gen_Current folio

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2016.


☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 001-33459

Genesis Healthcare, Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-3934755
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

101 East State Street
Kennett Square, Pennsylvania		19348
(Address of principal executive offices)		(Zip Code)

(610) 444-6350

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐
(do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on May 9, 2016, was:

Class A common stock, $0.001 par value – 73,593,732 shares

Class B common stock, $0.001 par value – 15,511,603 shares

Class C common stock, $0.001 par value – 64,449,380 shares

Table of Contents

Genesis Healthcare, Inc.

Form 10-Q

Index

		Page Number
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets — March 31, 2016 and December 31, 2015	3
	Consolidated Statements of Operations — Three months ended March 31, 2016 and 2015	4
	Consolidated Statements of Comprehensive Loss — Three months ended March 31, 2016 and 2015	5
	Consolidated Statements of Cash Flows — Three months ended March 31, 2016 and 2015	6
	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

Part II.	Other Information

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	53

Item 6.	Exhibits	53

Signatures		55

Exhibit Index		56

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	March 31,		December 31,
	2016		2015
Assets:
Current assets:
Cash and cash equivalents	$	52,204	$	61,543
Restricted cash and investments in marketable securities		52,917		52,917
Accounts receivable, net of allowances for doubtful accounts of $204,296 and $189,739 at March 31, 2016 and December 31, 2015, respectively		821,199		789,387
Prepaid expenses		89,447		58,622
Other current assets		64,204		49,024
Total current assets		1,079,971		1,011,493
Property and equipment, net of accumulated depreciation of $693,086 and $638,768 at March 31, 2016 and December 31, 2015, respectively		3,981,879		4,085,247
Restricted cash and investments in marketable securities		137,934		145,210
Other long-term assets		125,666		130,869
Deferred income taxes		6,485		7,144
Identifiable intangible assets, net of accumulated amortization of $73,458 and $66,570 at March 31, 2016 and December 31, 2015, respectively		203,080		209,967
Goodwill		470,735		470,019
Total assets	$	6,005,750	$	6,059,949
Liabilities and Stockholders' Deficit:
Current liabilities:
Current installments of long-term debt	$	8,113	$	12,477
Capital lease obligations		1,847		1,842
Financing obligations		1,230		989
Accounts payable		224,850		233,801
Accrued expenses		194,791		197,741
Accrued compensation		246,828		185,054
Self-insurance reserves		166,761		166,761
Total current liabilities		844,420		798,665
Long-term debt		1,105,022		1,186,159
Capital lease obligations		1,056,884		1,053,816
Financing obligations		3,091,366		3,064,077
Deferred income taxes		18,696		14,939
Self-insurance reserves		443,816		428,569
Other long-term liabilities		133,769		133,111
Commitments and contingencies
Stockholders’ deficit:
Class A common stock, (par $0.001, 1,000,000,000 shares authorized, issued and outstanding - 73,593,732 at March 31, 2016 and December 31, 2015)		74		74
Class B common stock, (par $0.001, 20,000,000 shares authorized, issued and outstanding - 15,511,603 at March 31, 2016 and December 31, 2015)		16		16
Class C common stock, (par $0.001, 150,000,000 shares authorized, issued and outstanding - 64,449,380 at March 31, 2016 and December 31, 2015)		64		64
Additional paid-in-capital		296,948		295,359
Accumulated deficit		(774,641)		(731,602)
Accumulated other comprehensive income (loss)		272		(218)
Total stockholders’ deficit before noncontrolling interests		(477,267)		(436,307)
Noncontrolling interests		(210,956)		(183,080)
Total stockholders' deficit		(688,223)		(619,387)
Total liabilities and stockholders’ deficit	$	6,005,750	$	6,059,949

See accompanying notes to unaudited consolidated financial statements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)


	Three months ended March 31,
	2016		2015
Net revenues	$	1,472,218	$	1,343,001
Salaries, wages and benefits		867,717		790,733
Other operating expenses		361,097		312,561
General and administrative costs		48,427		41,533
Provision for losses on accounts receivable		26,493		23,396
Lease expense		37,316		36,419
Depreciation and amortization expense		61,765		59,933
Interest expense		135,181		121,313
Loss on early extinguishment of debt		—		3,234
Investment income		(481)		(416)
Other loss (income)		12		(7,611)
Transaction costs		1,754		86,069
Skilled Healthcare and other loss contingency expense		1,626		—
Equity in net income of unconsolidated affiliates		(763)		(153)
Loss before income tax expense (benefit)		(67,926)		(124,010)
Income tax expense (benefit)		3,064		(5,648)
Loss from continuing operations		(70,990)		(118,362)
(Loss) income from discontinued operations, net of taxes		(38)		112
Net loss		(71,028)		(118,250)
Less net loss attributable to noncontrolling interests		27,989		5,684
Net loss attributable to Genesis Healthcare, Inc.	$	(43,039)	$	(112,566)
Loss per common share:
Basic and diluted:
Weighted-average shares outstanding for basic and diluted loss from continuing operations per share		89,198		75,234
Basic and diluted net loss per common share:
Loss from continuing operations attributable to Genesis Healthcare, Inc.	$	(0.48)	$	(1.50)
(Loss) income from discontinued operations, net of taxes		(0.00)		0.00
Net loss attributable to Genesis Healthcare, Inc.	$	(0.48)	$	(1.50)

