement or any other Fundamental Document on account of each separate loss, damage or injury in excess of $2,000,000 to any tangible real or personal property of the Borrower or any of its Subsidiaries (provided, that in the case of a loss, damage or injury to a Real Property Asset, so long as no Default or Event of Default shall have occurred and then be continuing, such proceeds (or any portion thereof) may be expended or irrevocably committed by the Borrower or any of its Subsidiaries to repair or replace such property within 180 days of such loss, damage or injury and the Borrower shall furnish to the Administrative Agent and the Collateral Agent evidence satisfactory to the Administrative Agent and the Collateral Agent of such expenditure or commitment and shall have certified to the Administrative Agent and the Collateral Agent that such proceeds (or such proceeds together with other funds available to the Borrower) are sufficient to repair or replace such property pending which the Collateral Agent shall hold such proceeds), the Borrower shall prepay or, to the extent the Collateral Agent is loss payee under any insurance policy, irrevocably direct the Collateral Agent to apply as a prepayment of the Loans, an amount equal to 100% (or such lesser percentage which represents that portion of such proceeds not expended or committed pursuant to the immediately preceding parenthetical phrase) of such insurance proceeds; provided, that if an Event of Default shall have occurred and be continuing, all proceeds of insurance required to be maintained pursuant to this Credit Agreement or any other Fundamental Document which would otherwise be payable to the Borrower shall be paid to the Collateral Agent and applied pursuant to Section 12.2(b). 39 (e) At any time the Total Leverage Ratio is equal to or greater than 2.00:1.00, within two (2) Business Days of the receipt of any Net Offering Proceeds from any sale of Capital Stock by the Borrower or any other Credit Party, the Borrower shall prepay Loans in an amount equal to 50% of such Net Offering Proceeds received. (f) So long as no Default or Event of Default has occurred and is then continuing, at any time the Borrower or any other Credit Party receives Net Offering Proceeds from the issuance of Indebtedness, then within two (2) Business Days of the receipt of such Net Offering Proceeds, the Borrower shall prepay the Loans and the Rollover Notes in an amount equal to 100% of the Net Offering Proceeds in accordance with the following: (i) if after giving effect to the issuance of such Indebtedness, the Senior Leverage Ratio on a Pro Forma Basis is not at least .375 less than the Maximum Senior Leverage Ratio for the current test period as set forth in Section 6.12 of this Credit Agreement, such Net Offering Proceeds shall be applied to the outstanding principal balance (in inverse order of maturity) of the B Term Loans and the Delayed Draw Term Loans ratably to each Tranche of Loans in accordance with each Lender's proportionate share of each Tranche of such Loans to the extent each Lender elects not to opt-out of such prepayment pursuant to Section 2.11(h) until the Senior Leverage Ratio is at least .375 less than the Maximum Senior Leverage Ratio then permitted under Section 6.12 of this Credit Agreement for the current test period and, thereafter, at the Borrower's option, to the outstanding principal balance of the Rollover Notes; (ii) if after giving effect to the issuance of such Indebtedness, the Senior Leverage Ratio on a Pro Forma Basis is at least .375 less than the Maximum Senior Leverage Ratio for the current test period as set forth in Section 6.12 of this Credit Agreement, such Net Cash Proceeds may be applied at the Borrower's option, to the Rollover Notes; and (iii) to the extent the Borrower elects not to apply any Net Cash Proceeds permitted by the preceding clauses (i) and (ii) to be applied to the Rollover Notes, such Net Cash Proceeds shall be applied to the Loans in the manner set forth in Section 2.11(g). (g) So long as no Default or Event of Default has occurred and is then continuing, any prepayments required under Section 2.11(b), (c), (d), (e) or (f)(iii) shall be applied: (i) first to the outstanding principal balance (in inverse order of maturity) of the B Term Loans and the Delayed Draw Term Loans ratably to each Tranche of Loans in accordance with each Lender's proportionate share of each Tranche of such Loans to the extent each Lender elects not to opt-out of such prepayment pursuant to Section 2.11(h), (ii) second to the outstanding principal balance of the Revolving Credit Loans ratably in accordance with each Lender's proportionate share of Revolving Credit Loans and (iii) third to the outstanding principal balance of the Rollover Notes. 40 (h) The Administrative Agent shall make the prepayments to each Lender to the extent required by Sections 2.10 and 2.11(g) unless not later than 11:30 a.m. Eastern time two (2) Business Days prior to the making of such prepayment, the Administrative Agent shall have received notice from a Term Loan B Lender or Delayed Draw Term Loan Lender electing not to receive such prepayment (each such Lender, an "Opt-Out Lender"). The amount that otherwise would be payable to each Opt-Out Lender pursuant to Sections 2.10 or 2.11(g) with respect to such Opt-Out Lender's B Term Loans or Delayed Draw Term Loans, as the case may be, shall instead be distributed among the Lenders of the applicable Tranche (that are not Opt-Out Lenders) ratably in accordance with their proportionate shares (after giving effect to the prepayments to the accepting Lenders of such Tranche). If the aggregate amount of voluntary prepayments to be distributed pursuant to Section 2.10 on any Tranche of Term Loans that would otherwise be made to Opt-Out Lenders exceeds the aggregate outstanding principal amount of all outstanding Term Loans comprising such Tranche held by accepting Lenders (the "Opt-Out Excess"), then the amount of such Opt-Out Excess shall be applied first, to any Revolving Credit Loans then outstanding, and second, to outstanding Term Loans of Opt-Out Lenders ratably in accordance with their proportionate shares of such Tranche of Term Loans (after giving effect to the prepayments to the accepting Lenders of such Tranche). (i) If a Default or an Event of Default has occurred and is then continuing, at any time a prepayment is required under Section 2.11(b), (c), (d), (e) or (f), then such prepayment shall be applied to the outstanding principal balance (in inverse order of maturity in the case of B Term Loans and Delayed Draw Term Loans) of B Term Loans, Delayed Draw Term Loans and Revolving Credit Loans ratably to each Tranche of Loans in accordance with each Lender's proportionate share of each Tranche of such Loans. (j) All prepayments of Loans under this Section 2.11 shall, as regards Interest Rate Type, be applied first to Base Rate Loans, and subject to Section 2.11(l) hereof, then to Eurodollar Loans in the order of the scheduled expiry of Interest Periods with respect thereto (i.e. those Eurodollar Loans with Interest Periods which end sooner would be paid before those with Interest Periods which end later). (k) All prepayments under this Section 2.11 shall be accompanied by accrued but unpaid interest on the principal amount being prepaid to (but not including) the date of prepayment. (l) If on any day on which Loans would otherwise be required to be prepaid pursuant to this Section 2.11, but for the operation of this Section 2.11(l) (each a "Prepayment Date"), the amount of such required prepayment exceeds the then outstanding aggregate principal amount of Base Rate Loans which are of the Tranche required to be prepaid, and no Default or Event of Default exists or is continuing, then on such Prepayment Date, (i) the Borrower shall deposit Dollars into the Cash Collateral Account in an amount equal to such excess, and only the outstanding Base Rate Loans which are of the Tranche required to be prepaid shall be required to be prepaid on such Prepayment Date and (ii) on the last day of each Interest Period after such Prepayment Date in effect with respect to a Eurodollar Loan which is of the Tranche required to be prepaid, the Administrative Agent is irrevocably authorized and directed to apply funds from the Cash Collateral Account (and liquidate investments held in the Cash Collateral Account as necessary) to prepay such Eurodollar Loans for which the Interest Period is then ending to the extent funds are available in the Cash Collateral Account. 41 (m) Notwithstanding the foregoing provisions of this Section 2.11, receipt of the following amounts shall not be required to be applied as mandatory prepayments on the Loans or the Rollover Notes to the extent actually applied within two (2) Business Days of the receipt thereof by the Borrower or any Subsidiary to redeem the Rollover Preferred Stock at par in accordance with the terms thereof: (i) any amount received by the Borrower with respect to settlement or resolution of the Genesis Medicare Claim net of expenses incurred in connection therewith; (ii) any amount received by the Borrower with respect to settlement or resolution of the AGE Claim net of expenses incurred in connection therewith; (iii) any amount received by the Borrower with respect to the sale or other disposition of Non-Core Assets; (iv) any amount received by the Borrower as proceeds from the exercise of any warrants issued pursuant to the Plan of Reorganization; and (v) any amount received by the Borrower as Net Offering Proceeds from the issuance of any Capital Stock (other than the proceeds received from the exercise of any warrants issued pursuant to the Plan of Reorganization) to the extent such proceeds are not required to make a mandatory prepayment pursuant to Section 2.11(e) hereof. SECTION 2.12 Amortization. (a) On each date set forth below, the Borrower shall be required to repay the principal amount of the B Term Loans, to the extent then outstanding, in the amount set forth opposite such date:
- ------------------------------------------------------------------ --------------------------------------------------- B Term Loan Payment Dates Amount - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2001 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in March, 2002 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in June, 2002 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in September, 2002 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2002 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in March, 2003 $712,500.00 - ------------------------------------------------------------------ ---------------------------------------------------
42
- ------------------------------------------------------------------ --------------------------------------------------- B Term Loan Payment Dates Amount - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in June, 2003 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in September, 2003 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2003 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in March, 2004 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in June, 2004 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in September, 2004 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2004 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in March, 2005 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in June, 2005 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in September, 2005 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2005 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in March, 2006 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in June, 2006 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in September, 2006 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- The last Business Day occurring in December, 2006 $712,500.00 - ------------------------------------------------------------------ --------------------------------------------------- Term Loan Maturity Date Outstanding Balance Due in Full - ------------------------------------------------------------------ ---------------------------------------------------
(b) The Borrower shall be required to repay the principal amount of the Delayed Draw Term Loans, to the extent then outstanding, quarterly, on the last Business Day of each March, June, September and December (commencing on the first such Business Day after the Delayed Draw Term Loan Commitment Termination Date) (each such date hereinafter referred to as a "Quarterly Payment Date") and on the Term Loan Maturity Date in the amounts set forth below opposite each Quarterly Payment Date and the Term Loan Maturity Date: 43
- ---------------------------------------------------------------------- ----------------------------------------------- Delayed Draw Term Loan Quarterly Payment Dates Amount* - ---------------------------------------------------------------------- ----------------------------------------------- First Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Second Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Third Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Fourth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Fifth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Sixth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Seventh Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Eighth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Ninth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Tenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Eleventh Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Twelfth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Thirteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Fourteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Fifteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Sixteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Seventeenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- **Eighteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- -----------------------------------------------
- ---------------------- * The amortization amount for the Delayed Draw Term Loans will be adjusted pro rata if less than the full amount of the Delayed Draw Term Loan Commitment is borrowed as of the Delayed Draw Term Loan Commitment Termination Date. ** The actual number of Quarterly Payment Dates will depend upon when the Delayed Draw Term Loan Commitment Termination Date occurs, which will in turn affect the commencement of amortization. 44
- ---------------------------------------------------------------------- ----------------------------------------------- Delayed Draw Term Loan Quarterly Payment Dates Amount* - ---------------------------------------------------------------------- ----------------------------------------------- **Nineteenth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- **Twentieth Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- **Twenty-First Quarterly Payment Date $200,000.00 - ---------------------------------------------------------------------- ----------------------------------------------- Term Loan Maturity Date Outstanding Balance Due in Full - ---------------------------------------------------------------------- -----------------------------------------------
SECTION 2.13 Default Interest; Alternate Rate of Interest. (a) In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Borrower shall on demand from time to time pay interest, to the extent permitted by Applicable Law, on all Loans and overdue amounts outstanding up to (but not including) the date of actual payment of such Loan or overdue amount (after as well as before judgment) (i) for the remainder of the then current Interest Period for each Eurodollar Loan, at 2% in excess of the rate then in effect for each such Eurodollar Loan, (ii) for all periods subsequent to the then current Interest Period for each Eurodollar Loan and for all Base Rate Loans of a particular Tranche, at 2% in excess of the rate then in effect for Base Rate Loans of the same Tranche and (iii) for all other overdue amounts hereunder, at 2% in excess of the rate then in effect for Base Rate Loans which are B Term Loans. (b) In the event, and on each occasion, that on or before the day on which the Adjusted LIBO Rate for a Eurodollar Loan is to be determined as set forth herein, (i) the Administrative Agent shall have received notice from any Lender of such Lender's determination (which determination, absent manifest error, shall be conclusive) that Dollar deposits in an amount equal to the principal amount of such Lender's Eurodollar Loan are not generally available in the London Interbank Market or that the rate at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to such Lender of making or maintaining the principal amount of such Lender's Eurodollar Loan during the applicable Interest Period or (ii) the Administrative Agent shall have determined that reasonable means do not exist for ascertaining the applicable Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or facsimile notice of such determination by such Lender or the Administrative Agent to the Borrower and the Lenders and any request by the Borrower for a Eurodollar Loan pursuant to Section 2.4 or conversion to or continuation as a Eurodollar Loan pursuant to Section 2.14, made after receipt of such notice and until the circumstances giving rise to such notice no longer exist, shall be deemed to be a request for a Base Rate Loan; provided, however, that in the circumstances described in clause (i) above, such deemed request shall only apply to the affected Lender's portion thereof. SECTION 2.14 Continuation and Conversion of Loans. The Borrower shall have the right, at any time, (i) to convert any Eurodollar Loan or portion thereof to a Base Rate Loan or to continue any Eurodollar Loan for a successive Interest Period, or (ii) to convert any Base Rate Loan or portion thereof to a Eurodollar Loan, subject to the following: 45 (a) at least three (3) Business Days prior to any conversion or continuation hereunder, the Borrower shall give the Administrative Agent written, facsimile or telephonic (promptly confirmed in writing) notice with respect thereto; such notice shall be irrevocable and to be effective, must be received by the Administrative Agent on the day required not later than 11:30 a.m. Eastern time; (b) unless the Required Lenders otherwise consent, no Event of Default shall have occurred and be continuing at the time of any conversion to a Eurodollar Loan or continuation of a Eurodollar Loan into a subsequent Interest Period; (c) the aggregate principal amount of Loans continued as, or converted to, Eurodollar Loans as part of the same continuation or conversion, shall be in a minimum amount of $5,000,000 or in such greater amount which is an integral multiple of $1,000,000; (d) if fewer than all Loans of a particular Tranche at the time outstanding shall be continued or converted, such continuation or conversion shall be made pro rata among the Lenders in accordance with the respective principal amount of such Loans held by the Lenders immediately prior to such continuation or conversion; (e) no Base Rate Loan (or portion thereof) may be converted to a Eurodollar Loan and no Eurodollar Loan may be continued as a Eurodollar Loan if, after such conversion or continuation, and after giving effect to any concurrent prepayment of Loans, an aggregate of more than the number of separate Eurodollar Loans permitted under Section 2.4(c) hereof would be outstanding hereunder; (f) the Interest Period with respect to a new Eurodollar Loan effected by a continuation or conversion shall commence on the date of such continuation or conversion; (g) if a Eurodollar Loan is converted to a Base Rate Loan other than on the last day of the Interest Period with respect thereto, the amounts required by Section 2.15 shall be paid upon such conversion; (h) accrued interest on a Eurodollar Loan (or portion thereof) being converted to a Base Rate Loan shall be paid by the Borrower at the time of conversion; and (i) each request for a continuation as, or conversion to, a Eurodollar Loan which fails to state an applicable Interest Period shall be deemed to be a request for an Interest Period of one month. Subject to the foregoing, in the event that the Borrower shall not give notice to continue or convert any Eurodollar Loan as provided above, such Loan (unless repaid) shall automatically be converted to a Base Rate Loan at the expiration of the then current Interest Period. The Administrative Agent shall, after it receives notice from the Borrower, promptly give the Lenders notice of any continuation or conversion. 46 SECTION 2.15 Reimbursement of Lenders. (a) The Borrower shall reimburse each Lender on demand for any loss incurred or to be incurred by such Lender in the re-employment of the funds released (i) by any prepayment or conversion (for any reason whatsoever) of a Eurodollar Loan if such Loan is prepaid or converted prior to the last day of the Interest Period for such Loan or (ii) in the event that after the Borrower delivers a notice of borrowing under Section 2.4 or notice of continuation or conversion under Section 2.14 in respect of a Eurodollar Loan, such Loan is not made, continued or converted on the first day of the Interest Period specified in the applicable notice for any reason other than (I) a suspension or limitation under Section 2.13(b) of the right of the Borrower to select a Eurodollar Loan or (II) a breach by such Lender of its obligation to fund such Borrowing when it was otherwise required to do so hereunder. Such loss shall be the amount as reasonably determined by such Lender as the excess, if any, of (A) the amount of interest which would have accrued to such Lender on the amount so paid or not borrowed, continued or converted at a rate of interest equal to the interest rate applicable to such Loan pursuant to Section 2.7 hereof, for the period from the date of such payment or failure to borrow, continue or convert to the last day (x) in the case of a payment prior to the last day of the Interest Period for such Loan, of the then current Interest Period for such Loan, or (y) in the case of a failure to borrow, continue or convert, of the Interest Period for such Loan which would have commenced on the date of such failure to borrow, continue or convert, over (B) the amount realized by such Lender in re-employing the funds not advanced or the funds received in prepayment or realized from the Loan not so continued or converted during the period referred to above. Each Lender shall deliver to the Borrower and to the Administrative Agent from time to time one or more certificates setting forth the amount of such loss (and in reasonable detail the manner of computation thereof) as determined by such Lender, which certificates shall be conclusive absent manifest error. The Borrower shall pay such Lender the amounts shown on such certificate within ten (10) days of the Borrower's receipt of such certificate. (b) In the event the Borrower fails to prepay any Loan on the date specified in any prepayment notice delivered pursuant to Section 2.10, the Borrower on demand by any Lender, shall pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any actual loss incurred by such Lender as a result of such failure to prepay, including, without limitation, any loss, cost or expenses incurred by reason of the acquisition of deposits or other funds by such Lender to fulfill obligations incurred in anticipation of such prepayment. Each Lender shall deliver to the Borrower and to the Administrative Agent from time to time one or more certificates setting forth the amount of such loss (and in reasonable detail the manner of computation thereof) as determined by such Lender, which certificates shall be conclusive absent manifest error. The Borrower shall pay the Administrative Agent for the account of such Lender the amounts shown on such certificate within ten (10) days of the Borrower's receipt of such certificate. SECTION 2.16 Change in Circumstances. (a) In the event that after the Initial Date, any change in Applicable Law or in the interpretation or administration thereof (including, without limitation, any request, guideline or policy not having the force of law) by any Governmental Authority charged with the administration or interpretation thereof or, with respect to clauses (ii), (iii) or (iv) below any changes in conditions, shall occur which shall: 47 (i) subject any Lender to, or increase the net amount of, any tax, levy, impost, duty, charge, fee, deduction or withholding with respect to any Eurodollar Loan (other than withholding tax imposed by the United States of America or any political subdivision or taxing authority thereof or therein or any other tax, levy, impost, duty, charge, fee, deduction or withholding (x) that is measured with respect to the overall net income of such Lender or of a Lending Office of such Lender, and that is imposed by the United States of America, or by the jurisdiction in which such Lender or Lending Office is incorporated, in which such Lending Office is located, managed or controlled or in which such Lender has its principal office or a presence not otherwise connected with, or required by, this transaction (or any political subdivision or taxing authority thereof or therein), or (y) that is imposed solely by reason of any Lender failing to make a declaration of, or otherwise to establish, nonresidence, or to make any other claim for exemption, or otherwise to comply with any certification, identification, information, documentation or reporting requirements prescribed under the laws of the relevant jurisdiction, in those cases where a Lender may properly make such declaration or claim or so establish nonresidence or otherwise comply); or (ii) change the basis of taxation of any payment to any Lender of principal of or interest on any Eurodollar Loan or other fees and amounts payable to any Lender hereunder, or any combination of the foregoing, other than withholding tax imposed by the United States of America or any political subdivision or taxing authority thereof or therein or any other tax, levy, impost, duty, charge, fee, deduction or withholding that is measured with respect to the overall net income of such Lender or of a Lending Office of such Lender, and that is imposed by the United States of America, or by the jurisdiction in which such Lender or Lending Office is incorporated, in which such Lending Office is located, managed or controlled or in which such Lender has its principal office or a presence not otherwise connected with, or required by, this transaction (or any political subdivision or taxing authority thereof or therein); or (iii) impose, modify or deem applicable any reserve, deposit or similar requirement against any assets held by, deposits with or for the account of, or loans or commitments by, an office of such Lender with respect to any Eurodollar Loan; or (iv) impose upon such Lender or the London Interbank Market any other condition with respect to the Eurodollar Loans or this Credit Agreement; and the result of any of the foregoing shall be to increase the actual cost to such Lender of making or maintaining any Eurodollar Loan hereunder or to reduce the amount of any payment (whether of principal, interest or otherwise) received or receivable by such Lender in connection with any Eurodollar Loan hereunder, or to require such Lender to make any payment in connection with any Eurodollar Loan hereunder, in each case by or in an amount which such Lender in its sole judgment shall deem material, then and in each case, the Borrower agrees to pay to the Administrative Agent for the account of such Lender, in accordance with, and as provided in, paragraph (c) below, such amounts as shall be necessary to compensate such Lender for such cost, reduction or payment. 48 (b) If at any time and from time to time after the Initial Date, any Lender shall have determined that the applicability of any law, rule, regulation or guideline regarding capital adequacy which is adopted after the Initial Date, or any change in any law, rule, regulation or guideline regarding capital adequacy or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by any Lender (or any Lending Office of such Lender) or any Lender's holding company with any request or directive issued after the Initial Date regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Credit Agreement or the Loans made or Letters of Credit issued pursuant hereto to a level below that which such Lender or such Lender's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender in its sole judgment to be material, then from time to time the Borrower agrees to pay to the Administrative Agent for the account of such Lender, in accordance with, and as provided in, paragraph (c) below, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered to the extent attributable to this Credit Agreement or the Loans made or Letters of Credit issued pursuant hereto. (c) Each Lender shall deliver to the Borrower and to the Administrative Agent from time to time one or more certificates setting forth the amounts due to such Lender under paragraph (a) or (b) above, the changes as a result of which such amounts are due and the manner of computing such amounts. Each such certificate shall be conclusive in the absence of manifest error. The Borrower shall pay to the Administrative Agent for the account of each such Lender the amounts shown as due on any such certificate within ten (10) days after the Borrower's receipt of the same. No failure on the part of any Lender to demand compensation under paragraph (a) or (b) above on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion. The protection of this Section 2.16 shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of any law, regulation or other condition which shall give rise to any demand by such Lender for compensation hereunder. (d) Each Lender agrees that after it becomes aware of the occurrence of an event or the existence of a condition that (i) would cause it to incur any increased cost hereunder or render it unable to perform its agreements hereunder for the reasons specifically set forth in Section 2.13(b), this Section 2.16, Section 2.17 or Section 2.21(g) or (ii) would require the Borrower to pay an increased amount under Section 2.13(b), this Section 2.16, Section 2.17 or Section 2.21(g), it will use reasonable efforts to notify the Borrower in writing of such event or condition and, to the extent not inconsistent with such Lender's internal policies, will use its reasonable efforts to make, fund or maintain the affected Loans of such Lender, or if applicable, participate in Letters of Credit as required by Section 2.21, through another Lending Office of such Lender if as a result thereof the additional monies which would otherwise be required to be paid or the reduction of amounts receivable by such Lender hereunder in respect of such Loans, Letters of Credit or participations therein would be materially reduced, or such inability to perform would cease to exist, or the increased costs which would otherwise be required to be paid in respect of such Loans, Letters of Credit or participations pursuant to Section 2.13(b), this Section 2.16, Section 2.17 or Section 2.21 would be materially reduced or the taxes or other amounts otherwise payable under Section 2.13(b), this Section 2.16, Section 2.17 or Section 2.21 would be materially reduced, and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans, Letters of Credit or participations therein through such other Lending Office would not otherwise materially adversely affect such Loans, Letters of Credit or participations therein or such Lender. 49 (e) If the Borrower shall receive notice from any Lender that Eurodollar Loans are no longer available from such Lender pursuant to Section 2.17, that amounts are due to such Lender pursuant to subparagraph (c) hereof, that any of the events designated in subparagraph (d) hereof have occurred, or that an event has occurred that would cause the Borrower to pay any amount pursuant to clause (c) of Section 2.18, the Borrower may (but subject in any such case to the payments required by this Credit Agreement, including, without limitation Section 2.15 hereof), upon at least five (5) Business Days' prior written or facsimile notice to such Lender and the Administrative Agent, but not more than thirty (30) days after receipt of notice from such Lender, identify to the Administrative Agent a lending institution ("Purchasing Lender") reasonably acceptable to the Borrower and the Administrative Agent (and that qualifies as an Eligible Assignee), which will purchase (for an amount, in immediately available funds, equal to the principal amount of outstanding Loans payable to such Lender, plus all accrued but unpaid interest and fees payable to such Lender) the Commitments (if applicable), the amount of outstanding Loans and participations in Letters of Credit (if applicable), from the Lender providing such notice, and such Lender shall thereupon assign its Commitments (if applicable), its participations in Letters of Credit (if applicable) and any Loans owing to such Lender, and any notes held by such Lender to such Purchasing Lender pursuant to Section 13.3 hereof. SECTION 2.17 Change in Legality. (a) Notwithstanding anything to the contrary contained elsewhere in this Credit Agreement, if any change after the date hereof in Applicable Law, guideline or order, or in the interpretation thereof by any Governmental Authority charged with the administration thereof, shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to a Eurodollar Loan, then, by written notice to the Borrower and the Administrative Agent, such Lender may (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder and/or (ii) require that, subject to Section 2.15, all outstanding Eurodollar Loans made by it be converted to Base Rate Loans, whereupon all of such Eurodollar Loans shall automatically be converted to Base Rate Loans, as of the effective date of such notice as provided in paragraph (b) below. Such Lender's pro rata portion of any subsequent Eurodollar Loan shall, instead, be a Base Rate Loan unless such declaration is subsequently withdrawn. (b) A notice to the Borrower by any Lender pursuant to paragraph (a) above shall be effective for purposes of clause (ii) thereof, if lawful, on the last day of the current Interest Period for each outstanding Eurodollar Loan; and in all other cases, on the date of receipt of such notice by the Borrower. SECTION 2.18 United States Withholding. (a) Prior to the Closing Date, and prior to the effective date set forth in the Assignment and Acceptance with respect to any Lender becoming a Lender after the date hereof, and from time to time thereafter if requested by the Borrower or the Administrative Agent or required because, as a result of a change in law or a change in circumstances or otherwise, a previously delivered form or statement becomes incomplete or incorrect in any material respect, each Lender organized under the laws of a jurisdiction outside the United States shall provide, if applicable, the Administrative Agent and the Borrower with complete, accurate and duly executed forms or other statements prescribed by the Internal Revenue Service of the United States certifying such Lender's exemption from, or entitlement to a reduced rate of, United States withholding taxes (including backup withholding taxes) with respect to all payments to be made to such Lender hereunder and under any other Fundamental Document. 50 (b) The Borrower or the Administrative Agent shall be entitled to deduct and withhold any and all present or future taxes or withholdings, and all liabilities with respect thereto, from payments to a Lender hereunder or under any other Fundamental Document, if and to the extent that the Borrower or the Administrative Agent in good faith determines that such deduction or withholding is required by the law of the United States, including, without limitation, any applicable treaty of the United States. In the event the Borrower or the Administrative Agent shall so determine that deduction or withholding of taxes is required, it shall advise the affected Lender as to the basis of such determination prior to actually deducting and withholding such taxes. In the event the Borrower or the Administrative Agent shall so deduct or withhold taxes from amounts payable hereunder, it (i) shall pay to, or deposit with, the appropriate taxing authority in a timely manner the full amount of taxes it has deducted or withheld; (ii) shall provide to each Lender from whom taxes were deducted or withheld, evidence of payment of such taxes to, or the deposit thereof with, the appropriate taxing authority and a statement setting forth the amount of taxes deducted or withheld, the applicable rate, and any other information or documentation reasonably requested by such Lender; and (iii) shall forward to each such Lender any official tax receipts or other documentation with respect to the payment or deposit of the deducted or withheld taxes as may be issued from time to time by the appropriate taxing authority. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under any note evidencing the Loans hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Administrative Agent may withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. (c) Each Lender agrees (i) that as between it and the Borrower or the Administrative Agent, such Lender shall be the Person to deduct and withhold taxes, and to the extent required by law, it shall deduct and withhold taxes on amounts that such Lender may remit to any other Person(s) by reason of any undisclosed transfer or assignment of an interest in this Credit Agreement to such other Person(s) pursuant to Section 13.3; and (ii) to indemnify the Borrower and the Administrative Agent and any officers, directors, partners, limited liability company members, agents, employees or representatives of the Borrower or the Administrative Agent against, and to hold them harmless from, any tax, interest, additions to tax, penalties, reasonable counsel and accountants' fees, disbursements or payments arising from the assertion by any appropriate taxing authority of any claim against them relating to a failure to withhold taxes as required by law with respect to amounts described in clause (i) of this paragraph (c) or arising from the reliance by the Borrower or the Administrative Agent on any form or other document furnished by such Lender and purporting to establish a basis for not withholding, or for withholding at a reduced rate, taxes with respect to payments hereunder or under any other Fundamental Document. 51 (d) Each assignee of a Lender's interest in this Credit Agreement in conformity with Section 13.3 shall be bound by this Section 2.18, so that such assignee will have all of the obligations and provide all of the forms and statements and all indemnities, representations and warranties required to be given under this Section 2.18. (e) Notwithstanding the foregoing, in the event that any withholding taxes or additional withholding taxes shall become payable solely as a result of any change in any statute, treaty, ruling, determination or regulation occurring after the Initial Date in respect of any sum payable hereunder or under any other Fundamental Document to any Lender or any of the Agents (i) the sum payable by the Borrower shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.18) such Lender or the applicable Agent (as the case may be) receives an amount equal to the sum it would have received had no such withholding deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with Applicable Law and (iv) the Borrower shall forward to such Lender or the applicable Agent (as the case may be) the official tax receipts or other documentation pursuant to and as set forth in Section 2.18(b). In addition, the Borrower shall indemnify each Lender and each of the Agents for any additional withholding taxes paid by such Lender or such Agent, as the case may be, or any liability (including penalties and interest) arising therefrom or with respect thereto, whether or not such additional withholding taxes were correctly or legally asserted. (f) In the event that a Lender or an Agent receives a refund of or credit for taxes withheld or paid pursuant to this Section 2.18, which credit or refund is identifiable by such Lender or such Agent (as applicable) as being a result of taxes withheld or paid in connection with sums payable hereunder or under any other Fundamental Document, such Lender or such Agent (as applicable) shall promptly notify the Administrative Agent and the Borrower and shall remit to the Borrower the amount of such refund or credit allocable to payments made hereunder or under any other Fundamental Document. (g) Each Lender agrees that after it becomes aware of the occurrence of an event that would cause the Borrower to pay any amount pursuant to clause (e) of this Section 2.18, it will use reasonable efforts to notify the Borrower of such event and, to the extent not inconsistent with such Lender's internal policies, will use its reasonable efforts to make, fund or maintain the affected Loans of such Lender through another Lending Office of such Lender if as a result thereof the additional monies which would otherwise be required to be paid by reason of Section 2.18(e) in respect of such Loans would be materially reduced, and if, as determined by such Lender, in its discretion, the making, funding or maintaining of such Loans through such other Lending Office would not otherwise materially adversely affect such Loans or such Lender. 52 (h) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form pursuant to Section 2.18(a) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 2.18(e); provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes. SECTION 2.19 Interest Adjustments. If the provisions of this Credit Agreement or any note evidencing any of the Loans hereunder would at any time require payment by the Borrower to a Lender of any amount of interest in excess of the maximum amount then permitted by the law applicable to any Loan, the applicable interest payments to that Lender in connection with such Loan shall be reduced to the extent and in such a manner as is necessary in order that such Lender shall not receive interest in excess of such maximum amount. If, as a result of the foregoing, a Lender shall receive interest payments hereunder with respect to a Loan or under a note evidencing such Loan in an amount less than the amount otherwise provided hereunder, such deficit (hereinafter called the "Interest Deficit") will, to the fullest extent permitted by Applicable Law, cumulate and will be carried forward (without interest) until the Facility Termination Date (except to the extent paid pursuant to the immediately succeeding sentence). Interest otherwise payable to a Lender hereunder with respect to such Loan and under any note evidencing such Loan for any subsequent period shall be increased by the maximum amount of the Interest Deficit that may be so added without causing such Lender to receive interest in excess of the maximum amount then permitted by Applicable Law. The amount of any Interest Deficit relating to any Loan and any note evidencing such Loan shall be treated as a prepayment premium and shall, to the fullest extent permitted by Applicable Law, be paid in full at the time of any optional prepayment by the Borrower to the Lenders of all the Loans within the applicable Tranche at that time outstanding pursuant to Section 2.10 hereof. The amount of any Interest Deficit relating to a Loan and any note at the time of any complete payment of the Loans within the applicable Tranche at that time outstanding (other than an optional prepayment thereof pursuant to Section 2.10 hereof) shall be canceled and not paid. SECTION 2.20 Manner of Payments. Except as provided in Section 2.11(k) hereof, all payments of principal and interest by the Borrower in respect of any Loans shall be allocated pro rata among the Lenders holding such Loans in accordance with the then outstanding principal amounts of such Loans held by them. All payments by the Borrower hereunder and under any notes evidencing the Loans hereunder shall be made without offset, counterclaim, recoupment, defense, setoff or other deduction in Dollars, in Federal or other immediately available funds, at the office of the Administrative Agent, 201 South College Street, Charlotte, NC 28288, Attention: Syndication Agency Services, for credit to Genesis Health Ventures, Inc., no later than 1:00 p.m.