See accompanying notes to unaudited consolidated financial statements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended March 31,
	2016		2015
Net loss	$	(71,028)	$	(118,250)
Net unrealized gain on marketable securities, net of tax		844		572
Comprehensive loss		(70,184)		(117,678)
Less: comprehensive loss attributable to noncontrolling interests		27,635		5,382
Comprehensive loss attributable to Genesis Healthcare, Inc.	$	(42,549)	$	(112,296)

See accompanying notes to unaudited consolidated financial statements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Three months ended March 31,
	2016		2015
Cash flows from operating activities
Net loss	$	(71,028)	$	(118,250)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash interest and leasing arrangements, net		24,989		23,413
Other non-cash charges and gains, net		12		(7,587)
Share based compensation		1,590		25,373
Depreciation and amortization		61,765		60,077
Provision for losses on accounts receivable		26,493		23,392
Equity in net income of unconsolidated affiliates		(763)		(153)
Provision (benefit) for deferred taxes		4,415		(9,493)
Changes in assets and liabilities:
Accounts receivable		(60,866)		(43,860)
Accounts payable and other accrued expenses and other		37,839		44,606
Net cash provided by (used in) operating activities		24,446		(2,482)
Cash flows from investing activities:
Capital expenditures		(26,243)		(16,721)
Purchases of marketable securities		(13,922)		(15,319)
Proceeds on maturity or sale of marketable securities		13,465		10,158
Net change in restricted cash and equivalents		8,578		(361)
Sale of investment in joint venture		1,010		26,358
Purchases of inpatient assets, net of cash acquired		(778)		—
Sales of inpatient assets		76,373		1,263
Other, net		(366)		912
Net cash provided by investing activities		58,117		6,290
Cash flows from financing activities:
Borrowings under revolving credit facility		224,000		146,500
Repayments under revolving credit facility		(254,000)		(151,000)
Proceeds from issuance of long-term debt		67,872		360,000
Proceeds from tenant improvement draws under lease arrangements		499		95
Repayment of long-term debt		(127,717)		(330,627)
Debt issuance costs		(2,316)		(17,776)
Distributions to noncontrolling interests and stockholders		(240)		(2,840)
Net cash (used in) provided by financing activities		(91,902)		4,352
Net (decrease) increase in cash and cash equivalents		(9,339)		8,160
Cash and cash equivalents:
Beginning of period		61,543		87,548
End of period	$	52,204	$	95,708
Supplemental cash flow information:
Interest paid	$	111,456	$	94,948
Net taxes (refunded) paid		(14,180)		5,917
Non-cash financing activities:
Financing obligations	$	3,861	$	3,682
Assumption of long-term debt		—		326,610

See accompanying notes to unaudited consolidated financial statements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)General Information

Description of Business

Genesis Healthcare, Inc. is a healthcare services company that through its subsidiaries (collectively, the Company) owns and operates skilled nursing facilities, assisted/senior living facilities and a rehabilitation therapy business. The Company has an administrative services company that provides a full complement of administrative and consultative services that allows its affiliated operators and third-party operators with whom the Company contracts to better focus on delivery of healthcare services. The Company provides inpatient services through 512 skilled nursing, assisted/senior living and behavioral health centers located in 34 states. Revenues of the Company’s owned, leased and otherwise consolidated centers constitute approximately 84% of its revenues.

The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 12% of the Company’s revenues.

The Company provides an array of other specialty medical services, including management services, physician services, staffing services, hospice and home health services, and other healthcare related services, which comprise the balance of the Company’s revenues.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The Company presents noncontrolling interests within the stockholders’ deficit section of its consolidated balance sheets. The Company presents the amount of net loss attributable to Genesis Healthcare, Inc. and net loss (income) attributable to noncontrolling interests in its consolidated statements of operations.