(Eastern time), on the date on which such payment shall be due. Any payment received at such office after such time shall be deemed received on the following Business Day. 53 SECTION 2.21 Letters of Credit. (a) (i) Upon the terms and subject to the conditions hereof and of Applicable Law, the Issuing Bank agrees, upon the request of the Borrower, to issue Letters of Credit (and to extend Letters of Credit previously issued hereunder) payable in Dollars from time to time after the Closing Date and prior to the Revolving Credit Commitment Termination Date; provided, however, that (A) the Borrower shall not request, and the Issuing Bank shall not issue, any Letter of Credit if, after giving effect thereto, the sum of the then current L/C Exposure, plus the aggregate principal amount of all Revolving Credit Loans then outstanding would exceed the Maximum Revolving Credit Amount, (B) the Borrower shall not request, and the Issuing Bank shall not issue, any Letter of Credit having an expiration date (x) later than the tenth day prior to the Revolving Credit Commitment Termination Date or (y) more than one year after its date of issuance or extension; provided, however, that a Letter of Credit may, if requested by the Borrower, provide that such Letter of Credit is renewable for successive periods of one year or less, unless the Issuing Bank shall have delivered a notice of non-renewal to the beneficiary of such Letter of Credit and (C) the Borrower shall not request, and the Issuing Bank shall not issue, any Letter of Credit if, after giving effect thereto, the then current L/C Exposure with respect to Letters of Credit would exceed $15,000,000. (ii) Immediately upon the issuance of each Letter of Credit, each Revolving Credit Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Bank a participation in such Letter of Credit in accordance with such Revolving Credit Lender's Revolving Credit Percentage. (iii) Each Letter of Credit may, at the option of the Issuing Bank, provide that the Issuing Bank may (but shall not be required to) pay all or any part of the maximum amount which may at any time be available for drawing thereunder to the beneficiary thereof upon the occurrence or continuation of an Event of Default and the acceleration of the maturity of the Loans; provided, that, if payment is not then due to the beneficiary, the Issuing Bank shall deposit the funds in question in a segregated account with the Issuing Bank to secure payment to the beneficiary and any funds so deposited shall be paid to the beneficiary of the Letter of Credit if conditions to such payment are satisfied or returned to the Issuing Bank for distribution to the Revolving Credit Lenders (or, if all Obligations shall have been indefeasibly paid in full in cash, to the Borrower) if no payment to the beneficiary has been made and the final date available for drawings under the Letter of Credit has passed. Each payment or deposit of funds by the Issuing Bank as provided in this paragraph shall be treated for all purposes of this Credit Agreement as a drawing duly honored by such Issuing Bank under the related Letter of Credit. (b) Whenever the Borrower desires the issuance of a Letter of Credit, it shall deliver to the Administrative Agent and the Issuing Bank a written notice no later than 1:00 p.m. (Eastern time) at least two (2) Business Days prior to the proposed date of issuance (or such lesser time as is acceptable to the Issuing Bank). Such notice shall specify (i) the proposed date of issuance (which shall be a Business Day), (ii) the face amount of the Letter of Credit, (iii) the expiration date of the Letter of Credit and (iv) the name and address of the beneficiary. Such notice shall be accompanied by a brief description of the underlying transaction and upon request of the Issuing Bank or the Administrative Agent, the Borrower shall provide additional details regarding the underlying transaction. Concurrently with the giving of written notice of a request for the issuance of a Letter of Credit, the Borrower shall specify a precise description of the documents and the verbatim text of any certificate to be presented by the beneficiary of such Letter of Credit which, if presented by such beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Bank to make payment under the Letter of Credit; provided, however, that the Issuing Bank, in its reasonable discretion, may require customary changes in any such documents and certificates to be presented by the beneficiary. Any Letter of Credit shall be issued solely for one of the following purposes: (1) to provide credit support for the Borrower's obligations under and pursuant to a Hedging Agreement in accordance with the terms of the applicable Hedging Agreement, (2) to provide credit support for indemnity obligations of a Credit Party or Subsidiary thereof in connection with the sale or lease of an asset permitted hereunder (provided, that the applicable indemnity obligation is not prohibited by the terms of this Credit Agreement), (3) in connection with a Permitted Lien or (4) for such other purpose as has been approved by the Administrative Agent and the Issuing Bank. Upon issuance of each Letter of Credit, the Issuing Bank shall notify the Administrative Agent of the issuance of such Letter of Credit. Promptly after receipt of such notice, the Administrative Agent shall notify each Revolving Credit Lender of the issuance and the amount of such Revolving Credit Lender's respective participation in the applicable Letter of Credit. 54 (c) Each Letter of Credit shall be subject to (i) the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 500, or any successor publication, as adopted or amended from time to time (the "Uniform Customs") and (ii) as to matters not addressed by the Uniform Customs, the law of the State of New York (or, if the Issuing Bank so elects, the law of the jurisdiction in which the office from which it issues its Letters of Credit is located). The Issuing Bank shall be entitled to honor any drafts and accept any documents presented to it by the beneficiary of such Letter of Credit in accordance with the terms of such Letter of Credit and believed by the Issuing Bank in good faith to be genuine. The Issuing Bank shall not have any duty to inquire as to the accuracy or authenticity of any draft or other drawing documents which may be presented to it, but shall be responsible only to determine in accordance with customary commercial practices that the documents which are required to be presented before payment or acceptance of a draft under any Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. (d) If the Issuing Bank shall make payment on any draft presented under a Letter of Credit (regardless of whether a Default, Event of Default or acceleration has occurred), the Issuing Bank shall give notice of such payment to the Administrative Agent and the Revolving Credit Lenders, and each Revolving Credit Lender hereby authorizes and requests the Issuing Bank to advance for its account, pursuant to the terms hereof, its share of such payment based upon its participation in the Letter of Credit and agrees promptly to reimburse the Issuing Bank in immediately available funds in Dollars for the amount so advanced on its behalf by the Issuing Bank. If any such reimbursement is not made by any Revolving Credit Lender in immediately available funds on the same day on which the Issuing Bank shall have made payment on any such draft, such Revolving Credit Lender shall pay interest thereon to the Issuing Bank at a rate per annum equal to the Issuing Bank's cost of obtaining overnight funds in the Federal Funds market for the first three (3) days following the time when such Revolving Credit Lender fails to make the required reimbursement, and thereafter at a rate per annum equal to the Base Rate plus the Applicable Interest Margin for Base Rate Loans which are Revolving Credit Loans. 55 (e) The Borrower is absolutely, unconditionally and irrevocably obligated to reimburse all amounts drawn under each Letter of Credit. If any draft is presented under a Letter of Credit, the payment of which is required to be made at any time on or before the Revolving Credit Commitment Termination Date, then payment by the Issuing Bank of such draft shall constitute a Revolving Credit Loan (which is a Base Rate Loan) hereunder and interest shall accrue from the date the Issuing Bank makes payment on such draft under such Letter of Credit. If any draft is presented under a Letter of Credit, the payment of which is required to be made after the Revolving Credit Commitment Termination Date or at the time when an Event of Default or Default shall have occurred and then be continuing, then the Borrower shall immediately pay to the Issuing Bank, in immediately available funds, the full amount of such draft together with interest thereon at a rate per annum of 2% in excess of the rate then in effect for Revolving Credit Loans which are Base Rate Loans from the date on which the Issuing Bank makes such payment of such draft until the date it receives full reimbursement for such payment from the Borrower. The Borrower further agrees that the Issuing Bank may reimburse itself for such drawing from the balance in any other account of the Borrower maintained with the Issuing Bank. (f) (i) The Borrower agrees to pay the following amounts to the Issuing Bank with respect to Letters of Credit issued by it hereunder: (A) with respect to the issuance, amendment, transfer or other transaction related to a Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the Issuing Bank's standard schedule for such charges in effect at the time of such issuance, amendment, transfer, drawing or other transaction, as the case may be; and (B) a fronting fee payable directly to the Issuing Bank, for its sole account, for the period from and including the Closing Date to, but excluding, the Revolving Credit Commitment Termination Date computed at a rate equal to one-quarter of one percent (1/4 of 1%) per annum of the daily average L/C Exposure (calculated in the same manner as interest on a Eurodollar Loan), such fee to be due and payable in arrears on and through the last Business Day of each March, June, September and December in each year (commencing on the last Business Day of December 2001) prior to the Revolving Credit Commitment Termination Date or the expiration of the last outstanding Letter of Credit (whichever is later) and on the later of the Revolving Credit Commitment Termination Date and the expiration of the last outstanding Letter of Credit. (ii) The Borrower agrees to pay to the Administrative Agent for distribution to each Revolving Credit Lender in respect of its L/C Exposure, such Revolving Credit Lender's pro rata share (based on its Revolving Credit Commitment) of a commission equal to (A) a per annum percentage rate equal to the Applicable Interest Margin for Revolving Credit Loans which are Eurodollar Loans multiplied by (B) the average daily amount of the L/C Exposure. Such commission shall be calculated in the same manner as interest on a Eurodollar Loan and shall be due and payable in arrears on and through the last Business Day of each March, June, September and December (commencing the last Business Day of December 2001) prior to the Revolving Credit Commitment Termination Date or the expiration of the last outstanding Letter of Credit (whichever is later) and on the later of the Revolving Credit Commitment Termination Date and the expiration of the last outstanding Letter of Credit. From the occurrence and during the continuance, of an Event of Default, such commission shall be increased to an amount equal to 2% plus the Applicable Interest Margin for Revolving Credit Loans which are Eurodollar Loans multiplied by the daily average amount of the L/C Exposure; and 56 (iii) Promptly upon receipt by the Issuing Bank or the Administrative Agent of any amount described in clause (ii) of this Section 2.21(f), or any amount described in Section 2.21(e) previously reimbursed to the Issuing Bank by the Revolving Credit Lenders, the Issuing Bank or the Administrative Agent (as applicable) shall distribute to each Revolving Credit Lender its pro rata share of such amount based on its participation in, or amount paid by such Revolving Credit Lender with respect to, the applicable Letter(s) of Credit. Amounts payable under clauses (i)(A) and (i)(B) of this Section 2.21(f) shall be paid directly to the Issuing Bank and shall be for its exclusive use. (g) If by reason of (i) any change in Applicable Law after the Initial Date, or in the interpretation or administration thereof (including, without limitation, any request, guideline or policy not having the force of law) by any Governmental Authority charged with the administration or interpretation thereof, or (ii) compliance by the Issuing Bank or any Revolving Credit Lender with any direction, request or requirement (whether or not having the force of law) issued after the Initial Date by any Governmental Authority or monetary authority, including, without limitation, any change whether or not proposed or published prior to the Initial Date and any modifications to Regulation D occurring after the Initial Date: (A) the Issuing Bank or any Revolving Credit Lender shall be subject to any tax, levy, impost, duty, fee, charge, deduction or withholding of any nature with respect to any Letter of Credit (other than withholding tax imposed by the United States of America or any other tax, levy, impost, duty, fee, charge, deduction or withholding (1) that is measured with respect to the overall net income of the Issuing Bank or such Revolving Credit Lender or of a Lending Office of the Issuing Bank or such Revolving Credit Lender, and that is imposed by the United States of America, or by the jurisdiction in which the Issuing Bank or such Revolving Credit Lender is incorporated, or in which such Lending Office is located, managed or controlled or in which the Issuing Bank or such Revolving Credit Lender has its principal office or a presence which is not otherwise connected with, or required by, this transaction (or any political subdivision or taxing authority thereof or therein) or (2) that is imposed solely by reason of the Issuing Bank or such Revolving Credit Lender failing to make a declaration of, or otherwise to establish, nonresidence or to make any other claim for exemption, or otherwise to comply with any certification, identification, information, documentation or reporting requirements prescribed under the laws of the relevant jurisdiction, in those cases where the Issuing Bank or such Revolving Credit Lender may properly make the declaration or claim or so establish nonresidence or otherwise comply), or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Section 2.21, whether directly or by such being imposed on or suffered by the Issuing Bank or any Revolving Credit Lender; 57 (B) the basis of taxation of any fee or amount payable hereunder with respect to any Letter of Credit or any participation therein shall be changed; (C) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letter of Credit issued by the Issuing Bank or participations therein purchased by any Revolving Credit Lender; or (D) there shall be imposed on the Issuing Bank or any Revolving Credit Lender any other condition regarding this Section 2.21, any Letter of Credit or any participation therein; and the result of the foregoing is to directly or indirectly increase from the conditions that exist on the Initial Date the cost to the Issuing Bank or any Lender of issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation therein, or to reduce the amount receivable in respect thereof by the Issuing Bank or any Lender, then and in any such case the Issuing Bank or such Lender may, at any time, notify the Borrower, and the Borrower shall pay on demand such amounts as the Issuing Bank or such Lender may specify to be necessary to compensate the Issuing Bank or such Lender for such additional cost or reduced receipt. Sections 2.16(b), (c) and (d) shall in all instances apply to the Issuing Bank and any Lender with respect to the Letters of Credit issued hereunder. The determination by the Issuing Bank or any Lender, as the case may be, of any amount due pursuant to this Section 2.21 as set forth in a certificate setting forth the calculation thereof in reasonable detail shall, in the absence of manifest error, be final, conclusive and binding on all of the parties hereto. (h) If at any time when an Event of Default shall have occurred and be continuing, any Letters of Credit shall remain outstanding, then the Issuing Bank may, and if directed by the Required Revolving Credit Lenders shall, require the Borrower to deliver to the Administrative Agent cash or Cash Equivalents in an amount equal to 105% of the amount of the L/C Exposure or to furnish other security acceptable to the Issuing Bank and the Required Revolving Credit Lenders. Any amounts so delivered pursuant to the preceding sentence shall be applied to reimburse the Issuing Bank for the amount of any drawings honored under Letters of Credit and any costs associated with the Letters of Credit; provided, however, that if prior to the Revolving Credit Commitment Termination Date, (i) no Default or Event of Default is then continuing, then the Administrative Agent shall return all of such collateral relating to such deposit to the Borrower if requested by it or (ii) Letters of Credit shall expire or be returned by the beneficiary so that the amount of the cash or Cash Equivalents delivered to the Administrative Agent hereunder shall exceed 105% of the then current L/C Exposure, then such excess shall first be applied to pay any Obligations owing to the Revolving Credit Lenders under this Credit Agreement and the remainder shall be returned to the Borrower. (i) Notwithstanding the termination of the Revolving Credit Commitments and the payment of the Revolving Credit Loans, the obligations of the Borrower under this Section 2.21 shall remain in full force and effect until the Administrative Agent, the Issuing Bank and the Revolving Credit Lenders shall have been irrevocably released from their obligations with regard to any and all Letters of Credit. 58 (j) The obligations of the Borrower to reimburse the Issuing Bank and the Revolving Credit Lenders for drawings made under any Letter of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Credit Agreement under all circumstances, including, without limitation: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary of any Letter of Credit or against the Issuing Bank or any of the Revolving Credit Lenders, whether in connection with this Credit Agreement, the transactions contemplated herein or any unrelated transaction; (iii) payment by the Issuing Bank against any draft, demand, certificate or other document presented under any Letter of Credit which proves to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Bank of any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit (including, without limitation, payment by the Issuing Bank in accordance with its usual practices and procedures, subsequent to the expiry date of a Letter of Credit, as long as the Issuing Bank has obtained the consent of the Borrower thereto and has not been notified in writing by the Administrative Agent or a Revolving Credit Lender of the occurrence of the Revolving Credit Commitment Termination Date); (v) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vi) the fact that any Event of Default shall have occurred and be continuing (it being understood that any such payment by the Borrower shall be without prejudice to, and shall not constitute a waiver of, any rights the Borrower might have or might acquire against any party as a result of the payment by the Issuing Bank of any draft or the reimbursement by the Borrower thereof). 3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES In order to induce the Agents, the Issuing Bank and the Lenders to enter into this Credit Agreement and to make Loans and to issue or purchase participations in the Letters of Credit provided for herein, the Credit Parties, jointly and severally, make the following representations and warranties to, and agreements with, the Agents, the Issuing Bank and the Lenders, all of which shall survive the execution and delivery of this Credit Agreement, the issuance of any notes evidencing any of the Loans hereunder and the making of the Loans and the issuance of the Letters of Credit: SECTION 3.1 Existence and Power. (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of Pennsylvania and is qualified to do business and is in good standing in all jurisdictions where either (i) the nature of its properties or business so requires or (ii) the failure to be in good standing could reasonably be expected to have a Material Adverse Effect. Schedule 3.1(a) hereto sets forth a list of all jurisdictions in which the Borrower is so qualified. 59 (b) Each other Credit Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is qualified to do business and is in good standing in all jurisdictions where either (i) the nature of its properties or business so requires or (ii) the failure to be in good standing could reasonably be expected to have a Material Adverse Effect. Schedule 3.1(b) hereto also sets forth a list of the jurisdiction of organization of each Credit Party and all jurisdictions in which each Credit Party is qualified to do business. (c) Each of the Credit Parties has the partnership, company or corporate, as the case may be, power and authority (i) to own its respective properties and carry on its respective business as now being, or as now intended to be, conducted, (ii) to execute, deliver and perform, as applicable, its obligations under the Fundamental Documents and any other documents contemplated hereby or thereby to which it is or will be a party, and (iii) to grant to the Collateral Agent, for the benefit of the Secured Parties, a security interest in the Collateral and the Real Property Assets as contemplated by this Credit Agreement and the other Fundamental Documents to which it is or will be a party; and in the case of the Pledgors, to pledge to the Collateral Agent for the benefit of the Secured Parties, the Pledged Collateral as contemplated by Article 10 hereof; and in the case of the Borrower, to execute, deliver and perform its obligations under this Credit Agreement and any notes evidencing any of the Loans hereunder and to borrow hereunder; and in the case of the Guarantors, to guaranty the Obligations as contemplated by Article 9 hereof. SECTION 3.2 Authority and No Violation. The execution, delivery and performance of this Credit Agreement and the other Fundamental Documents to which it is a party, by each Credit Party, the grant to the Administrative Agent for the benefit of the Secured Parties of the security interest in the Collateral and the Real Property Assets as contemplated by this Credit Agreement and the other Fundamental Documents to which it is or will be a party, by each Credit Party, and the pledge to the Collateral Agent for the benefit of the Secured Parties of the Pledged Collateral as contemplated by Article 10 hereof, by each Pledgor and, in the case of the Borrower, the Borrowings hereunder and the execution, delivery and performance of the notes evidencing any of the Loans hereunder and, in the case of each Guarantor, the guaranty of the Obligations as contemplated in Article 9 hereof, (i) have been duly authorized by all necessary company, partnership or corporate (as applicable) action on the part of each such Credit Party, (ii) will not constitute a violation of any provision of Applicable Law or any order of any Governmental Authority applicable to such Credit Party or any of its respective properties or assets, (iii) will not violate any provision of the Certificate of Incorporation, By-Laws, partnership agreement, limited liability company agreement, articles of organization or any other organizational document of any Credit Party or any Subsidiary of a Credit Party, or any provision of any Regulatory License, Reimbursement Approval, Management Agreement, material indenture, agreement, bond, note, mortgage, deed of trust, or other similar instrument to which such Credit Party is a party or by which such Credit Party or any of its respective properties or assets are bound or to which such Credit Party is subject, (iv) will not be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or create any right to terminate, any such Regulatory License, Reimbursement Approval, Management Agreement, indenture, agreement, bond, note, mortgage, deed of trust, or other instrument and (v) will not result in the creation or imposition of (or the obligation to create or impose) any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of any of the Credit Parties or any Subsidiary of a Credit Party other than pursuant to this Credit Agreement or the other Fundamental Documents. 60 SECTION 3.3 Governmental Approval. (a) All authorizations, approvals, orders, consents, licenses, registrations or filings from or with any Governmental Authority (other than UCC financing statements and the Mortgages all of which will be delivered to the Collateral Agent in accordance with the terms of this Credit Agreement, in form suitable for recording or filing with the appropriate filing office) required for the execution, delivery and performance by any Credit Party) of this Credit Agreement and the other Fundamental Documents to which it is a party, and the execution and delivery by the Borrower of any notes evidencing any of the Loans hereunder, have been duly obtained or made, and are in full force and effect, and if any further authorizations, approvals, orders, consents, licenses, registrations or filings should hereafter become necessary, the Credit Parties shall obtain or make all such authorizations, approvals, orders, consents, licenses, registrations or filings. (b) Each Credit Party and each Subsidiary of a Credit Party has obtained and holds in full force and effect all Regulatory Licenses, other licenses, Reimbursement Approvals, authorizations, consents, franchises, permits, certificates (including, without limitation, certificates of need) accreditations, easements, rights of way and other approvals necessary to own its respective property and assets and to carry on its respective business as now being, or as now intended to be, conducted, other than those the absence of which is not reasonably likely to have a Material Adverse Effect. (c) As of the Closing Date, except as set forth on Schedule 3.3(c) hereto, during the last twenty-four (24) months, no Credit Party nor any Subsidiary of a Credit Party has been notified by JCAHO or any relevant Governmental Authority or other Person with respect to any Regulatory License, any Reimbursement Approval or other approval or authorization necessary to operate its business as currently being conducted, of such Governmental Authority's or other Person's actual revocation, suspension, termination, rescission, or non-renewal, such Regulatory License, Reimbursement Approval or other approval or authorization. SECTION 3.4 Binding Agreements. Each Credit Party has duly executed and delivered this Credit Agreement and each other Fundamental Document to which it is a party. Each of this Credit Agreement and the other Fundamental Documents constitutes the legal, valid and binding obligation of each Credit Party that is a party thereto, enforceable against such Credit Party in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general principles of equity, whether such enforceability is considered in a proceeding at law or in equity. SECTION 3.5 No Material Adverse Effect. (a) Since June 30, 2001, there has been no material adverse change with respect to the business, operations, performance, assets, properties, condition (financial or otherwise) or prospects of the Credit Parties taken as a whole. 61 (b) No Credit Party has entered or is entering into the arrangements contemplated hereby and by the other Fundamental Documents, or intends to make any transfer or incur any obligations hereunder or thereunder, with actual intent to hinder, delay or defraud either present or future creditors. On and as of the Closing Date, on a Pro Forma Basis after giving effect to all Indebtedness (including the Loans) expected to be in existence on the Closing Date: (i) each Credit Party expects the cash available to such Credit Party, after taking into account all other anticipated uses of the cash of such Credit Party (including the payments on or in respect of debt referred to in clause (iii) of this Section 3.5(b)), will be sufficient to satisfy all final judgments for money damages which have been docketed against such Credit Party or which may be rendered against such Credit Party in any action in which such Credit Party is a defendant (taking into account the reasonably anticipated maximum amount of any such judgment and the earliest time at which such judgment might be entered); (ii) the sum of the present fair saleable value of the assets of each Credit Party will exceed the probable liability of such Credit Party on its debts (including its Guaranties); (iii) no Credit Party will have incurred or intends to, or believes that it will, incur debts beyond its ability to pay such debts as such debts mature (taking into account the timing and amounts of cash to be received by such Credit Party from any source, and of amounts to be payable on or in respect of debts of such Credit Party and the amounts referred to in clause (i)); and (iv) each Credit Party believes it will have sufficient capital with which to conduct its present and proposed business and the property of such Credit Party does not constitute unreasonably small capital with which to conduct its present or proposed business. For purposes of this Section 3.5(b), "debt" means any liability or a claim, and "claim" means any (y) right to payment whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (z) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. SECTION 3.6 Financial Information. (i) The audited, consolidated balance sheet of the Borrower and its Consolidated Subsidiaries at September 30, 2000 and (ii) the unaudited, consolidated balance sheets of the Borrower and its Consolidated Subsidiaries at June 30, 2001, together in each case with the related statements of income, stockholders' equity and cash flows and the related notes and supplemental information, in the forms which have previously been delivered to the Lenders, have been prepared in accordance with GAAP consistently applied, except as otherwise indicated in the notes to such financial statements and subject in the case of unaudited statements, to changes resulting from year-end and audit adjustments. All of such financial statements fairly present, in accordance with GAAP, the consolidated financial position and the results of operations, as the case may be, of the Borrower and its Consolidated Subsidiaries, at the dates or for the periods indicated. SECTION 3.7 Credit Parties and their Subsidiaries. (a) Annexed hereto as Schedule 3.7(a) is a correct and complete list as of the Closing Date, of each Credit Party and each Subsidiary of a Credit Party showing, as to each, (i) its exact legal name, (ii) the jurisdiction in which it was incorporated or otherwise organized, (iii) its type of organization, (iv) in the case of a Credit Party, its taxpayer identification number and organizational identification number if it has one, (v) in the case of a Credit Party which is a corporation, its authorized capitalization, the number of shares of its capital stock outstanding and the ownership of such capital stock, (vi) in the case of a Credit Party which is a limited partnership, the general partners and limited partners of such Credit Party and the ownership of its partnership interests, (vii) in the case of a Credit Party which is a limited liability company, the members of such Credit Party and the ownership of its limited liability company interests and (viii) in the case of each Credit Party, the location of its chief executive office and the location where it keeps the records concerning the Collateral or any Real Property Asset or any item included in the Collateral. 62 (b) As of the Closing Date, no Credit Party owns any voting stock or other beneficial interest, either directly or indirectly, in any Person other than another Credit Party or as set forth on Schedule 3.7(b) hereto. (c) As of the Closing Date, no Credit Party is a limited or general partner in any joint venture or partnership, except as set forth on Schedule 3.7(c) hereto. SECTION 3.8 Patents, Trademarks, Copyrights and Other Rights. (a) The Credit Parties and their Subsidiaries possess all patents, patent rights and licenses, trademarks, service marks, tradenames, trademark rights and licenses, copyrights, copyright rights and licenses and any other similar rights, free from burdensome restrictions, which are material to the conduct of their respective businesses (collectively the "Proprietary Rights") and have duly recorded their interest in the United States Patent and Trademark Office or the United States Copyright Office as applicable. Schedule 3.8 lists all registered Proprietary Rights, and all Proprietary Rights as to which an application for registration has been made, owned and used or held for use by any Credit Party or any Subsidiary of a Credit Party, specifying as to each, as applicable: (i) the nature of such Proprietary Right; (ii) the Credit Party or Subsidiary thereof which owns such Proprietary Right; (iii) the jurisdictions or government offices by or in which such Proprietary Right has been issued or registered (or, if applicable, in which an application for such issuance or registration has been filed), including the respective registration or application numbers and (iv) all licenses, sublicenses and other agreements to which a Credit Party or Subsidiary thereof is a party and pursuant to which any Person is authorized to use any Proprietary Right including, as to licenses to a Credit Party or Subsidiary thereof, the identity of the licensor, and as to licenses granted by a Credit Party or Subsidiary thereof, the identity of the licensee. To the best of the Credit Parties' knowledge, a Credit Party or Subsidiary thereof is either (1) the sole and exclusive owner (excluding licenses granted by a Credit Party or Subsidiary thereof) of all right, title and interest in and to (free and clear of any Lien) the Proprietary Rights described in Schedule 3.8 hereto and has sole and exclusive rights to the use thereof or the material covered thereby in connection with the services or products in respect of which they are being used, or (2) the licensee of (free and clear of any Lien) the Proprietary Rights described in Schedule 3.8 hereto and has the rights to the use thereof or material covered thereby in connection with the services or products in respect of which they are being used. (b) Except as set forth on Schedule 3.8 hereto, (i) there is no claim, suit, action or proceeding pending, or to the Credit Parties' knowledge, threatened, against a Credit Party or Subsidiary thereof that involves a claim of infringement of any Proprietary Right and (ii) no Credit Party has any knowledge of any existing infringement by any other Person of any of the Proprietary Rights which in either case would have a Material Adverse Effect. SECTION 3.9 Fictitious Names. Except as disclosed on Schedule 3.9 hereto, none of the Credit Parties has done business, is doing business or intends to do business other than under its full corporate, partnership or company name (as applicable), including, without limitation, under any trade name or other doing business name; provided, that if any of the Credit Parties intends to do business other than under its full corporate, partnership or company name (as applicable), including, without limitation, under any trade name or other doing business name, it shall have provided the Administrative Agent and the Collateral Agent with reasonable prior written notice of its intention to do so. 63 SECTION 3.10 Title to Properties. (a) Except as set forth on Schedule 3.10(a) hereto, the Credit Parties and their Subsidiaries have good title to (and with respect to Real Property Assets, good and marketable title to, or valid leasehold interests in) each of the properties and assets reflected on the financial statements referred to in Section 3.6 hereof, including, without limitation, the Real Property Assets listed on Schedules 3.24(a) and 3.24(b) hereto (other than such properties or assets disposed of in the ordinary course of business since the date of such financial statements or as permitted hereunder) and all such properties and assets are free and clear of Liens, except Permitted Liens. (b) Each of the Credit Parties and each Subsidiary of a Credit Party has complied in all material respects with all leases to which it is a party, and is aware of no defaults under any such lease or any conditions which with the passage of time or delivery of notice would constitute a default thereunder and all such leases are in full force and effect. Each of the Credit Parties and each Subsidiary of a Credit Party which is a lessee under any lease, enjoys peaceful and undisturbed possession of the Real Property Assets leased pursuant to such lease, subject to Permitted Liens. (c) No Credit Party or any Subsidiary of a Credit Party has received any notice of, nor has any knowledge of, any pending or contemplated condemnation proceeding affecting any Real Property Asset or any sale or disposition thereof in lieu of condemnation. (d) No Credit Party or any Subsidiary of a Credit Party is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Real Property Asset or any interest therein except for such rights of first refusal, options or other contractual rights described on Schedule 3.10(d) hereto. SECTION 3.11 Special Representations Relating to Receivables. With respect to each Receivable, (i) it is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (ii) it arose out of a completed rendition of services by a Credit Party in the ordinary course of its business and in accordance with the terms and conditions of all contracts or other documents relating thereto and forming a part of the contract between such Credit Party and the account debtor; (iii) to the knowledge of the applicable Credit Party, the account debtor thereunder had the capacity to contract at the time any contract or other document giving rise to the Receivable was executed, and is solvent (except for Receivables on which the account debtor is Mariner Post-Acute Network, Inc. or an affiliate thereof); (iv) to the knowledge of the applicable Credit Party, there are no proceedings or actions which are threatened or pending against the account debtor thereunder which could reasonably be expected to result in any material adverse change in such account debtor's financial condition or the collectibility of such Receivable; (v) the Receivable is for a liquidated amount maturing as stated in the Credit Parties' records which are available to the Administrative Agent and the Collateral Monitoring Agent; (vi) the Receivable is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition except for discounts and allowances made in the ordinary course of business and consistent with the Credit and Collection Policy, and each Receivable is absolutely owing to such Credit Party and was not contingent in any respect or for any reason, and there are not facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the face amount of the invoice and statements with respect thereto; and (vii) the Credit Party has made no agreement with any account debtor for any deduction therefrom, except discounts or allowances which are granted by such Credit Party in the ordinary course of its business for the prompt payment and which are reflected in the calculation of the net amount of the invoice related thereto. 64 SECTION 3.12 Litigation; Judgments. (a) Except as set forth on Schedule 3.12(a) hereto, there are no actions, suits or other proceedings at law or in equity by or before any arbitrator or arbitration panel, or any Governmental Authority (including, but not limited to, matters relating to environmental liability) or any investigation by any Governmental Authority of the affairs of, or to the best of each Credit Party's knowledge, threatened action, suit or other proceeding against or affecting, any Credit Party, any Subsidiary of a Credit Party or of any of their respective properties or rights which either (A) if adversely determined, could reasonably be expected to have a Material Adverse Effect, or (B) relate to this Credit Agreement, any Fundamental Document or any of the transactions contemplated hereby or thereby or the Loans hereunder. No Credit Party and no Subsidiary of a Credit Party is in default with respect to any order, writ, injunction, decree, rule or regulation of any Governmental Authority binding upon such Person, which default could reasonably be expected to have a Material Adverse Effect. (b) There are no unpaid final, nonappealable judgments or decrees in an aggregate amount of $5,000,000 or more entered by a court or courts of competent jurisdiction against any Credit Party or any Subsidiary of a Credit Party (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing). (c) Except as set forth on Schedule 3.12(c) hereto or as otherwise disclosed pursuant to Section 5.4(b) with respect to matters arising after the date hereof, to the knowledge of the Borrower, there is no pending investigation of the Credit Parties by JCAHO, which investigation is not otherwise conducted in the ordinary course of business and no criminal, civil or administrative action, audit, or investigation by a fiscal intermediary or by the federal government or any state government exists or is threatened with respect to the Credit Parties which could reasonably be expected to adversely affect the Credit Parties' right to receive a material portion of Medicare and Medicaid reimbursement to which it would otherwise be entitled, right to participate in the Medicare and Medicaid programs, or otherwise have a Material Adverse Effect on the receipt of Medicare and Medicaid reimbursement by the Credit Parties, and except as set forth on Schedule 3.12(c) hereto, to the knowledge of the Borrower, none of the Credit Parties is subject to any pending but unassessed Medicare or Medicaid claim payment adjustments, except to the extent the Borrower has established adequate reserves for such adjustments in accordance with GAAP. SECTION 3.13 Federal Reserve Regulations. No Credit Party nor any Subsidiary of a Credit Party is engaged principally or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans will be used, directly or indirectly, whether immediately, incidentally or ultimately (i) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or (ii) for any other purpose, in each case, violative of or inconsistent with any of the provisions of any regulation of the Board, including, without limitation, Regulations T, U and X thereto. 65 SECTION 3.14 Investment Company Act. No Credit Party nor any Subsidiary of a Credit Party is, or will during the term of this Credit Agreement be, (i) an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or any foreign, federal or local statute or any other Applicable Law of the United States of America or any other jurisdiction, in each case limiting its ability to incur indebtedness for money borrowed as contemplated hereby or by any other Fundamental Document. SECTION 3.15 Taxes. Except as set forth on Schedule 3.15 hereto, each Credit Party and each Subsidiary of a Credit Party has filed or caused to be filed all United States federal tax returns, state income tax returns and other material tax returns which are required to be filed with any Governmental Authority after giving effect to applicable extensions, and has paid or has caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due, except as permitted by Section 5.8 hereof. No Credit Party knows of any material additional assessments or any basis therefor. In the reasonable, good faith opinion of the Credit Parties, the charges, accruals and reserves on the books of the Credit Parties and their Subsidiaries in respect of taxes or other governmental charges are adequate. SECTION 3.16 Compliance with ERISA. (a) Each Plan has been maintained and operated in all material respects in accordance with all Applicable Laws, including ERISA and the Code except to the extent that any failure thereof could not reasonably be expected to result in a material liability. Each Plan intended to qualify under Section 401(a) of the Code so qualifies except to the extent that any failure to so qualify could not reasonably be expected to result in a material liability. No Reportable Event has occurred since the effective date of the Plan of Reorganization. No Plan has an "accumulated funding deficiency," within the meaning of Section 412 of the Code or Section 302 of ERISA, or has applied for or received a waiver of the minimum funding standards or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA. No material liability has been, and no circumstances exist pursuant to which any such material liability could reasonably likely be, imposed upon any Credit Party or ERISA Affiliate (i) under Sections 4971 through 4980B of the Code, Section 409, 502(i), 502(l) or 515 of ERISA, or under Title IV of ERISA with respect to any Plan or Multiemployer Plan, or with respect to any plan heretofore maintained by any Credit Party or ERISA Affiliate, or any entity that heretofore was an ERISA Affiliate, or (ii) for the failure to fulfill any obligation to contribute to any Multiemployer Plan. Neither any Credit Party nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated and, using actuarial assumptions and computation methods consistent with Part 1 of Subtitle E of Title IV of ERISA, the aggregate liabilities of the Credit Parties and their ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan then ended would not exceed $1,000,000. 66 (b) Assuming none of the Lenders is using assets of any employee benefit plan subject to Title I of ERISA or any "plan" (within the meaning of Section 4975(e) of the Code) maintained by the Borrower or any of its ERISA Affiliates to make the Loans, the execution, delivery and performance of the Fundamental Documents and the consummation of the transactions contemplated hereby and thereby will not involve any "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code. SECTION 3.17 Agreements. (a) No Credit Party nor any Subsidiary of a Credit Party is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party (including, without limitation, any Regulatory License, any Reimbursement Approval, any Management Agreement or the Rollover Note Indenture) or by which it or any of its property or assets is bound in any respect which default could reasonably be expected to result in a Material Adverse Effect. (b) Schedule 3.17(b) hereto is a true and complete listing as of the Closing Date of (i) all material credit agreements, indentures, and other agreements related to any Indebtedness of any Credit Party or any Subsidiary of a Credit Party, other than the Fundamental Documents, (ii) all material joint venture agreements to which any Credit Party or any Subsidiary of a Credit Party is a party, (iii) all material leases with respect to any Real Property Asset, (iv) all material agreements or other arrangements pursuant to which a Credit Party or any Subsidiary of a Credit Party has granted a Lien to any Person, (v) all other contractual arrangements entered into by a Credit Party or any Subsidiary of a Credit Party or by which any Credit Party, any Subsidiary of a Credit Party or any of its property or assets is bound which arrangements are material to any Credit Party or any Subsidiary of a Credit Party, including but not limited to, Guaranties, (vi) all material Regulatory Licenses and material Reimbursement Approvals and (vii) all material Management Agreements. For purposes of this Section 3.17, a contract or agreement shall be deemed "material" if the Credit Parties or a Subsidiary thereof reasonably expect that any Credit Party or a Subsidiary thereof would, pursuant to the terms thereof, (A) recognize future revenues in excess of $20,000,000 per annum, (B) incur liabilities or obligations in excess of $20,000,000 per annum or (C) likely suffer damages or losses in excess of $20,000,000 by reason of the breach or termination thereof. SECTION 3.18 Security Interest. (a) This Credit Agreement and the other Fundamental Documents (other than the Mortgages), when executed and delivered, will create and grant to the Collateral Agent for the benefit of the Secured Parties (upon (i) the filing of the appropriate UCC-1 financing statements with the filing offices listed on Schedule 3.18(a) hereto and (ii) the possession of the certificates evidencing Pledged Securities and Collateral of the type specified in Section 9-313 of the UCC) a valid and first priority perfected security interest in the Collateral, subject only to Permitted Liens. (b) The Mortgages, when executed and delivered, will create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable first priority Lien on all of the Credit Parties' respective right, title and interest in and to all the Real Property Assets (except personalty that does not constitute fixtures) and the proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 3.18(b) hereto, the proper amount of mortgage recording or similar taxes (if any) are paid and when the UCC-1 financing statements relating to fixtures are duly filed with the filing offices listed on Schedule 3.18(b) hereto, the Mortgages shall constitute fully perfected first priority Liens on, and fully perfected first priority security interests in, all right, title and interest of the Credit Parties' in all the Real Property Assets (except personalty that does not constitute fixtures) and the proceeds thereof, in each case subject only to Permitted Liens. 