The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of any variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of power and economics that considers which entity has the power to direct the activities that “most significantly impact” the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to, the VIE. The Company's composition of variable interest entities was not material at March 31, 2016.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q of Regulation S-X and do not include all of the disclosures normally required by U.S. GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission (the SEC) on Form 10-K on March 14, 2016.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Certain prior year amounts have been reclassified to conform to current period presentation, the effect of which was not material. Upon adoption of new accounting guidance, debt issuance costs have been presented as a direct deduction from long-term debt rather than as an other long-term asset in all periods presented.

The Company’s financial position at March 31, 2016 includes the impact of certain significant transactions and events, as disclosed within Note 3 – “Significant Transactions and Events.”

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, (ASU 2014-09) which changes the requirements for recognizing revenue when entities enter into contracts with customers. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is not permitted. The Company is still evaluating the effect, if any, ASU 2014-09 will have on the Company’s consolidated financial condition and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern, (ASU 2014-15) requiring management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern and to provide disclosures in certain circumstances. ASU 2014-15 is effective for annual and interim periods ending after December 31, 2016. The Company is still evaluating the effect, if any, ASU 2014-15 will have on its consolidated financial condition and results of operations.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (ASU 2016-01), which is intended to improve the recognition and measurement of financial instruments. The new guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. The Company is still evaluating the effect, if any, ASU 2016-01 will have on its consolidated financial condition and results of operations.

In February 2016, the FASB issued amended authoritative guidance on accounting for leases. The new provisions require that a lessee of operating leases recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments, with the right-of-use asset based upon the lease liability. The classification criteria for distinguishing between finance (or capital) leases and operating leases are substantially similar to the previous lease guidance, but with no explicit bright lines. As such, operating leases will result in straight-line rent expense similar to current practice. For short term leases (term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities, which would generally result in lease expense being recognized on a straight-line basis over the lease term. The guidance is effective for annual and interim periods beginning after December 15, 2018, and will require application of the new guidance at the beginning of the earliest comparable period presented. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition. The adoption of this standard is expected to have a material impact on the Company’s financial position. The Company is still evaluating the impact on its results of operations and does not expect the adoption of this standard to have an impact on liquidity.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is still evaluating the effect, if any, ASU 2016-09 will have on its consolidated financial condition and results of operations.

(2)Certain Significant Risks and Uncertainties

Revenue Sources

The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third-party payors and long-term care facilities that utilize its rehabilitation therapy and other services. The Company’s inpatient services segment derives approximately 79% of its revenue from Medicare and various state Medicaid programs. The following table depicts the Company’s inpatient services segment revenue by source for the three months ended March 31, 2016 and 2015.


	Three months ended March 31,
	2016		2015
Medicare	26	%	28	%
Medicaid	53	%	51	%
Insurance	11	%	11	%
Private and other	10	%	10	%
Total	100	%	100	%

The sources and amounts of the Company’s revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of inpatient facilities, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including services provided by the Company’s rehabilitation therapy services business, varies based upon the type of payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Company’s profitability.

It is not possible to quantify fully the effect of legislative changes, the interpretation or administration of such legislation or other governmental initiatives on the Company’s business and the business of the customers served by the Company’s rehabilitation therapy business. The potential impact of reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, is uncertain at this time. Also, initiatives among managed care payors, conveners and referring acute care hospital systems to reduce lengths of stay and avoidable hospital admissions and to divert referrals to home health or other community-based care settings could have an adverse impact on the Company’s business. Accordingly, there can be no assurance that the impact of any future healthcare legislation, regulation or actions by participants in the health care continuum 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 similar 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 are and will continue to be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

participation in the Medicare and/or Medicaid programs. The Company’s business is subject to a number of other known and unknown risks and uncertainties, which are discussed in Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the SEC on March 14, 2016.

(3) Significant Transactions and Events

The Combination with Skilled

On August 18, 2014, Skilled Healthcare Group, Inc., a Delaware corporation (Skilled) entered into a Purchase and Contribution Agreement with FC-GEN Operations Investment, LLC (FC-GEN) pursuant to which the businesses and operations of FC-GEN and Skilled were combined (the Combination). On February 2, 2015, the Combination was completed.