67 SECTION 3.19 Disclosure. Neither this Credit Agreement nor any other Fundamental Document nor any agreement, document, certificate or statement furnished to any of the Agents, the Issuing Bank or any Lender by or on behalf of any Credit Party in connection with the transactions contemplated hereby, at the time it was furnished or delivered, contained any untrue statement of a material fact regarding the Credit Parties or their Subsidiaries or, when taken together with all such other agreements, documents, certificates and statements, omitted to state a material fact necessary under the circumstances under which it was made in order to make the statements contained herein or therein not misleading. There is no fact known to any Credit Party (other than general industry conditions or facts which have been disclosed to the Agents, the Issuing Bank and the Lenders in writing) which has a Material Adverse Effect, or could reasonably be expected in the future to have a Material Adverse Effect. SECTION 3.20 Environmental Matters. (a) Except as set forth on Schedule 3.20 hereto, there are no past, pending, or, to the knowledge of the Borrower, threatened Environmental Claims against, affecting or with respect to any Credit Party or any Subsidiary of any Credit Party or any Premises, and no Credit Party nor any Subsidiary of any Credit Party is aware of any facts or circumstances which could reasonably be expected to form the basis for any such Environmental Claim, except to the extent that any such Environmental Claims, individually or in the aggregate, would not have a Material Adverse Effect; (b) No Premises is currently or was formerly used for the handling, storage, treatment, disposal, manufacture, processing or generation of Hazardous Materials, except to the extent that any such activity, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on any Credit Party or any Subsidiary of any Credit Party; (c) Each Credit Party, each Subsidiary of any Credit Party and any tenants, operators or occupants of any Premises have obtained and hold all required material Environmental Permits, except to the extent that any failure to obtain or hold any such Environmental Permit, individually or in the aggregate, would not have a Material Adverse Effect; (d) Each Credit Party and each Subsidiary of each Credit Party is in compliance with all terms, conditions and provisions of all applicable (1) Environmental Permits, and (2) Environmental Laws, except to the extent that any such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; 68 (e) No Releases of Hazardous Materials have occurred at, from, in, to, on, or under any Premises, and no Hazardous Materials are present in, on, about or migrating to or from any Premises, except to the extent that any such Releases or presence of Hazardous Materials, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (f) Neither any Credit Party nor any Subsidiary of any Credit Party, nor any predecessor of any Credit Party or Subsidiary of any Credit Party, nor any entity previously owned by any Credit Party or Subsidiary of any Credit Party, has transported or arranged for the treatment, storage, handling, disposal, or transportation of any Hazardous Material to any location (other than any Premises) which could result in an Environmental Claim against any Credit Party or any Subsidiary of any Credit Party, except to the extent that any such activity, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (g) No Premises is a current, or to the knowledge of any Credit Party or any Subsidiary of any Credit Party, a proposed Environmental Clean-up Site, except to the extent as would not reasonably be expected to have a Material Adverse Effect; (h) There are no (i) underground storage tanks (active or abandoned), (ii) polychlorinated biphenyl containing equipment, (iii) asbestos-containing material at any Premises, or (iv) lead-based paint located at any Premises, except to the extent that the presence of any of the foregoing, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; and (i) There have been no material environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or on behalf of, and which are in the possession of any Credit Party or any Subsidiary of any Credit Party with respect to any Premises which have not been delivered to the Agents except for such investigations, studies, audits, tests, reviews or analyses which do not individually or in the aggregate reveal environmental conditions that could have a Material Adverse Effect. SECTION 3.21 Pledged Securities. (a) Annexed hereto as Schedule 3.21(a) under the heading "Pledged Capital Stock and Other Pledged Equity Interests" is a correct and complete list as of the Closing Date, of all the Pledged Securities hereunder showing, as to each, the entity whose stock or other equity interests are being pledged, the Pledgor of such stock or other equity interests, the stock certificate number (if applicable) and the number of shares or amount of the capital stock or other equity interests being pledged hereunder. Also set forth on Schedule 3.21(a) under the heading "Non-Pledged Capital Stock" is a list of the Subsidiaries directly or indirectly owned or controlled by a Credit Party whose Capital Stock will not be pledged hereunder. Each Pledgor (i) is the legal and beneficial owner of, and has sole right, title and interest to, the Pledged Securities owned by such Pledgor, free and clear of all Liens, security interests or other encumbrances whatsoever, except the security interests created by this Credit Agreement and the other Fundamental Documents and (ii) has sole right and power to pledge, and grant the security interest in, and Lien upon, such Pledged Securities pursuant to this Credit Agreement without the consent of any Person or Governmental Authority whatsoever. 69 (b) All of the Pledged Securities are duly authorized, validly issued, fully paid and non-assessable. (c) There are no restrictions on the transfer of any of the Pledged Securities which limit the ability of a Pledgor to pledge such securities or interests (as applicable) to the Collateral Agent (for the benefit of the Secured Parties). Except as set forth on Schedule 3.21(c) hereto and for restrictions created herein or under applicable securities laws and the regulations promulgated thereunder, there are no restrictions on the transfer of any of the Pledged Securities by the Collateral Agent upon the occurrence of an Event of Default. (d) There are no warrants, options, conversion or similar stock purchase rights currently outstanding with respect to, and no agreements to purchase or otherwise acquire, any shares of the Capital Stock or other equity interests of any issuer of any of the Pledged Securities. (e) There are no securities or obligations of any kind convertible into any shares of the Capital Stock or other equity interests of any issuer of any of the Pledged Securities; and (f) Article 10 of this Credit Agreement is effective to create a valid, binding and enforceable security interest in, and Lien upon, all right, title and interest of the Pledgors in the Pledged Collateral and upon the delivery of the Pledged Securities to the Collateral Agent, such security interest and Lien constitute a fully perfected first and prior security interest and Lien upon all right, title and interest of the Pledgors in the Pledged Collateral. SECTION 3.22 Compliance with Laws; Third Party Payor Arrangements. (a) No Credit Party, Subsidiary of a Credit Party or any Real Property Asset is in violation of any Applicable Law (including, without limitation, any Environmental Law or health care law) or any restrictions of record or agreements affecting any Real Property Asset, except for such violations which in the aggregate are not reasonably likely to have a Material Adverse Effect. (b) No Credit Party, Subsidiary of a Credit Party or any Real Property Asset is in violation of any zoning or building law, ordinance, rule, regulation or restriction affecting a Real Property Asset or any building permit, including, without limitation, any certificate of occupancy, where such violation could reasonably be expected to result in a Material Adverse Effect. (c) The Borrowings hereunder, the intended use of the proceeds of the Loans as contemplated by Sections 2.1(b), 2.2(b) and 2.3(b) hereof, the issuance of the Letters of Credit hereunder and the performance of the Fundamental Documents will not violate any Applicable Law. (d) Each Credit Party has caused to be accurately prepared and filed (or obtained extensions for) all applicable cost reports with respect to all Third Party Payor Arrangements. (e) Each Credit Party participates in an internal comprehensive compliance program with respect to Applicable Laws relating to the health care industry. 70 SECTION 3.23 Projected Financial Information. The Borrower has delivered to the Agents certain projections relating to the Borrower consisting of balance sheets, income statements and cash flows, together with a statement of the underlying assumptions. Such projected statements are based on good faith estimates and assumptions believed to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. SECTION 3.24 Real Property. (a) Schedule 3.24(a) is a true and complete list as of the Closing Date of (i) the facility number and street address of each Real Property Asset owned by a Credit Party or a Subsidiary of a Credit Party, (ii) the Credit Party or Subsidiary which owns each such Real Property Asset, (iii) the appraised value of each such Real Property Asset, if available, and the date of the applicable appraisal, (iv) the facility type of each such Real Property Asset, (v) the lease(s) to which each such Real Property Asset is subject and (vi) the name and address of the lessee of each such Real Property Asset. The applicable Credit Party has a fee simple title to each Real Property Asset listed on Schedule 3.24(a) hereto. (b) Schedule 3.24(b) is a true and complete list as of the Closing Date of (i) the facility number and street address of each Real Property Asset leased by a Credit Party or a Subsidiary of a Credit Party, (ii) the Credit Party or Subsidiary which leases each such Real Property Asset, (iii) the facility type of such Real Property Asset, (iii) the name and address of the owner/lessor of each such Real Property Asset, (iv) the leases to which each such Real Property Asset is subject and (v) the name and address of any sublessee of each such Real Property Asset. (c) As of the Closing Date, each of the Real Property Assets listed on either Schedule 3.24(a) or Schedule 3.24(b) hereto are leased by a Credit Party to the party listed opposite such Real Property Asset under the column entitled "Lessee" in the case of a Real Property Asset listed on Schedule 3.24(a) hereto or "Sublessee" in the case of a Real Property Asset listed on Schedule 3.24(b) hereto. SECTION 3.25 No Default. No Default or Event of Default exists under or with respect to any Fundamental Document. SECTION 3.26 Labor Matters. Except as set forth on Schedule 3.26 hereto, there are no collective bargaining agreements or Multiemployer Plans covering the employees of any Credit Party or any Subsidiary of a Credit Party and no Credit Party nor any Subsidiary of a Credit Party has suffered any strikes, walkouts or work stoppages within the last three (3) years. SECTION 3.27 Organizational Documents. The documents delivered pursuant to Section 4.1(b) constitute, as of the Closing Date, all of the organizational documents (together with all amendments and modifications thereof) of the Credit Parties as of the Closing Date. The Credit Parties represent that they have delivered to the Administrative Agent true, correct and complete copies of each of the documents set forth in Section 4.1(b). SECTION 3.28 Bank Accounts. Listed on Schedule 3.28 hereto are all bank accounts maintained as of the Closing Date by a Credit Party or a Subsidiary of a Credit Party. 71 4. CONDITIONS TO THE EFFECTIVENESS OF THIS CREDIT AGREEMENT AND THE MAKING OF THE LOANS SECTION 4.1 Conditions Precedent to the Effectiveness of This Credit Agreement and the Making of the Loans. The effectiveness of this Credit Agreement and the making of the Loans is subject to the satisfaction in full or waiver of the following conditions precedent: (a) The Credit Agreement. The Administrative Agent shall have received executed counterparts of this Credit Agreement, which, when taken together, bear the signatures of the Agents, the Issuing Bank, all of the Credit Parties and all of the Lenders; (b) Supporting Documents of the Credit Parties. The Administrative Agent shall have received in form and substance satisfactory to it, the Collateral Agent and their counsel: (i) a copy of the Certificate of Incorporation of the Borrower, certified as of a recent date by the Secretary of State (or other appropriate governmental official) of Pennsylvania; (ii) a certificate of the Secretary of the Borrower, dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the certificate of incorporation and by-laws of the Borrower as in effect on the date of such certification; (B) that the certificate of incorporation of the Borrower has not been amended since the date of the last amendment thereto indicated on the certificate of the Secretary of State (or other governmental official) furnished pursuant to clause (i) above, except to the extent specified in such Secretary's Certificate; (C) that attached thereto is a true and complete copy of resolutions adopted by the Borrower's Board of Directors authorizing the Borrowings by the Borrower, the grant by the Borrower of the security interests contemplated by the Fundamental Documents and the execution, delivery and performance by the Borrower in accordance with its respective terms of this Credit Agreement, the other Fundamental Documents to which it is or will be a party and any other documents required or contemplated hereunder or thereunder and that such resolutions have not been amended, rescinded or supplemented and are currently in effect; and (D) as to the incumbency and specimen signature of each officer of the Borrower executing this Credit Agreement, any notes (on behalf of the Borrower), the other Fundamental Documents or any other document delivered in connection herewith or therewith on behalf of the Borrower (such certificate to contain a certification by another officer of the Borrower as to the incumbency and signature of the officer signing the certificate referred to in this clause (ii)); (iii) a certificate of the Secretary of each other Credit Party, dated the Closing Date (which certificate may be an omnibus certificate executed by the same individual on behalf of multiple Credit Parties), and certifying (A) such Credit Party is in good standing in its jurisdiction of organization and has paid all its franchise and other similar taxes except where such failure to be in good standing would not have a Material Adverse Effect; (B) that attached thereto is a true and complete copy of resolutions or other authorizing documents adopted by the appropriate Person or Persons of such Credit Party authorizing the Guaranty hereunder by such Credit Party, the grant by such Credit Party of the security interests contemplated by the Fundamental Documents and the execution, delivery and performance by such Credit Party in accordance with its respective terms of this Credit Agreement, the other Fundamental Documents to which it is or will be a party and any other documents required or contemplated hereunder or thereunder and that such resolutions have not been amended, rescinded or supplemented and are currently in effect and (C) as to the incumbency and specimen signature of each officer of such Credit Party executing this Credit Agreement, any other Fundamental Documents or any other document delivered in connection herewith or therewith on behalf of such Credit Party (such certificate to contain a certification by another officer of such Credit Party as to the incumbency and signature of the officer signing the certificate referred to in this clause (iii)); and 72 (iv) a certificate dated as of a recent date as to the good standing and/or authority to do business of the Borrower and the Credit Parties listed on Schedule 4.1(b)(iv) issued by the Secretary of State or other appropriate governmental official of each jurisdiction for each such entity. (v) such additional documents relating to the Borrower and any other Credit Party as the Administrative Agent or its counsel or any Lender may reasonably request; (c) Opinions of Counsel. The Administrative Agent shall have received the written opinions of Weil, Gotshal & Manges LLP, counsel to the Credit Parties and of local counsel in each of the states listed on Schedule 4.1(c) hereto, each dated the Closing Date and addressed to the Agents, the Issuing Bank, the Lenders and the other Secured Parties with respect to such matters relating to this Credit Agreement and the Fundamental Documents as may be requested by the Administrative Agent and its counsel, which opinion shall be in form and substance satisfactory to the Administrative Agent and its counsel; (d) No Material Adverse Effect. No Material Adverse Effect shall have occurred since June 30, 2001; (e) Material Agreements. The Administrative Agent or its counsel shall have received a copy, certified by the Borrower, of each agreement listed on Schedule 3.17(b) hereto; (f) Financing Statements/Possession of Collateral. The Collateral Agent shall have (i) received for filing all appropriate UCC financing statements to perfect its security interest in the Collateral and evidence satisfactory to the Collateral Agent that such UCC financing statements will be filed on or promptly after the Closing Date, together with any related filing fees or similar charges or taxes payable in connection with such filing; (ii) received the Pledged Securities (to the extent such Pledged Securities are represented by a certificate or other instrument) with appropriate undated stock powers or other appropriate documents executed in blank and (iii) received delivery of all Collateral of the type specified in Section 9-313 of the UCC; 73 (g) Mortgages. The Collateral Agent shall have received a duly executed Mortgage and appropriate UCC-1 Financing Statements with respect to each Real Property Asset; (h) Title Report. The Collateral Agent shall have received a recent report by a Title Company as to the state of title of each Real Property Asset, showing all Liens and encumbrances of record; (i) Zoning Laws, etc. The Collateral Agent shall be satisfied with the Credit Parties' compliance with all zoning, environmental and other laws, ordinances, rules and regulations affecting or relating to each Real Property Asset; (j) Leases. The Administrative Agent or the Collateral Agent or their counsel shall have received certified true and complete copies of all material leases encumbering the Real Property Assets, together with executed and acknowledged subordination, non-disturbance and attornment agreements and estoppel certificates with respect thereto as may be required by the Collateral Agent, in form and substance satisfactory to the Collateral Agent; (k) Evidence of Title. The Collateral Agent shall be satisfied that each Credit Party has sufficient right, title and interest in and to the Collateral, the Real Property Assets and other assets which it purports to own, as set forth in the documents and other materials presented to the Agents to enable such Credit Party to grant to the Collateral Agent for the benefit of the Secured Parties the security interests contemplated by the Fundamental Documents, and that all financing statements, mortgages and other filings under Applicable Law necessary to provide the Collateral Agent for the benefit of the Secured Parties with a first priority perfected security interest in the Pledged Securities, the Collateral and all Real Property Assets (subject in the case of the Collateral and the Real Property Assets, to Permitted Liens) have been filed and all taxes, recording or other fees relating thereto have been paid, or, have been delivered to the Collateral Agent in satisfactory form for filing; (l) Insurance. The Administrative Agent and the Collateral Agent shall have received (i) a summary of all existing insurance coverage maintained by the Credit Parties and their Subsidiaries which summary shall include for each insurance policy, the policy number, the type of coverage, the policy limits and deductibles, the insurer and the expiration date and (ii) evidence acceptable to the Administrative Agent and the Collateral Agent that the insurance policies required by Section 5.5 have been obtained and are in full force and effect, including Certificates of Insurance with respect to all existing insurance coverage maintained by the Credit Parties and/or their Subsidiaries which is set forth on the summary delivered pursuant to clause (i) above, which certificates shall comply with the requirements set forth in Section 5.5 hereof; (m) Payment of the Fees. The Agents and the Co-Lead Arrangers (for their benefit and the benefit of the Lenders) shall have received all Fees due and payable on or before the Closing Date pursuant to the Fee Letters or this Credit Agreement; (n) Notes. For each Lender that has requested that the Loans made by it be evidenced by a promissory note, the Administrative Agent shall have received one or more promissory notes each duly executed on behalf of the Borrower, dated the date hereof and payable to the order of such Lender in the principal amount equal to such Lender's B Term Loans, Delayed Draw Term Loan or Delayed Draw Term Loan Commitment (if Delayed Draw Term Loans are not drawn on the Closing Date) and/or Revolving Credit Commitment, as applicable; 74 (o) Payment of Other Fees and Expenses. All out-of-pocket expenses incurred by the Administrative Agent, the Co-Lead Arrangers and the Issuing Bank in connection with this Credit Agreement and the transactions contemplated hereby, including, without limitation, all statements presented for reasonable fees and disbursements of any financial, accounting or valuation advisors or special counsel retained by the Agents (including, but not limited to, Morgan, Lewis & Bockius LLP, counsel to the Agents), shall have been paid by the Borrower; (p) Litigation. No litigation, inquiry, injunction or restraining order shall be pending, entered or threatened which involves this Credit Agreement or any of the other Fundamental Documents or which could reasonably be expected to have a Material Adverse Effect; (q) Required Consents and Approvals. The Administrative Agent and the Co-Lead Arrangers shall be satisfied that all required consents and approvals have been obtained with respect to the transactions contemplated hereby from all Governmental Authorities with jurisdiction over the business and activities of any Credit Party and from any other entity whose consent, waiver or approval is required pursuant to the terms of existing contracts to which any of the Credit Parties is bound and which the Administrative Agent and the Co-Lead Arrangers in their discretion deem necessary to the transactions contemplated hereby; (r) Compliance with Laws. The Lenders shall be satisfied that the transactions contemplated hereby will not violate any provision of Applicable Law, or any order of any court or other agency of the United States or any state thereof applicable to any of the Credit Parties or any of their respective properties or assets; (s) Representations and Warranties; No Default. The representations and warranties set forth in Article 3 hereof and in any other Fundamental Documents then in existence shall be true and correct in all material respects, and no Default or Event of Default shall have occurred and be continuing hereunder; (t) Closing Certificate. The Administrative Agent shall have received a closing certificate signed by an Authorized Officer of the Borrower, substantially in the form of Exhibit F hereto; (u) Approval of Counsel to the Agents. All legal matters incident to this Credit Agreement, the Fundamental Documents and the transactions contemplated hereby and thereby shall be reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel to the Agents and the Co-Lead Arrangers; (v) Other Documents. The Agents and their counsel shall have received fully executed originals of the Intercreditor Agreement, the Contribution Agreement and such other documentation as the Agents or their counsel may request; 75 (w) Consolidated EBITDA. Consolidated EBITDA through the end of the Rolling Four Quarter period ended June 30, 2001 shall be at least $208.0 million; (x) Total Leverage Ratio. The Total Leverage Ratio (after giving effect to any Loans to be made on the Closing Date and all Indebtedness to be outstanding upon the effectiveness of the Plan of Reorganization) shall not exceed 3.0:1.0; (y) Final Order. A Final Order approving the Plan of Reorganization and the credit facilities contemplated hereby shall have been entered by the Bankruptcy Court (which shall, among other things, approve this Credit Agreement, the Fundamental Documents, the Loans and the transactions contemplated by this Credit Agreement and the Fundamental Documents); (z) Total Funded Debt. Total Funded Debt (after giving effect to any Loans to be made on the Closing Date and all Indebtedness to be outstanding upon the effectiveness of the Plan of Reorganization) shall not exceed $624.0 million; (aa) Plan of Reorganization. Substantial consummation of the Plan of Reorganization in accordance with the terms thereof and of the Final Order referred to in Section 4.1(y) above shall occur concurrently with the making of the initial Loans hereunder; (bb) Merger. The merger of Genesis Health Ventures, Inc. and the Multicare Companies, Inc., as contemplated by the Plan of Reorganization shall have been consummated; (cc) Equity Structure. The Borrower's equity capital shall consist of a single class of common stock and the Rollover Preferred Stock; (dd) Debt Rating. The Borrower shall have obtained a minimum senior secured credit rating of at least "B1" from Moody's and "B+" from S&P; (ee) Rollover Notes. Execution and delivery of the Rollover Note Indenture in form and substance and with terms satisfactory to the Co-Lead Arrangers, the Administrative Agent and the Collateral Monitoring Agent in their sole discretion (including, but not limited to, (i) a maximum note value of $243.0 million, (ii) a maximum interest rate of LIBOR plus 5%, (iii) a maturity date that is at least six (6) months after the maturity date of the B Term Loans and the Delayed Draw Term Loans, (iv) scheduled amortization in any year prior to final maturity not exceeding 1% of the original aggregate note value on the date of issuance of the Rollover Notes and (v) covenants customary for public indentures and customary provisions relating to the exercise of any remedies against any collateral with respect to the Rollover Notes satisfactory to the Co-Lead Arrangers in their sole discretion); and (ff) Rollover Preferred Stock. Issuance of the Rollover Preferred Stock with terms satisfactory to the Co-Lead Arrangers, the Administrative Agent and the Collateral Monitoring Agent in their sole discretion (including, but not limited to, (i) a maximum liquidation preference of $42.6 million, (ii) a maximum coupon of 6% per annum, (iii) dividends payable only in kind, (iv) the Borrower having the right to convert all of the shares of such Preferred Stock to common stock of the Borrower at any time after the first anniversary of the effective date of the Plan of Reorganization so long as the average trading price for the Borrower's common stock over the immediately preceding thirty (30) calendar days is $30.00 or more, (v) the Rollover Preferred Stock shall be subject to mandatory redemption by the Borrower on the ninth (9th) anniversary of the effective date of a Plan of Reorganization, (vi) the Rollover Preferred Stock shall be subject to mandatory redemption by the Borrower with the proceeds of any amounts received by the Borrower and its Subsidiaries from any of the sources referred to in Section 2.11(m) hereof and (vii) such other provisions satisfactory to the Co-Lead Arrangers in their sole discretion). 76 (gg) Appraisals. The Collateral Agent and the Collateral Monitoring Agent shall receive a copy of recent appraisals made with respect to the Real Property Assets listed on Schedule 4.1(gg). SECTION 4.2 Conditions Precedent to Each Revolving Credit Loan and each Letter of Credit. The obligation of the Issuing Bank to issue each Letter of Credit and of the Lenders to make each Revolving Credit Loan and to participate in each Letter of Credit (including the initial Revolving Credit Loan and/or Letter of Credit) are subject to the following conditions precedent: (a) Notice. The Administrative Agent shall have received a notice with respect to such Borrowing or the Issuing Bank and the Administrative Agent shall have received a notice with respect to such Letter of Credit as required by Section 2.2 or Section 2.21 hereof, as applicable; (b) Borrowing Certificate. The Administrative Agent shall have received a Borrowing Certificate with respect to such Borrowing, duly executed by an Authorized Officer of the Borrower; (c) Representations and Warranties. The representations and warranties set forth in Article 3 hereof and in the other Fundamental Documents shall be true and correct in all material respects on and as of the date of each Borrowing or issuance of a Letter of Credit (except to the extent that such representations and warranties expressly relate to an earlier date) with the same effect as if made on and as of such date; (d) No Event of Default. On the date of each Borrowing or issuance of a Letter of Credit hereunder, no Default or Event of Default shall have occurred and be continuing, nor shall any such event occur by reason of the making of the requested Revolving Credit Loan or the issuance of the requested Letter of Credit; and (e) Maximum Revolving Credit Amount. After giving effect to the Revolving Credit Loans to be made or Letters of Credit to be issued, the aggregate principal amount outstanding of all Revolving Credit Loans plus the then current L/C Exposure shall not exceed the Maximum Revolving Credit Amount. 77 Each request for a Borrowing or issuance of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or issuance of a Letter of Credit hereunder as to the matters specified in paragraphs (c), (d) and (e) of this Section 4.2. SECTION 4.3 Conditions Precedent to the Making of Delayed Draw Term Loans. The obligation of each Delayed Draw Term Loan Lender to make Delayed Draw Term Loans are subject to the following conditions precedent: (a) Delayed Draw Term Loan Availability Period/Five Draws. The request for any Borrowing of Delayed Draw Term Loans shall be made during the Delayed Draw Term Loan Availability Period and no more than four prior requests for a Borrowing of Delayed Draw Term Loans shall have been made; (b) Borrowing Certificate. The Administrative Agent shall have received a Borrowing Certificate with respect to such Borrowing of Delayed Draw Term Loans, duly executed by an Authorized Officer of the Borrower; (c) Representations and Warranties. The representations and warranties set forth in Article 3 hereof or in the other Fundamental Documents shall be true and correct in all material respects on and as of the date of the Borrowing of the Delayed Draw Term Loans; (d) No Event of Default. On the date of the Borrowing of the Delayed Draw Term Loans, after giving effect to the APS Acquisition and/or payment of the outstanding balance due to ElderTrust and/or the exercise of one or more of the Facility Purchase Options (and the purchase of the Facilities that are the subject thereof), as applicable, on a Pro Forma Basis, no Default or Event of Default shall have occurred and be continuing unless waived by the prior written consent of the Required Lenders; and (e) Documentation for and Making of Payments with Respect to Facility Purchase Options/Specified Payments/ElderTrust Payments. All (i) documentation relating to (a) the exercise of one or more of the Facility Purchase Options (and the purchase of the Facilities that are the subject thereof), (b) the Specified Payments and (c) the payments to be made to ElderTrust and (ii) the manner and making of all payments relating to the transactions referred to in the preceding clause (i) shall be in form and substance reasonably satisfactory to the Administrative Agent. A request for a Borrowing of Delayed Draw Term hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the matters specified in paragraphs (c) and (d) of this Section 4.3. 5. AFFIRMATIVE COVENANTS From the date hereof and for so long as any Commitments shall be in effect, any amount remains outstanding with respect to any Loan, any Letter of Credit shall remain outstanding (or not cash collateralized in an amount equal to 105% of the then current L/C Exposure) or any Obligation remains unpaid or unsatisfied, each Credit Party agrees that, unless the Required Lenders shall otherwise consent in writing, each of them will: 78 SECTION 5.1 Financial Statements and Reports. Subject to the last paragraph of this Section 5.1, furnish or cause to be furnished to the Agents, the Issuing Bank and each of the Lenders: (a) As soon as available, but in any event within ninety (90) days (plus the period of any extensions obtained by the Borrower pursuant to Rule 12b-25 of the Securities Exchange Act of 1934) after the end of each fiscal year of the Borrower (commencing with fiscal year September 30, 2001), (i) the consolidated and consolidating (by major business line) balance sheets of the Borrower and its Consolidated Subsidiaries, in each case as at the end of, and the related consolidated statements of income, stockholders' equity and cash flows for, such fiscal year, and the corresponding figures as at the end of, and for, the preceding fiscal year, and in the case of such consolidated statements, certified by and accompanied by an unqualified report and opinion of KPMG LLP, any other Big Five accounting firm or another independent public accountant of recognized standing as shall be retained by the Borrower and be satisfactory to the Administrative Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards relating to reporting and which report and opinion shall contain no material exceptions or qualifications except for qualifications relating to accounting changes (with which such independent public accountants concur) in response to FASB releases or other authoritative pronouncements and (ii) annual percentage statistics concerning occupancy rate, payor mix, any other statistical and operating information that Borrower deems relevant in the operation of its business and such other information as the Administrative Agent and the Co-Lead Arrangers may reasonably request; (b) As soon as available, but in any event within forty-five (45) days (plus the period of any extensions obtained by the Borrower pursuant to Rule 12b-25 of the Securities Exchange Act of 1934) after the end of each of the first three fiscal quarters of each of its fiscal years, (i) the unaudited, consolidated and consolidating (by major business line) balance sheets of the Borrower and its Consolidated Subsidiaries as at the end of, and the related unaudited consolidated statements of income, stockholders' equity and cash flows for, such quarter, and for the portion of the fiscal year through the end of such quarter, and the corresponding figures as at the end of such quarter, and for the corresponding period, in the preceding fiscal year, together with a certificate signed by an Authorized Officer of the Borrower, on behalf of the Borrower, to the effect that such financial statements, while not examined by independent public accountants, reflect, in the opinion of the Borrower, all adjustments necessary to present fairly the financial position of the Borrower and its Consolidated Subsidiaries as at the end of the fiscal quarter and the results of operations for the quarter then ended in conformity with GAAP, subject to normal year-end audit adjustments and the absence of footnotes and (ii) quarterly percentage statistics concerning occupancy rate, payor mix, any other statistical and operating information that Borrower deems relevant in the operation of its business and such other information as the Administrative Agent and the Co-Lead Arrangers may reasonably request; 79 (c) As soon as available, but in any event within thirty (30) days after the end of each month, (i) the unaudited, consolidated and consolidating (by major business line) balance sheets of the Borrower and its Consolidated Subsidiaries, as at the end of such month, and the related consolidated statements of income and cash flows for, such month, and for the portion of the fiscal year through the end of such month, and the corresponding figures as at the end of such month, and for the corresponding period as set forth in the Borrower's current operating budget; provided, however, that the Borrower shall not be required to deliver monthly balance sheets and cash flow statements for any month prior to January, 2002, in the preceding fiscal year, together with a certificate signed by an Authorized Officer of the Borrower, on behalf of the Borrower, to the effect that such financial statements, while not examined by independent public accountants, reflect, in the opinion of the Borrower, all adjustments necessary to present fairly the financial position of the Borrower and its Consolidated Subsidiaries as at the end of the month and the results of operations for the month then ended in conformity with GAAP, subject to normal year-end audit adjustments and the absence of footnotes and (ii) monthly percentage statistics concerning occupancy rate, payor mix, any other statistical and operating information that Borrower deems relevant in the operation of its business and such other information as the Administrative Agent and the Co-Lead Arrangers may reasonably request; (d) Simultaneously with the delivery of the statements referred to in paragraphs (a), (b) and (c) of this Section 5.1, a certificate of an Authorized Officer of the Borrower in form and substance reasonably satisfactory to the Administrative Agent (i) stating whether or not such Authorized Officer has knowledge, after due inquiry, of any condition or event which would constitute an Event of Default or Default and, if so, specifying each such condition or event and the nature thereof and what action any Credit Party is taking or proposes to take with respect thereto and (ii) demonstrating in reasonable detail compliance with the provisions of Sections 6.6 and 6.9 through 6.14 hereof; (e) Together with each set of audited financial statements required by paragraph (a) above, a letter from the independent public accountants rendering the report thereon stating whether, in connection with their audit examination, any condition or event, at any time during, or at the end of, the accounting period covered by such financial statements, has come to their attention which would cause them to believe that any Default or Event of Default existed on the date of such financial statements, and if such a condition or event has come to their attention, specifying the nature and period, if known, of existence thereof; (f) Promptly upon their becoming available, copies of all audits, studies, reports or evaluations prepared for, or submitted to, any of the Credit Parties by any outside professional firm or service, including, without limitation, any comment letter submitted by the Borrower's accountants to management in connection with their annual audit; (g) Promptly upon their becoming available, copies of all registration statements, proxy statements, notices and reports which the Borrower or any other Credit Party shall file with any securities exchange or with the Securities and Exchange Commission or any successor agency; (h) Within thirty (30) days after the end of each fiscal year, a set of financial projections for the Borrower and its Consolidated Subsidiaries for the next fiscal year in a form and in reasonable detail satisfactory to the Administrative Agent; (i) Promptly and in any event within five (5) Business Days after receipt of any material notice or correspondence from any company or agent for any company providing insurance coverage to any Credit Party or any Subsidiary of a Credit Party relating to any material loss or loss with respect to any Real Property Asset, copies of such notices and/or correspondence; 80 (j) Without limiting any Credit Party's other obligations to give notice under the Fundamental Documents, within twenty (20) days of the end of each calendar quarter, a schedule setting forth each sale or other disposition of any asset or property effected outside the ordinary course of business during such quarter, the date of each such sale or disposition, the sales price with respect to such asset or property sold or disposed of and the Net Cash Proceeds received during such quarter from each such sale or disposition; (k) Each month, within 30 days after the end of the prior month, a Borrowing Base Certificate; (l) At the request of the Collateral Agent or the Collateral Monitoring Agent, provide to the Collateral Agent and the Collateral Monitoring Agent any documents used in the preparation of any Borrowing Base Certificate, including without limitation, accounts receivables agings and reconciliations; and (m) From time to time such additional information regarding the financial condition or business of any of the Credit Parties or any of their respective Subsidiaries, any Real Property Asset or the Collateral, as any of the Agents, the Issuing Bank or any Lender acting through the Administrative Agent may reasonably request including, without limitation, copies of all management projections prepared at the reasonable request of any of the Agents. Information required to be delivered pursuant to clauses (a), (b) or (c) of this Section 5.1 shall be deemed to have been delivered on the date on which the Borrower provides notice to the Agents, Issuing Bank and each Lender that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at [sec.gov/edaux/searches.htm] or at another website identified in such notice and accessible by the Lenders without charge; provided, that (i) such notice may be included in a certificate delivered to the Administrative Agent pursuant to subsection (d) hereof and (ii) the Borrower shall deliver paper copies of the information referred to in paragraphs (a), (b), (c) and (d) of this Section 5.1 to any Lender that requests such delivery. All other notices and information required to be provided pursuant to this Section 5.1 shall be deemed delivered pursuant to this Section 5.1 when delivered to the Administrative Agent; provided, that the Borrower shall deliver paper copies of any such notice or information to any Lender that requests such delivery. SECTION 5.2 Compliance with Laws. (a) Do or cause to be done all things necessary (i) to preserve, renew and keep in full force and effect its existence, Proprietary Rights, Regulatory Licenses, other licenses, Reimbursement Approvals, permits, franchises, certificates (including, without limitation, certificates of need), authorization, accreditations, easements, rights of way and other rights, consents and approvals the nonexistence of which is reasonably likely to have a Material Adverse Effect and (ii) to comply with all applicable statutes, ordinances, rules, regulations and orders of, and all applicable restrictions or requirements imposed by, any Governmental Authority (including, without limitation, health care laws, Environmental Laws, all zoning and building codes and ERISA) or any other Requirements except where the necessity of compliance therewith is contested in good faith by the appropriate proceedings or where such noncompliance in the aggregate would not reasonably be expected to have a Material Adverse Effect; provided, in each case, that the applicable Credit Party or Subsidiary of a Credit Party shall have set aside on its books reasonable reserves (the presentation of which is segregated to the extent required by GAAP) with respect thereto if such reserves are required by GAAP or where such noncompliance in the aggregate would not reasonably be expected to have a Material Adverse Effect. 81 (b) Obtain or make all further authorizations, approvals, orders, consents, licenses, registration or filings from or with any Governmental Authority required for the performance by any Credit Party of this Credit Agreement and the other Fundamental Documents to which it is a party. SECTION 5.3 Maintenance of Properties. Keep its tangible properties including, without limitation, each Real Property Asset, in good repair, working order and condition (ordinary wear and tear and damage by casualty excepted) and, from time to time (i) subject to the terms hereof, make all necessary and proper repairs, renewals, replacements, additions and improvements thereto and (ii) comply at all times with the provisions of all Regulatory Licenses, Reimbursement Approvals, all Management Agreements, leases and other material agreements to which it is a party so as to prevent any loss or forfeiture thereof or thereunder unless compliance therewith is being currently contested in good faith by appropriate proceedings and appropriate reserves have been established in accordance with GAAP or where such noncompliance in the aggregate would not reasonably be expected to have a Material Adverse Effect. SECTION 5.4 Notice of Material Events. (a) Promptly upon, but in any event within five (5) days after, an Authorized Officer or other executive officer of any Credit Party obtaining knowledge of (i) any (X) Default or (Y) Event of Default, (ii) any Material Adverse Effect, (iii) any action, event or condition which could reasonably be expected to have a Material Adverse Effect, (iv) the opening of any office of any Credit Party or the change of the chief executive office or the principal place of business of any Credit Party or of the location of any Credit Party's books and records with respect to the Collateral, any Real Property Asset or any Pledged Securities, or the location of any item of Collateral, (v) any change in the name, corporate structure or the jurisdiction of organization of any Credit Party, (vi) a change in the organizational identification number of any Credit Party or the receipt of an organizational number by a Credit Party which previously did not have one; (vii) any other event which could reasonably be expected to materially decrease the value of the Collateral, any Real Property Asset or the Pledged Securities, (viii) any proposed material amendment to any agreements that are a material part of the Collateral or relate to any material Real Property Asset or (ix) any Person giving any notice to any Credit Party or taking any other action to enforce remedies with respect to a claimed default or event or condition of the type referred to in paragraphs (g), (h), (i) or (j) of Article 7, (ix) any strike, walkout, work stoppage or other material labor difficulty with respect to any Credit Party or Subsidiary of a Credit Party, (x) any pending or contemplated condemnation proceeding affecting any Real Property Asset which would result in Net Cash Proceeds of $300,000 or more or (xi) any revocation, suspension, termination, rescission, non-renewal, forfeiture or similar action or threat by any Governmental Authority to take any of the foregoing actions with respect to a Regulatory License or a Reimbursement Approval or any material amendment to any Regulatory License, Reimbursement Approval or Management Agreement, give written notice thereof to the Administrative Agent specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such Person and the nature of such claimed Event of Default or condition and what action any Credit Party has taken, is taking and proposes to take with respect thereto. 