Pro forma information

The acquired business contributed net revenues of $152.7 million and net loss of $5.3 million to the Company for the period from February 1, 2015 to March 31, 2015. The unaudited pro forma net effect of the Combination assuming the acquisition occurred as of January 1, 2015 is as follows (in thousands, except per share amounts):


	Pro forma
	three months ended
	March 31, 2015
Revenues	$	1,414,289
Loss attributable to Genesis Healthcare, Inc.		(16,317)

Loss per common share:
Basic	$	(0.18)
Diluted	$	(0.19)

The unaudited pro forma financial data have been derived by combining the historical financial results of the Company and the operations acquired in the Combination for the periods presented. The unaudited results of operations includes transaction and financing costs totaling $84.7 million incurred by both the Company and Skilled in connection with the Combination. These costs have been eliminated from the results of operations for the three months ended March 31, 2015 for purposes of the pro forma financial presentation.

Sale of Kansas ALFs

On January 1, 2016, the Company sold 18 Kansas assisted/senior living facilities acquired in the Combination for $67.0 million. Of the proceeds received, $54.2 million were used to pay down partially the Real Estate Bridge Loans. See Note 7 – “Long-Term Debt – Real Estate Bridge Loans.”

Sale of Hospice and Home Health

On March 9, 2016, the Company announced that it had signed an agreement with FC Compassus LLC, a nationwide network of community-based hospice and palliative care programs, to sell its hospice and home health operations for $84 million. Through the asset purchase agreement, the Company retained certain liabilities. See Note 11 – “Commitments and Contingencies – Legal Proceedings - Creekside Hospice Litigation.” Certain members of the Company’s board of directors indirectly beneficially hold ownership interests in FC Compassus LLC totaling less than 10% in the aggregate.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Effective May 1, 2016, the Company completed the sale and received $72 million in cash and a $12 million short-term note. The cash proceeds were used to pay down partially the Company’s Term Loan Facility. See Note 7 – “Long-Term Debt – Term Loan Facility.”

HUD Insured Loans

On March 31, 2016, the Company closed on the HUD insured financing of ten skilled nursing facilities acquired in the Combination for $67.9 million. On April 28, 2016, the Company closed on the HUD insured financing of three additional skilled nursing facilities acquired in the Combination for $9.2 million. The $77.1 million in total proceeds from the financings were used to pay down partially the Real Estate Bridge Loans. See Note 7 – “Long-Term Debt – Real Estate Bridge Loans.”

(4)Earnings (Loss) Per Share

The Company has three classes of common stock. Classes A and B are identical in economic and voting interests. Class C has a 1:1 voting ratio with the other two classes, representing the voting interests of the approximate 42% noncontrolling interest of the legacy FC-GEN owners. Class C common stock is a participating security; however, it shares in a de minimis economic interest and is therefore excluded from the denominator of the basic earnings (loss) per share (EPS) calculation.

Basic EPS was computed by dividing net loss by the weighted-average number of outstanding common shares for the period. Diluted EPS is computed by dividing loss plus the effect of assumed conversions (if applicable) by the weighted-average number of outstanding shares after giving effect to all potential dilutive common stock, including options, warrants, common stock subject to repurchase and convertible preferred stock, if any.

The computations of basic and diluted EPS are consistent with any potentially dilutive adjustments to the numerator or denominator being anti-dilutive and therefore excluded from the dilutive calculation. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per common share follows (in thousands, except per share data):


	Three months ended March 31,
	2016		2015
Numerator:
Loss from continuing operations	$	(70,990)	$	(118,362)
Less: Net loss attributable to noncontrolling interests		(27,989)		(5,684)
Loss from continuing operations attributable to Genesis Healthcare, Inc.	$	(43,001)	$	(112,678)
(Loss) income from discontinued operations, net of taxes		(38)		112
Net loss attributable to Genesis Healthcare, Inc.	$	(43,039)	$	(112,566)
Denominator:
Weighted average shares outstanding for basic and diluted net loss per share		89,198		75,234
Basic and diluted net loss per common share:
Loss from continuing operations attributable to Genesis Healthcare, Inc.	$	(0.48)	$	(1.50)
(Loss) income from discontinued operations, net of taxes		(0.00)		0.00
Net loss attributable to Genesis Healthcare, Inc.	$	(0.48)	$	(1.50)

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following were excluded from net loss attributable to Genesis Healthcare, Inc. and the weighted-average diluted shares computation for the three months ended March 31, 2016 and 2015, as their inclusion would have been anti-dilutive (in thousands):


	Three months ended March 31,
	2016			2015
	Net loss			Net loss
	attributable to			attributable to
	Genesis		Antidilutive	Genesis		Antidilutive
	Healthcare, Inc.		shares	Healthcare, Inc.		shares
Exchange of restricted stock units of noncontrolling interests	$	(24,002)	64,461	$	(4,217)	41,534
Employee and director unvested restricted stock units		—	(1,868)		—	—