82 (b) Promptly upon, but in any event within ten (10) days after, an Authorized Officer or other executive officer of any Credit Party obtains knowledge of (i) the institution of, or threat of, any action, suit, proceeding, investigation or arbitration by any Governmental Authority or other Person against or affecting any Credit Party or any of its assets including, without limitation, any Real Property Asset, Regulatory License or Reimbursement Approval but excluding any condemnation proceeding or any sale or disposition in lieu of condemnation with respect to any Real Property Asset which would result in Net Cash Proceeds of less than $300,000 and (ii) any material development in any such action, suit, proceeding, investigation or arbitration (whether or not previously disclosed to the Administrative Agent), which, in the case of clause (i) or (ii) above, is reasonably likely to have a Material Adverse Effect, such Credit Party shall promptly give written notice thereof to the Administrative Agent and provide such other information as may be available to it to enable the Administrative Agent to evaluate such matters; and, in addition to the requirements set forth in clauses (i) and (ii) of this subsection (b), such Credit Party upon request shall promptly give notice to the Administrative Agent of the status of any action, suit, proceeding, investigation or arbitration covered by a report delivered to the Administrative Agent pursuant to this subsection (b) above and provide such other information as may be reasonably available to it to enable the Agents to evaluate such matters. SECTION 5.5 Insurance. (a) Keep its assets, or cause its tenants under applicable leases to keep its assets, which are of an insurable character (including, without limitation, all Real Property Assets) insured at all times with financially sound and reputable insurance companies, against such risks as is customary for companies of the same or similar size in the same or similar businesses; provided, that such insurance shall (i) insure the assets (including, without limitation, all Real Property Assets and all Collateral) of the Credit Parties and their Subsidiaries (other than motor vehicles) against all risk of loss or damage including, without limitation, loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Collateral Agent, but in no event in an amount less than the replacement cost value thereof, and (ii) insure the Credit Parties and their Subsidiaries, and the Agents, the Issuing Bank and the Lenders against comprehensive general and automobile liability, such policies to be in accordance with customary industry practice and in such form and amounts and having such coverage as is customary for companies of the same or similar size in the same or similar businesses or as otherwise may be reasonably satisfactory to the Administrative Agent and the Collateral Agent. All such insurance shall (i) contain a Lender's Loss Payable Endorsement in favor of the Collateral Agent on behalf of the Secured Parties in all loss or damage insurance policies, (ii) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days after written notice to the Collateral Agent (on behalf of the Secured Parties) thereof, (iii) name the Collateral Agent (for the benefit of the Secured Parties) as loss payee for physical damage insurance with respect to property which constitutes Collateral or a Real Property Asset as to which a Lien has been granted to the Collateral Agent, with the right, if an Event of Default has occurred and is then continuing, to adjust losses and claims with respect to such property, and as an additional insured for liability insurance (provided, that with respect to property to which a Lien permitted hereunder has been granted to another creditor, such other creditor may also be named as loss payee, with payment to be made as their interests may appear and as an additional insured, with the Collateral Agent), (iv) state that neither the Agents, any of the Lenders, nor any other Secured Party shall be responsible for premiums, commissions, club calls, assessments or advances and (v) be reasonably satisfactory in all other respects (including deductibles) to the Administrative Agent and the Collateral Agent. 83 (b) Upon the request of either the Administrative Agent or the Collateral Agent, furnish to such Agent, an updated schedule describing all insurance maintained by the Credit Parties, which schedule shall set forth, for each insurance policy, the policy number, the type of coverage, the policy limits and deductibles, the insurer and the expiration date. (c) Furnish to the Administrative Agent and the Collateral Agent, to the extent not previously delivered, original certificates of insurance for all insurance maintained by a Credit Party which certificates shall comply with the requirements of this Section 5.5 set forth above and contain signatures of duly authorized representatives of the insurer, at all times prior to policy termination, cessation or cancellation. (d) Maintain such other insurance or self insurance as may be required by Applicable Law or any agreement to which any Credit Party or any Subsidiary thereof is a party or as either the Administrative Agent or the Collateral Agent may reasonably request. SECTION 5.6 Books and Records. (a) Maintain or cause to be maintained at all times, in accordance with GAAP, true and complete books and records of its financial operations. (b) Provide any Agent, the Issuing Bank and their representatives (at the Borrower's expense) or any Lender and its representatives (at such Lender's expense) access to such books and records and to any of its properties or assets upon reasonable notice and during regular business hours in order that such Agent, the Issuing Bank or such Lender (as applicable) may make such audits and examinations and make abstracts from such books, accounts, records and other papers of a Credit Party or a Subsidiary of a Credit Party pertaining to the Collateral or any Real Property Asset and upon notification to the Borrower, permit such Agent, the Issuing Bank or such Lender (as applicable) or its representatives to discuss the affairs, finances and accounts with, and be advised as to the same by, officers and independent accountants, all as such Agent, the Issuing Bank or such Lender (as applicable) may deem appropriate for the purpose of verifying any report delivered by any Credit Party to any of the Agents, the Issuing Bank and/or the Lenders pursuant to this Credit Agreement or for otherwise ascertaining compliance with this Credit Agreement or any other Fundamental Document. SECTION 5.7 Observance of Agreements. (a) Duly observe and perform all material terms and conditions of any agreement relating to any Real Property Asset, any Management Agreement or any other agreement which is material to the Credit Parties taken as a whole and diligently protect and enforce the rights of the Credit Parties and their Subsidiaries under all such agreements in a manner consistent with prudent business judgment and subject to the terms and conditions of such agreements. 84 (b) Promptly provide the Agents copies of any and all agreements amending, altering, modifying, waiving or supplementing in any material respect the Rollover Note Indenture and any other agreement which is material to the Credit Parties taken as a whole. (c) Maintain in effect all material Regulatory Licenses and material Reimbursement Approvals necessary to the operation of its business. (d) Except where the failure to participate or comply could not reasonably be expected to have a Material Adverse Effect, continue its participation in all Third Party Payor Arrangements and comply with all rules, regulations, standard procedures and decrees necessary to continue its participation in such Third Party Payor Arrangements and prepare and file all applicable cost reports with respect to such Third Party Payor Arrangements. SECTION 5.8 Taxes and Charges. Duly pay and discharge, or cause to be paid and discharged, before the same shall become in arrears (after giving effect to applicable extensions), all taxes, assessments, levies and other governmental charges, imposed upon any Credit Party or Subsidiary of a Credit Party or its properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies which if unpaid might by law become a Lien upon any property of any Credit Party or any Subsidiary of a Credit Party; provided, however, that any tax, assessment, levy, governmental charge or claim for labor, material or supplies need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if such Credit Party or Subsidiary of a Credit Party shall have set aside on its books reasonable reserves (the presentation of which is segregated to the extent required by GAAP) with respect thereto if such reserves are required by GAAP; and provided, further, that such Credit Party or Subsidiary of a Credit Party will pay all such taxes, assessments, levies or other governmental charges and claims for labor, material or supplies forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. SECTION 5.9 Liens. Defend the Collateral (including, without limitation, the Pledged Securities) and the Real Property Assets against any and all Liens, claims and other impediments howsoever arising, other than Permitted Liens, and in any event defend the same against any attempted foreclosure. SECTION 5.10 Further Assurances; Security Interests. (a) Upon the request of any of the Agents, duly execute and deliver, or cause to be duly executed and delivered, at the cost and expense of the Credit Parties, such further instruments as may be necessary in the reasonable judgment of such Agent or its counsel to carry out the provisions and purposes of this Credit Agreement and the other Fundamental Documents. 85 (b) Upon the request of the Collateral Agent, promptly execute and deliver or cause to be executed and delivered, at the cost and expense of the Credit Parties, such further instruments as may be appropriate in the reasonable judgment of such Agent or its counsel, to provide the Collateral Agent for the benefit of the Secured Parties a first perfected Lien in the Collateral and all the Real Property Assets, and any and all documents (including, without limitation, an amendment or supplement of any financing statement and a continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other Applicable Law of the United States or any other jurisdiction which any Agent may deem reasonably necessary or advisable, and perform or cause to be performed such other ministerial acts which are reasonably necessary or advisable, from time to time, in order to grant and maintain in favor of the Collateral Agent for the benefit of the Secured Parties the security interest in the Collateral and the Real Property Assets contemplated hereunder and under the other Fundamental Documents, subject only to Permitted Liens. (c) Promptly undertake to deliver or cause to be delivered to the Collateral Agent from time to time such other documentation, consents, authorizations and approvals, in form and substance reasonably satisfactory to the Collateral Agent, as the Collateral Agent or its counsel shall deem reasonably necessary or advisable to perfect or maintain the Liens of the Collateral Agent for the benefit of the Secured Parties. (d) Without limiting the generality of the foregoing provisions of this Section 5.10, use commercially reasonable efforts to correct as soon as practicable, matters with respect to title concerning the properties set forth on Schedule 3.10(a) hereto. SECTION 5.11 Environmental Laws. (a) Promptly notify the Administrative Agent and the Collateral Agent upon any Credit Party gaining actual knowledge of any violation or non-compliance with, or liability or potential liability under, any Environmental Laws which, when taken together with all other violations of, or liability under, Environmental Law is reasonably be expected to have a Material Adverse Effect, and promptly furnish to the Administrative Agent and the Collateral Agent all written notices of any nature which any Credit Party or any Subsidiary of a Credit Party may receive from any Governmental Authority or other Person with respect to any violation, or potential violation or non-compliance with, or liability or potential liability under, any Environmental Laws which, in any case or when taken together with all such other notices, could reasonably be expected to have a Material Adverse Effect. (b) Comply with and use reasonable efforts to ensure compliance by all tenants and subtenants with all Environmental Laws, and obtain and comply in all respects with and maintain and use reasonable efforts to ensure that all tenants and subtenants obtain and comply in all respects with and maintain any and all Environmental Permits required by Environmental Laws, except where failure to do so is not reasonably likely to have a Material Adverse Effect. (c) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under all Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities, except where failure to do so would not have a Material Adverse Effect. Any order or directive whose lawfulness is being contested in good faith by appropriate proceedings shall be considered a lawful order or directive when such proceedings, including any judicial review of such proceedings, have been finally concluded by the issuance of a final non-appealable order; provided, however, that the appropriate Credit Party shall have set aside on its books reasonable reserves (the presentation of which is segregated to the extent required by GAAP) with respect thereto. 86 (d) Indemnify, defend and hold harmless the Agents, the Issuing Bank, the Lenders and the other Secured Parties, and their respective officers, directors, shareholders, employees, agents, representatives, successors and assigns from and against any liability, fine, penalty, loss, damage, suit, settlement, action, expense and cost (including, but not limited to, reasonable attorneys' fees (including cost of in-house counsel) and environmental consultant fees), arising out of or relating to: (A) the presence or Release of any Hazardous Materials at, to, on, under, from, or about any Premises; (B) any violation of any Environmental Law or Environmental Permit by any Credit Party or any Subsidiary of any Credit Party; (C) the transportation or the arrangement for the transportation, handling, treatment, or disposal of any Hazardous Materials to any location other than any Premises by or on behalf of any Credit Party or any Subsidiary of any Credit Party; (D) any Environmental Claim relating to any Premises or any activities conducted at any Premises; and (E) any breach of any environmental representation or covenant in this Credit Agreement or any other Fundamental Document (but excluding any such liability, fine, penalty, loss, damage, suit, settlement, action, expense or cost of an indemnified party to the extent primarily caused by the gross negligence or willful misconduct of such indemnified party as determined by a final judgment of a court of competent jurisdiction). The obligations of the Borrower under this Section 5.11(d) shall survive the Facility Termination Date, the termination of this Credit Agreement, the payment of the Obligations and the expiration, termination and/or cancellation of the Letters of Credit hereunder indefinitely. SECTION 5.12 Subsidiaries. Deliver to the Administrative Agent reasonably promptly after formation or acquisition of any new Subsidiary (but in any event prior to commencement of operations by such Subsidiary), an Instrument of Assumption and Joinder executed by such Subsidiary, appropriate UCC-1 financing statements, Mortgages and/or other security documents, organizational documents and written opinions of counsel, all as may be reasonably requested by any of the Agents or their counsel and all in form and substance reasonably satisfactory to the Agents and their counsel and if applicable, certificates or other instruments (if any) representing 100% of the stock or other equity interests of such Subsidiary together with an undated stock power (or other appropriate document) executed in blank for each such certificate or other instrument. SECTION 5.13 Lease Agreements. From time to time (i) furnish to the Administrative Agent such information and reports regarding any lease agreement with respect to a Real Property Asset to which a Credit Party or any Subsidiary thereof is a party as the Administrative Agent may reasonably request and (ii) upon the occurrence and continuation of an Event of Default and the reasonable request of the Administrative Agent, make such demands and requests for information, reports or action to the other parties to a lease agreement to which a Credit Party or any Subsidiary thereof is a party, as the Credit Party or Subsidiary is entitled to make under each such lease agreement. SECTION 5.14 Interest Rate Protection. No later than January 1, 2002 and at all times thereafter, maintain or cause to be maintained Interest Rate Protection Agreements having terms, conditions and tenors reasonably acceptable to the Administrative Agent to the extent necessary so that until two (2) years after the Closing Date, interest on Indebtedness in a principal amount equal to at least 50% of the total outstanding funded Indebtedness of the Borrower and its Consolidated Subsidiaries at any time, is effectively fixed or capped at rates which are acceptable to the Administrative Agent. 87 SECTION 5.15 After-Acquired Real Property Assets. If, after the Closing Date, any Credit Party purchases, leases or otherwise acquires any Real Property Asset including, without limitation, the properties that are the subject of the Facility Purchase Options, ElderTrust properties and properties acquired through Specified Payments, (a) promptly, but in any event within thirty (30) days, after such purchase, lease or other acquisition, provide written notice thereof to the Administrative Agent and the Collateral Agent, setting forth with specificity a description of such Real Property Asset acquired, a title commitment, a survey (if available) and such Credit Party's good faith estimate of the current fair market value of such Real Property Asset and (b) if either such Agent so requests, the applicable Credit Party shall promptly execute and deliver to the Collateral Agent, a Mortgage and such other documents or instruments as such Agent shall reasonably request with respect to such Real Property Asset. SECTION 5.16 Lender Meetings. From time to time as requested by the Administrative Agent or the Required Lenders, participate in, and cause an Authorized Officer of the Borrower to be available for and to participate in, a meeting of Lenders to be held, at reasonable intervals, at locations and at times reasonably requested by the Administrative Agent (or, if applicable, the Required Lenders). SECTION 5.17 Use of Proceeds of Revolving Credit Loans. Use the proceeds of the Loans for the purposes which are not otherwise prohibited by the terms of this Credit Agreement, including, without limitation, Sections 2.1(b), 2.2(b) and 2.3(b). SECTION 5.18 Cash Management System. At all times maintain or cause to be maintained an integrated cash management system in accordance with the terms of Section 8.3 hereof. SECTION 5.19 Subordination, Non-Disturbance and Attornment Agreements, Etc. (a) Use all commercially reasonable efforts to deliver to the Collateral Agent as soon as reasonably practicable after the Closing Date, executed and acknowledged subordination, non-disturbance and attornment agreements and estoppel certificates, in form and substance reasonably satisfactory to the Collateral Agent and the Borrower, with respect to all leases reasonably designated by the Collateral Agent encumbering the Real Property Assets and which by their terms are not subject and subordinate to the Mortgages; provided, that commercially reasonable efforts shall not be construed as requiring payment of any consent fee or other consideration for any third party's execution and delivery of any such agreement. (b) Use all commercially reasonable efforts to deliver to the Collateral Agent as soon as reasonably practicable after the Closing Date, such other certificates, documents and agreements respecting any Real Property Asset leased by Borrower or any of its Subsidiaries as lessee, as the Collateral Agent may, in its sole discretion, request (including, but not limited to, estoppel certificates from lessors under any such lease, consents from lessors under any such lease, modifications of any such lease to incorporate customary leasehold financing provisions, a recordable memorandum of any such lease, and a non-disturbance agreement from the holder of each mortgage covering the real property demised by any such lease); provided, that commercially reasonable efforts shall not be construed as requiring payment of any consent fee or other consideration for any third party's execution and delivery of any such agreement. 88 SECTION 5.20 ERISA Plan Compliance and Reports. Furnish to the Administrative Agent (i) as soon as possible, and in any event within thirty (30) days after any executive officer of a Credit Party has knowledge that (A) any Reportable Event with respect to any Plan has occurred, a statement of an executive officer of the Credit Party, setting forth on behalf of such Credit Party details as to such Reportable Event and the action which it proposes to take with respect thereto, together with a copy of the notice, if any, required to be filed of such Reportable Event given to the PBGC or (B) an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard or an extension of any amortization period under Section 412 of the Code with respect to a Plan or Multiemployer Plan has been or is proposed to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, proceedings have been instituted to terminate a Plan if such Plan is subject to Title IV of ERISA, an action has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Multiemployer Plan, or any such Credit Party or ERISA Affiliate will incur any liability to or on account of the termination of or withdrawal from a Plan subject to Title IV of ERISA or Multiemployer Plan under Sections 4062, 4063, 4201 or 4204 of ERISA, a statement of an executive officer of the Credit Party, setting forth details as to such event and the action the applicable Credit Party proposes to take with respect thereto, (ii) promptly upon reasonable request of the Administrative Agent, copies of each annual and other report with respect to each Plan and (iii) promptly after receipt thereof, a copy of any notice any Credit Party or ERISA Affiliate may receive from the PBGC relating to the PBGC's intention to terminate any Plan subject to Title IV of ERISA or to appoint a trustee to administer any Plan subject to Title IV of ERISA. SECTION 5.21 Covenant Regarding Certain Post-Closing Matters. Furnish to the Administrative Agent within 45 days after the Closing Date good standing certificates for each Credit Party (other than Credit Parties for which good standing certificates were delivered at closing pursuant to Section 4.1(b)(iv)) from their jurisdiction of incorporation. 6. NEGATIVE COVENANTS From the date hereof and for so long as any Commitments shall be in effect, any amount remains outstanding with respect to any Loan, any Letter of Credit shall remain outstanding (or not cash collateralized in an amount equal to 105% of the then current L/C Exposure) or any Obligation remains unpaid or unsatisfied, each Credit Party agrees that, unless the Required Lenders shall otherwise consent in writing, it will not: SECTION 6.1 Limitations on Indebtedness and Preferred Stock. Incur, create, assume or suffer to exist any Preferred Stock or Indebtedness, other than: (a) the Indebtedness and other Obligations under this Credit Agreement, and any Indebtedness refinancing all or any portion of the Indebtedness and/or other Obligations under this Credit Agreement; provided, that the terms of any Indebtedness refinancing only a portion of the Indebtedness and other Obligations under this Credit Agreement shall have been approved in writing by the Administrative Agent and the Required Lenders; 89 (b) Intentionally omitted; (c) existing Indebtedness described on Schedule 6.1 hereto, but not any extensions or renewals or refinancings thereof unless effected on substantially the same terms or terms more favorable to the applicable Credit Party or Subsidiary thereof which is the obligor of such Indebtedness (provided, that the interest rate may be at the then prevailing rate for the same type of Indebtedness); (d) Indebtedness in respect of intercompany advances constituting Investments permitted under Section 6.4 hereof; (e) Indebtedness in respect of secured purchase money financing (including Capital Leases), to the extent permitted by Section 6.2(e) hereof; (f) Indebtedness incurred under Interest Rate Protection Agreements to the extent entered into by the applicable Credit Party as required by Section 5.14 hereof or for bona fide hedging purposes; (g) Indebtedness of a Person which becomes a Subsidiary of a Credit Party after the Closing Date; provided, that (i) such Indebtedness existed at the time the Person became a Subsidiary and was not created in anticipation of the acquisition of such Person, (ii) immediately after giving effect to the acquisition of such Person by a Credit Party, no Default or Event of Default shall have occurred and be continuing and (iii) such Indebtedness is non-recourse to the Borrower or any other Credit Party (other than such Person and its Subsidiaries to the extent such Indebtedness was with recourse to such Subsidiaries at the time such Person became a Subsidiary of a Credit Party); (h) Indebtedness secured by any asset at the time of acquisition of such asset by a Credit Party or a Subsidiary of a Credit Party (not in violation of any of the terms hereof) at any time after the Closing Date; provided, that (i) such Indebtedness existed at the time the asset was acquired by a Credit Party and was not created in anticipation of the acquisition thereof, (ii) such Indebtedness is non-recourse to the Borrower or any other Credit Party (other than to the specific asset acquired) and (iii) the aggregate principal amount of Indebtedness of all of the Credit Parties permitted by this Section 6.1(h) shall not exceed $5,000,000 at any time; (i) Guarantees permitted pursuant to Section 6.3 hereof; (j) deferred payment obligations resulting from the adjudication or settlement of any litigation involving a Credit Party or a Subsidiary of a Credit Party; provided, that (i) the aggregate amount of such obligations for all of the Credit Parties and their Subsidiaries shall not exceed $5,000,000 at any time and (ii) the judgment(s) to which such obligations relate would not be an Event of Default hereunder; 90 (k) The Rollover Notes and any refinancings thereof on terms and conditions satisfactory to the Administrative Agent and the Co-Lead Arrangers and no less favorable to the Lenders; (l) High Yield Unsecured Debt not exceeding $250,000,000 in principal amount; provided, that the Credit Party shall deliver to the Administrative Agent, at least ten (10) Business Days before incurring such debt, a certificate in form satisfactory to the Administrative Agent, in its sole discretion, demonstrating that on a Pro Forma Basis after issuing such High Yield Unsecured Debt such Credit Party will remain in compliance with the financial covenants set forth in Section 6.9 through 6.14 hereof; (m) the Rollover Preferred Stock; (n) Indebtedness in favor of Cardinal incurred in the ordinary course of business; and (o) other unsecured Indebtedness in an aggregate principal amount not exceeding an amount equal to the difference of $25,000,000 less the principal amount of any Indebtedness incurred pursuant to Section 6.1(e). SECTION 6.2 Limitations on Liens. Incur, create, assume or suffer to exist any Lien on any of its revenue stream, property or assets, whether now owned or hereafter acquired, except: (a) deposits under worker's compensation, unemployment insurance and social security and similar laws or to secure statutory obligations or surety, appeal, performance, completion or other similar bonds, to secure performance as lessee under leases of real or personal property or to secure performance of tenders, bids, contracts (other than for the repayment of Indebtedness) and other obligations of a like nature, in each case incurred in the ordinary course of business; (b) Liens customarily granted or incurred in the ordinary course of business with regard to services rendered by carriers, warehouses, suppliers of materials and equipment, mechanics and repairmen and other Liens imposed by Applicable Law which obligations are not yet due and payable (unless such obligations are being contested in good faith and with respect to which appropriate reserves have been established in accordance with GAAP); (c) the Liens in favor of the Collateral Agent (for the benefit of the Secured Parties) under this Credit Agreement, the other Fundamental Documents and any other document contemplated hereby or thereby; (d) existing Liens listed on Schedule 6.2 hereto, including, but not limited to, the Cardinal Lien; (e) Liens granted to a Person financing the acquisition of property, plant or equipment if (i) the Lien is limited to the particular assets acquired; (ii) the Indebtedness secured by the Lien does not exceed the acquisition cost of the particular asset for which such Lien is granted; (iii) such transaction does not otherwise violate this Credit Agreement; and (iv) the aggregate amount of all Indebtedness secured by such Liens does not exceed $25,000,000 at any one time outstanding for all of the Credit Parties and their Subsidiaries; 91 (f) Liens arising out of attachments, judgments or awards as to which an appeal or other appropriate proceedings for contest or review are timely commenced (and as to which foreclosure and other enforcement proceedings shall not have been commenced (unless fully bonded or otherwise effectively stayed)) and as to which appropriate reserves have been established in accordance with GAAP; (g) Liens for taxes, assessments or other governmental charges or levies not yet due and payable, or the validity or amount of which is currently being contested in good faith by appropriate proceedings and for which reserves have been set aside on the books of the applicable Credit Party or Subsidiary, in each case pursuant to and in accordance with the terms of Section 5.8 hereof; (h) financing statements filed in connection with a Capital Lease or an operating lease, in each case not prohibited hereunder; provided, that no such financing statement extends, covers or refers to any property or assets of a Credit Party or a Subsidiary thereof, other than the property or assets which are subject to such Capital Lease or such operating lease; (i) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights of way requirements, restrictions (including, without limitation, zoning restrictions), covenants, consents, reservations, encroachments, variations and other similar restrictions, charges, encumbrances (whether or not recorded) (but specifically excluding rights of first refusal, options and other contractual rights to sell, assign or otherwise dispose of any Real Property Asset or any interest therein) on any Real Property Asset which, in the aggregate, (i) do not materially detract from the value of the applicable Real Property Asset subject thereto, (ii) do not materially interfere with the ordinary conduct of the business of the Credit Parties, any Subsidiary of a Credit Party or any lessee under a lease or (iii) do not materially impair the use of the applicable Real Property Asset by any Credit Party, any Subsidiary of a Credit Party or any lessee under a lease; (j) Liens on the property or assets of a Person which becomes a Subsidiary of a Credit Party after the Closing Date securing Indebtedness permitted under Section 6.1(g) hereof; provided, that (i) such Liens existed at the time such Person became a Subsidiary and were not created in anticipation of the acquisition of such Person, (ii) any such Lien does not by its terms cover any property or assets after the time such Person becomes a Subsidiary which were not covered immediately prior thereto, and (iii) any such Lien does not by its terms secure any Indebtedness other than Indebtedness existing immediately prior to the time such Person becomes a Subsidiary; (k) Liens arising by virtue of any statutory or common law provision relating to banker's liens, rights of set off or similar rights with respect to deposit accounts; 92 (l) Liens on assets at the time of acquisition of the asset by a Credit Party or a Subsidiary thereof; provided, that (i) such Liens existed at the time of such acquisition and were not created in anticipation of the acquisition of such asset, (ii) any such Lien does not by its terms cover any property or assets other than the asset acquired, and (iii) any such Lien does not by its terms secure any Indebtedness other than Indebtedness permitted pursuant to Section 6.1(h); (m) Liens securing refinancing Indebtedness permitted by Section 6.1(c) and 6.1(k); provided, that such Liens shall by their terms cover only such property or assets as is covered by the Liens securing the Indebtedness being refinanced and no new or additional property or assets and any Liens granted with respect to such refinancing Indebtedness shall be subordinated to at least the same extent as the existing Liens securing such Indebtedness being refinanced; (n) Liens incurred in the ordinary course of business with respect to obligations that do not exceed $5,000,000 in the aggregate at any one time outstanding and that are not incurred in connection with Indebtedness or the obtaining of advances or credit (other than trade credit in the ordinary course of business); (o) rights of first refusal, options or other contractual rights to sell, assign or otherwise dispose of any Real Property Asset or interest therein which right of first refusal, option or contractual right (i) is described on Schedule 3.10(d) hereto, (ii) has been consented to in writing by the Administrative Agent, (iii) is in connection with an asset sale permitted by Section 6.7 hereof or (iv) in the case of such rights granted after the Closing Date when taken with all other rights of first refusal, options and other contractual rights permitted by this clause (o), do not over the term of this Credit Agreement affect Real Property Assets having an aggregate fair market value exceeding $5,000,000; and (p) Liens granted on certain Real Property Assets pursuant to Mortgages with respect to the Rollover Notes, to the extent and only to the extent such Liens are at all times subject to the provisions of the Intercreditor Agreement. SECTION 6.3 Limitation on Guaranties. Incur, create, assume or suffer to exist any Guaranty, either directly or indirectly, except: (a) the endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (b) the Guaranties made by the Guarantors pursuant to Article 9 hereof; (c) Guaranties of obligations of a Credit Party which obligations are not prohibited hereunder; (d) Guaranties set forth on Schedule 6.1 hereto; (e) Guaranties of Indebtedness permitted by Section 6.1 hereof; provided that Guaranties of any Subordinated Debt shall be subordinated to the same extent as such Subordinated Indebtedness. 93 (f) Guaranties constituting Investments that are not prohibited by Section 6.4; (g) other Guaranties of obligations and liabilities which do not in the aggregate expose the guarantors thereof to an amount in excess of $5,000,000. and (h) Guaranties by the Borrower of the obligations set forth on Schedule 6.3 hereto. SECTION 6.4 Limitations on Investments. Create, make or incur any Investment, except: (a) cash and Cash Equivalents; (b) Investments (whether as equity or loans) by the Borrower or a Credit Party in another Credit Party or a Person that immediately becomes a Credit Party; (c) Investments (whether as equity or loans) by the Borrower or a Credit Party in Subsidiaries which are not Credit Parties; provided, that the aggregate amount of Investments of the Credit Parties in such Subsidiaries may not exceed $5,000,000 at any time; (d) additional Investments received in settlement of Indebtedness or other obligations created in the ordinary course of business and owing to any Credit Party or a Subsidiary of a Credit Party; (e) Investments in Joint Ventures and partnerships permitted by Section 6.17 hereof; provided, that the aggregate amount of Investments of the Credit Parties and their Subsidiaries taken as a whole in Joint Ventures and partnerships may not exceed $25,000,000 at any time; (f) existing Investments listed on Schedule 6.4 hereto. (g) Investments made as a result of the receipt of non-cash consideration from an asset sale made in compliance with Section 6.7 hereof; and (h) Guaranties permitted by Section 6.3. SECTION 6.5 Restricted Payments. Pay, declare, make or become obligated to make any Restricted Payment, except: (a) the declaration and payment of dividends and/or distributions by any direct or indirect wholly-owned Subsidiary of a Credit Party to a Credit Party; (b) to the extent permitted under Section 13.16 hereof, payments with respect to intercompany Indebtedness, intercompany receivables or intercompany advances constituting Investments permitted under Section 6.4 hereof; 94 (c) the declaration and payment of any dividend or distribution by a Joint Venture of the Borrower, (which Joint Venture is a Subsidiary of the Borrower) to the holders of its equity interests on a pro rata basis; (d) so long as no Default or Event of Default has occurred and is continuing, required payments (but not prepayments) of interest (in cash only to the extent required) with respect to the Rollover Notes or any High Yield Unsecured Debt incurred pursuant to Section 6.1; provided, that such payment of interest is not prohibited by the subordination provisions of such subordinated Indebtedness or any subordination agreements with respect thereto; (e) Redemption of the Rollover Preferred Stock with the proceeds of any amounts received by the Borrower and its Subsidiaries from any of the sources referred to in Section 2.11(m) hereof; (f) Regularly scheduled payment of principal on the Rollover Notes and redemption of Rollover Notes from the sources and to the extent permitted by Section 2.11 hereof; and (g) Investments permitted under Section 6.4(e) hereof. SECTION 6.6 Limitation on Leases. Create, incur or assume any commitment to make, any direct or indirect payment, whether as rent or otherwise, under any lease, rental or other arrangement for the use of real and/or personal property (including Capital Leases), excluding (i) leases existing on the date hereof and any renewals thereof and (ii) any leases acquired in the APS Acquisition, if immediately thereafter the aggregate of all such payments that shall be payable by a Credit Party and any of their Subsidiaries during any twelve consecutive months would exceed $5,000,000. SECTION 6.7 Merger, Sale of Assets, Purchases, etc. (a) Whether in one transaction or a series of transactions, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or sell or otherwise dispose of any capital stock of any Subsidiary of any Credit Party, or any of its property, stock or assets or agree to do or suffer any of the foregoing, except for: (i) the merger by any solvent Guarantor into the Borrower or another Guarantor if after such merger, no Default or Event of Default exists; (ii) the transfer by any solvent Guarantor of all of its assets to the Borrower or another Guarantor and the subsequent dissolution of such solvent Guarantor if after such transactions, no Default or Event of Default exists; (iii) the transfer of assets to a Joint Venture, partnership or other Person to the extent permitted by Section 6.4(e) and Section 6.17 hereof; (iv) the sale or other disposition of Non-Core Assets; 95 (v) sales or other dispositions of assets (other than Real Property Assets) in the ordinary course of business; (vi) sales or dispositions of assets for fair market value, the Net Cash Proceeds of which are either (x) applied as mandatory prepayments of the Loans as required by Section 2.11(c) hereof or (y) within 180 days of such sale or disposition reinvested in the purchase of assets to be used in the business of the Credit Parties so long as pending such reinvestment any such Net Cash Proceeds are held in the Cash Collateral Account; provided, that any such sales or dispositions do not exceed $40 million in the aggregate during any fiscal year of the Borrower and its Subsidiaries; (vii) the use of cash in the ordinary course of business, subject to the provisions of this Credit Agreement; (viii) the granting of Permitted Liens; (ix) the transfers of assets constituting Investments permitted by Section 6.4 or Restricted Payments permitted by Section 6.5; and (x) swaps of assets used in the business in a substantially concurrent exchange for other assets to be used in the business (such newly acquired asset or assets a "Swapped Asset"); provided, that (a) the aggregate LTM EBITDA for all Swapped Assets (determined for each Swapped Asset as of the time of exchange thereof) during the term of this Agreement shall not exceed $15,000,000, (b) after giving effect to such asset swap on a Pro Forma Basis, no Default or Event of Default has occurred and is continuing, (c) LTM EBITDA for the Swapped Asset shall be at least 90% of LTM EBITDA for the asset exchanged therefor and (d) all aspects of the asset swap (including, without limitation, the calculation of LTM EBITDA in connection therewith) shall be satisfactory to the Administrative Agent and the Co-Lead Arrangers in their sole discretion. Sales or dispositions of assets referred to in clause (vi) shall be subject to the following: (A) if the sale price in any single transaction or series of transactions is greater than $5,000,000 then the fair market value of such asset shall be determined in good faith and approved by the Board of Directors of the Borrower and the Borrower shall deliver to the Administrative Agent a certificate of an Authorized Officer of the Borrower attesting to such fair market value and determination by the Board of Directors, (B) not less than 90% of the sale price for each asset sold or disposed of shall be payable in cash on the date of such sale or disposition; (C) the non-cash portion of the sale price therefor, if any, shall be evidenced by one or more promissory notes maturing no later than three (3) years after the date of such sale or disposition (which notes shall be pledged to the Collateral Agent (for the benefit of the Secured Parties)) and by no other form of consideration; provided, that additional consideration may be received by the applicable Credit Party or Subsidiary with respect to rent escalation provisions, reset rights or other rights substantially similar to either of the foregoing, (which additional consideration and/or rights shall be pledged to the Collateral Agent (for the benefit of the Secured Parties), (D) if such sale or disposition is to an Affiliate, it shall be made in compliance with Section 6.15 hereof and (E) the applicable Credit Party shall deliver to the Administrative Agent, no less than ten (10) Business Days prior to the date of any expected sale or other disposition, written notice of the identity of the purchaser or transferee, the expected date of the closing of such sale or other disposition, the expected date of receipt by the applicable Credit Party of the Net Cash Proceeds with respect thereto, the principal terms of the sale or disposition and such other information as the Administrative Agent may request. 