Because the Company is in a net loss position for the three months ended March 31, 2016, the combined impact of the assumed conversion of the approximate 42% noncontrolling interest to common stock and the related tax implications are anti-dilutive to EPS. As of March 31, 2016 and 2015, there were 64,449,380 units attributed to the noncontrolling interests outstanding. In addition to the outstanding units attributed to the noncontrolling interests, the conversion of all of those units will result in the issuance of an incremental 11,222 Class A common stock. On June 3, 2015, the shareholders approved the 2015 Omnibus Equity Incentive Plan, which authorized the grant of 4,116,870 restricted stock units to employees and 178,218 restricted stock units to non-employee directors. On October 26, 2015, an additional 653,130 restricted stock units were granted to employees. There were no grants in the three months ended March 31, 2016. Because the Company is in a net loss position for the three months ended March 31, 2016, the combined impact of the grants under the 2015 Omnibus Equity Incentive Plan to common stock and the related tax implications are anti-dilutive to EPS.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(5)Segment Information

The Company has three reportable operating segments: (i) inpatient services; (ii) rehabilitation therapy services; and (iii) other services. For additional information on these reportable segments see Note 1 – “General Information – Description of Business.”

A summary of the Company’s segmented revenues follows:


	Three months ended March 31,
	2016				2015				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
	(in thousands, except percentages)
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,208,433	82.0	%	$	1,104,990	82.3	%	$	103,443	9.4	%
Assisted/Senior living facilities		30,919	2.1	%		33,657	2.5	%		(2,738)	(8.1)	%
Administration of third party facilities		3,079	0.2	%		2,671	0.2	%		408	15.3	%
Elimination of administrative services		(375)	—	%		(501)	—	%		126	(25.1)	%
Inpatient services, net		1,242,056	84.3	%		1,140,817	84.9	%		101,239	8.9	%

Rehabilitation therapy services:
Total therapy services		285,112	19.4	%		263,051	19.6	%		22,061	8.4	%
Elimination intersegment rehabilitation therapy services		(106,432)	(7.2)	%		(105,906)	(7.9)	%		(526)	0.5	%
Third party rehabilitation therapy services		178,680	12.2	%		157,145	11.7	%		21,535	13.7	%

Other services:
Total other services		56,626	3.8	%		52,546	3.9	%		4,080	7.8	%
Elimination intersegment other services		(5,144)	(0.3)	%		(7,507)	(0.6)	%		2,363	(31.5)	%
Third party other services		51,482	3.5	%		45,039	3.4	%		6,443	14.3	%

Net revenues	$	1,472,218	100.0	%	$	1,343,001	100.0	%	$	129,217	9.6	%

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A summary of the Company’s unaudited condensed consolidated statement of operations follows:


	Three months ended March 31, 2016
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
	(In thousands)
Net revenues	$	1,242,431	$	285,112	$	56,524	$	102	$	(111,951)	$	1,472,218
Salaries, wages and benefits		588,902		240,436		38,379		—		—		867,717
Other operating expenses		438,699		20,341		14,008		—		(111,951)		361,097
General and administrative costs		—		—		—		48,427		—		48,427
Provision for losses on accounts receivable		23,345		2,648		546		(46)		—		26,493
Lease expense		36,296		24		530		466		—		37,316
Depreciation and amortization expense		53,839		3,120		314		4,492		—		61,765
Interest expense		108,989		14		16		26,162		—		135,181
Investment income		(458)		—		—		(23)		—		(481)
Other loss		12		—		—		—		—		12
Transaction costs		—		—		—		1,754		—		1,754
Skilled Healthcare and other loss contingency expense		—		—		—		1,626		—		1,626
Equity in net (income) loss of unconsolidated affiliates		(476)		—		—		(636)		349		(763)
(Loss) income before income tax expense		(6,717)		18,529		2,731		(82,120)		(349)		(67,926)
Income tax (benefit) expense		(2,162)		—		—		5,226		—		3,064
(Loss) income from continuing operations	$	(4,555)	$	18,529	$	2,731	$	(87,346)	$	(349)	$	(70,990)