96 (b) Purchase or otherwise acquire all or substantially all of any stock or asset of any other Person, except for: (i) transactions contemplated by Sections 6.7(a)(i) and 6.7(a)(ii) above; (ii) the APS Acquisition and the exercise of the Facility Purchase Options and the purchase of the facilities that are the subject thereof; (iii) the purchase or other acquisition of assets for cash consideration not exceeding $20,000,000 per calendar year; (iv) the creation of new Subsidiaries which immediately become Guarantors to the extent required by and in accordance with Section 5.13 hereof; (v) Investments permitted by Section 6.4 hereof; and (vi) asset swaps permitted under Section 6.7(a)(x) hereof. SECTION 6.8 Places of Business; Change of Name. Change the location of its chief executive office or principal place of business or any of the locations where it keeps any portion of the Collateral or its books and records with respect to the Collateral, change its name or change its jurisdiction of incorporation or organization, without in each case (i) giving the Administrative Agent and the Collateral Agent thirty (30) days prior written notice of such change and (ii) filing any additional Uniform Commercial Code financing statements, and such other documents requested by either such Agent to maintain perfection of the security interest of the Collateral Agent for the benefit of the Secured Parties in the Collateral and in each Real Property Asset. SECTION 6.9 Limitations on Capital Expenditures. (a) Make or incur any obligation to make Capital Expenditures (including obligations under Capital Leases) which in the aggregate for each of the fiscal years indicated below exceed the amount set forth opposite such fiscal year: 97 Fiscal Year Amount (in millions) ----------- -------------------- Closing Date through September 30, 2002 $61.0 million October 1, 2002 - September 30, 2003 $63.0 million October 1, 2003 - September 30, 2004 $65.0 million October 1, 2004 - September 30, 2005 $68.0 million October 1, 2005 - September 30, 2006 $71.0 million October 1, 2006 - Term Loan Maturity Date $36.0 million provided, that upon and after the closing date of the APS Acquisition, (i) from and after such closing date until the first anniversary thereof, an additional $8,000,000 in Capital Expenditures shall be permitted hereunder, (ii) from and after the first anniversary date of such closing date until the second anniversary of such closing date, an additional $8,000,000 in Capital Expenditures shall be permitted hereunder and (iii) beginning with each fiscal year which commences after the second anniversary of such closing date, an additional $2,000,000 in Capital Expenditures shall be permitted hereunder. (b) To the extent the amount of Capital Expenditures permitted by the preceding paragraph (a) for any fiscal year (without regard to any carry-over from a prior year pursuant to this paragraph) is in excess of the actual amount of Capital Expenditures for such period, the amount of permitted Capital Expenditures during the immediately succeeding fiscal year only, shall be increased by the lesser of (i) the amount of such excess and (ii) the amount equal to 20% of the amount of Capital Expenditures permitted by such paragraph (a) without regard to any carry-over from a prior year pursuant to this paragraph) for the period with respect to which such excess exists. SECTION 6.10 Minimum Consolidated EBITDAR. For each Rolling Four Quarters period ending on the dates indicated below, permit Consolidated EBITDAR to be less than the corresponding amount set forth below: Period Ended Amount (in millions) ------------ -------------------- December 31, 2001 $208.0 million March 31, 2002 $208.0 million June 30, 2002 $208.0 million September 30, 2002 $210.0 million December 31, 2002 $210.0 million March 31, 2003 $210.0 million June 30, 2003 $210.0 million September 30, 2003 $220.0 million December 31, 2003 $220.0 million March 31, 2004 $220.0 million June 30, 2004 $220.0 million September 30, 2004 $230.0 million December 31, 2004 $230.0 million March 31, 2005 $230.0 million June 30, 2005 $230.0 million September 30, 2005 $240.0 million December 31, 2005 $240.0 million March 31, 2006 $240.0 million June 30, 2006 $240.0 million September 30, 2006 and each $250.0 million fiscal quarter ended thereafter 98 SECTION 6.11 Maximum Total Leverage Ratio. For each Rolling Four Quarters period ending on the dates indicated below, permit the Total Leverage Ratio to be more than the corresponding ratio below: Period Ended Ratio ------------ ----- December 31, 2001 3.50:1 March 31, 2002 3.50:1 June 30, 2002 3.50:1 September 30, 2002 3.25:1 December 31, 2002 3.25:1 March 31, 2003 3.25:1 June 30, 2003 3.25:1 September 30, 2003 and each 3.00:1 fiscal quarter ended thereafter provided, that from and after the closing date of the APS Acquisition, commencing with the first Rolling Four Quarter test period set forth above ending after such closing date, the numerator of each ratio set forth above for each such Rolling Four Quarter test period shall be increased by 0.15. SECTION 6.12 Maximum Senior Leverage Ratio. For each Rolling Four Quarters period ending on the dates indicated below, permit the Senior Leverage Ratio to be more than the corresponding ratio set forth below: Period Ended Ratio ------------ ----- December 31, 2001 2.25:1 March 31, 2002 2.25:1 June 30, 2002 2.25:1 September 30, 2002 2.25:1 December 31, 2002 2.25:1 March 31, 2003 2.25:1 June 30, 2003 2.25:1 September 30, 2003 and each 2.00:1 fiscal quarter ended thereafter 99 provided, that from and after the closing date of the APS Acquisition, commencing with the first Rolling Four Quarter test period set forth above ending after such closing date, the numerator of each ratio set forth above for each such Rolling Four Quarter test period shall be increased by 0.15. SECTION 6.13 Minimum Consolidated Fixed Charge Coverage Ratio. For each Rolling Four Quarters period ending on the dates indicated below, permit the Consolidated Fixed Charge Coverage Ratio to be less than the corresponding ratio set forth below: Period Ended Ratio ------------ ----- December 31, 2001 2.00:1 March 31, 2002 2.00:1 June 30, 2002 2.00:1 September 30, 2002 2.10:1 December 31, 2002 2.10:1 March 31, 2003 2.10:1 June 30, 2003 2.10:1 September 30, 2003 and each 2.25:1 fiscal quarter ended thereafter SECTION 6.14 Minimum Consolidated Net Worth. Permit Consolidated Net Worth at any time to be less than $750,000,000 as of the close of the fiscal year ending September 30, 2001 (the "First Fiscal Year") and, as of the close of each fiscal year thereafter, the sum of (i) $750,000,000 plus (ii) 50% of Consolidated Net Income (to the extent a positive number) of the Borrower and its Consolidated Subsidiaries for each of the fiscal years ending after the First Fiscal Year. SECTION 6.15 Transactions with Affiliates. Enter into any transaction with, or make any payment to, any of its Affiliates that is less favorable to such Credit Party or of any such Credit Party's Subsidiaries than would have been the case if such transaction had been effected on an arms-length basis with a Person other than an Affiliate except that (a) the Borrower may enter into transactions with its Subsidiaries that are Credit Parties and (b) Subsidiaries of the Borrower that are Credit Parties may enter into transactions with other Subsidiaries of the Borrower that are Credit Parties. SECTION 6.16 Business Activities. Engage in any business activities other than owning, leasing and operating any healthcare related facility, unit, operation or business supplying healthcare services, supplies or products, including long-term care, rehabilitation therapy, specialized health care, health care management, and pharmacies. SECTION 6.17 Joint Ventures or Partnerships. Enter into any Joint Venture or partnership (including, without limitation, by way of selling the capital stock or other equity interests of a Subsidiary) unless (a) any interest received by a Credit Party in such Joint Venture or partnership is pledged to the Collateral Agent (for the benefit of the Secured Parties) pursuant hereto and (b) the Borrower shall have prepaid the Loans hereunder as required by Section 2.11(c) hereof. 100 SECTION 6.18 Receivables. Sell, discount or otherwise dispose of Receivables owing to any Credit Party or any Subsidiary of a Credit Party except (i) for purposes of collection in the ordinary course of business or (ii) in connection with the sale of the related Credit Party, Subsidiary or Real Property Asset to the extent not prohibited under Section 6.7 hereof. SECTION 6.19 Sale and Leaseback. Enter into any arrangement with any Person or Persons, whereby in contemporaneous transactions any Credit Party or any Subsidiary of a Credit Party sells essentially all of its right, title and interest in an asset and, in connection therewith, acquires, leases or licenses back the right to use such asset, except to the extent the asset subject to such sale and leaseback arrangement was sold by the applicable Credit Party or Subsidiary of a Credit Party in a transaction permitted by Section 6.7 hereof and leased by the applicable Credit Party or Subsidiary in a transaction permitted under Section 6.6 hereof. SECTION 6.20 Changes to Credit and Collection Policy and Material Agreements. (a) Make any material change in its Credit and Collection Policy which in the reasonable opinion of the Collateral Agent and/or the Collateral Monitoring Agent would adversely affect the collection of Receivables. (b) Consent to any modification or waiver of any material agreement listed on Schedule 3.17(b) hereto if such modification or waiver would have a Material Adverse Effect with respect to the Credit Parties. The Borrower will not consent to the assignment by any other party to any material agreement of any rights, obligations or interests of such party thereunder except as expressly permitted by any such material agreement. (c) Amend the articles of incorporation or by-laws of any Credit Party in any manner which could be reasonably expected to have a Material Adverse Effect. (d) Except to the extent permitted under the Intercreditor Agreement, make any material amendment or modification to the Rollover Note Indenture without the prior written consent of Required Lenders. SECTION 6.21 ERISA Compliance. Engage in a "prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Plan or Multiemployer Plan or knowingly consent to any "party in interest" or any "disqualified person", as such terms are defined in Section 3(14) or ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any "prohibited transaction", with respect to any Plan or Multiemployer Plan; or permit any Plan to incur any "accumulated funding deficiency", as defined in Section 302 of ERISA or Section 412 of the Code; or terminate any Plan in a manner which could result in the imposition of a Lien on any property of any Credit Party, any Subsidiary of a Credit Party or any ERISA Affiliate pursuant to Section 4068 of ERISA; or breach or knowingly permit any employee or officer or any trustee or administrator of any Plan to breach any fiduciary responsibility imposed under Title I of ERISA with respect to any Plan; engage in any transaction which would result in the incurrence of a liability under Section 4069 of ERISA; or fail to make contributions to a Plan or Multiemployer Plan which could result in the imposition of a Lien on any property of any Credit Party, any Subsidiary of a Credit Party or any ERISA Affiliate pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the occurrence of any of the foregoing events (alone or in the aggregate) would result in a liability which has a Material Adverse Effect. 101 SECTION 6.22 Hazardous Materials. Cause or permit any of its properties or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance with all applicable Environmental Laws; nor release, discharge, dispose of or permit or suffer any release or disposal as a result of any intentional act or omission on its part of Hazardous Materials onto any such property or asset in violation of any Environmental Law or in a manner that could result in liability under any Environmental Law, except as are not reasonably likely to have a Material Adverse Effect. SECTION 6.23 Use of Proceeds of Loans. (a) Use the proceeds of Revolving Credit Loans hereunder other than for the purposes set forth in, and as required by, Sections 2.1(b), 2.2(b) and 2.3(b) hereof. (b) Use, directly or indirectly, the proceeds of any Loan hereunder for the purpose (whether immediate, incidental or ultimate) of buying or carrying any Margin Stock. SECTION 6.24 Fiscal Year; Fiscal Quarter. Change its fiscal year or any of its fiscal quarters without the consent of the Required Lenders. 7. EVENTS OF DEFAULT In the case of the happening and during the continuance of any of the following events (herein called "Events of Default"): (a) any representation, warranty, certification or statement made by a Credit Party in this Credit Agreement or any other Fundamental Document to which it is a party or in connection with this Credit Agreement or any Fundamental Document or any statement or representation made by or on behalf of any Credit Party in any report, financial statement, certificate or other document furnished to any of the Agents, the Issuing Bank, any Lender or any other Secured Party pursuant to, or in connection with, this Credit Agreement or any other Fundamental Document, shall prove to have been false or misleading in any material respect when made or delivered; (b) default shall be made in the payment of principal of any of the Loans as and when due and payable, whether at the due date thereof, by reason of maturity, mandatory prepayment, acceleration or otherwise; 102 (c) default shall be made in the payment of interest on the Loans, the Fees, the Letter of Credit Fees or other amounts payable to any of the Agents, the Issuing Bank or a Lender under this Credit Agreement, under any Interest Rate Protection Agreement or under the fee letter with respect to any Letter of Credit or under any of the Fee Letters, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise and such default shall continue unremedied for two (2) Business Days; (d) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Sections 5.1 (other than 5.1(h) and 5.1(k)), 5.4(a), 5.5(a), 5.14, 5.18 or Article 6 of this Credit Agreement; (e) default shall be made by any Credit Party in the due observance or performance of Sections 5.1(h) or 5.1(k) of the Credit Agreement, and such default shall continue unremedied for ten (10) days; (f) default shall be made by any Credit Party in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms of this Credit Agreement or any other Fundamental Document (other than those covered by paragraphs (a), (b), (c), (d) or (e) of this Article 7), and such default shall continue unremedied for thirty (30) days after a Credit Party receives written notice or obtains knowledge of such occurrence; (g) default shall be made with respect to payment of the Rollover Notes or any other event of default shall occur under the Rollover Note Indenture; (h) default shall be made with respect to any payment, when due, of any Indebtedness in excess of $2,500,000 (other than the Obligations and the Rollover Notes) of any Credit Party or any Subsidiary of a Credit Party, or any other default shall occur, if the effect of such non-payment default is to accelerate the maturity of such Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to its stated maturity, and such default shall not be remedied, cured, waived or consented to within the period of grace with respect thereto, or any other circumstance which arises (other than the mere passage of time) by reason of which any Credit Party or any Subsidiary of a Credit Party (as applicable) is required to repurchase or offer to holders of Indebtedness of any such Person, the opportunity to have repurchased, any such Indebtedness; or any such Indebtedness shall become or be declared to be due and payable prior to its stated maturity; (i) any Credit Party or any Subsidiary of a Credit Party shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any Credit Party or any Subsidiary of a Credit Party shall commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property or shall file an answer or other pleading in any such case, proceeding or other action admitting the material allegations of any petition, complaint or similar pleading filed against it or consenting to the relief sought therein; or any Credit Party or any Subsidiary of a Credit Party shall take any action to authorize, or in contemplation of, any of the foregoing; 103 (j) any involuntary case, proceeding or other action against any Credit Party or any Subsidiary of a Credit Party shall be commenced seeking to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of any order for relief against it or (ii) shall remain undismissed for a period of sixty (60) days; (k) one or more judgment(s) for the payment of money in excess of $5,000,000 in the aggregate (other than a judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) shall be rendered against any Credit Party or any Subsidiary of a Credit Party and either (i) within thirty (30) days from the entry of such judgment, shall not have been discharged or stayed pending appeal, or shall not have been discharged within thirty (30) days from the entry of a final order of affirmance on appeal or (ii) enforcement proceedings shall be commenced by any creditor on any such judgment; (l) (i) failure by any Credit Party or ERISA Affiliate to make any contributions required to be made to a Plan subject to Title IV of ERISA or a Multiemployer Plan, (ii) any accumulated funding deficiency (within the meaning of Section 4971(c) of the Code) shall exist with respect to any Plan (whether or not waived), (iii) failure by any Plan to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or an extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, (iv) any Credit Party or ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan, or that a Multiemployer Plan is in reorganization or is being terminated, (v) a Reportable Event with respect to a Plan shall have occurred, (vi) the withdrawal by any Credit Party or ERISA Affiliate from a Plan during a plan year in which it was a substantial employer (within the meaning of Section 4001(a)(2) or 4062(e) of ERISA), (vii) the termination of a Plan, or the filing of a notice of intent to terminate a Plan under Section 4041(c) of ERISA, (viii) the institution of proceedings to terminate, or the appointment of a trustee with respect to, a Plan by the PBGC, (ix) any other event or condition which could constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (x) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA as to any Credit Party or ERISA Affiliate; and the occurrence of any of the foregoing events, individually or in the aggregate, could reasonably be expected to result in a liability in excess of $1,000,000; 104 (m) any Credit Party or any Subsidiary of any Credit Party is liable for a violation or liability under any Environmental Law which is reasonably likely to have a Material Adverse Effect; (n) (i) this Credit Agreement, any Mortgage, or any other Fundamental Document shall, for any reason, not be or shall cease to be in full force and effect or shall be declared null and void or any of the Fundamental Documents shall not give or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent for the benefit of the Secured Parties, superior to and prior to the rights of all third Persons and subject to no other Liens (other than Permitted Liens), or (ii) the validity or enforceability of the Liens granted, to be granted, or purported to be granted, by any of the Fundamental Documents shall be contested by any Credit Party or any of their respective Affiliates; (o) a Change in Control shall occur and shall not have been consented to by the Required Lenders; (p) at any time, for any reason, any Credit Party shall repudiate, or seek to repudiate, any of its Obligations under any Fundamental Document to which it is a party; (q) there shall be any revocations, suspensions, terminations, recessions, non-renewals or forfeitures or similar actions with respect to one or more Regulatory Licenses or Reimbursement Approvals, which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (r) there shall be any termination of or default under any Management Agreement which could reasonably be expected to have a Material Adverse Effect; then, in every such event and at any time thereafter during the continuance of such event, the Administrative Agent may, and if directed by the Required Lenders shall, take any or all of the following actions, at the same or different times: (x) terminate forthwith the Commitments and/or (y) declare the principal of and the interest on the Loans and the notes evidencing the Loans hereunder and all other amounts payable hereunder or thereunder to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without presentment, demand, protest, notice of acceleration or other notice of any kind, all of which are hereby expressly waived, anything in this Credit Agreement or in any note evidencing any Loan hereunder to the contrary notwithstanding and/or (z) require the Borrower to deliver to the Administrative Agent from time to time cash or Cash Equivalents in an amount equal to 105% of the amount of the L/C Exposure or to furnish other security therefor acceptable to the Issuing Bank and the Required Revolving Credit Lenders. If an Event of Default specified in paragraphs (i) or (j) above shall have occurred, the Commitments shall automatically terminate and the principal of, and interest on, the Loans and the notes evidencing the Loans hereunder and all other amounts payable hereunder and thereunder shall automatically become due and payable without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived, anything in this Credit Agreement or any note evidencing any Loan hereunder to the contrary notwithstanding. Such remedies shall be in addition to any other remedy available to any of the Secured Parties pursuant to Applicable Law or otherwise. 105 8. GRANT OF SECURITY INTEREST; REMEDIES SECTION 8.1 Security Interests. The Borrower, as security for the due and punctual payment of the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of the Borrower whether or not post filing interest is allowed in such proceeding) and each of the Guarantors, as security for its obligations under Article 9 hereof, hereby mortgage, pledge, assign, transfer, set over, convey and deliver to the Collateral Agent (for the benefit of the Secured Parties) and grant to the Collateral Agent (for the benefit of the Secured Parties) a security interest in the Collateral; provided, however, that the Credit Parties grant a security interest unto the Collateral Agent (for the benefit of the Secured Parties) in their right, title and interest in, to and under their Rights in Government Receivables only to the extent that such grant of a security interest is not prohibited by non-waivable provisions of Applicable Law, but the terms of this proviso shall not affect the Credit Parties' grant and creation of a Lien on Rights in Government Receivables in favor of the Collateral Agent (for the benefit of the Secured Parties). SECTION 8.2 Use of Collateral. So long as no Event of Default shall have occurred and be continuing, and subject to the various provisions of this Credit Agreement and the other Fundamental Documents, a Credit Party may use the Collateral in any lawful manner except as otherwise provided hereunder. SECTION 8.3 Cash Management System. (a) The Credit Parties shall at all times maintain in all material respects their current cash management system as in effect as of the date hereof or cause to be maintained another cash management system reasonably acceptable to the Collateral Agent. (b) The Credit Parties shall promptly transfer or cause to be transferred all funds arising from the collection of Receivables other than Medicare Receivables to one or more of the Concentration Accounts set forth on Schedule 8.3(b) hereto. (c) The Credit Parties shall promptly transfer or cause to be transferred all funds arising from the collection of Medicare Receivables to one or more of the Medicare Receivable Concentration Accounts set forth on Schedule 8.3(c). (d) So long as no Event of Default shall have occurred and be continuing, the Credit Parties shall have free access to the funds in the Concentration Accounts and the Government Receivable Concentration Accounts. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent (for the benefit of the Secured Parties), subject to Applicable Law, shall have the right to establish sole dominion and control over the Concentration Accounts and each Government Receivable Collection Accounts, and the balances in such accounts shall be applied toward the payment of the Obligations. 106 (e) Within 45 days after the Closing Date, the Borrower shall deliver to the Collateral Agent an account control agreement or a blocked account agreement (in form and substance satisfactory to the Collateral Agent) with respect to each Concentration Account and the Government Receivable Concentration Account, duly executed by the applicable Credit Party and the financial institution where such account is maintained. SECTION 8.4 Credit Parties to Hold in Trust. Upon the occurrence and during the continuance of an Event of Default, each of the Credit Parties will, upon receipt by it of any revenue, income, profits or other sums in which a security interest is granted by this Article 8, payable pursuant to any agreement or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the sum or instrument in trust for the Collateral Agent, segregate such sum or instrument from their own assets and forthwith, without any notice, demand or other action whatsoever (all notices, demands, or other actions on the part of any of the Agents or any other Secured Party being expressly waived), endorse, transfer and deliver any such sums or instruments or both, to the Collateral Agent to be applied to the repayment of the Obligations in accordance with the provisions of Section 8.7 hereof. SECTION 8.5 Collections, etc. Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may, in its sole discretion, except as prohibited or restricted by Applicable Law in the case of Government Receivables, in its name (on behalf of the Secured Parties) or in the name of any Credit Party or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for, or make any compromise or settlement deemed desirable with respect to, any of the Collateral, but shall be under no obligation so to do, or the Collateral Agent may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release, any of the Collateral, without thereby incurring responsibility to, or discharging or otherwise affecting any liability of, any Credit Party. The Collateral Agent will not be required to take any steps to preserve any rights against prior parties to the Collateral. If any Credit Party fails to make any payment or take any action required hereunder, the Collateral Agent may, except to the extent prohibited by Applicable Law with respect to Government Receivables, make such payments and take all such actions as the Collateral Agent reasonably deems necessary to protect the Collateral Agent's (on behalf of the Secured Parties) security interests in the Collateral and/or the value thereof, and the Collateral Agent is hereby authorized (without limiting the general nature of the authority herein above conferred), except to the extent prohibited by Applicable Law with respect to Government Receivables, to pay, purchase, contest or compromise any Liens that in the judgment of the Collateral Agent appear to be equal to, prior to or superior to the security interests of the Collateral Agent (on behalf of the Secured Parties) in the Collateral and any Liens not expressly permitted by this Credit Agreement. 107 SECTION 8.6 Possession, Sale of Collateral, etc. Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may lawfully enter upon the premises of any Credit Party or wherever the Collateral may be, and take possession of the Collateral, and may demand and receive such possession from any Person who has possession thereof, and the Collateral Agent may take such measures as it deems necessary or proper for the care or protection thereof, including the right to remove all or any portion of the Collateral, and with or without taking such possession may sell or cause to be sold, whenever the Collateral Agent shall decide, in one or more sales or parcels, at such prices as the Collateral Agent may deem appropriate, and for cash or on credit or for future delivery, without assumption of any credit risk, all or any portion of the Collateral, at any broker's board or at public or private sale, with ten (10) days' written notice to the Credit Parties of the time and place of any such public sale or sales (which notice the Credit Parties hereby agree is reasonable) and with such other notices as may be required by Applicable Law and cannot be waived, and neither the Agents, the Issuing Bank, the Lenders nor any other Secured Party shall have any liability should the proceeds resulting from a private sale be less than the proceeds realizable from a public sale, and the Agents, the Issuing Bank, the Lenders, any other Secured Party or any other Person may be the purchaser of all or any portion of the Collateral so sold and thereafter hold the same absolutely, free (to the fullest extent permitted by Applicable Law) from any claim or right of whatever kind, including any equity of redemption, of any Credit Party, any such demand, notice, claim, right or equity being hereby expressly waived and released. At any sale or sales made pursuant to this Article 8, the Agents, the Issuing Bank, the Lenders and the other Secured Parties may bid for or purchase, free (to the fullest extent permitted by Applicable Law) from any claim or right of whatever kind, including any equity of redemption, of any Credit Party, any such demand, notice, claim, right or equity being hereby expressly waived and released, any part of or all of the Collateral offered for sale, and may make any payment on account thereof by using any claim for moneys then due and payable to the Agents, the Issuing Bank, the Lenders and the other Secured Parties by any Credit Party hereunder as a credit against the purchase price. The Agents, the Issuing Bank, the Lenders and the other Secured Parties shall in any such sale make no representations or warranties with respect to the Collateral or any part thereof, and neither the Agents, the Issuing Bank, the Lenders nor any other Secured Party shall be chargeable with any of the obligations or liabilities of any Credit Party. Each Credit Party hereby agrees (i) that it will indemnify and hold the Agents, the Issuing Bank, the Lenders and any other Secured Party harmless from and against any and all claims with respect to the Collateral asserted before the taking of actual possession or control of the relevant Collateral by the Collateral Agent, the Issuing Bank, the Lenders or any other Secured Party pursuant to this Article 8, or arising out of any act of, or omission to act on the part of, such Person (other than the Agents, the Issuing Bank, the Lenders and any other Secured Party) prior to such taking of actual possession or control by such Secured Party (whether asserted before or after such taking of possession or control), or arising out of any act on the part of any Credit Party or its Affiliates or agents before or after the commencement of such actual possession or control by such Secured Party; and (ii) neither the Agents, the Issuing Bank, the Lenders, nor any other Secured Party shall have any liability or obligation to any Credit Party arising out of any such claim except for acts of willful misconduct or gross negligence as determined by a final order or judgment of a court of competent jurisdiction. In any action hereunder, the Agents, the Issuing Bank, the Lenders and any other Secured Party shall be entitled if permitted by Applicable Law to the appointment of a receiver without notice, to take possession of all or any portion of the Collateral and to exercise such powers as the court shall confer upon the receiver. Notwithstanding the foregoing, upon the occurrence of an Event of Default, and during the continuation of such Event of Default, any Agent, the Issuing Bank, any Lender and/or any other Secured Party shall be entitled to apply, without prior notice to any of the Credit Parties, any cash or cash items constituting Collateral in the possession of such Secured Party to payment of the Obligations. 108 SECTION 8.7 Application of Proceeds on Default. Subject to the provisions of the Intercreditor Agreement, upon the occurrence and during the continuance of an Event of Default, the balance in any account of any Credit Party with a Lender, all other income on the Collateral, and all proceeds from any sale of the Collateral pursuant hereto shall be applied first toward payment of the reasonable out-of-pocket costs and expenses paid or incurred by any Agent in enforcing this Credit Agreement, in realizing on or protecting any Collateral and in enforcing or collecting any Obligations or any Guaranty thereof, including, without limitation, court costs, reasonable attorney's fees and expenses and reasonable financial consultants' fees incurred by any Agent and then to the indefeasible payment in full in cash of the Obligations in accordance with Section 12.2(b) hereof. Any amounts remaining after such indefeasible payment in full shall be remitted to the appropriate Credit Party or as a court of competent jurisdiction may otherwise direct. SECTION 8.8 Power of Attorney. Upon the occurrence and during the continuance of an Event of Default which is not waived in writing by the Required Lenders, (a) each Credit Party does hereby irrevocably make, constitute and appoint the Collateral Agent or any of its officers or designees its true and lawful attorney-in-fact with full power in the name of the Collateral Agent, such other Person or such Credit Party to receive, open and dispose of all mail addressed to any Credit Party, and to endorse any notes, checks, drafts, money orders or other evidences of payment relating to the Collateral that may come into the possession of the Collateral Agent with full power and right to cause the mail of such Persons to be transferred to the Collateral Agent's own offices or otherwise, and to do any and all other acts necessary or proper to carry out the intent of this Credit Agreement and the grant of the security interests hereunder and under the Fundamental Documents, and each Credit Party hereby ratifies and confirms all that the Collateral Agent or its substitutes shall properly do by virtue hereof; and (b) each Credit Party does hereby further irrevocably make, constitute and appoint the Collateral Agent or any of its officers or designees its true and lawful attorney-in-fact in the name of the Collateral Agent, such other Person or such Credit Party (i) to enforce all of such Credit Party's rights under and pursuant to all agreements with respect to the Collateral, all for the sole benefit of the Collateral Agent (for the benefit of the Secured Parties), (ii) to enter into and perform such agreements as may be necessary in order to carry out the terms, covenants and conditions of the Fundamental Documents that are required to be observed or performed by any Credit Party, (iii) to execute such other and further mortgages, pledges and assignments of the Collateral, and related instruments or agreements, as the Collateral Agent may reasonably require for the purpose of perfecting, protecting, maintaining or enforcing the security interests granted to the Collateral Agent for the benefit of the Secured Parties hereunder and under the other Fundamental Documents, and (iv) to do any and all other things necessary or proper to carry out the intention of this Credit Agreement and the grant of the security interests hereunder and under the other Fundamental Documents. Each of the Credit Parties hereby ratifies and confirms in advance all that the Collateral Agent as such attorney-in-fact or its substitutes shall properly do by virtue of this power of attorney in accordance with the terms hereof. 109 SECTION 8.9 Financing Statements, Direct Payments. Each Credit Party hereby authorizes the Collateral Agent to file UCC financing statements and any amendments thereto or continuations thereof and any other appropriate security documents or instruments and to give any notices necessary or desirable to perfect the Lien of the Collateral Agent (for the benefit of the Secured Parties) on the Collateral, in all cases without the signature of any Credit Party or to execute such items as attorney-in-fact for any Credit Party; provided, that the Collateral Agent shall provide copies of any such documents or instruments to the Borrower. Each Credit Party further authorizes the Collateral Agent upon the occurrence of a default under Article 7(b) or Article 7(c) hereof, and during the continuation of any such default, to notify any account debtors or tenants that all sums payable to any Credit Party relating to the Collateral shall be paid directly to the Collateral Agent. SECTION 8.10 Further Assurances. Upon the request of the Collateral Agent, each Credit Party hereby agrees to duly and promptly execute and deliver, or cause to be duly executed and delivered, at the cost and expense of the Credit Parties, such further instruments as may be necessary or proper, in the reasonable judgment of the Collateral Agent, to carry out the provisions and purposes of this Article 8 or to perfect and preserve the Liens of the Collateral Agent for the benefit of the Secured Parties hereunder and under the Fundamental Documents, in the Collateral or any portion thereof. SECTION 8.11 Termination and Release. The security interests granted under this Article 8 shall terminate on the Facility Termination Date. Upon request by the Credit Parties (and at the sole expense of the Credit Parties) after such termination, the Collateral Agent will take all reasonable action and do all things reasonably necessary, including executing UCC termination statements, to terminate the security interest granted to it (for the benefit of the Secured Parties) hereunder. Upon the written request of the Credit Parties, the Collateral Agent shall at the sole cost and expense of the applicable Credit Party release its security interest (i) in all personal property located in or appurtenant to a leased Real Property Asset upon the expiration or termination without renewal of the lease for such Real Property Asset and (ii) in any Collateral sold, transferred or otherwise disposed of by any Credit Party to the extent such sale, transfer or other disposition is permitted by and made in accordance with the terms of this Agreement. SECTION 8.12 Remedies Not Exclusive. The remedies conferred upon or reserved to the Collateral Agent in this Article 8 are intended to be in addition to, and not in limitation of, any other remedy or remedies available to the Collateral Agent. Without limiting the generality of the foregoing, the Collateral Agent, the other Agents, the Issuing Bank, the Lenders and any other Secured Party shall have all rights and remedies of a secured creditor under Article 9 of the UCC and under any other Applicable Law. SECTION 8.13 Continuation and Reinstatement. Each Credit Party further agrees that the security interest granted hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment or any part thereof of any Obligation is rescinded or must otherwise be restored by any Agent, the Issuing Bank, any Lender or any other Secured Party upon the bankruptcy or reorganization of any Credit Party or otherwise. 110 9. GUARANTY SECTION 9.1 Guaranty. (a) Each Guarantor unconditionally and irrevocably guarantees to the Secured Parties the due and punctual payment by, and performance of, the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of the obligor whether or not post filing interest is allowed in such proceeding). Each Guarantor further agrees that the Obligations may be increased, extended or renewed, in whole or in part, without notice or further assent from it (except as may be otherwise required herein), and it will remain bound upon this Guaranty notwithstanding any extension or renewal of any Obligation. (b) Each Guarantor waives presentation to, demand for payment from and protest to, as the case may be, any Credit Party or any other guarantor of any of the Obligations, and also waives notice of protest for nonpayment, notice of acceleration and notice of intent to accelerate. The obligations of each Guarantor hereunder shall not be affected by (i) the failure of any Agent, the Issuing Bank, any Lender or any other Secured Party to assert any claim or demand or to enforce any right or remedy against the Borrower or any Guarantor or any other guarantor under the provisions of this Credit Agreement or any other agreement or otherwise; (ii) any extension or renewal of any provision hereof or thereof; (iii) the failure of any Agent, the Issuing Bank, any Lender or any other Secured Party to obtain the consent of the Guarantor with respect to any rescission, waiver, compromise, acceleration, amendment or modification of any of the terms or provisions of this Credit Agreement, any notes evidencing any of the Loans hereunder or of any other Fundamental Document or other agreement; (iv) the release, exchange, waiver or foreclosure of any security held by the Collateral Agent for the Obligations or any of them; (v) the failure of any Agent, the Issuing Bank, any Lender or any other Secured Party to exercise any right or remedy against any other Guarantor or any other guarantor of the Obligations; or (vi) the release or substitution of any Guarantor or guarantor. (c) Each Guarantor further agrees that this Guaranty constitutes a guaranty of performance and of payment when due and not just of collection, and waives any right to require that any resort be had by any Agent, the Issuing Bank, any Lender or any other Secured Party to any security held for payment of the Obligations or to any balance of any deposit, account or credit on the books of any Agent, the Issuing Bank, any Lender or any other Secured Party in favor of the Borrower or any Guarantor, or to any other Person. (d) Each Guarantor hereby expressly assumes all responsibilities to remain informed of the financial condition of the Borrower, the Guarantors and any other guarantors and any circumstances affecting the Collateral or the Real Property Assets or the Pledged Securities or the ability of the Borrower to perform under this Credit Agreement. (e) Each Guarantor's obligations under the Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations, any notes evidencing any of the Loans hereunder or any other instrument evidencing any Obligations, or by the existence, validity, enforceability, perfection, or extent of any Lien on any Collateral or Real Property Asset or Pledged Collateral securing any Obligation or by any other circumstance relating to the Obligations which might otherwise constitute a defense to this Guaranty. None of the Agents, the Issuing Bank, any of the Lenders nor any other Secured Party make any representation or warranty with respect to any such circumstances or have any duty or responsibility whatsoever to any Guarantor in respect to the management and maintenance of the Obligations or any collateral security for the Obligations. 111 SECTION 9.2 No Impairment of Guaranty, etc. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (except indefeasible payment and performance in full in cash of the Obligations), including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of any Agent, the Issuing Bank, any Lender or any other Secured Party to assert any claim or demand or to enforce any remedy under this Credit Agreement or any other Fundamental Document or other agreement, by any waiver or modification of any provision hereof or thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Guarantor or would otherwise operate as a discharge of such Guarantor as a matter of law, unless and until the Facility Termination Date. SECTION 9.3 Continuation and Reinstatement, etc. (a) Each Guarantor further agrees that its Guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Agent, the Issuing Bank, any Lender or any other Secured Party upon the bankruptcy or reorganization of Borrower or a Guarantor, or otherwise. In furtherance of the provisions of this Article 9, and not in limitation of any other right which any Agent, the Issuing Bank, any Lender or any other Secured Party may have at law or in equity against the Borrower, a Guarantor or any other Person by virtue hereof, upon failure of the Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice or otherwise, each Guarantor hereby promises to and will, upon receipt of written demand by any Agent, the Issuing Bank, any Lender or any other Secured Party, forthwith pay or cause to be paid to the Collateral Agent for the benefit of the Secured Parties (as applicable) in cash an amount equal to the unpaid amount of all the Obligations with interest thereon at a rate of interest equal to the rate specified in Section 2.13(a) hereof, and thereupon the Collateral Agent shall assign such Obligation, together with all security interests, if any, then held by the Collateral Agent in respect of such Obligation, to the Guarantors making such payment; such assignment to be subordinate and junior to the rights of the Collateral Agent on behalf of the Secured Parties with regard to amounts payable by the Borrower in connection with the remaining unpaid Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of an obligor whether or not post filing interest is allowed in such proceeding) and to be pro tanto to the extent to which the Obligation in question was discharged by the Guarantor or Guarantors making such payments. 112 (b) All rights of a Guarantor against the Borrower, arising as a result of the payment by such Guarantor of any sums to the Collateral Agent for the benefit of the Secured Parties or directly to the Secured Parties hereunder by way of right of subrogation or otherwise, shall in all respects be subordinated and junior in right of payment to, and shall not be exercised by such Guarantor until and unless, the prior indefeasible payment in full in cash of all the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of an obligor whether or not post filing interest is allowed in such proceeding). If any amount shall be paid to such Guarantor for the account of the Borrower, such amount shall be held in trust for the benefit of the Collateral Agent, segregated from such Guarantor's own assets, and shall forthwith be paid to the Collateral Agent on behalf of the Secured Parties to be credited and applied to the Obligations, whether matured or unmatured. SECTION 9.4 Limitation on Guaranteed Amount etc. Notwithstanding any other provision of this Article 9, the amount guaranteed by each Guarantor hereunder shall be limited to the extent, if any, required so that its obligations under this Article 9 shall not be subject to avoidance under Section 548 of the Bankruptcy Code or to being set aside or annulled under any Applicable Law relating to fraud on creditors. In determining the limitations, if any, on the amount of any Guarantor's obligations hereunder pursuant to the preceding sentence, it is the intention of the parties hereto that any rights of subrogation or contribution which such Guarantor may have under this Article 9, any other agreement or Applicable Law shall be taken into account. 10. PLEDGE SECTION 10.1 Pledge. Each Pledgor, as security for the due and punctual payment of the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of the Borrower whether or not post filing interest is allowed in such proceeding) in the case of the Borrower and as security for its obligations under Article 9 hereof in the case of a Pledgor which is a Guarantor, hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto the Collateral Agent for the benefit of the Secured Parties, a security interest in all Pledged Collateral now owned or hereafter acquired by it. The Pledgors shall deliver to the Collateral Agent the definitive instruments (if any) representing all Pledged Securities, accompanied by undated stock powers, duly endorsed or executed in blank by the appropriate Pledgor, and such other instruments or documents as the Collateral Agent or its counsel shall reasonably request. Each delivery of securities being pledged hereunder shall be accompanied by a schedule showing a description of the securities theretofore and then being pledged hereunder. Each schedule so delivered shall supersede any prior schedules so delivered. SECTION 10.2 Covenant. Each Pledgor covenants that as stockholder or partner or member of each of its respective Subsidiaries it will not take any action to allow any additional shares of common stock, Preferred Stock or other equity securities or interests of any of its respective Subsidiaries or any securities convertible or exchangeable into common or Preferred Stock of such Subsidiaries to be issued, or grant any options or warrants, unless such securities are pledged to the Collateral Agent (for the benefit of the Secured Parties) as security for the Obligations. SECTION 10.3 Registration in Nominee Name; Denominations. Upon the occurrence or continuation of an Event of Default, the Collateral Agent shall have the right (in its sole discretion) to hold the certificates representing any Pledged Securities (a) in its own name (on behalf of itself and any of the Secured Parties) or in the name of its nominee or (b) in the name of the appropriate Pledgor, endorsed or assigned in blank or in favor of the Collateral Agent. Upon the occurrence or continuation of an Event of Default, the Collateral Agent shall have the right to exchange the certificates representing any of the Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Credit Agreement. 