	Three months ended March 31, 2015
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
	(In thousands)
Net revenues	$	1,141,318	$	263,051	$	52,336	$	210	$	(113,914)	$	1,343,001
Salaries, wages and benefits		542,692		214,797		33,244		—		—		790,733
Other operating expenses		396,542		15,399		14,533		—		(113,913)		312,561
General and administrative costs		—		—		—		41,533		—		41,533
Provision for losses on accounts receivable		19,073		3,827		541		(45)		—		23,396
Lease expense		35,528		41		459		391		—		36,419
Depreciation and amortization expense		48,225		2,867		362		8,479		—		59,933
Interest expense		103,654		1		10		17,771		(123)		121,313
Loss on extinguishment of debt		—		—		—		3,234		—		3,234
Investment income		(358)		—		—		(181)		123		(416)
Other income		—		—		—		(7,611)		—		(7,611)
Transaction costs		371		—		—		85,698		—		86,069
Equity in net (income) loss of unconsolidated affiliates		(309)		—		—		(220)		376		(153)
(Loss) income before income tax benefit		(4,100)		26,119		3,187		(148,839)		(377)		(124,010)
Income tax benefit		—		—		—		(5,648)		—		(5,648)
(Loss) income from continuing operations	$	(4,100)	$	26,119	$	3,187	$	(143,191)	$	(377)	$	(118,362)

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the segment assets as of March 31, 2016 compared to December 31, 2015 (in thousands):


	March 31, 2016		December 31, 2015
Inpatient services	$	5,342,821	$	5,437,518
Rehabilitation services		452,814		442,969
Other services		93,197		91,775
Corporate and eliminations		116,918		87,687
Total assets	$	6,005,750	$	6,059,949

The following table presents segment goodwill as of March 31, 2016 compared to December 31, 2015 (in thousands):


	March 31, 2016		December 31, 2015
Inpatient services	$	357,649	$	357,649
Rehabilitation services		73,814		73,098
Other services		39,272		39,272
Total goodwill	$	470,735	$	470,019

(6)Property and Equipment

Property and equipment consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):


	March 31, 2016		December 31, 2015
Land, buildings and improvements	$	649,581	$	714,766
Capital lease land, buildings and improvements		905,855		903,977
Financing obligation land, buildings and improvements		2,654,835		2,644,307
Equipment, furniture and fixtures		438,366		436,300
Construction in progress		26,328		24,665
Gross property and equipment		4,674,965		4,724,015
Less: accumulated depreciation		(693,086)		(638,768)
Net property and equipment	$	3,981,879	$	4,085,247

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(7)Long-Term Debt

Long-term debt at March 31, 2016 and December 31, 2015 consisted of the following (in thousands):


	March 31,		December 31,
	2016		2015
Revolving credit facilities, net of debt issuance costs of $9,626 at March 31, 2016 and $10,254 at December 31, 2015	$	323,374	$	352,746
Term loan facility, net of original issue discount of $6,500 at March 31, 2016 and $7,475 at December 31, 2015, and net of debt issuance costs of $8,808 at March 31, 2016 and $10,129 at December 31, 2015		210,134		210,842
Real estate bridge loans, net of debt issuance costs of $7,628 at March 31, 2016 and $9,567 at December 31, 2015		364,433		484,533
HUD insured loans, net of debt issuance costs of $3,646 at March 31, 2016 and $1,395 at December 31, 2015		171,379		106,250
Mortgages and other secured debt (recourse)		13,770		13,934
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $165 at March 31, 2016 and $176 at December 31, 2015		30,045		30,331
		1,113,135		1,198,636
Less: Current installments of long-term debt		(8,113)		(12,477)
Long-term debt	$	1,105,022	$	1,186,159

Revolving Credit Facilities

The Company’s revolving credit facilities (the Revolving Credit Facilities) consist of a senior secured, asset-based revolving credit facility of up to $550 million under three separate tranches: Tranche A-1, Tranche A-2 and FILO Tranche. Interest accrues at a per annum rate equal to either (x) a base rate (calculated as the highest of the (i) prime rate, (ii) the federal funds rate plus 3.00%, or (iii) LIBOR plus the excess of the applicable margin between LIBOR loans and base rate loans) plus an applicable margin or (y) LIBOR plus an applicable margin. The applicable margin is based on the level of commitments for all three tranches, and in regards to LIBOR loans (i) for Tranche A-1 ranges from 3.25% to 2.75%; (ii) for Tranche A-2 ranges from 3.00% to 2.50%; and (iii) for FILO Tranche is 5.00%. The Revolving Credit Facilities mature on February 2, 2020, provided that if the Term Loan Facility (defined below), the Skilled Real Estate Bridge Loan (defined below) or the Revera Real Estate Bridge Loan (defined below) is not refinanced with longer term debt or their terms not extended prior to their extension option maturities of December 4, 2017, August 27, 2017 and May 29, 2018, respectively, the Revolving Credit Facilities will mature 90 days prior to such maturity date, as applicable. Borrowing levels under the Revolving Credit Facilities are limited to a borrowing base that is computed based upon the level of the Company’s eligible accounts receivable, as defined. In addition to paying interest on the outstanding principal borrowed under the Revolving Credit Facilities, the Company is required to pay a commitment fee to the lenders for any unutilized commitments. The commitment fee rate ranges from 0.375% per annum to 0.50% depending upon the level of unused commitment.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Borrowings and interest rates under the three tranches were as follows at March 31, 2016 (dollars in thousands):


			Weighted
			Average
Revolving credit facility	Borrowings		Interest
FILO tranche	$	25,000	5.87	%
Tranche A-1		233,000	3.94	%
Tranche A-2		75,000	3.62	%
	$	333,000	4.01	%

As of March 31, 2016, the Company had a total borrowing base capacity of $544.1 million with outstanding borrowings under the Revolving Credit Facilities of $333.0 million and $68.2 million of drawn letters of credit securing insurance and lease obligations, leaving the Company with approximately $142.9 million of available borrowing capacity under the Revolving Credit Facilities.

Term Loan Facility

The five-year term loan facility (Term Loan Facility) is secured by a first priority lien on the membership interests in the Company and on substantially all of the Company’s and its subsidiaries’ assets other than collateral held on a first priority basis by the Revolving Credit Facilities lender. Borrowings under the Term Loan Facility bear interest at a rate per annum equal to the applicable margin plus, at the Company’s option, either (x) LIBOR or (y) a base rate determined by reference to the highest of (i) the lender defined prime rate, (ii) the federal funds rate effective plus one half of one percent and (iii) LIBOR described in subclause (x) plus 1.0%. LIBOR based loans are subject to an interest rate floor of 1.5% and base rate loans are subject to a floor of 2.5%. The Term Loan Facility matures on the earliest of (i) December 4, 2017 and (ii) 90-days prior to the maturity of the Skilled Real Estate Bridge Loan, including extensions. As of March 31, 2016, the Term Loan Facility had an outstanding principal balance of $225.4 million. Base rate borrowings under the Term Loan Facility bore interest of approximately 11.0% at March 31, 2016. One-month LIBOR borrowings under the Term Loan Facility bore interest of approximately 10.0% at March 31, 2016.

Principal payments for the three months ended March 31, 2016 were $3.0 million. The Term Loan Facility amortizes at a rate of 5% per annum. The lenders have the right to elect ratable principal payments or defer principal recoupment until the end of the term. In connection with the sale of the Company’s hospice and home health business effective May 1, 2016, the Company used the $72 million in cash proceeds to pay down partially the Company’s Term Loan Facility. See Note 3 – “Significant Transactions and Events – Sale of Hospice and Home Health.”

Real Estate Bridge Loans

In connection with the Combination on February 2, 2015, the Company entered into a $360.0 million real estate bridge loan (the Skilled Real Estate Bridge Loan), which is secured by a mortgage lien on the real property of 67 facilities and a second lien on certain receivables of the operators of such facilities. The Skilled Real Estate Bridge Loan is subject to a 24-month term with two extension options of 90-days each and accrues interest at a rate equal to LIBOR, plus 6.75%, plus an additional margin that ranges up to 7.00% based on the aggregate number of days the Skilled Real Estate Bridge Loan is outstanding. The interest rate is also subject to a LIBOR interest rate floor of 0.5%. The Skilled Real Estate Bridge Loan bore interest of 10.75% at March 31, 2016. The Skilled Real Estate Bridge Loan is subject to payments of interest only during the term with a balloon payment due at maturity, provided, that to the extent the subsidiaries receive any net proceeds from the sale and / or refinance of the underlying facilities such net proceeds are required to be used to repay the outstanding principal balance of the Skilled Real Estate Bridge Loan. The proceeds of the Skilled Real Estate Bridge Loan were used to repay Skilled’s first lien senior secured term loan, repay Skilled’s mortgage loans and asset based revolving credit facility with MidCap Financial with excess proceeds used to fund direct costs of the Combination with the Company. The Skilled Real Estate Bridge Loan has an outstanding principal balance of $238.0 million at March 31, 2016.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In connection with the acquisition of 19 skilled nursing facilities on December 1, 2015 from Revera Assisted Living, Inc. (Revera), the Company entered into a $134.1 million real estate bridge loan (the Revera Real Estate Bridge Loan and, together with the Skilled Real Estate Bridge Loan, the Real Estate Bridge Loans), which is secured by a mortgage lien on the real property of 15 facilities and a second lien on certain receivables of the operators of such facilities. The Revera Real Estate Bridge Loan is subject to a 24-month term with two extension options of 90-days each and accrues interest at a rate equal to LIBOR, plus 6.75%, plus an additional margin that ranges up to 7.00% based on the aggregate number of days the Revera Real Estate Bridge Loan is outstanding, plus 0.25% multiplied by the result of dividing the number of percentage points by which the loan-to-value ratio, defined as the ratio, expressed as a percentage, of (i) the outstanding principal balance to (ii) the total appraised value of the facilities as of the closing date, exceeds 75% by five. The interest rate is also subject to a LIBOR interest rate floor of 0.5%. The Revera Real Estate Bridge Loan bore interest of 8.00% at March 31, 2016. The Revera Real Estate Bridge Loan is subject to payments of interest only during the term with a balloon payment due at maturity, provided, that to the extent the subsidiaries receive any net proceeds from the sale and / or refinance of the underlying facilities such net proceeds are required to be used to repay the outstanding principal balance of the Revera Real Estate Bridge Loan. The proceeds of the Revera Real Estate Bridge Loan were used to finance the acquisition of 15 Revera facilities. The Revera Real Estate Bridge Loan has an outstanding principal balance of $134.1 million at March 31, 2016.