113 SECTION 10.4 Voting Rights; Dividends; etc. (a) The appropriate Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Securities being pledged by it hereunder or any part thereof for any purpose not inconsistent with the terms hereof, at all times, except as expressly provided in paragraph (c) below. (b) All dividends or distributions of any kind whatsoever (other than (x) cash dividends or (y) distributions expressly permitted by Section 6.5 hereof) received by a Pledgor, whether resulting from a subdivision, combination, or reclassification of the outstanding capital stock of the issuer or received in exchange for Pledged Securities or any part thereof or as a result of any merger, consolidation, acquisition, or other exchange of assets to which the issuer may be a party, or otherwise, shall be and become part of the Pledged Collateral pledged hereunder and shall immediately be delivered to the Collateral Agent to be held subject to the terms hereof. All dividends and distributions which are received contrary to the provisions of this subsection (b) shall be received in trust for the benefit of the Secured Parties, segregated from such Pledgor's own assets, and shall be delivered to the Collateral Agent. (c) Upon the occurrence and during the continuance of an Event of Default and notice from the Collateral Agent of the transfer of such rights to the Collateral Agent, all rights of a Pledgor (i) to exercise the voting and/or consensual rights and powers which it is entitled to exercise pursuant to this Section 10.4 and (ii) to receive and retain any dividends and distributions, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and/or consensual rights and receive such dividends and distributions until such time as such Event of Default has been cured; provided, however, that to the extent any governmental consents or filings are required for the exercise by the Collateral Agent of any of the foregoing rights and powers, the Collateral Agent shall refrain from exercising such rights or powers until the making of such required filings, the receipt of such consent and the expiration of all related waiting periods. 114 SECTION 10.5 Remedies Upon Default. If an Event of Default shall have occurred and be continuing, the Collateral Agent, on behalf of the Secured Parties, may sell the Pledged Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate subject to the terms hereof or as otherwise provided in the UCC. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict to the full extent permitted by Applicable Law the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale, the Collateral Agent shall have the right to assign, transfer, and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Pledgor. The Collateral Agent shall give the Pledgors ten (10) days' written notice of any such public or private sale, or sale at any broker's board or on any such securities exchange, or of any other disposition of the Pledged Collateral. Such notice, in the case of public sale, shall state the time and place for such sale and, in the case of sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and shall state in the notice of such sale. At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole discretion) determine. The Collateral Agent shall not be obligated to make any sale of the Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of the Pledged Collateral may have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case the sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold shall be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice. At any sale or sales made pursuant to this Section 10.5, the Collateral Agent, any other Agent, the Issuing Bank, any Lender or any other Secured Party may bid for or purchase, free from any claim or right of whatever kind, including any equity of redemption, of the Pledgors, any such demand, notice, claim, right or equity being hereby expressly waived and released, any or all of the Pledged Collateral offered for sale, and may make any payment on the account thereof by using any claim for moneys then due and payable to the Agents, the Issuing Bank, the Lenders and any other Secured Party by any Credit Party as a credit against the purchase price; and the Collateral Agent, upon compliance with the terms of sale, may hold, retain and dispose of the Pledged Collateral without further accountability therefor to any Pledgor or any third party (other than to the Secured Parties). The Collateral Agent shall in any such sale make no representations or warranties with respect to the Pledged Collateral or any part thereof, and shall not be chargeable with any of the obligations or liabilities of the Pledgors with respect thereto. The Collateral Agent may exercise, either by itself or by its nominee or designee, in the name of the applicable Pledgor(s), all of the rights, powers and remedies granted to the Collateral Agent in this Section 10 in respect of any Pledged Collateral, any organizational document pursuant to which any Pledgor owns its Pledged Collateral, and may exercise and enforce all of the Collateral Agent's rights and remedies hereunder and under law. Each Pledgor hereby agrees (i) it will indemnify and hold each of the Agents, the Issuing Bank, the Lenders and any other Secured Party harmless from and against any and all claims with respect to the Pledged Collateral asserted before the taking of actual possession or control of the Pledged Collateral by the Collateral Agent pursuant to this Credit Agreement, or arising out of any act of, or omission to act on the part of, any Person prior to such taking of actual possession or control by the Collateral Agent (whether asserted before or after such taking of possession or control), or arising out of any act on the part of any Pledgor, its agents or Affiliates before or after the commencement of such actual possession or control by the Collateral Agent and (ii) the Agents, the Issuing Bank, the Lenders and any other Secured Party shall have no liability or obligation arising out of any such claim. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Collateral and Pledged Securities under this Credit Agreement and to sell the Pledged Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts having competent jurisdiction. 115 SECTION 10.6 Application of Proceeds of Sale and Cash. Subject to the provisions of the Intercreditor Agreement, the proceeds of sale of the Pledged Collateral sold pursuant to Section 10.5 hereof shall be applied by the Collateral Agent on behalf of the Secured Parties to the payment of all reasonable out-of-pocket costs and expenses paid or incurred by any Agent in connection with such sale, including, without limitation, all court costs, the reasonable fees and expenses of counsel for any Agent in connection therewith, the reasonable fees and expenses of any financial consultants in connection therewith and the payment of all reasonable out-of-pocket costs and expenses paid or incurred by any Agent in enforcing this Credit Agreement, in realizing or protecting any Collateral and in enforcing or collecting any Obligations or any Guaranty thereof, including, without limitation, court costs, the reasonable attorneys' fees and expenses incurred by any Agent in connection therewith and the reasonable fees and expenses of any financial consultants in connection therewith and then to the indefeasible payment in full in cash of the Obligations in accordance with Section 12.2(b) hereof. Any amounts remaining after such indefeasible payment in full shall be remitted to the appropriate Pledgor, or as a court of competent jurisdiction may otherwise direct. SECTION 10.7 Securities Act, etc. In view of the position of each Pledgor in relation to the Pledged Securities pledged by it, or because of other present or future circumstances, a question may arise under the Securities Act of 1933, as amended, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being hereinafter called the "Federal Securities Laws"), with respect to any disposition of the Pledged Securities permitted hereunder. Each Pledgor understands that compliance with the Federal Securities Laws may very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Securities, and may also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities may dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or any part of the Pledged Securities under applicable Blue Sky or other state securities laws, or similar laws analogous in purpose or effect. Under Applicable Law, in the absence of an agreement to the contrary, the Collateral Agent may perhaps be held to have certain general duties and obligations to a Pledgor to make some effort towards obtaining a fair price even though the Obligations may be discharged or reduced by the proceeds of a sale at a lesser price. Each Pledgor waives to the fullest extent permitted by Applicable Law any such general duty or obligation to it, and the Pledgors and/or the Credit Parties will not attempt to hold the Collateral Agent, any other Agent, the Issuing Bank, any Lender or any other Secured Party responsible for selling all or any part of the Pledged Securities at an inadequate price, even if the Collateral Agent shall accept the first offer received or does not approach more than one possible purchaser. Without limiting the generality of the foregoing, the provisions of this Section 10.7 would apply if, for example, the Collateral Agent were to place all or any part of the Pledged Securities for private placement by an investment banking firm, or if such investment banking firm purchased all or any part of the Pledged Securities for its own account, or if the Collateral Agent placed all or any part of the Pledged Securities privately with a purchaser or purchasers. 116 SECTION 10.8 Continuation and Reinstatement. Each Pledgor further agrees that its pledge hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Agent, the Issuing Bank, any Lender or any other Secured Party upon the bankruptcy or reorganization of any Pledgor or otherwise. SECTION 10.9 Termination. The pledge referenced herein shall terminate on the Facility Termination Date, at which time the Collateral Agent shall assign and deliver to the appropriate Pledgor, or to such Person or Persons as such Pledgor shall designate, against receipt, such of the Pledged Securities (if any) as shall not have been sold or otherwise applied by the Collateral Agent pursuant to the terms hereof and shall still be held by it hereunder, together with appropriate instruments of reassignment and release. Any such reassignment shall be free and clear of all Liens, arising by, under or through any Lender but shall otherwise be without recourse upon or warranty by the Collateral Agent and at the expense of the Pledgors. 11. CASH COLLATERAL SECTION 11.1 Cash Collateral Account. There shall be established with the Collateral Agent an account (the "Cash Collateral Account") in the name of the Collateral Agent (for the benefit of the Secured Parties), into which the Borrower may from time to time deposit Dollars pursuant to, and in accordance with Section 2.11(l) hereof. Except to the extent otherwise provided in this Article 11, the Cash Collateral Account shall be under the sole dominion and control of the Collateral Agent and shall be subject to a control agreement entered into between the Borrower and the Collateral Agent. SECTION 11.2 Investment of Funds. (a) The Collateral Agent is hereby authorized and directed to invest and reinvest the funds from time to time deposited into the Cash Collateral Account, so long as no Event of Default has occurred and is continuing, on the instructions of the Borrower (provided, that any such instructions given verbally shall be confirmed promptly in writing) or, if the Borrower shall fail to give such instructions upon delivery of any such funds, in the sole discretion of the Collateral Agent; provided, that in no event may the Borrower give instructions to the Collateral Agent to, or may the Collateral Agent in its discretion, invest or reinvest funds in the Cash Collateral Account in other than Cash Equivalents. (b) Any net income or gain on the investment of funds from time to time held in the Cash Collateral Account, shall be promptly reinvested by the Collateral Agent as a part of the Cash Collateral Account; and any net loss on any such investment shall be charged against the Cash Collateral Account. (c) None of the Agents, the Issuing Bank, any of the Lenders nor any other Secured Party shall be a trustee for any of the Credit Parties, or shall have any obligations or responsibilities, or shall be liable for anything done or not done, in connection with the Cash Collateral Account, except as expressly provided herein and except that the Collateral Agent shall have the obligations of a secured party under the UCC. None of the Agents, the Issuing Bank, any of the Lenders nor any other Secured Party shall have any obligation or responsibility or shall be liable in any way for any investment decision made in accordance with this Section 11.2 or for any decrease in the value of the investments held in the Cash Collateral Account. 117 SECTION 11.3 Grant of Security Interest. For value received and to induce the Issuing Bank to issue Letters of Credit and the Lenders to enter into this Credit Agreement and to make Loans to the Borrower and to acquire participations in Letters of Credit from time to time as provided for in this Credit Agreement, as security for the payment of all of the Obligations, each of the Credit Parties hereby assigns to the Collateral Agent (for the benefit of the Secured Parties) and grants to the Collateral Agent (for the benefit of the Secured Parties), a first and prior Lien upon all of such Credit Party's rights in and to the Cash Collateral Account, all cash, documents, instruments and securities from time to time held therein, and all rights pertaining to investments of funds in the Cash Collateral Account and all products and proceeds of any of the foregoing. All cash, documents, instruments and securities from time to time on deposit in the Cash Collateral Account, and all rights pertaining to investments of funds in the Cash Collateral Account shall immediately and without any need for any further action on the part of any of the Credit Parties, the Collateral Agent or any other Secured Party, become subject to the Lien set forth in this Section 11.3, be deemed Collateral for all purposes hereof and be subject to the provisions of this Credit Agreement. SECTION 11.4 Remedies. Subject to the provisions of the Intercreditor Agreement, at any time during the continuation of an Event of Default, the Collateral Agent may sell any documents, instruments and securities held in the Cash Collateral Account and may immediately apply the proceeds thereof and any other cash held in the Cash Collateral Account in accordance with Section 12.2(b). 12. THE AGENTS AND THE ISSUING BANK SECTION 12.1 Administration by the Agents. (a) The general administration of the Fundamental Documents and any other documents contemplated by this Credit Agreement or any other Fundamental Document shall be by the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent or their respective designees. Except as otherwise expressly provided herein, the Issuing Bank and each of the Lenders hereby irrevocably authorizes the Administrative Agent, the Collateral Agent or the Collateral Monitoring Agent (as applicable), at its discretion, to take or refrain from taking such actions as agent on its behalf and to exercise or refrain from exercising such powers under the Fundamental Documents, any notes evidencing any of the Loans hereunder and any other documents contemplated by this Credit Agreement or any other Fundamental Document as are expressly delegated by the terms hereof or thereof, as appropriate, to such Agent together with all powers reasonably incidental thereto. None of the Agents shall have any duties or responsibilities except as set forth in the Fundamental Documents. (b) The Secured Parties hereby authorize the Collateral Agent (in its sole discretion): (i) in connection with the sale or other disposition of any asset included in the Collateral or in the Real Property Assets or all of the capital stock of any Guarantor, to the extent undertaken in accordance with the terms of this Credit Agreement, to release a Lien granted to it (for the benefit of the Secured Parties) on such asset or capital stock and/or to release such Guarantor from its obligations hereunder; 118 (ii) to determine that the cost to the Borrower or another Credit Party is disproportionate to the benefit to be realized by the Agents, the Issuing Bank, the Lenders and the other Secured Parties by perfecting a Lien in a given asset or group of assets included in the Collateral and that the Borrower or other Credit Party should not be required to perfect such Lien in favor of the Collateral Agent (for the benefit of the Secured Parties); (iii) to appoint subagents to be the holder of record of a Lien to be granted to the Collateral Agent (for the benefit of the Secured Parties) or to hold on behalf of the Collateral Agent such Collateral or instruments relating thereto; (iv) to enter into and perform its obligations under the other Fundamental Documents; and (v) to execute and deliver the agreements contemplated by Section 12.13 hereof. SECTION 12.2 Advances and Payments. (a) On the date of each Loan, the Administrative Agent shall be authorized (but not obligated) to advance, for the account of each of the applicable Lenders, the amount of the applicable Loan to be made by it in accordance with its proportionate share of its Commitments hereunder. Each of the Lenders hereby authorizes and requests the Administrative Agent to advance for its account, pursuant to the terms hereof, the amount of the Loan to be made by it, and each of the Lenders agrees forthwith to reimburse the Administrative Agent in immediately available funds for the amount so advanced on its behalf by the Administrative Agent. If any such reimbursement is not made in immediately available funds on the same day on which the Administrative Agent shall have made any such amount available on behalf of any Lender, such Lender shall pay interest to the Administrative Agent at a rate per annum equal to the Administrative Agent's cost of obtaining overnight funds in the New York Federal Funds Market for the first three days following the time when the Lender fails to make the required reimbursement, and thereafter at a rate per annum equal to the Base Rate plus the Applicable Interest Margin for Base Rate Loans which are Revolving Credit Loans. If and to the extent that any such reimbursement shall not have been made to the Administrative Agent, the Borrower agrees to repay to the Administrative Agent forthwith on demand a corresponding amount with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at the Base Rate plus the Applicable Interest Margin for Base Rate Loans which are Revolving Credit Loans. (b) If a Default or Event of Default has occurred and is then continuing, any amounts received by the Administrative Agent in connection with the Fundamental Documents, the application of which is not otherwise provided for, shall be applied as follows: 119 first, to pay to the Agents all unreimbursed costs and expenses of the Agents which are payable by the Borrower or any of the other Credit Parties pursuant to any of the Fundamental Documents and all unreimbursed costs and expenses of the Lenders which are payable pursuant to this Credit Agreement; second, to pay pro rata to each Lender with a Loan outstanding, accrued but unpaid interest on the Loans in accordance with the amount of outstanding Loans owed to each Lender; third, to pay pro rata to each Revolving Credit Lender and Delayed Draw Term Loan Lender the accrued but unpaid Commitment Fees in accordance with each Lender's Revolving Credit Commitment Percentage and Delayed Draw Term Loan Commitment Percentage; fourth, to pay pro rata to each Agent and each Lender all unpaid Fees; fifth, to pay pro rata to each Lender with a Loan outstanding, principal on the Loans in accordance with the amount of outstanding Loans owed to each Lender; and sixth, to pay any other amounts then due under this Credit Agreement or any other Fundamental Document. All amounts to be paid to any Lender by the Administrative Agent shall be credited to that Lender, after collection by the Administrative Agent, in immediately available funds either by wire transfer or deposit in such Lender's correspondent account with the Administrative Agent, or as such Lender and the Administrative Agent shall agree in writing from time to time. SECTION 12.3 Sharing of Setoffs and Cash Collateral. (a) Each of the Lenders agrees that if it shall, through the exercise of a right of banker's lien, set off or counterclaim against any Credit Party (including, but not limited to, pursuant to Section 13.21 hereof or as a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim and received by such Lender under any applicable bankruptcy, insolvency or other similar law) or otherwise, obtain payment in respect of its Loans as a result of which the unpaid portion of its Loans is proportionately less than the unpaid portion of Loans of any of the other Lenders (a) it shall promptly purchase at par (and shall be deemed to have thereupon purchased) from such other Lenders a participation in the Loans of such other Lenders, so that the aggregate unpaid principal amount of each of the Lender's Loans and its participation in Loans of the other Lenders shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to the obtaining of such payment was to the principal amount of all Loans outstanding prior to the obtaining of such payment and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that the Lenders share any such payment pro rata. If all or any portion of such excess payment is thereafter recovered from the Lender which originally received such excess payment, such purchase (or portion thereof) shall be canceled and the purchase price restored to the extent of such recovery. The Credit Parties expressly consent to the foregoing arrangements and agree that any Lender or Lenders holding (or deemed to be holding) a participation in a Loan may exercise any and all rights of banker's lien, set off or counterclaim with respect to any and all moneys owing by the Borrower to such Lender or Lenders as fully as if such Lender or Lenders held such and was the original obligee on such Loan or on any note evidencing such Loan (if applicable), in the amount of such participation. (b) The Administrative Agent is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to set off and apply any and all amounts received by the Administrative Agent for the account of a Defaulting Lender to the satisfaction of the unpaid obligations owing by such Defaulting Lender to the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent or the Issuing Bank and the rights of such Defaulting Lender with respect to all such amounts shall be subject and subordinate to the rights of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank, as the case may be, to be paid the amounts owing to it by such Defaulting Lender. 120 SECTION 12.4 Notice to the Lenders. Upon receipt by the Administrative Agent or the Issuing Bank from any of the Credit Parties of any communication calling for an action on the part of the Lenders or the Revolving Credit Lenders, as the case may be, or upon written notice to the Administrative Agent of any Event of Default, the Administrative Agent or the Issuing Bank will in turn promptly inform the other Lenders or the Revolving Credit Lenders, as the case may be, in writing (which shall include facsimile communications) of the nature of such communication or of the Event of Default, as the case may be. SECTION 12.5 Liability of the Administrative Agent, Collateral Agent, Collateral Monitoring Agent and the Issuing Bank. (a) The Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers and the Issuing Bank, when acting on behalf of the Lenders (or in the case of the Collateral Agent, when acting on behalf of the Secured Parties), may execute any of its duties under this Credit Agreement or the other Fundamental Documents by or through its officers, agents, or employees and neither the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers, the Issuing Bank nor their respective officers, agents or employees shall be liable to the Lenders or any of them for any action taken or omitted to be taken in good faith, nor be responsible to the Lenders or to any of them for the consequences of any oversight or error of judgment, or for any loss, unless the same shall happen through its gross negligence or willful misconduct. The Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers, the Issuing Bank and their respective directors, officers, agents, and employees shall in no event be liable to the Lenders or to any of them, nor shall any Lender have any cause of action against any of them for any action taken or omitted to be taken by it pursuant to instructions received by it from the Required Lenders or the Required Revolving Credit Lenders, as the case may be, or in reliance upon the advice of counsel selected by it with reasonable care or counsel to the Borrower. Without limiting the foregoing, neither the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers, the Issuing Bank nor any of their respective directors, officers, employees, or agents shall be responsible to any of the Lenders for the due execution, validity, genuineness, effectiveness, sufficiency, or enforceability of, or for any statement, warranty, or representation in, or for the perfection of any security interest contemplated by, this Credit Agreement, any other Fundamental Document or any related agreement, document or order, or for freedom of any of the Collateral or any of the Real Property Assets or any of the Pledged Securities from prior Liens or security interests, or shall be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Credit Party of any of the terms, conditions, covenants, or agreements of this Credit Agreement, any other Fundamental Document, or any related agreement or document. 121 (b) None of the Administrative Agent (in its capacity as agent for the Lenders), the Collateral Agent (in its capacity as agent for the Secured Parties), the Collateral Monitoring Agent (in its capacity as agent for the Secured Parties), the Co-Lead Arrangers, the Issuing Bank or any of their respective directors, officers, employees, or agents shall have any responsibility to the Borrower or any other Credit Party on account of the failure or delay in performance or breach by any of the Lenders of any of such Lender's obligations under this Credit Agreement, the other Fundamental Documents or any related agreement or document or in connection herewith or therewith. No Lender nor any of its directors, officers, employees or agents shall have any responsibility to the Borrower or any other Credit Party on account of the failure or delay in performance or breach by any other Lender of such other Lender's obligations under this Credit Agreement, the other Fundamental Documents or any related agreement or document or in connection herewith or therewith. (c) The Administrative Agent (as agent for the Lenders), the Collateral Agent (as agent of the Secured Parties) and the Collateral Monitoring Agent (as agent for the Secured Parties), the Co-Lead Arrangers and the Issuing Bank shall be entitled to rely on any communication, instrument, or document believed by it to be genuine or correct and to have been signed or sent by a Person or Persons believed by it to be the proper Person or Persons, and it shall be entitled to rely on advice of legal counsel (who may be counsel for the Borrower), independent public accountants, and other professional advisers and experts selected by it. (d) Each of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers and the Issuing Bank shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Fundamental Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until it shall have received instructions in respect thereof from the Required Lenders or Required Revolving Credit Lenders, as the case may be, and, upon receipt of such instructions from the Required Lenders or Required Revolving Credit Lenders, as the case may be, it shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. 122 SECTION 12.6 Reimbursement and Indemnification. Each of the Lenders agrees (i) to reimburse the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers and/or the Issuing Bank for such Lender's pro rata share of any expenses and fees incurred for the benefit of the Lenders under the Fundamental Documents, including, without limitation, counsel fees and compensation of agents, employees, financial advisors and other professionals paid for services rendered on behalf of the Agents, the Issuing Bank or the Lenders, and any other expense incurred in connection with the operations or enforcement thereof not reimbursed by or on behalf of the Borrower and (ii) to indemnify and hold harmless the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers and/or the Issuing Bank and any of their respective directors, officers, employees, or agents, on demand, in accordance with such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable attorneys' fees and disbursements) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against, it or any of them in any way relating to or arising out of any of the Fundamental Documents or any related agreement or document, or any action taken or omitted to be taken by it or any of them under any of the Fundamental Documents or any related agreement or document, to the extent not reimbursed by or on behalf of the Borrower or any other Credit Party (except such as shall result from the gross negligence or willful misconduct of the Person to be reimbursed, indemnified or held harmless, as applicable) and (iii) to indemnify and hold harmless the Issuing Bank and any of its directors, officers, employees, or agents, on demand, in the amount of its Revolving Credit Percentage share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it or any of them in any way relating to or arising out of the issuance of any Letters of Credit or the failure to issue Letters of Credit (except as shall result from the gross negligence or willful misconduct of the Person to be reimbursed, indemnified or held harmless, as applicable). If any indemnity furnished to any Agent, any Co-Lead Arranger or the Issuing Bank for any purpose shall, in the opinion of such Agent, Co-Lead Arranger or the Issuing Bank, as the case may be, be insufficient or become impaired, such Agent, Co-Lead Arranger or the Issuing Bank, as the case may be, may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, that in no event shall this sentence require any Lender to indemnify any Agent, any Co-Lead Arranger or the Issuing Bank against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's pro rata share thereof. To the extent indemnification payments made by the Lenders pursuant to this Section 12.6 are subsequently recovered by the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers or the Issuing Bank from a Credit Party, the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Co-Lead Arrangers or the Issuing Bank, as applicable, will promptly refund such previously paid indemnity payments to the Lenders. SECTION 12.7 Rights of the Agents. It is understood and agreed that each of the Agents shall have the same duties, rights and powers as a Lender hereunder (including the right to give such instructions) as any of the other Lenders and may exercise such rights and powers, as well as its rights and powers under other agreements and instruments to which it is or may be party, and engage in other transactions with any Credit Party or Affiliate thereof, as though it were not the Administrative Agent, the Collateral Agent or the Collateral Monitoring Agent (as applicable) or the Issuing Bank under this Credit Agreement and the other Fundamental Documents. SECTION 12.8 Independent Investigation by Lenders. Each of the Lenders acknowledges that it has decided to enter into this Credit Agreement and the other Fundamental Documents, to make the Loans and to participate in the Letters of Credit hereunder based on its own analysis of the transactions contemplated hereby and of the creditworthiness of the Credit Parties and agrees that neither the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent nor the Issuing Bank shall bear any responsibility therefor. 123 SECTION 12.9 Agreement of the Lenders. Upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of the Required Lenders, action shall be taken by the Administrative Agent, the Collateral Agent or the Collateral Monitoring Agent for and on behalf of, or for the benefit of, all Lenders upon the direction of the Required Lenders and any such action shall be binding on all Lenders. No amendment, modification, consent or waiver shall be effective except in accordance with the provisions of Section 13.11 hereof. SECTION 12.10 Notice of Transfer. The Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank may deem and treat any Lender which is a party to this Credit Agreement as the owner of such Lender's respective portions of the Loans and participations in Letters of Credit for all purposes, unless and until a written notice of the assignment or transfer thereof executed by any such Lender shall have been received by the Administrative Agent and shall have become effective in accordance with Section 13.3 hereof. SECTION 12.11 Relations Among Lenders. Each Lender in its capacity as a Lender hereunder agrees that it will not take any legal action, nor institute any actions or proceedings, against the Borrower or any other Credit Party hereunder or under any other Fundamental Document, or with respect to any Collateral or any Real Property Asset, it being understood and agreed that all such actions are to be taken by the Administrative Agent or the Collateral Agent (as applicable) on behalf of the Lenders. Without limiting the generality of the foregoing, no Lender may unilaterally terminate its Commitment or accelerate, or otherwise enforce or seek to enforce any rights or remedies with respect to, any Loans or other Obligations owed to it, except statutory or common law rights of banker's liens and setoff with respect to accounts maintained with such Lender. SECTION 12.12 Successor Agents. The Administrative Agent, the Collateral Agent or the Collateral Monitoring Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, but such resignation shall not become effective until acceptance by a successor agent of its appointment pursuant hereto. Upon any such resignation, the retiring Administrative Agent, retiring Collateral Agent or retiring Collateral Monitoring Agent (as applicable) shall promptly appoint a successor agent from among the Lenders; provided, that such replacement is reasonably acceptable (as evidenced in writing) to the Required Lenders, the Issuing Bank and the Borrower; provided, however, that such approval by the Borrower shall not be required at any time when a Default or Event of Default has occurred and is continuing. If no successor agent shall have been so appointed by the retiring Administrative Agent, retiring Collateral Agent or retiring Collateral Monitoring Agent (as applicable) and shall have accepted such appointment, within 30 days after the retiring agent's giving of notice of resignation, the Borrower may appoint a successor as agent (provided, that such successor is reasonably acceptable to the Required Lenders and the Issuing Bank), which shall be either a Lender or a commercial bank organized under the laws of the United States of America or of any State thereof and shall have a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent, Collateral Agent or Collateral Monitoring Agent (as applicable) hereunder by a successor agent, such successor agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, retiring Collateral Agent or retiring Collateral Monitoring Agent (as applicable), and the retiring Administrative Agent, retiring Collateral Agent or retiring Collateral Monitoring Agent (as applicable) shall be discharged from its duties and obligations under this Credit Agreement, the other Fundamental Documents and any other credit documentation. After any retiring Administrative Agent's, retiring Collateral Agent's or retiring Collateral Monitoring Agent's (as applicable) resignation hereunder as Administrative Agent, Collateral Agent or Collateral Monitoring Agent (as applicable), the provisions of this Article 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent, Collateral Agent or Collateral Monitoring Agent (as applicable) under this Credit Agreement and the other Fundamental Documents. 124 SECTION 12.13 Tenant's Quiet Enjoyment. Upon the written request of the Borrower, the Collateral Agent shall deliver a subordination, non-disturbance and attornment agreement, in favor of the lessee under any lease of Real Property Assets, in form and substance reasonably satisfactory to the Collateral Agent and the Borrower, pursuant to which agreement the Collateral Agent shall agree (to the extent required by the applicable lease or sublease) (a) to give the tenant or subtenant thereunder the same notice, if any, given to the Borrower of any default or acceleration of any obligation underlying the applicable Mortgage or any sale in foreclosure under such Mortgage, (b) to permit the tenant or subtenant thereunder to cure any such default on the Borrower's behalf within any applicable cure period, (c) to permit the tenant or subtenant thereunder to appear by its representative and to bid at any sale in foreclosure made with respect to the applicable Mortgage and (d) subject to the terms to be included in the applicable subordination, non-disturbance and attornment agreement, not to disturb the aforesaid tenant's or subtenant's possession so long as it is not in default in performing its obligations under such lease or sublease. SECTION 12.14 Lender Payments. (a) Except as otherwise provided herein, all payments by any Lender hereunder shall be made to the Administrative Agent at the office of First Union National Bank, 201 South College Street, Charlotte, NC 28288, Attention: Syndication Agency Services (wiring information: ABA-053000219, Acct. No.: 5000000030499, Account Name: Genesis Health Ventures, Inc., Ref: Genesis Health Ventures, Inc.) not later than 1:00 p.m. (Eastern time). All payments received after such time shall be deemed received on the next succeeding Business Day. All payments shall be made in immediately available funds in lawful money of the United States of America. (b) If any Agent, the Issuing Bank, any Lender or any other Secured Party is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any official under any proceeding under any Debtor Relief Law, any portion of a payment made by the Borrower, each such Secured Party shall, on demand of the Collateral Agent, return its share of the amount to be returned which is received by the applicable Secured Party, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate: 125 13. MISCELLANEOUS SECTION 13.1 Notices. (a) Notices and other communications provided for herein shall be in writing and shall be delivered addressed: (i) if to the Administrative Agent and Collateral Agent: First Union National Bank 201 South College Street Charlotte, NC 28288 Attn: Syndication Agency Services Facsimile No.: (704) 383-0288 With a copy to: First Union National Bank 301 South College Street Charlotte, NC 28288 Attn: Colleen McCullum Facsimile No.: (704) 383-6249 E-mail: colleen.mccullum@funb.com (ii) if to the Collateral Monitoring Agent: General Electric Capital Corporation 2325 Lakeview Parkway Suite 700 Alpharetta, GA 30004 Attn: George Attmore Facsimile No.: (678) 624-7904 E-mail: george.attmore@gecapital.com (iii) if to a Credit Party: Genesis Health Ventures, Inc. 101 East State Street Kennett Square, PA 19348 Attn: George V. Hager, Jr. Facsimile No.: (610) 925-4100 (iv) if to the Lender, to it at its address set forth on its signature page hereto. or such other address as such party may from time to time designate by giving written notice to the other parties hereunder. Any failure of any Person giving notice pursuant to this Section 13.1, to provide a courtesy copy to a party as provided herein, shall not affect the validity of such notice. All notices and other communications given to any party hereto in accordance with the provisions of this Credit Agreement shall be deemed to have been given (x) on the fifth Business Day after the date when sent by registered or certified mail, postage prepaid, return receipt requested, if by mail, (y) when delivered, if delivered by hand or overnight courier service or (z) when receipt is acknowledged, if by facsimile communications equipment or e-mail in each case addressed to such party as provided in this Section 13.1 or in accordance with the latest unrevoked written direction from such party. 126 (b) No notice to or demand on any of the Credit Parties shall entitle such Credit Party to any other or further notice or demand in the same, similar or other circumstances. SECTION 13.2 Survival of Agreement, Representations and Warranties, etc. All warranties, representations and covenants made by any of the Credit Parties herein, in any other Fundamental Document or in any certificate or other instrument delivered by it or on its behalf in connection with this Credit Agreement or any other Fundamental Document shall be considered to have been relied upon by the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders and, except for any terminations, amendments, modifications or waivers thereof in accordance with the terms hereof, shall survive the execution and delivery of this Credit Agreement, the making of the Loans and the issuance of the Letters of Credit herein contemplated and the execution and delivery of any notes evidencing any Loan hereunder regardless of any investigation made by the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank or the Lenders or on their behalf, and shall continue in full force and effect so long as any Obligation is outstanding and unpaid and so long as the Commitments have not been terminated. All statements in any such certificate or other instrument shall constitute representations and warranties by the Credit Parties hereunder. SECTION 13.3 Successors and Assigns; Syndications; Loan Sales; Participations. (a) Whenever in this Credit Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; provided, however, that neither the Borrower nor any other Credit Party may assign its rights hereunder without the prior written consent of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank and all of the Lenders, and all covenants, promises and agreements by or on behalf of any of the Credit Parties which are contained in this Credit Agreement shall inure to the benefit of the successors and assigns of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders. 127 (b) Each of the Lenders may (but only with the prior written consent of the Administrative Agent and the Borrower and in the case of an assignment of a Revolving Credit Commitment and/or Revolving Loans, the Issuing Bank, which consent in each case shall not be unreasonably withheld and which consent by the Borrower shall not be required if at the time the applicable Assignment and Acceptance is delivered to the Administrative Agent for its acceptance and recording, an Event of Default has occurred and is then continuing) assign to one or more Lenders or an Eligible Assignee all or a portion of its interests, rights and obligations under this Credit Agreement (including, without limitation, all or a portion of any Loans at the time owing to it, any note held by it evidencing such Loans, or all or a portion of its Commitment(s) and the same portion of all Loans at the time owing to it and any notes held by it evidencing its Loans and its obligations with regard to Letters of Credit); provided, however, that (i) each assignment shall (x) in the case of a Revolving Credit Loan or Revolving Credit Commitment, be in a minimum amount of $2,500,000 (or such lesser amount as shall equal any Lender's entire Revolving Credit Loans or Revolving Credit Commitment)), or (y) in the case of a B Term Loan or Delayed Draw Term Loan or Delayed Draw Term Loan Commitment, be in a minimum amount of $1,000,000 (or such lesser amount as shall equal any Lender's entire B Term Loan or Delayed Draw Term Loan or Delayed Draw Term Loan Commitment), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance substantially in the form of Exhibit A hereto, together with the assigning Lender's original note (if any) evidencing the Loans being assigned and a processing and recordation fee of $3,500 (which fee shall also be payable in the case of assignments from an assigning Lender to another Lender hereunder) to be paid to the Administrative Agent by the assigning Lender or the assignee and (iii) if the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to the exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.18. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall not (unless otherwise agreed to by the Administrative Agent) be earlier than five (5) Business Days after the date of acceptance and recording by the Administrative Agent, (x) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and under the other Fundamental Documents and shall be bound by the provisions hereof and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Credit Agreement except that, notwithstanding such assignment, any rights and remedies available to the Borrower for any breaches by such assigning Lender of its obligations hereunder while a Lender shall be preserved after such assignment and such Lender shall not be relieved of any liability to the Borrower due to any such breach. In the case of an Assignment and Acceptance covering all or the remaining portion of the assigning Lender's rights and obligations under this Credit Agreement, such assigning Lender shall cease to be a party hereto. It shall not be necessary for any Lender to sell the same percentage of its Revolving Credit Commitment and Revolving Credit Loans, its B Term Loans and its Delayed Draw Term Loan Commitment and Delayed Draw Term Loans (as the case may be) (although each such percentage of its Revolving Credit Commitment and Revolving Credit Loans, its B Term Loans and its Delayed Draw Term Loan Commitment and Delayed Draw Term Loans must be a constant, not varying percentage) (provided, that any such assignment shall be subject to the provisions of this Section 13.3 in all respects). (c) Each Lender, in accordance with Section 13.3(b) hereof (other than with respect to the minimum amount of an assignment and necessity of obtaining consents which shall be governed by the provisions set forth below of this Section 13.3(c)), may at any time make an assignment of its interests, rights and obligations under this Credit Agreement to any Affiliate of such Lender or to a Related Fund without the consent of the Administrative Agent, the Issuing Bank or the Borrower or any other Credit Party. Any assignment to any Affiliate of the assigning Lender or to a Related Fund hereunder shall not be subject to the requirement of Section 13.3(b) as to a minimum amount and any such assignment to any Affiliate of the assigning Lender or to a Related Fund shall not release the assigning Lender from its remaining obligations hereunder, if any. 128 (d) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby and that such interest is free and clear of any adverse claim, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or any other Fundamental Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any of the other Fundamental Documents or any other instrument or document furnished pursuant hereto or thereto; (ii) such assignor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Credit Parties or the performance or observance by any of the Credit Parties of any of their respective obligations under the Fundamental Documents or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Sections 5.1(a), 5.1(b), and 5.1(c) (or if none of such financial statements shall have then been delivered, then copies of the financial statements referred to in Section 3.6 hereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee agrees that it will, independently and without reliance upon the assigning Lender, the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank, any other Lender or any other Secured Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement or any of the other Fundamental Documents or any other instrument or document furnished pursuant thereto; (v) such assignee appoints and authorizes the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank to take such action as agent(s) on its behalf and to exercise such powers under this Credit Agreement as are delegated to the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent or the Issuing Bank (as applicable) by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will be bound by the provisions of this Credit Agreement and the other Fundamental Documents and will perform in accordance with their terms all of the obligations which by the terms of this Credit Agreement and the other Fundamental Documents are required to be performed by it as a Lender. (e) The Administrative Agent shall maintain at its address at which notices are to be given to it pursuant to Section 13.1 hereof a copy of each Assignment and Acceptance and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Credit Parties, the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of the Fundamental Documents. The Register shall be available for inspection by any Credit Party or any Lender at any reasonable time and from time to time upon reasonable prior notice. (f) Subject to the foregoing, upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee together with the assigning Lender's original note (if any) evidencing the Loans being assigned thereby, the processing and recordation fee, and evidence of the Administrative Agent's and the Borrower's written consent to such assignment (if required), the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt written notice thereof to the Borrower. Within five (5) Business Days after receipt of the notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for any surrendered note, a new note to the order of such assignee in an amount equal to the Revolving Credit Commitment or the principal amount of the B Term Loan or Delayed Draw Term Loan or the Delayed Draw Term Loan Commitment (as appropriate) assumed by the assignee Lender pursuant to such Assignment and Acceptance and if the assigning Lender has retained a Revolving Credit Commitment, any portion of a B Term Loan or Delayed Draw Term Loan or a Delayed Draw Term Loan Commitment hereunder, a new note to the order of the assigning Lender in an amount equal to the Revolving Credit Commitment, the principal amount of the B Term Loan or Delayed Draw Term Loan or the Delayed Draw Term Loan Commitment (as appropriate) retained by it hereunder. Such new notes shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered note (or if applicable, the outstanding principal amount of the applicable Loan owed to the assigning Lender immediately preceding the relevant assignment), shall be dated the date of the surrendered note and shall otherwise be in substantially the form of the surrendered note. 129 (g) Each of the Lenders may, without the consent of any of the Credit Parties or any of the Agents, the Issuing Bank or the other Lenders, sell participations to one or more banks, mutual funds or other financial institutions in all or a portion of its rights and obligations under this Credit Agreement (including, without limitation, all or a portion of any B Term Loans or Delayed Draw Term Loans at the time owing to it and any note held by it evidencing such Loans, all or a portion of its Delayed Draw Term Loan Commitment, or all or a portion of its Revolving Credit Commitment and the same portion of all Revolving Credit Loans (if any) at the time owing to it and any notes held by it evidencing its Revolving Credit Loans and its participation in Letters of Credit); provided, however, that (i) any such Lender's obligations under this Credit Agreement shall remain unchanged, (ii) such participant shall not be granted any voting rights or any right to control the vote of such Lender under this Credit Agreement, except that such participant may be granted voting rights (or a right to control the vote of such Lender under this Credit Agreement) with respect to (A) proposed decreases to interest rates or fees, (B) subject to Section 13.11 hereof changes to the amount of the Revolving Credit Commitments or Delayed Draw Term Loan Commitments (except for a ratable decrease in the Total Revolving Credit Commitment of all Lenders holding Revolving Credit Commitments or in the Total Delayed Draw Term Loan Commitment of all Lenders holding Delayed Draw Term Loan Commitments), (C) final maturity of any Loan and fees (in each case, as applicable to such participant) and (D) releases of all or substantially all the Collateral and the Real Property Assets, (iii) any such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iv) the participating banks or other entities shall be entitled to the cost protection provisions contained in Sections 2.15, 2.16, 2.17, 2.18 and 2.21 hereof, but a participant shall not be entitled to receive pursuant to such provisions an amount larger than its share of the amount to which the Lender granting such participation would have been entitled to receive and (v) the Credit Parties, the Administrative Agent, the Collateral Agent and the Collateral Monitoring Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's and its participants' rights and obligations under this Credit Agreement. 130 (h) A Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13.3, disclose to the assignee or participant or proposed assignee or participant, any information relating to any of the Credit Parties furnished to the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank or such Lender by or on behalf of the Borrower or any other Credit Party; provided, that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree in writing to be bound by the provisions of Section 13.17 hereof. (i) The Credit Parties consent that any Lender may at any time and from time to time pledge or otherwise grant a security interest in any Loan or in any Note evidencing the Loans (or any part thereof) to any Federal Reserve Bank. (j) Any assignment pursuant to paragraph (b) or (c) of this Section 13.3 shall constitute an amendment of the Commitments appearing on the signature pages hereto as of the effective date of such assignment. (k) Notwithstanding anything contained in this Sections any Lender may at any time assign or pledge all or any portion of its rights under this Agreement without the prior written consent of the Borrower, the Agents or the Issuing Bank to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that (i) no such assignment or pledge shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto and (ii) the right of any such assignee or pledgee to exercise any of such Lender's rights hereunder or to further transfer all or any portion of the rights pledged or granted to it, whether by means of foreclosure or otherwise shall at all times be subject to the other terms and provisions of this Section 13.3. In order to facilitate such an assignment, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a Note or Notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. SECTION 13.4 Expenses; Documentary Taxes. Whether or not the transactions hereby contemplated shall be consummated, the Borrower agrees to pay (a) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank in connection with, or arising out of, the performance of due diligence, the negotiation, preparation, execution, delivery, waiver or modification and administration of this Credit Agreement and any other documentation contemplated hereby, the making of the Loans and the issuance of the Letters of Credit, the Collateral, the Pledged Securities, any Real Property Asset or any Fundamental Document, including but not limited to, the reasonable out-of-pocket costs and internally allocated charges of one legal counsel or audit or field examinations of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent and the Issuing Bank connection with the administration of this Credit Agreement, the verification of financial data or the transactions contemplated hereby, and the reasonable fees and disbursements of Morgan, Lewis & Bockius LLP, counsel for the Agents, and any other counsel that any of the Agents shall retain and (b) all reasonable out-of-pocket expenses incurred by the Agents, the Issuing Bank, any Lender and any other Secured Party in the enforcement or protection (as distinguished from administration) of the rights and remedies of the Agents, the Issuing Bank, the Lenders and any other Secured Parties in connection with this Credit Agreement, the other Fundamental Documents, the Letters of Credit or any notes evidencing the Loans hereunder, or as a result of any transaction, action or non-action arising from any of the foregoing, including but not limited to, the reasonable fees and disbursements of any counsel for any of the Agents, the Issuing Bank, the Lenders or any other Secured Party. Such payments shall be made on the date this Credit Agreement is executed by the Borrower and thereafter on demand. The Borrower agrees that it shall indemnify the Agents, the Issuing Bank, the Lenders and any other Secured Parties from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Credit Agreement or any notes evidencing any of the Loans hereunder or the issuance of Letters of Credit. The obligations of the Borrower under this Section 13.4 shall survive the Facility Termination Date, the termination of this Credit Agreement and the payment of the Loans and/or the expiration of the Letters of Credit. 131 SECTION 13.5 Indemnity. The Borrower agrees to indemnify and hold harmless the Agents, the Issuing Bank, the Co-Lead Arrangers, the Lenders and any other Secured Parties, their respective directors, officers, employees, trustees, investments advisors and agents, and any professionals retained by them (each an "Indemnified Party") (to the full extent permitted by Applicable Law) from and against any and all claims, demands, losses, judgments, damages and liabilities (including liabilities for penalties) incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Indemnified Party is a party thereto) related to the entering into and/or performance of this Credit Agreement or any other Fundamental Document or the use of the proceeds of any Loans hereunder or the issuance of any Letter of Credit or the consummation of any other transaction contemplated in this Credit Agreement or any other Fundamental Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses of an Indemnified Party to the extent incurred by reason of the gross negligence or willful misconduct of such Indemnified Party as determined by a final order or judgment of a court of competent jurisdiction). The foregoing indemnity agreement includes any reasonable costs incurred by an Indemnified Party in connection with any action or proceeding which may be instituted in respect of the foregoing by one of the Agents, the Co-Lead Arrangers or the Issuing Bank or by any other Person either against one of the Agents, the Co-Lead Arrangers, the Issuing Bank or the Lenders or in connection with which any officer or employee of one of the Agents, the Co-Lead Arrangers, the Issuing Bank or the Lenders is called as a witness or deponent, including, but not limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius LLP, counsel to the Agents and the Co-Lead Arrangers and any out-of-pocket costs incurred by the Agents, the Co-Lead Arrangers, the Issuing Bank, the Lenders or any other Secured Party in appearing as a witness or in otherwise complying with legal process served upon them. The obligations of the Borrower under this Section 13.5 shall survive the Facility Termination Date, the termination of this Credit Agreement and the payment of the Loans and/or the expiration or termination of the Letters of Credit and shall inure to the benefit of any Person who was a Lender notwithstanding such Person's assignment of all its Loans and its Revolving Credit Commitment or Delayed Draw Term Loan Commitment hereunder. 132 If a Credit Party shall fail to do any act or thing which it has covenanted to do hereunder or under a Fundamental Document, or any representation or warranty of a Credit Party shall be breached, the Administrative Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and there shall be added to the Obligations hereunder the cost or expense incurred by the Administrative Agent in so doing, and any and all amounts expended by the Administrative Agent in taking any such action shall be repayable to it upon its demand therefor and shall bear interest at a rate per annum of 2% in excess of the rate then in effect for Base Rate Loans which are Revolving Credit Loans set forth in Section 2.13(a) from time to time in effect from the date advanced to the date of repayment. SECTION 13.6 CHOICE OF LAW. THIS CREDIT AGREEMENT, THE OTHER FUNDAMENTAL DOCUMENTS AND ANY NOTE EVIDENCING ANY OF THE LOANS HEREUNDER SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES AND BY FEDERAL LAW TO THE EXTENT APPLICABLE; PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY MORTGAGE FILED IN A JURISDICTION OUTSIDE THE STATE OF NEW YORK, THE LAWS OF SUCH JURISDICTION WHERE SUCH MORTGAGE WAS FILED SHALL APPLY. SECTION 13.7 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE PROVISIONS OF THIS SECTION 13.7 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS CREDIT AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 13.7 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY. SECTION 13.8 WAIVER WITH RESPECT TO DAMAGES. EACH CREDIT PARTY ACKNOWLEDGES THAT NEITHER THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE COLLATERAL MONITORING AGENT, THE CO-LEAD ARRANGERS, THE ISSUING BANK, ANY LENDER NOR ANY OTHER SECURED PARTY HAS ANY FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, ANY CREDIT PARTY ARISING OUT OF OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENT AND THE RELATIONSHIP BETWEEN THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE COLLATERAL MONITORING AGENT, THE CO-LEAD ARRANGERS, THE ISSUING BANK, THE LENDERS AND ANY OTHER SECURED PARTIES, ON THE ONE HAND, AND THE CREDIT PARTIES, ON THE OTHER HAND, IN CONNECTION THEREWITH IS SOLELY THAT OF DEBTOR AND CREDITOR. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO CREDIT PARTY SHALL ASSERT, AND EACH CREDIT PARTY HEREBY WAIVES, ANY CLAIMS AGAINST THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE COLLATERAL MONITORING AGENT, THE CO-LEAD ARRANGERS, THE ISSUING BANK, THE LENDERS AND ANY OTHER SECURED PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS CREDIT AGREEMENT, ANY FUNDAMENTAL DOCUMENT, ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 133 SECTION 13.9 No Waiver. No failure on the part of the Administrative Agent, the Collateral Agent, the Collateral Monitoring Agent, the Issuing Bank, any Lender or any other Secured Party to exercise, and no delay in exercising, any right, power or remedy hereunder, under any note evidencing any Loan hereunder, with regard to any Letter of Credit, or any other Fundamental Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. SECTION 13.10 Extension of Payment Date. Except as otherwise specifically provided in Article 2 hereof, should any payment or prepayment of principal of or interest on any of the Loans or any other amount due hereunder, become due and payable on a day other than a Business Day, the due date of such payment or prepayment shall be extended to the next succeeding Business Day and, in the case of a payment or prepayment of principal, interest shall be payable thereon at the rate herein specified during such extension. SECTION 13.11 Amendments, etc. (a) Unless otherwise specifically provided herein any provision of this Credit Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Credit Parties and the Required Lenders (and, if the rights or duties of any of the Agents are affected thereby, by the applicable Agent); provided, that if such amendment or waiver affects only the Lenders holding B Term Loans, Delayed Draw Term Loans (or Delayed Draw Term Loan Commitments) or Revolving Credit Loans (or Revolving Credit Commitments), as applicable, then only Lenders holding more than 50% of the Loans in the applicable Tranche (or the Revolving Credit Commitments or Delayed Draw Term Loan Commitments, if applicable) shall be required to sign such amendment or waiver; provided, further, that no such amendment or waiver shall (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitment of all Lenders holding Commitments for that Tranche), without the prior written consent of such Lender, (ii) reduce the principal of, or rate of interest on, any Loan or any Fees specified herein, due to a Lender without the prior written consent of such Lender, (iii) postpone the date fixed for any payment of principal of, or interest on, any Loan or any Fees hereunder due to a Lender or for any reduction or termination of the Commitment of a Lender, without the prior written consent of each such Lender, (iv) increase the amount of the B Term Loans, Delayed Draw Term Loans or the Revolving Credit Loans of a Lender, without the prior written consent of such Lender, (v) decrease any amount payable to a Lender pursuant to the provisions of Section 2.12 or Section 12.2 hereof, without the prior written consent of each such Lender, (vi) release all or substantially all of the Collateral and the Real Property Assets from the Liens created by the Fundamental Documents (except as expressly permitted hereby), without the prior written consent of all the Lenders, (vii) amend or modify the provisions of this Section 13.11, without the prior written consent of all the Lenders, (viii) amend the definition of "Required Lenders," without the prior written consent of all the Lenders or "Required Revolving Credit Lenders" without the consent of all the Revolving Credit Lenders or (ix) amend or modify any provision of this Agreement which expressly provides for the unanimous consent or approval of the Lenders. No such amendment, modification, waiver or consent shall amend Section 2.21 hereof or adversely affect the rights and obligations of the Issuing Bank hereunder without its prior written consent. Each holder of a Commitment, a Loan or a note evidencing any Loan hereunder shall be bound by any amendment, modification, waiver or consent authorized as provided herein (whether or not any applicable note shall have been marked to indicate such amendment, modification, waiver or consent); and any consent by any holder of a Commitment, a Loan or a note shall bind any Person subsequently acquiring such Commitment, Loan or note (whether or not any applicable note is so marked). 134 (b) If a condition to Borrowing or the issuance of a Letter of Credit hereunder is not satisfied or some other event occurs that would prohibit the Borrower from borrowing or receiving a Letter of Credit hereunder, then in order to waive such condition or consent to such event, the consent of the Required Revolving Credit Lenders (as a separate group) shall be required in addition to any other consent required pursuant this Credit Agreement. (c) Notwithstanding the foregoing provisions of this Section 13.11 or anything to the contrary contained in this Credit Agreement, any Lender which has requested that it not receive material, non-public information concerning the Borrower or any of the other Credit Parties and which is therefore unable or unwilling to vote with respect to an issue arising under this Credit Agreement will agree to vote and will be deemed to have voted its Credit Exposure under this Credit Agreement pro rata in accordance with the percentage of Credit Exposure voted in favor of, and the percentage of Credit Exposure voted against, any such issue under this Credit Agreement. (d) If the Borrower shall have requested a waiver, consent, or amendment from the Lenders of any of the matters described in clauses (i) through (vii) of Section 13.11(a), and the Borrower shall have received such waiver, consent, or amendment from Lenders holding greater than 50% of the Total Credit Exposure (or in the case of such a waiver, consent or amendment relating to a single Tranche, greater than 50% of the aggregate Credit Exposure of all Lenders with respect to such Tranche), then with respect to any Lender that has not consented (the "Non-Consenting Lenders"), the Borrower may, upon at least five (5) Business Days' prior written or facsimile notice to such Lender and the Administrative Agent, identify to the Administrative Agent a Purchasing Lender which will purchase (for an amount, in immediately available funds, equal to the principal amount of outstanding Loans payable to such Non-Consenting Lender, plus all accrued but unpaid interest and fees payable to such Non-Consenting Lender), the Commitments of such Non-Consenting Lender (if applicable), and such Non-Consenting Lender shall thereupon assign any Loans owing to such Non-Consenting Lender, its Commitments (if applicable) and any notes held by such Non-Consenting Lender to such Purchasing Lender pursuant to Section 13.3 hereof; provided, that the consent of the Administrative Agent required pursuant to Section 13.3 hereof shall not be unreasonably withheld. 135 SECTION 13.12 Severability. Any provision of this Credit Agreement or of any note evidencing any Loan hereunder which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 13.13 SERVICE OF PROCESS. EACH PARTY HERETO (EACH A "SUBMITTING PARTY") HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN NEW YORK COUNTY, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE LETTERS OF CREDIT, THE SUBJECT MATTER HEREOF AND ANY OTHER FUNDAMENTAL DOCUMENT AND THE SUBJECT MATTER THEREOF). EACH SUBMITTING PARTY TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS CREDIT AGREEMENT, THE SUBJECT MATTER HEREOF AND ANY OTHER FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF (AS APPLICABLE) MAY NOT BE ENFORCED IN OR BY SUCH COURT AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. EACH SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 13.1 HEREOF. EACH SUBMITTING PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF EACH OF THE OTHER SUBMITTING PARTIES. FINAL JUDGMENT AGAINST ANY SUBMITTING PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE COLLATERAL MONITORING AGENT AND THE ISSUING BANK MAY AT THEIR OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST A SUBMITTING PARTY OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE SUBMITTING PARTY OR SUCH ASSETS MAY BE FOUND. 136 SECTION 13.14 Headings. Section headings used herein and the Table of Contents are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Credit Agreement. SECTION 13.15 Execution in Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument. Signature pages may be detached from counterpart documents and reassembled to form duplicate executed originals. Delivery of an executed signature page to this Credit Agreement by facsimile shall be as effective as delivery of a manually executed counterpart of this Credit Agreement. SECTION 13.16 Subordination of Intercompany Indebtedness, Receivables and Advances. (a) Each Credit Party hereby agrees that any intercompany Indebtedness or other intercompany receivables or intercompany advances of any other Credit Party, directly or indirectly, in favor of such Credit Party of whatever nature at any time outstanding shall be completely subordinate in right of payment to the prior indefeasible payment in full of the Obligations, and that no payment on any such Indebtedness, receivable or advance shall be made until the prior indefeasible payment in full of all the Obligations, termination of the Commitments and the expiration and/or termination of all Letters of Credit (or the cash collateralization of the outstanding Letters of Credit in an amount equal to 105% of the then current L/C Exposure) (i) except intercompany receivables and intercompany advances permitted pursuant to the terms hereof may be repaid and intercompany Indebtedness permitted pursuant to the terms hereof may be repaid, in each case so long as no Default or Event of Default, shall have occurred and be continuing and (ii) except as specifically consented to by the Administrative Agent and the Required Lenders in writing. (b) In the event that any payment on any such Indebtedness shall be received by such Credit Party other than as permitted by Section 13.16(a) hereof before payment in full of all Obligations, termination of the Commitments and the expiration and/or termination of all Letters of Credit (or the cash collateralization of the outstanding Letters of Credit in an amount equal to 105% of the then current L/C Exposure), such Credit Party shall receive such payments and hold the same in trust for, segregate the same from its own assets and shall immediately pay over to, the Collateral Agent on behalf of the Secured Parties all such sums to the extent necessary so that the Secured Parties shall have been paid all Obligations owed or which may become owing. 137 SECTION 13.17 Confidentiality. Each of the Lenders understands that some of the information furnished to it pursuant to this Credit Agreement may be received by it prior to the time that such information shall have been made public, and each of the Lenders hereby agrees that it will keep all the information received by it in connection with this Credit Agreement confidential except that a Lender shall be permitted to disclose information (i) to such of its officers, directors, employees, agents, representatives, auditors, consultants, advisors, trustees, investments advisors, lawyers and affiliates as need to know such information in connection with this Credit Agreement or any other Fundamental Document; (ii) to a proposed assignee or participant in accordance with Section 13.3(h) hereof; (iii) to the extent required by Applicable Law and regulations or by any subpoena or other legal process (in any which event such Lender shall promptly notify the Borrower to the extent not prohibited by Applicable Law); (iv) to the extent requested by any bank regulatory authority or other regulatory authority; (v) to the extent such information (A) becomes publicly available other than as a result of a breach of this Credit Agreement, (B) becomes available to such Lender on a nonconfidential basis from a source other than the Borrower or any of its Affiliates, which source is not known to such Lender to be prohibited from transmitting the information to such Lender by any contractual or other obligation to the Borrower or (C) was available to such Lender on a nonconfidential basis prior to its disclosure to such Lender; (vi) to the extent the Borrower shall have consented to such disclosure in writing; or (vii) in connection with the servicing of the Loans hereunder, in protecting or enforcing any rights and/or remedies in connection with any Fundamental Document or in any proceeding in connection with any Fundamental Document or any of the transactions contemplated thereby. SECTION 13.18 Entire Agreement. This Credit Agreement (including the Exhibits and Schedules hereto) represents the entire agreement of the parties with regard to the subject matter hereof and the terms of any letters and other documentation entered into between any of the parties hereto (other than the Fee Letters) prior to the execution of this Credit Agreement which relate to Loans to be made or Letters of Credit to be issued hereunder shall be replaced by the terms of this Credit Agreement. SECTION 13.19 Enforcement of Rights; No Obligation to Marshall Assets. In enforcing any rights under this Credit Agreement or any other Fundamental Document, neither the Agents, the Issuing Bank, any Lender nor any of the other Secured Parties shall be required to resort to any particular security, right or remedy through foreclosure or otherwise, or to proceed in any particular order of priority, or to otherwise act or refrain from acting; and, to the extent permitted by Applicable Law, each Credit Party hereby waives and releases any right to a marshaling of assets or a sale in inverse order of alienation. SECTION 13.20 Reproduction of Documents. The Credit 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) the Fundamental Documents; and (c) financial statements, certificates, and other information previously or hereafter furnished to any of the Agents, the Issuing Bank, any Lender or any other Secured Party 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 Applicable 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 applicable law, any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. 138 SECTION 13.21 Right of Set-Off. Subject to Section 12.3 upon the occurrence and during the continuance of any Event of Default, the Administrative Agent and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law and without order of or application to any court, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent and each such Lender to or for the credit or the account of any Credit Party against any and all of the Obligations, irrespective of whether or not such Lender shall have made any demand under any Fundamental Document and although the Obligations may not have been accelerated. The rights of each Lender and the Administrative Agent under this Section are in addition to other rights and remedies which such Lender and the Administrative Agent may have upon the occurrence and during the continuance of any Event of Default. [Signature Pages Follow] 139 BORROWER GENESIS HEALTH VENTURES, INC. BY /S/ GEORGE V. HAGER JR. ------------------------- GUARANTORS: ACADEMY NURSING HOME, INC. ACCUMED, INC. ADS APPLE VALLEY, INC. ADS CONSULTING, INC. ADS DANVERS ALF, INC ADS DARTMOUTH ALF, INC. ADS HINGHAM ALF, INC. ADS HINGHAM NURSING FACILITY, INC. ADS HOME HEALTH, INC. ADS MANAGEMENT, INC. ADS PALM CHELMSFORD, INC ADS RECUPERATIVE WALTHAM, INC ADS SENIOR HOUSING, INC. ADS VILLAGE MANOR, INC. ANR, INC. APPLEWOOD HEALTH RESOURCES, INC. ASCO HEALTHCARE OF NEW ENGLAND, INC. ASCO HEALTHCARE, INC. ASL, INC. AUTOMATED PROFESSIONAL ACCOUNTS, INC. BERKS NURSING HOMES, INC. BETHEL HEALTH RESOURCES, INC. BREYUT CONVALESCENT CENTER, INC. BRIGHTWOOD PROPERTY, INC. BRINTON MANOR, INC. BURLINGTON WOODS CONVALESCENT CENTER, INC. CARECARE, INC. CAREFLEET, INC. CENTURY CARE CONSTRUCTION, INC. CENTURY CARE MANAGEMENT, INC. CHATEAU VILLAGE HEALTH RESOURCES, INC. CHELTENHAM LTC MANAGEMENT, INC. CHG INVESTMENT CORP., INC. CHNR-I, INC. COLONIAL HALL HEALTH RESOURCES, INC. COLONIAL HOUSE HEALTH RESOURCES, INC. COMPASS HEALH SERVICES, INC. CONCORD COMPANION CARE, INC. CONCORD HEALTH GROUP, INC. CONCORD HEALTHCARE SERVICES, INC. CONCORD HOME HEALTH, INC. CONCORD PHARMACY SERVICES, INC. CONCORD REHAB, INC. CONCORD SERVICES CORPORATION CRESTVIEW CONVALESCENT HOME, INC. CRESTVIEW NORTH, INC. CRYSTAL CITY NURSING CENTER, INC. CVNR, INC. DAWN VIEW MANOR, INC. DELCO APOTHECARY, INC. DELM NURSING, INC. DENTON HEALTHCARE CORPORATION DERBY NURSING CENTER CORPORATION DIANCE MORGAN AND ASSOCIATES, INC. EASTERN MEDICAL SUPPLIES, INC. EASTERN REHAB SERVICES, INC. EIDOS, INC. ELDERCARE RESOURCES CORP. ELMWOOD HEALTH RESOURCE, INC. ENCARE OF MASSACHUSETTES, INC. ENCARE OF MENDHAM, INC. ENCARE OF PENNYPACK, INC. ENCARE OF QUAKERTOWN, INC. ENCARE OF WYNCOTE, INC. ENR, INC. GENESIS ELDERCARE ADULT DAY HEALTH SERVICES, INC. GENESIS ELDERCARE CENTERS I, INC. GENESIS ELDERCARE CENTERS II, INC. GENESIS ELDERCARE CENTERS III, INC. GENESIS ELDERCARE CORP. GENESIS ELDERCARE DIAGNOSTIC SERVICES, INC. GENESIS ELDERCARE HOME CARE SERVICS, INC. GENESIS ELDERCARE HOME HEATH SERVICES - SOUTHERN, INC. GENESIS ELDERCARE HOSPITALITY SERVICES, INC. GENESIS ELDERCARE LIVING FACILITIES, INC. GENESIS ELDERCARE MANAGEMENT SERVICES, INC. GENESIS ELDERCARE NATIONAL CENTERS, INC. GENESIS ELDERCARE NETWORK SERVICES OF MASSACHUSETTS, INC. GENESIS ELDERCARE NETWORK SERVICES, INC. GENESIS ELDERCARE PARTNERSHIP CENTERS, INC. GENESIS ELDERCARE PHYSICIAN SERVICES, INC. GENESIS ELDERCARE PROPERTIES, INC. GENESIS ELDERCARE REHABILITATION MANAGEMENT SERVICES, INC. GENESIS ELDERCARE REHABILITATION SERVICES, INC. GENESIS ELDERCARE STAFFING SERVICES, INC. GENESIS ELDERCARE TRANPORTATION SERVICES, INC. GENESIS HEALTH SERVICES CORPORATION GENESIS HEALTH VENTURES OF ARLINGTON, INC. GENESIS HEALTH VENTURES OF BLOOMFIELD, INC. GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC. GENESIS HEALTH VENTURES OF INDIANA, INC. GENESIS HEALTH VENTURES OF LANHAM, INC. GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC. GENESIS HEALTH VENTURES OF NAUGATUCK, INC. GENESIS HEALTH VENTURES OF NEW GARDEN, INC. GENESIS HEALTH VENTURES OF POINT PLEASANT, INC. GENESIS HEALTH VENTURES OF SALISBURY, INC. GENESIS HEALTH VENTURES OF WAYNE, INC. GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC. GENESIS HEALTH VENTURES OF WILKES-BARRE, INC. GENESIS HEALTH VENTURES OF WINDSOR, INC. GENESIS HEALTHCARE CENTERS HOLDINGS, INC. GENESIS HOLDINGS, INC. GENESIS IMMEDIATE MED CENTER, INC. GENESIS PROPERTIES OF DELAWARE CORPORATOIN GENESIS SELECTCARE CORP. GENESIS / VNA PARTNERSHIP HOLDINGS COMPANY, INC. GENESIS - CROZER PARTNERSHIP HOLDING COMPANY, INC. GERIATRIC & MEDICAL COMPANIES, INC. GERIATRIC AND MEDICAL SERVICES, INC. GERIATRIC AND MEDICAL INVESTMENTS CORPORATION GERIMED CORP. GHV AT SALSIBURY CENTER, INC. GLENMARK ASSOCIATES - DAWN VIEW MANOR, INC. GLENMARK ASSOCIATES, INC. GLENMARK PROPERTIES, INC. GMA - BRIGHTWOOD, INC. GMA - CONSTRUCTION, INC. GMA - MADISON, INC. GMA - UNIONTOWN, INC. GMA PARTNERSHIP HOLDING COMPANY, INC. GMC LEASING CORPORATION GMC MEDICAL CONSULTING SERVICES, INC. GMC 0 LTC MANAGEMENT, INC. GMS INSURANCE SERVICES, INC. GMS MANAGEMENT, INC. GMS MANAGEMENT - TUCKER, INC. GOVERNOR'S HOUSE NURSIN HOME, INC. H.O. SUBSIDIARY, INC. HEALTH CONCEPTS AND SERVICES, INC. HEALTH RESOURCES OF ACADAMEY MANOR, INC. HEALTH RESOURCES OF ARCADIA, INC. HEALTH RESOURCES OF BOARDMAN, INC. HEALTH RESOURCES OF BRIDGETON, INC. HEALTH RESOURCES OF BROOKLYN, INC. HEALTH RESOURCES OF CEDAR GROVE, INC. HEALTH RESOURCES OF CINNAMISON, INC. HEALTH RESOURCES OF COLCHESTER, INC. HEALTH RESOURCES OF COLUMBUS, INC. HEALTH RESOURCES OF CUMBERLAND, INC. HEALTH RESOURCES OF EATONTOWN, INC. HEALTH RESOURCES OF ENGLEWOOD, INC. HEALTH RESOURCES OF EWING, INC. HEALTH RESOURCES OF FARMINGTON, INC. HEALTH RESOURCES OF GARDNER, INC. HEALTH RESOURCES OF GLASTONBURY, INC. HEALTH RESOURCES OF GROTON, INC. HEALTH RESOURCES OF JACKSON, INC. HEALTH RESOURCES OF KARMENTA AND MADISON, INC. HEALTH RESOURCES OF LAKEVIEW, INC. HEALTH RESOURCES OF LEMONT, INC. HEALTH RESOURCES OF LYNN, INC. HEALTH RESOURCES OF MARCELLA, INC. HEALTH RESOURCES OF MIDDLETOWN (RI), INC. HEALTH RESOURCES OF MONTCLAIR, INC. HEALTH RESOURCES OF MORRISTOWN, INC. HEALTH RESOURCES OF NORFOLK, INC. HEALTH RESOURCES OF NORTH ANDOVER, INC. HEALTH RESOURCES OF NORWALK, INC. HEALTH RESOURCES OF PENNINGTON, INC. HEALTH RESOURCES OF RIDGEWOOD, INC. HEALTH RESOURCES OF ROCKVILLE, INC. HEALTH RESOURCES OF SOLOMONT / BROOKLINE, INC. HEALTH RESOURCES OF SOUTH BRUNSWICK, INC. HEALTH RESOURCES OF TROY HILLS, INC. HEALTH RESOURCES OFVOORHEES, INC. HEALTH RESOURCES OF WALLINGFORD, INC. HEALTH RESOURCES OF WARWICK, INC. HEALTH RESOURCES OF WESTWOOD, INC. HEALTHCARE REHAB SYSTEMS, INC. HEALTHCARE RESOURCES CORP. HEALTHOBJECTS CORPORATION HELSTAT, INC. HILLTOP HEALTH CARE CENTER, INC. HMNH REALTY, INC. HNCA, INC. HORIZON ASSOCIATES, INC. HORIZON MEDICAL EQUIPMENT AND SUPPLY, INC. HORIZON MOBIL, INC. HORIZON REHABILITATION, INC. HR OF CHARLESTON, INC. HRWV HUNTINGTON, INC. INNOVATIVE HEALTH CARE MARKETING, INC. INNOVATIVE PHARMACY SERVICES, INC. INSTITUTIONAL HEALTH CARE SERVICES, INC. KEYSTONE NURSING HOME, INC. KNOLLWOOD MANOR, INC. KNOLLWOOD NURSING HOME, INC. LAKE MANOR, INC. LAKEWOOD HEALTH RESOURCES, INC. LAUREL HEALTH RESOURCES, INC. LEHIGH NURSING HOMES, INC. LIFE SUPPORT MEDICAL EQUIPMENT, INC. LIFE SUPPORT MEDICAL, INC. LINCOLN NURSING HOME, INC. LRC HOLDING COMPANY LWNR, INC. MABRI CONVALESCENT CENTER, INC. MADISON AVENUE ASSISTED LIVING, INC. MANOR MANAGEMENT CORPORATION OF GEORGIAN MANOR, INC. MARLINTON PARTNERSHIP HOLDING COMPANY, INC. MARLINTON ASSOCIATES, INC. MARSHFIELD HEALTH RESOURCES, INC. MCKERLEY HEALTH CARE CENTER - CONCORD, INC. MCKERLEY HEALTH CARE CENTERS, INC. MEDICAL SERVICES GROUP, INC. MERIDIAN HEALTH, INC. MERIDIAN HEALTHCARE INVESTMENTS, INC. MERIDIAN HEALTHCARE, INC. METRO PHARMACEUTICALS, INC. MHNR, INC. MNR, INC. MONTGOMERY NURSING HOME, INC. MULTICARE ACQUISITION CORP. MULTICARE AMC, INC. MULTICARE HOME HEALTH OF ILLINOIS, INC. MULTICARE MEMBER HOLDING CORP. MULTICARE PAYROLL CORP. NATIONAL PHARMACY SERVICE, INC. NEIGHBORCARE OF INDIANA, INC. NEIGHBORCARE INFUSION SERVICES, INC. NEIGHBORCARE OF NORTHERN CALFIFORNIA, INC. NEIGHBORCARE OF OKLAHOMA, INC. NEIGHBORCARE OF VIRGINIA, INC. NEIGHBORCARE OF WISCONSIN, INC. NEIGHBORCARE PHARMACY SERVICES, INC. NEIGHBORCARE PHARMACIES, INC. NEIGHBORCARE-MEDISCO, INC. NEIGHBORCARE-ORCA, INC. NEIGHBORCARE-TCI, INC. NETWORK AMBULANCE SERVICES, INC. NORTH MADISON, INC. NORTHWESTERN MANAGEMENT SERVICES, INC. NURSING AND RETIREMENT CENTER OF THE ANDOVERS, INC. PHARMACY EQUITIES, INC. PHC OPERATING CORP. PHILADELPHIA AVENUE CORPORATION POCAHONTAS CONTINUOUS CARE CENTER, INC. POMPTON CARE, INC. PRESCOTT NURSING HOME, INC. PROFESSIONAL PHARMACY SERVICES, INC. PROGRESSIVE REHABILIATION CENTER, INC. PROPSECT PARK LTC MANAGEMENT INC. PROVIDENCE FUNDING CORPORATION PROVIDENCE HEALTH CARE, INC. PROVIDENCE MEDICAL, INC. QUAKERTOWN MANOR CONVALESCENT AND REHABILITATION, INC. REST HAVEN NURSING HOME, INC. RIDGELAND HEALTH RESOURCES, INC. RIVER PINES HEALTH RESOURCES, INC. RIVERSHORES HEALTH RESOURCES, INC. RLNR, INC. ROEPHEL CONVALESCNENT CENTER, INC. ROSE HEALTHCARE, INC. ROSE VIEW MANOR, INC. ROXBOROUGH NURSING HOME, INC. RSNR, INC. RVNR, INC. S.T.B. INVESTORS, LTD SCHUYLKILL NURSING HOMES, INC. SCHUYLKILL PARTNERSHIP ACQUISTION CORP. SCOTCHWOOD INSTITUTIONAL SERVICES, INC. SCOTCHWOOD MASSACHUSETTS HOLDINGS CO., INC. SENIOR LIVIN VENTURES, INC. SENIOR SOURCE, INC. SNOW VALLEY HEALTH RESOURCES, INC. SOLOMONT FAMILY MEDFORD VENTURE, INC. STAFFORD CONVALESCENT CENTER, INC. STATE STREET ASSOCIATES, INC. SUBURBAN MEDICAL SERVICES, INC. SVNR, INC. THE ADS GROUP, INC. THE APPLE VALLEY PARTNERSHIP HOLDING COMPANY, INC. THE ASSISTED LIVING ASSOCIATES OF BERKSHIRE, INC. THE ASSISTED LIVING ASSOCIATES OF LEHIGH, INC. THE ASSISTED LIVING ASSOCIATES OF SANATOGA, INC. THE HOUSE OF CAMPBELL, INC. THE MULTICARE COMPANIES, INC. THERAPY CARE, INC. THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC. TMC ACQUSITION CORP. TRANSPORT SERVICES, INC. TRI STATE MOBILE MEDICAL SERVICES, INC. UNITED HEALTH CARE SERVICES, INC. VALLEY MEDICAL SERVICES, INC. VALLEY TRANSPORT AMBULANCE SERVICE, INC. VERSALINK, INC. VILLAS REALTY & INVESTMENTS, INC. WALNUT LTC MANAGEMENT, INC. WAYSIDE NURSING HOME, INC. WEISENFLUH AMBULANCE SERVICE, INC. WEST PHILA. LTC MANAGEMENT, INC. WESTFORD NURSING AND RETIRMENT CENTER, INC. WILLOW MANOR NURSING HOME, INC. WYNCOTE HEALTHCARE CORP. YORK LTC MANAGEMENT, INC. BY: /S/ GEORGE V. HAGER JR. ----------------------- NAME: On behalf of each of the foregoing entities as an Authorized Signatory of such entities ADS APPLE VALLEY LIMITED PARTNERSHIP, by ADS Apple Valley, Inc., its General Partner ADS DARTMOUTH GENERAL PARTNERSHIP, by ADS Senior Housing, Inc. and ADS Dartmouth ALF, Inc., its General Partners ADS HINGHAM LIMITED PARTNERSHIP, by ADS Hingham Nursing Facility, Inc., its General Partner ADS RECUPERATIVE CENTER LIMITED PARTNERSHIP, by ADS Recuperative Center, Inc., its General Partner ARCADIA ASSOCIATES, by ADS / Multicare, Inc. and Health Resources of Arcadia, Inc., its General Partners ASCO HEALTHCARE OF NEW ENGLAND, LIMITED PARTNERSHIP, by ASCO Healthcare of New England, Inc., its General Partner BREVARD MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner CARE HAVEN ASSOCIATES LIMITED PARTNERSHIP, by Glenmark Associates, Inc. and GMA Partnership Holding Company, Inc., its General Partners CARE4 L.P., by Institutional Health Care Services, Inc., its General Partner CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc. and Meridian Healthcare, Inc. its General Partners CUMBERLAND ASSOCIATES OF RHODE ISLAND, L.P., by Health Resources of Cumberland, Inc., its General Partner EASTON MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc. and Meridian Healthcare, Inc. its General Partners EDELLA STREET ASSOCIATES, by Genesis Health Ventures of Clarks Summit, Inc., its General Partner GENESIS ELDERCARE CENTERS I, L.P.., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS ELDECARE CENTERS II L.P.., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS ELDECARE CENTERS III L.P.., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS HEALTH VENTURES OF WEST VIRGINIA, LIMITED PARTNERSHIP, by Genesis Eldercare Network Services, Inc. and Genesis Eldercare Rehabilitation Services, Inc., its General Partners GENESIS PROPERTIES LIMITED PARTNERSHIP, by Genesis Health Ventures of Arlington, Inc., its General Partner GENESIS PROPERTIES OF DELWARE LTD. PARTNERSHIP, L.P., by Genesis Properties of Delaware Corporation, its General Partner GLENMARK PROPERTIES I, LIMITED PARTNERSHIP, by Glenmark Associates, Inc. and GMA Partnership Holding Company, Inc., its General Partners GREENSPRING MERIDIAN LIMITED PARTERSHIP, by Meridian Healthcare Inc., it General Partner GROTON ASSOCIATES OF CONNECTICUT, L.P., by Health Resources of Groton, Inc., its General Partner HALLMARK HEALTHCARE LIMITED PARTNERSHIP, by Pharmacy Equities, Inc, its General Partner HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc. and Meridian Health, Inc. its General Partners HOLLY MANOR ASSOCIATES OF NEW JERSEY, L.P., by Encare of Mendham, L.L.C. its General Partner LAKE WASHINGTON, LTD., by Lake Manor, its General Partner MCKERLEY HEALTH FACILITIES, by Merdian Health, Inc., and Meridian Healthcare, Inc., its General Partners MERCERVILLE ASSOCIATES OF NEW JERSEY, L.P., by Breyut Convalescent Center, L.L.C., its General Partner MERIDIAN EDGEWOOD LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN PERRING LIMITED PARTERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN VALLEY LIMITED PARTERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN VALLEY VIEW LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN / CONSTELLATION LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., and Meridian Health Inc., its General Partner MIDDLETOWN (RI) ASSOCIATES OF RHODE ISLAND, L.P. by Health Resources of Middletown (R.I.), Inc., its General Partner MILLVILLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner NORRISTOWN NURSING AND REHABILITIATION CENTER ASSOCIATES, L.P., by GMC-LTC Management, Inc., its General Partner PHILADELPHIA AVENUE ASSOCIATES, by Philadelphia Avenue Corporation, its General Partner POINT PLEASANT HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner POMPTON ASSOCIATES, L.P., by Pompton Care L.L.C., its General Partner RALEIGH MANOR LIMITED PARTNERSHIP, by Glenmark Associates, Inc. its General Partner RIVER STREET ASSOCIATES, by Genesis Health Ventures of Wilkes-Barre, Inc., its General Partner ROMNEY HEALTH CARE CENTER LTD., LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner SEMINOLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc., its General Partner SISTERVILLE HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner STATE STREET ASSOCIATIES, L.P., by State Street Associates, Inc., its General Partner TEAYS VALLEY HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner THE STRAUSS GROUP - HOPKINS HOUSE, L.P., by Encare of Wyncote, Inc., its General Partner THE STRAUS GROUP - OLD BRIDGE, L.P., by Health Resources of Emery, L.L.C., its General Partner THE STRAUS GROUP - RIDGEWOOD, L.P., by Health Resources of Ridgewood, L.L.C., its General Partner WALLINGFORD ASSOCIATES OF CONNECTICUT, L.P., by Health Resources of Wallingford, Inc, its General Partner THERAPY CARE SYSTEMS, L.P., Genesis ElderCare Rehabilitation Services, Inc., its General Partner VOLUSIA MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc., its General Partner WARWICK ASSOCIATES OF RHODE ISLAND L.P., by Health Resources of Warwick, Inc., its General Partner. By: /S/ GEORGE V. HAGER, JR. ------------------------ Name: On behalf of each of the foregoing entities as an Authorized Signatory of each respective authorized General Partner AUTOMATED HOMECARE SYSTEMS, LLC, by Health Objects Corporation, its authorized Member. BREYUT CONVALESCENT CENTER L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members. ENCARE OF MENDHAM, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members GENESIS ELDERCARE EMPLOYMENT SERVICES, L.L.C., by Genesis ElderCare Management Services, Inc., its authorized Member GENESIS-GEORGETOWN SNF/JV, L.L.C., by Genesis Health Ventures, Inc, its authorized Member. GLENMARK LIMITED LIABILITY COMPANY I, by Glenmark Associates, Inc. and Horizon Associates, Inc. its authorized Members HEALTH RESOURCES OF BRIDGETON, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF CINNAMINSON, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF EMERY, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF ENGLEWOOD, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF EWING, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF FAIRLAWN, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF JACKSON, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF LAKEVIEW, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF RIDGEWOOD, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF ORANGE, L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members MAIN STREET PHARMACY, L.L.C., by Professional Pharmacy Services, Inc. and NeighborCare Pharmacies, Inc., its authorized Members POMPTON CARE L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members RESPIRATORY HEALTH SERVICES, L.L.C., by Genesis Health Ventures, Inc., its authorized Member ROEPHEL CONVALESCENT CENTER L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members TOTAL REHABILITATION CENTER L.L.C. by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members By: /S/ GEORGE V. HAGER, JR. ------------------------ Name: On behalf of each of the foregoing entities as an Authorized Signatory of each respective authorized Member. AGENTS AND ARRANGERS: FIRST UNION NATIONAL BANK, as Administrative Agent, Collateral Agent and Lender By: /S/ ANDREW J. GAMBLE --------------------- Name: Andrew J. Gamble Title: SVP Revolving Credit Commitment: $ 31,250,000.00 Term Loan B Commitment $109,939,726.03 Delayed Draw Term Loan $ 30,860,273.97 Total Commitment: $171,050,000.00 FIRST UNION SECURITIES, INC., as Co-Lead Arranger By: /S/ ANDREW J. GAMBLE --------------------- Name: Andrew J. Gamble Title: GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Syndication Agent and Lender By: /S/ Stephen P. Hickey ----------------------- Name: Stephen P. Hickey Title: Authorized Signatory Revolving Credit Commitment: $ 31,250,000.00 Term Loan B Commitment $109,939,726.03 Delayed Draw Term Loan $ 30,860,273.97 Total Commitment: $171,050,000.00 GENERAL ELECTRIC CAPTIAL CORPORATION, as Collateral Monitoring Agent, Co-Documentation Agent and Lender By: /S/ Brian S. Beckswith ----------------------- Name: Brian S. Beckswith Its Duly Authorized Signatory Revolving Credit Commitment: $ 25,000,000.00 Term Loan B Commitment $ 19,520,547.95 Delayed Draw Term Loan $ 5,479,452.05 Total Commitment: $ 50,000,000.00 CITICORP USA, INC., as Co-Documentation Agent and Lender By: /S/ JAMES J. MCCARTHY ---------------------- Name: James J. McCarthy Its Duly Authorized Signatory Revolving Credit Commitment: $ 20,000,000.00 Term Loan B Commitment $ 11,712,328.77 Delayed Draw Term Loan $ 3,287,671.23 Total Commitment: $ 35,000,000.00 UBS AG, STAMFORD BRANCH., as Lender By: /S/ PATRICIA O'KICKI --------------------- Name: Partricia O'Kicki Title: Director - Banking Products Services By: /S/ Lynne B. Alfarone Name: Lynne B. Alfarone Title: Associate Director - Banking Products Services, US Revolving Credit Commitment: $ 15,000,000.00 Term Loan B Commitment $ 3,904,109.59 Delayed Draw Term Loan $ 1,095,890.41 Total Commitment: $ 20,000,000.00 LEHMAN COMMERICAL PAPER, INC., as Lender By: /S/ MICHELE SWANSON --------------------- Name: Michele Swanson Title: Authorized Signatory Revolving Credit Commitment: $ 15,000,000.00 Term Loan B Commitment $ 0.00 Delayed Draw Term Loan $ 0.00 Total Commitment: $ 15,000,000.00 FOOTHILL INCOME TRUST, L.P. BY: FIT GP, LLC, its General Partner By: /S/ M.E. STEAMS ---------------- Name: M.E. Steams Title: Managing Member Revolving Credit Commitment: $ 6,250,000.00 Term Loan B Commitment $ 7,808,219.18 Delayed Draw Term Loan $ 2,191,780.82 Total Commitment: $ 15,250,000.00 FOOTHILL INCOME TRUST II, L.P. BY: FIT II GP, LLC, its General Partner By: /S/ M.E. STEAMS ---------------- Name: M.E. Steams Title: Managing Member Revolving Credit Commitment: $ 6,250,000.00 Term Loan B Commitment $ 7,808,219.18 Delayed Draw Term Loan $ 2,191,780.82 Total Commitment: $ 15,250,000.00 KZH STERLING LLC., as Lender By: /S/ SUSAN LEE ----------------- Name: Susan Lee Title: Authorized Agent Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 2,342,465.75 Delayed Draw Term Loan $ 675,534.25 Total Commitment: $ 3,000,000.00 KZH CYPRESSTREE - I LLC., as Lender By: /S/ SUSAN LEE ------------------ Name: Susan Lee Title: Authorized Agent Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 3,904,109.59 Delayed Draw Term Loan $ 1,095,890.41 Total Commitment: $ 5,000,000.00 KZH SOLEIL LLC., as Lender By: /S/ SUSAN LEE ------------------- Name: Susan Lee Title: Authorized Agent Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 819,863.01 Delayed Draw Term Loan $ 230,136.99 Total Commitment: $ 1,050,000.00 KZH SOLEIL - 2 LLC., as Lender By: /S/ SUSAN LEE ------------------- Name: Susan Lee Title: Authorized Agent Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 1,054,109.59 Delayed Draw Term Loan $ 295,890.41 Total Commitment: $ 1,350,000.00 PINEHURST TRADING, INC., as Lender By: /S/ KELLY C. WALKER -------------------- Name: Kelly C. Walker Title: Vice President Its Duly Authorized Signatory Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 3,123,287.67 Delayed Draw Term Loan $ 876,712.33 Total Commitment: $ 4,000,000.00 STANWICH LOAN FUNDING LLC., as Lender By: /S/ KELLY C. WALKER -------------------- Name: Kelly C. Walker Title: Vice President Its Duly Authorized Signatory Revolving Credit Commitment: $ 0.00 Term Loan B Commitment $ 3,123,287.67 Delayed Draw Term Loan $ 876,712.33 Total Commitment: $ 4,000,000.00
TABLE OF CONTENTS Page PARTIES..........................................................................................................1 INTRODUCTORY STATEMENT...........................................................................................1 1. DEFINITIONS.............................................................................................2 2. THE LOANS..............................................................................................31 SECTION 2.1 B Term Loans.....................................................................31 SECTION 2.2 Revolving Credit Loans...........................................................32 SECTION 2.3 Delayed Draw Term Loans..........................................................32 SECTION 2.4 Disbursement of Funds and Notice of Borrowing....................................33 SECTION 2.5 Interest Rate Type of the Loans..................................................34 SECTION 2.6 Repayment; Evidence of Debt; Administration......................................34 SECTION 2.7 Interest.........................................................................35 SECTION 2.8 Commitment Fees, Facility Fee and Other Fees.....................................36 SECTION 2.9 .................................................................................37 SECTION 2.10 Voluntary Prepayments............................................................37 SECTION 2.11 Mandatory Prepayments............................................................38 SECTION 2.12 Amortization.....................................................................41 SECTION 2.13 Default Interest; Alternate Rate of Interest.....................................44 SECTION 2.14 Continuation and Conversion of Loans.............................................44 SECTION 2.15 Reimbursement of Lenders.........................................................46 SECTION 2.16 Change in Circumstances..........................................................46 SECTION 2.17 Change in Legality...............................................................49 SECTION 2.18 United States Withholding........................................................49 SECTION 2.19 Interest Adjustments.............................................................52 SECTION 2.20 Manner of Payments...............................................................52 SECTION 2.21 Letters of Credit................................................................52 3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES.......................................................58 SECTION 3.1 Existence and Power..............................................................58 SECTION 3.2 Authority and No Violation.......................................................59 SECTION 3.3 Governmental Approval............................................................59 SECTION 3.4 Binding Agreements...............................................................60
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TABLE OF CONTENTS (continued) Page SECTION 3.5 No Material Adverse Effect.......................................................60 SECTION 3.6 Financial Information............................................................61 SECTION 3.7 Credit Parties and their Subsidiaries............................................61 SECTION 3.8 Patents, Trademarks, Copyrights and Other Rights.................................62 SECTION 3.9 Fictitious Names.................................................................62 SECTION 3.10 Title to Properties..............................................................62 SECTION 3.11 Special Representations Relating to Receivables..................................63 SECTION 3.12 Litigation; Judgments............................................................64 SECTION 3.13 Federal Reserve Regulations......................................................64 SECTION 3.14 Investment Company Act...........................................................64 SECTION 3.15 Taxes............................................................................65 SECTION 3.16 Compliance with ERISA............................................................65 SECTION 3.17 Agreements.......................................................................65 SECTION 3.18 Security Interest................................................................66 SECTION 3.19 Disclosure.......................................................................66 SECTION 3.20 Environmental Matters............................................................67 SECTION 3.21 Pledged Securities...............................................................68 SECTION 3.22 Compliance with Laws; Third Party Payor Arrangements.............................69 SECTION 3.23 Projected Financial Information..................................................69 SECTION 3.24 Real Property....................................................................69 SECTION 3.25 No Default.......................................................................70 SECTION 3.26 Labor Matters....................................................................70 SECTION 3.27 Organizational Documents.........................................................70 SECTION 3.28 Bank Accounts....................................................................70 4. CONDITIONS TO THE EFFECTIVENESS OF THIS CREDIT AGREEMENT AND THE MAKING OF THE LOANS...................70 SECTION 4.1 Conditions Precedent to the Effectiveness of This Credit Agreement and the Making of the Loans............................................70 SECTION 4.2 Conditions Precedent to Each Revolving Credit Loan and each Letter of Credit.....75 SECTION 4.3 Conditions Precedent to the Making of Delayed Draw Term Loans....................76
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TABLE OF CONTENTS (continued) Page 5. AFFIRMATIVE COVENANTS..................................................................................77 SECTION 5.1 Financial Statements and Reports.................................................77 SECTION 5.2 Compliance with Laws.............................................................80 SECTION 5.3 Maintenance of Properties........................................................80 SECTION 5.4 Notice of Material Events........................................................81 SECTION 5.5 Insurance........................................................................82 SECTION 5.6 Books and Records................................................................82 SECTION 5.7 Observance of Agreements.........................................................83 SECTION 5.8 Taxes and Charges................................................................83 SECTION 5.9 Liens............................................................................84 SECTION 5.10 Further Assurances; Security Interests...........................................84 SECTION 5.11 Environmental Laws...............................................................84 SECTION 5.12 Subsidiaries.....................................................................85 SECTION 5.13 Lease Agreements.................................................................86 SECTION 5.14 Interest Rate Protection.........................................................86 SECTION 5.15 After-Acquired Real Property Assets..............................................86 SECTION 5.16 Lender Meetings..................................................................86 SECTION 5.17 Use of Proceeds of Revolving Credit Loans........................................86 SECTION 5.18 Cash Management System...........................................................86 SECTION 5.19 Subordination, Non-Disturbance and Attornment Agreements, Etc....................87 SECTION 5.20 ERISA Plan Compliance and Reports................................................87 SECTION 5.21 Covenant Regarding Certain Pot-Closing Matters...................................87 6. NEGATIVE COVENANTS.....................................................................................88 SECTION 6.1 Limitations on Indebtedness and Preferred Stock..................................88 SECTION 6.2 Limitations on Liens.............................................................89 SECTION 6.3 Limitation on Guaranties.........................................................91 SECTION 6.4 Limitations on Investments.......................................................92 SECTION 6.5 Restricted Payments..............................................................92
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TABLE OF CONTENTS (continued) Page SECTION 6.6 Limitation on Leases.............................................................93 SECTION 6.7 Merger, Sale of Assets, Purchases, etc...........................................93 SECTION 6.8 Places of Business; Change of Name...............................................95 SECTION 6.9 Limitations on Capital Expenditures..............................................95 SECTION 6.10 Minimum Consolidated EBITDAR.....................................................96 SECTION 6.11 Maximum Total Leverage Ratio.....................................................97 SECTION 6.12 Maximum Senior Leverage Ratio....................................................97 SECTION 6.13 Minimum Consolidated Fixed Charge Coverage Ratio.................................98 SECTION 6.14 Minimum Consolidated Net Worth...................................................98 SECTION 6.15 Transactions with Affiliates.....................................................98 SECTION 6.16 Business Activities..............................................................98 SECTION 6.17 Joint Ventures or Partnerships...................................................98 SECTION 6.18 Receivables......................................................................99 SECTION 6.19 Sale and Leaseback...............................................................99 SECTION 6.20 Changes to Credit and Collection Policy and Material Agreements..................99 SECTION 6.21 ERISA Compliance................................................................100 SECTION 6.22 Hazardous Materials.............................................................100 SECTION 6.23 Use of Proceeds of Loans........................................................100 SECTION 6.24 Fiscal Year; Fiscal Quarter.....................................................100 7. EVENTS OF DEFAULT.....................................................................................100 8. GRANT OF SECURITY INTEREST; REMEDIES..................................................................103 SECTION 8.1 Security Interests..............................................................104 SECTION 8.2 Use of Collateral...............................................................104 SECTION 8.3 Cash Management System..........................................................104 SECTION 8.4 Credit Parties to Hold in Trust.................................................105 SECTION 8.5 Collections, etc................................................................105 SECTION 8.6 Possession, Sale of Collateral, etc.............................................106 SECTION 8.7 Application of Proceeds on Default..............................................106 SECTION 8.8 Power of Attorney...............................................................107
iv
TABLE OF CONTENTS (continued) Page SECTION 8.9 Financing Statements, Direct Payments...........................................107 SECTION 8.10 Further Assurances..............................................................108 SECTION 8.11 Termination and Release.........................................................108 SECTION 8.12 Remedies Not Exclusive..........................................................108 SECTION 8.13 Continuation and Reinstatement..................................................108 9. GUARANTY..............................................................................................108 SECTION 9.1 Guaranty........................................................................108 SECTION 9.2 No Impairment of Guaranty, etc..................................................110 SECTION 9.3 Continuation and Reinstatement, etc.............................................110 SECTION 9.4 Limitation on Guaranteed Amount etc.............................................110 10. PLEDGE................................................................................................111 SECTION 10.1 Pledge..........................................................................111 SECTION 10.2 Covenant........................................................................111 SECTION 10.3 Registration in Nominee Name; Denominations.....................................111 SECTION 10.4 Voting Rights; Dividends; etc...................................................111 SECTION 10.5 Remedies Upon Default...........................................................113 SECTION 10.6 Application of Proceeds of Sale and Cash........................................114 SECTION 10.7 Securities Act, etc.............................................................114 SECTION 10.8 Continuation and Reinstatement..................................................114 SECTION 10.9 Termination.....................................................................114 11. CASH COLLATERAL.......................................................................................115 SECTION 11.1 Cash Collateral Account.........................................................115 SECTION 11.2 Investment of Funds.............................................................115 SECTION 11.3 Grant of Security Interest......................................................116 SECTION 11.4 Remedies........................................................................116 12. THE AGENTS AND THE ISSUING BANK.......................................................................116 SECTION 12.1 Administration by the Agents....................................................116 SECTION 12.2 Advances and Payments...........................................................117 SECTION 12.3 Sharing of Setoffs and Cash Collateral..........................................118 SECTION 12.4 Notice to the Lenders...........................................................118
v
TABLE OF CONTENTS (continued) Page SECTION 12.5 ................................................................................119 SECTION 12.6 Reimbursement and Indemnification...............................................121 SECTION 12.7 Rights of the Agents............................................................121 SECTION 12.8 Independent Investigation by Lenders............................................121 SECTION 12.9 Agreement of the Lenders........................................................121 SECTION 12.10 Notice of Transfer..............................................................121 SECTION 12.11 Relations Among Lenders.........................................................121 SECTION 12.12 Successor Agents................................................................122 SECTION 12.13 Tenant's Quiet Enjoyment........................................................122 SECTION 12.14 Lender Payments.................................................................123 13. MISCELLANEOUS.........................................................................................123 SECTION 13.1 Notices.........................................................................123 SECTION 13.2 Survival of Agreement, Representations and Warranties, etc......................124 SECTION 13.3 Successors and Assigns; Syndications; Loan Sales; Participations................125 SECTION 13.4 Expenses; Documentary Taxes.....................................................129 SECTION 13.5 Indemnity.......................................................................130 SECTION 13.6 CHOICE OF LAW...................................................................130 SECTION 13.7 WAIVER OF JURY TRIAL............................................................131 SECTION 13.8 WAIVER WITH RESPECT TO DAMAGES..................................................131 SECTION 13.9 No Waiver.......................................................................131 SECTION 13.10 Extension of Payment Date.......................................................132 SECTION 13.11 Amendments, etc.................................................................132 SECTION 13.12 Severability....................................................................133 SECTION 13.13 SERVICE OF PROCESS..............................................................134 SECTION 13.14 Headings........................................................................134 SECTION 13.15 Execution in Counterparts.......................................................134 SECTION 13.16 Subordination of Intercompany Indebtedness, Receivables and Advances............135 SECTION 13.17 Confidentiality.................................................................135 SECTION 13.18 Entire Agreement................................................................136 SECTION 13.19 Enforcement of Rights; No Obligation to Marshall Assets.........................136 SECTION 13.20 Reproduction of Documents.......................................................136 SECTION 13.21 Right of Set-Of.................................................................136
vi EX-21 17 ex21.txt EXHIBIT 21 Exhibit 21 Subsidiaries of the Company
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- Academy Nursing Home, Inc. Corporation Massachusetts Accumed, Inc. Corporation New Hampshire ADS Apple Valley, Inc. Corporation Massachusetts ADS Consulting, Inc. Corporation Massachusetts ADS Danvers ALF, Inc. Corporation Delaware ADS Dartmouth ALF, Inc. Corporation Delaware ADS Group, Inc. (The) Corporation Massachusetts ADS Hingham ALF, Inc. Corporation Delaware ADS Hingham Nursing Facility, Inc. Corporation Massachusetts ADS Palm Chelmsford, Inc. Corporation Massachusetts ADS Recuperative Center, Inc. Corporation Massachusetts ADS Reservoir Waltham, Inc. Corporation Massachusetts ADS Senior Housing, Inc. Corporation Massachusetts ANR, Inc. (f/k/a Adacom Network Routers, Inc.) Corporation Delaware Apple Valley Partnership Holding Company, Inc. (The) Corporation Pennsylvania Applewood Health Resources, Inc. Corporation Delaware ASCO Healthcare of New England, Inc. Corporation Maryland ASCO Healthcare, Inc. Corporation Maryland ASL, Inc. Corporation Massachusetts Assisted Living Associates of Berkshire, Inc. (The) Corporation Pennsylvania Assisted Living Associates of Lehigh, Inc. (The) Corporation Pennsylvania Assisted Living Associates of Sanatoga, Inc. (The) Corporation Pennsylvania Assisted Living Associates of Wall, Inc. (The) Corporation New Jersey Automated Professional Accounts, Inc. Corporation West Virginia Berks Nursing Homes, Inc. Corporation Pennsylvania Breyut Convalescent Center, Inc. Corporation New Jersey Brightwood Property, Inc. Corporation West Virginia Brinton Manor, Inc. Corporation Delaware Burlington Woods Convalescent Center, Inc. Corporation New Jersey CareCard, Inc. Corporation Maryland Carefleet, Inc. Corporation Pennsylvania Century Care Constructions, Inc. Corporation New Jersey Cheltenham LTC Management, Inc. Corporation Pennsylvania CHG Investment Corp., Inc. Corporation Delaware CHNR-I, Inc. Corporation Delaware Colonial Hall Health Resources, Inc. Corporation Delaware Colonial House Health Resources, Inc. Corporation Delaware Compass Health Services, Inc. Corporation West Virginia Concord Companion Care, Inc. Corporation Pennsylvania Concord Health Group, Inc. Corporation Delaware Concord Healthcare Corporation Corporation Delaware Concord Healthcare Services, Inc. Corporation Pennsylvania Concord Home Health, Inc. Corporation Pennsylvania
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- Concord Pharmacy Services, Inc. Corporation Pennsylvania Concord Rehab, Inc. d/b/a American Therapy Corporation Pennsylvania Concord Service Corporation Corporation Pennsylvania Crestview Convalescent Home, Inc. Corporation Pennsylvania Crestview North, Inc. Corporation Pennsylvania Crystal City Nursing Center, Inc. Corporation Maryland CVNR, Inc. Corporation Delaware Dawn View Manor, Inc. Corporation West Virginia Delco Apothecary, Inc. Corporation Pennsylvania DELM Nursing, Inc. Corporation Pennsylvania Denton Healthcare Corporation Corporation Delaware Derby Nursing Center Corporation Corporation Connecticut Diane Morgan and Associates, Inc. d/b/a DM & A Rehab Corporation Pennsylvania Dover Healthcare Associates, Inc. Corporation Delaware Eastern Medical Supplies, Inc. Corporation Maryland Eastern Rehab Services, Inc. Corporation Maryland EIDOS, Inc. Corporation Florida ElderCare Resources Corp. f/k/a Health Resources of Tazewell, Inc. Corporation Delaware Elmwood Health Resources, Inc. Corporation Delaware Encare of Massachusetts, Inc. Corporation Delaware Encare of Mendham,Inc. Corporation New Jersey Encare of Pennypack, Inc. Corporation Pennsylvania Encare of Quakertown, Inc. Corporation Pennsylvania Encare of Wyncote, Inc. Corporation Pennsylvania Genesis Eldercare Adult Day Health Services, Inc. Corporation Pennsylvania Genesis ElderCare Centers I, Inc. Corporation Delaware Genesis ElderCare Centers II, Inc. Corporation Delaware Genesis ElderCare Centers III, Inc. Corporation Delaware Genesis Eldercare Corp. Corporation Delaware Genesis ElderCare Diagnostic Services, Inc. f/k/a Diversified Corporation Pennsylvania Diagnostics, Inc. Genesis Eldercare Home Care Services, Inc. f/k/a Healthcare Corporation Pennsylvania Services Network, Inc. Genesis Eldercare Home Health Services - Southern, Inc. Corporation Pennsylvania Genesis ElderCare Hospitality Services, Inc. f/k/a HCHS, Inc. Corporation Pennsylvania Genesis ElderCare Living Facilities, Inc. Corporation Pennsylvania Genesis Eldercare Management Services, Inc. f/k/a Bluefield Manor, Corporation Delaware Inc. Genesis Eldercare National Centers, Inc. f/k/a National Health Care Corporation Florida Affiliates, Inc. Genesis ElderCare Network Services of Massachusetts, Inc. Corporation Pennsylvania Genesis Eldercare Network Services, Inc. f/k/a Genesis Management Corporation Pennsylvania Resources, Inc. f/k/a Total Care Systems, Inc. Genesis ElderCare Partnership Centers, Inc. Corporation Delaware Genesis Eldercare Physician Services, Inc. f/k/a Genesis Physician Corporation Pennsylvania Services, Inc. f/k/a Genesis Health Ventures Linen Services, Inc.
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- Genesis Eldercare Properties, Inc. Corporation Pennsylvania Genesis Eldercare Rehabilitation Management Services, Inc. f/k/a Corporation Pennsylvania Robindale Medical Services, Inc. Genesis Eldercare Staffing Services, Inc. f/k/a Staff Replacement Corporation Pennsylvania Services, Inc. f/k/a SRS Acquisition Corporation Genesis ElderCare Transportation Services, Inc. f/k/a HSS-PARA Corporation Pennsylvania Transit, Inc. Genesis Health Services Corporation Corporation Delaware Genesis Health Ventures of Arlington, Inc. Corporation Pennsylvania Genesis Health Ventures of Bloomfield, Inc. Corporation Pennsylvania Genesis Health Ventures of Clarks Summit, Inc. Corporation Pennsylvania Genesis Health Ventures of Indiana, Inc. Corporation Pennsylvania Genesis Health Ventures of Lanham, Inc. Corporation Pennsylvania Genesis Health Ventures of Massachusetts, Inc. Corporation Pennsylvania Genesis Health Ventures of Naugatuck, Inc. Corporation Pennsylvania Genesis Health Ventures of New Garden, Inc. Corporation Pennsylvania Genesis Health Ventures of Point Pleasant, Inc. Corporation Pennsylvania Genesis Health Ventures of Salisbury, Inc. Corporation Pennsylvania Genesis Health Ventures of Wayne, Inc. Corporation Pennsylvania Genesis Health Ventures of West Virginia, Inc. Corporation Pennsylvania Genesis Health Ventures of Wilkes-Barre, Inc. Corporation Pennsylvania Genesis Health Ventures of Windsor, Inc. Corporation Pennsylvania Genesis Health Ventures, Inc. Corporation Pennsylvania Genesis Healthcare Centers Holdings, Inc. Corporation Delaware Genesis Holdings, Inc. Corporation Delaware Genesis Immediate Med Center, Inc. Corporation Pennsylvania Genesis Properties of Delaware Corporation Corporation Delaware Genesis SelectCare Corp. Corporation Pennsylvania Genesis/VNA Partnership Holding Company, Inc. Corporation Pennsylvania Genesis-Crozer Partnership Holding Company, Inc. Corporation Pennsylvania Geriatric & Medical Companies, Inc. f/k/a Geriatric & Medical Corporation Delaware Centers, Inc. Geriatric and Medical Services, Inc. Corporation New Jersey Geriatric and Medical Investments Corporation Corporation Delaware GeriMed Corp. Corporation Pennsylvania GHV at Salisbury Center, Inc. Corporation Pennsylvania Glenmark Associates, Inc. Corporation West Virginia Glenmark Associates-Dawn View Manor, Inc. Corporation West Virginia Glenmark Properties, Inc. Corporation West Virginia GMA Partnership Holding Company, Inc. Corporation West Virginia GMA-Brightwood, Inc. Corporation West Virginia GMA-Construction, Inc. Corporation West Virginia GMA-Madison, Inc. Corporation West Virginia GMA-Uniontown, Inc. Corporation Pennsylvania GMC Leasing Corporation Corporation Delaware GMC Medical Consulting Services, Inc. d/b/a Rehab Technologies Corp. Corporation Pennsylvania GMC-LTC Management, Inc. Corporation Pennsylvania GMS Insurance Services, Inc. Corporation Pennsylvania
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- GMS Management - Tucker, Inc. Corporation Pennsylvania GMS Management, Inc. Corporation Pennsylvania Governor's House Nursing Home, Inc. Corporation Delaware H.O. Subsidiary, Inc. f/k/a HealthObjects, Inc. Corporation Maryland Health Concepts and Services, Inc. Corporation Maryland Health Resources of Academy Manor, Inc. Corporation Delaware Health Resources of Arcadia, Inc. Corporation Delaware Health Resources of Boardman, Inc. Corporation Delaware Health Resources of Bridgeton, Inc. Corporation New Jersey Health Resources of Brooklyn, Inc. Corporation Delaware Health Resources of Cedar Grove, Inc. Corporation New Jersey Health Resources of Cinnaminson, Inc. Corporation New Jersey Health Resources of Colchester, Inc. Corporation Connecticut Health Resources of Columbus, Inc. (f/k/a MRD Realty, Inc.) Corporation Delaware Health Resources of Cumberland, Inc. Corporation Delaware Health Resources of Eatontown, Inc. Corporation New Jersey Health Resources of Englewood, Inc. Corporation New Jersey Health Resources of Ewing, Inc. Corporation New Jersey Health Resources of Farmington, Inc. Corporation Delaware Health Resources of Gardner, Inc. Corporation Delaware Health Resources of Glastonbury, Inc. Corporation Connecticut Health Resources of Groton, Inc. Corporation Delaware Health Resources of Jackson, Inc. Corporation New Jersey Health Resources of Karmenta and Madison, Inc. Corporation Delaware Health Resources of Lakeview, Inc. Corporation New Jersey Health Resources of Lemont, Inc, Corporation Delaware Health Resources of Lynn, Inc. (f/k/a Marcella Home Health, Inc.) Corporation New Jersey Health Resources of Marcella, Inc. Corporation Delaware Health Resources of Montclair, Inc. Corporation New Jersey Health Resources of Morristown, Inc. (f/k/a P.W.O.N. Associates, Corporation New Jersey Inc.) Health Resources of Norfolk, Inc. Corporation Delaware Health Resources of North Andover, Inc. Corporation Delaware Health Resources of Norwalk, Inc. Corporation Connecticut Health Resources of Pennington, Inc. (f/k/a Emery Manor Health, Corporation New Jersey Inc.) Health Resources of Ridgewood, Inc. Corporation New Jersey Health Resources of Rockville, Inc. Corporation Delaware Health Resources of Solomont/Brookline, Inc. Corporation Delaware Health Resources of South Brunswick, Inc. Corporation New Jersey Health Resources of Troy Hills, Inc. (f/k/a F.L. Associates, Inc.) Corporation New Jersey Health Resources of Voorhees, Inc. Corporation New Jersey Health Resources of Wallingford, Inc. Corporation Delaware Health Resources of Warwick, Inc. (f/k/a GANCI Acquisition Corp. Corporation Delaware f/k/a RAC Acquisition Corp.) Health Resources of Westwood, Inc. (f/k/a Health Resources of Rhode Corporation Delaware Island, Inc.) Healthcare Rehab Systems, Inc. f/k/a Encare of Pennsylvania, Inc. Corporation Pennsylvania
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- Healthcare Resources Corp. Corporation Pennsylvania HealthObjects Corporation f/k/a Neighborware Health Systems, Inc. Corporation Maryland Helstat, Inc. Corporation West Virginia Hilltop Health Care Center, Inc. Corporation Delaware HMNH Realty, Inc. Corporation Delaware HNCA, Inc. Corporation Pennsylvania Horizon Associates, Inc. Corporation West Virginia Horizon Medical Equipment and Supply, Inc. Corporation West Virginia Horizon Mobile, Inc. Corporation West Virginia Horizon Rehabilitation, Inc. Corporation West Virginia House of Campbell (The) Corporation West Virginia HR of Charlestown, Inc. Corporation West Virginia HRWV Huntington, Inc. Corporation West Virginia Innovative Health Care Marketing, Inc. Corporation Pennsylvania Innovative Pharmacy Services, Inc. Corporation New Jersey Institutional Health Care Services, Inc. Corporation New Jersey Keystone Nursing Home, Inc. Corporation Delaware Knollwood Manor, Inc. Corporation Pennsylvania Knollwood Nursing Home, Inc. Corporation Delaware Lakewood Health Resources, Inc. Corporation Delaware Laurel Health Resources, Inc. Corporation Delaware Lehigh Nursing Homes, Inc. Corporation Pennsylvania Liberty Health Corp. Ltd. Corporation Bermuda Life Support Medical Equipment, Inc. Corporation Pennsylvania Life Support Medical, Inc. Corporation Pennsylvania Lincoln Nursing Home, Inc. Corporation Delaware LRC Holding Company Corporation Delaware LWNR, Inc. Corporation Delaware Mabri Convalescent Center, Inc. Corporation Connecticut Madison Avenue Assisted Living, Inc. Corporation New Jersey Manor Management Corporation of Georgian Manor, Inc. Corporation Pennsylvania Marlinton Partnership Holding Company, Inc. Corporation West Virginia Marlinton Associates, Inc. Corporation West Virginia Marshfield Health Resources, Inc. Corporation Delaware McKerley Health Care Center - Concord, Inc. Corporation New Hampshire McKerley Health Care Centers, Inc. Corporation New Hampshire Medical Services Group, Inc. Corporation Maryland Meridian Health, Inc. f/k/a MI Acquisition Corp. Corporation Pennsylvania Meridian Healthcare Investments, Inc. Corporation Maryland Meridian Healthcare, Inc. f/k/a MHC Acquisition Corp. Corporation Pennsylvania Metro Pharmaceuticals, Inc. Corporation Pennsylvania MHNR, Inc. Corporation Delaware MNR, Inc. Corporation Delaware Montgomery Nursing Homes, Inc. Corporation Pennsylvania Multicare AMC, Inc. Corporation Delaware Multicare Acquisition Corp. Corporation Delaware Multicare Companies, Inc. (The) (a/k/a Century Care Corporation in Corporation Delaware New Jersey) Multicare Home Health of Illinois, Inc. Corporation Delaware
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- Multicare Member Holding Corp. Corporation New Jersey Multicare Payroll Corp. Corporation New Jersey National Pharmacy Service, Inc. Corporation Pennsylvania NeighborCare Infusion Services, Inc. f/k/a Vitalink Infusion Corporation Delaware Services, Inc. NeighborCare of Indiana, Inc. f/k/a TeamCare of Indiana, Inc. Corporation Indiana NeighborCare of Northern California, Inc. f/k/a CompuPharm of Corporation California Northern California, Inc. NeighborCare of Oklahoma, Inc. f/k/a Vitalink Subsidiary, Inc. Corporation Oklahoma NeighborCare of Virginia, Inc. f/k/a TeamCare of Virginia, Inc. Corporation Virginia NeighborCare of Wisconsin, Inc. f/k/a GCI Innovative Pharmacy, Inc. Corporation Wisconsin NeighborCare Pharmacies, Inc. Corporation Maryland NeighborCare Pharmacy Services, Inc. f/k/a Vitalink Pharmacy Corporation Delaware Services, Inc. NeighborCare-Medisco, Inc. f/k/a Medisco Pharmacies, Inc. Corporation California NeighborCare-ORCA, Inc. f/k/a White, Mack & Wart, Inc. d/b/a Propac Corporation Oregon Pharmacy NeighborCare-TCI, Inc. Corporation Delaware Network Ambulance Services, Inc. f/k/a Life Support Ambulance, Inc. Corporation Pennsylvania Multicare Acquisition Corp. Corporation North Madison, Inc. Corporation West Virginia Northwestern Management Services, Inc. Corporation Delaware Nursing and Retirement Center of the Andovers, Inc. Corporation Massachusetts Oak Hill Health Care Center, Inc. Corporation Virginia Pharmacy Equities, Inc. Corporation Pennsylvania PHC Operating Corp. Corporation Delaware Philadelphia Avenue Corporation Corporation Pennsylvania Pocahontas Continuous Care Center, Inc. Corporation West Virginia Prescott Nursing Home, Inc. Corporation Massachusetts Professional Pharmacy Services, Inc. Corporation Maryland Progressive Rehabilitation Centers, Inc. (f/k/a Health Resources of Corporation Delaware Lakewood, Inc.) Prospect Park LTC Management, Inc. Corporation Pennsylvania Providence Funding Corporation Corporation Delaware Providence Health Care, Inc. Corporation Delaware Providence Medical, Inc. Corporation Ohio Quakertown Manor Convalescent and Rehabilitation, Inc. Corporation Delaware Rest Haven Nursing Home, Inc. Corporation West Virginia Ridgeland Health Resources, Inc. Corporation Delaware River Pines Health Resources, Inc. Corporation Delaware Rivershores Health Resources, Inc. Corporation Delaware RLNR, Inc. Corporation Delaware Roephel Convalescent Center, Inc. Corporation New Jersey Rose Healthcare, Inc. Corporation New Jersey Roxborough Nursing Home, Inc. Corporation Pennsylvania
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- RSNR, Inc. Corporation Delaware RVNR, Inc. Corporation Delaware S.T.B. Investors, LTD Corporation New York Schuylkill Nursing Home, Inc. Corporation Pennsylvania Schuylkill Partnership Acquisition Corp. Corporation Pennsylvania Scotchwood Institutional Services, Inc. Corporation New Jersey Scotchwood Massachusetts Holding Co., Inc. Corporation Delaware Senior Living Ventures, Inc. Corporation Pennsylvania Senior Source, Inc. Corporation Massachusetts Snow Valley Health Resources, Inc. Corporation Delaware Solomont Family Fall River Venture, Inc. Corporation Massachusetts Solomont Family River Medford Venture, Inc. Corporation Massachusetts State Street Associates, Inc. (f/k/a Genesis Health Ventures of Corporation Pennsylvania Brackenridge, Inc.) Suburban Medical Services, Inc. Corporation Pennsylvania SVNR, Inc. Corporation Delaware Therapy Care, Inc. Corporation Pennsylvania TMC Acquisition Corp. f/k/a Troy Hills Assisted Living, Inc. Corporation New Jersey Transport Services, Inc. Corporation Maryland Tri State Mobile Medical Services, Inc. Corporation West Virginia United Health Care Services, Inc. Corporation Pennsylvania Valley Medical Services, Inc. Corporation Pennsylvania Valley Transport Ambulance Service, Inc. Corporation Pennsylvania Versalink, Inc. Corporation Delaware Villas Realty & Investments, Inc. Corporation Pennsylvania Walnut LTC Management, Inc. Corporation Pennsylvania Wayside Nursing Home, Inc. Corporation Delaware Weisenfluh Ambulance Service, Inc. Corporation Pennsylvania West Phila. LTC Management, Inc. Corporation Pennsylvania Westford Nursing and Retirement Center, Inc. Corporation Massachusetts Willow Manor Nursing Home, Inc. Corporation Massachusetts Wyncote Healthcare Corp. Corporation Pennsylvania York LTC Management, Inc. Corporation Pennsylvania ADS Home Health, Inc. Corporation Delaware ADS Management, Inc. a/k/a ADS/TMCI Management, Inc. Corporation Massachusetts ADS Village Manor, Inc. Corporation Massachusetts ADS/Multicare, Inc. Corporation Delaware Bethel Health Resources, Inc. Corporation Delaware Century Care Management, Inc. (f/k/a Century Management, Inc.) Corporation Delaware Chateau Village Health Resources, Inc. Corporation Delaware ENR, Inc. Corporation Delaware Genesis Eldercare Rehabilitation Services, Inc. f/k/a Team Corporation Pennsylvania Rehabilitation, Inc. Health Resources of Middletown (RI), Inc. Corporation Delaware Lake Manor, Inc. Corporation Pennsylvania Pompton Care, Inc. Corporation New Jersey Rose View Manor, Inc. Corporation Pennsylvania Stafford Convalescent Center, Inc. f/k/a MCV Realty, Inc. Corporation Delaware Arcadia Associates General Partnership Massachusetts McKerley Health Facilities General Partnership New Hampshire
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- ADS Dartmouth General Partnership General Partnership Massachusetts Automated HomeCare Systems, L.L.C Limited Liability Company Maryland Breyut Convalescent Center, L.L.C. Limited Liability Company New Jersey Encare of Mendham, L.L.C. Limited Liability Company New Jersey Genesis ElderCare Employment Services, L.L.C. Limited Liability Company Delaware Genesis-Georgetown SNF/JV, L.L.C. Limited Liability Company Delaware Glenmark Limited Liability Company I Limited Liability Company West Virginia Health Resources of Bridgeton, L.L.C. Limited Liability Company New Jersey Health Resources of Cinnaminson, L.L.C. Limited Liability Company New Jersey Health Resources of Cranbury, L.L.C. (merged with Health Resources Limited Liability Company New Jersey of Cranbury, Inc. and Cranbury Care Center, Inc. (a non GEC entity) in 09/99) Health Resources of Eatontown, L.L.C. (merged with Laurel Limited Liability Company New Jersey Associates, Inc., a non Multicare entity) Health Resources of Emery, L.L.C, Limited Liability Company New Jersey Health Resources of Englewood, L.L.C. Limited Liability Company New Jersey Health Resources of Ewing, L.L.C. Limited Liability Company New Jersey Health Resources of Fairlawn, L.L.C. Limited Liability Company New Jersey Health Resources of Jackson, L.L.C. Limited Liability Company New Jersey Health Resources of Lakeview, L.L.C. Limited Liability Company New Jersey Health Resources of Ridgewood, L.L.C. Limited Liability Company New Jersey Health Resources of South Brunswick, LLC Limited Liability Company New Jersey Health Resources of West Orange, L.L.C. Limited Liability Company New Jersey Main Street Pharmacy, L. L. C. Limited Liability Company Maryland Pompton Care, L.L.C. Limited Liability Company New Jersey Respiratory Health Services, L. L. C. Limited Liability Company Maryland Roephel Convalescent Center, L.L.C. Limited Liability Company New Jersey Total Rehabilitation Center, L.L.C. Limited Liability Company New Jersey ADS Apple Valley Limited Partnership Limited Partnership Massachusetts
State of Entity Name Entity Type Organization - ---------------------------------------------------------------------------------------------------------------------- ADS Hingham Limited Partnership Limited Partnership Massachusetts ASCO Healthcare of New England, Limited Partnership Limited Partnership Maryland Brevard Meridian Limited Partnership Limited Partnership Maryland Care4, L.P. Limited Partnership Delaware Catonsville Meridian Limited Partnership Limited Partnership Maryland Cumberland Associates of Rhode Island, L.P. Limited Partnership Delaware Easton Meridian Limited Partnership Limited Partnership Maryland Edella Street Associates Limited Partnership Pennsylvania Genesis ElderCare Centers I, L. P. Limited Partnership Delaware Genesis ElderCare Centers II, L. P. Limited Partnership Delaware Genesis ElderCare Centers III, L. P. Limited Partnership Delaware Genesis Health Ventures of West Virginia, Limited Partnership Limited Partnership Pennsylvania Genesis Properties Limited Partnership Limited Partnership Pennsylvania Genesis Properties of Delaware Ltd. Partnership, L.P. Limited Partnership Delaware Greenspring Meridian Limited Partnership Limited Partnership Maryland Groton Associates of Connecticut, L.P. Limited Partnership Delaware Hallmark Healthcare Limited Partnership Limited Partnership Maryland Hammonds Lane Meridian Limited Partnership Limited Partnership Maryland Holly Manor Associates of New Jersey, L.P. Limited Partnership Delaware McKerley Health Care Center - Concord Limited Partnership Limited Partnership New Hampshire Mercerville Associates of New Jersey, L.P. Limited Partnership Delaware Meridian Edgewood Limited Partnership Limited Partnership Maryland Meridian Perring Limited Partnership Limited Partnership Maryland Meridian Valley Limited Partnership Limited Partnership Maryland Meridian Valley View Limited Partnership Limited Partnership Maryland Meridian/Constellation Limited Partnership Limited Partnership Maryland Middletown (RI) Associates of Rhode Island,L.P. Limited Partnership Delaware Millville Meridian Limited Partnership Limited Partnership Maryland Norristown Nursing and Rehabilitation Center Associates, L.P. Limited Partnership Pennsylvania North Cape Convalescent Center Associates, L. P. Limited Partnership Pennsylvania Northwest Total Care Center Associates, L. P. Limited Partnership New Jersey Philadelphia Avenue Associates Limited Partnership Pennsylvania Point Pleasant Haven Limited Partnership Limited Partnership West Virginia Pompton Associates, L.P. Limited Partnership New Jersey Raleigh Manor Limited Partnership Limited Partnership West Virginia River Street Associates Limited Partnership Pennsylvania Romney Health Care Center Ltd., Limited Partnership Limited Partnership West Virginia Seminole Meridian Limited Partnership Limited Partnership Maryland Sisterville Haven Limited Partnership Limited Partnership West Virginia State Street Associates, L.P. Limited Partnership Pennsylvania Straus Group-Hopkins House, L.P. (The) Limited Partnership New Jersey Straus Group-Old Bridge, L.P. (The) Limited Partnership New Jersey Straus Group-Quakertown Manor, L.P. (The) Limited Partnership New Jersey Straus Group-Ridgewood, L.P. (The) Limited Partnership New Jersey Teays Valley Haven Limited Partnership Limited Partnership West Virginia Therapy Care Systems, L.P. a/k/a Therapy Care Systems Limited Limited Partnership Pennsylvania Partnership Volusia Meridian Limited Partnership Limited Partnership Maryland Wallingford Associates of Connecticut, L.P. Limited Partnership Delaware Warwick Associates of Rhode Island, L.P. Limited Partnership Delaware Westford Nursing and Retirement Center, Limited Partnership Limited Partnership Massachusetts ADS Recuperative Center Limited Partnership Limited Partnership Massachusetts Lake Washington, Ltd. Limited Partnership Florida Alliance Pharmacy Services, L.L.C. Limited Liability Company Indiana
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