HUD Insured Loans

As of March 31, 2016, the Company has 21 skilled nursing facility loans insured by the U.S. Department of Housing and Urban Development (HUD). The HUD insured loans have an original amortization term of 30 to 35 years. As of March 31, 2016, the Company has HUD insured loans with a combined aggregate principal balance of $175.0 million, including a $14.4 million debt premium on 10 skilled nursing facility loans established in purchase accounting in connection with the Combination.

These loans have an average remaining term of 32 years with fixed interest rates ranging from 3.4% to 4.6% and a weighted average interest rate of 3.9%. Depending on the mortgage agreement, prepayments are generally allowed only after 12 months from the inception of the mortgage. Prepayments are subject to a penalty of 10% of the remaining principal balances in the first year and the prepayment penalty decreases each subsequent year by 1% until no penalty is required. Any further HUD insured loans will require additional HUD approval.

All HUD insured loans are non-recourse loans to the Company. All loans are subject to HUD regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, insurance and for capital replacement expenditures. As of March 31, 2016, the Company has total escrow reserve funds of $9.8 million with the loan servicer that are reported within prepaid expenses.

Other Debt

Mortgages and other secured debt (recourse). The Company carries mortgage loans and notes payable on certain of its corporate office buildings and other acquired assets. The loans are secured by the underlying real property and have fixed or variable rates of interest ranging from 1.9% to 6.0% at March 31, 2016, with maturity dates ranging from 2018 to 2020.

Mortgages and other secured debt (non-recourse). Loans are carried by certain of the Company’s consolidated joint ventures. The loans consist principally of revenue bonds and secured bank loans. Loans are secured by the underlying real and personal property of individual facilities and have fixed or variable rates of interest ranging from 2.5% to 22.2% at March 31, 2016, with maturity dates ranging from 2018 to 2034. Loans are labeled “non-recourse” because neither the Company nor any of its wholly owned subsidiaries is obligated to perform under the respective loan agreements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Debt Covenants

The Revolving Credit Facilities, the Term Loan Facility, the Skilled Real Estate Bridge Loan and the Revera Real Estate Bridge Loan (collectively, the Credit Facilities) each contain a number of restrictive covenants that, among other things, impose operating and financial restrictions on the Company and its subsidiaries. The Credit Facilities also require the Company to meet defined financial covenants, including interest coverage ratio, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio, all as defined in the applicable agreements. The Credit Facilities also contain other customary covenants and events of default and cross default. At March 31, 2016, the Company was in compliance with its covenants.

The Company’s ability to maintain compliance with its debt covenants depends in part on management’s ability to increase revenue and control costs. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is likely that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt covenant compliance requirements in the near term. Should the Company fail to comply with its debt covenants at a future measurement date, it would be in default under certain of its existing credit agreements.

As of March 31, 2016, considering the combination of scheduled debt maturities or accelerated maturity features in other debt agreements, the Company has $581.1 million in debt obligations due in the next two years. The liquidity and financial condition of the Company will be adversely impacted in the event these obligations cannot be extended or refinanced prior to their scheduled or accelerated maturity dates.

The maturity of total debt of $1,113.1 million at March 31, 2016 is as follows (in thousands):


Twelve months ended March 31,
2017	$	8,113
2018		572,979
2019		22,421
2020		335,052
2021		5,421
Thereafter		169,149
Total debt maturity	$	1,113,135

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(8)Leases and Lease Commitments

The Company leases certain facilities under capital and operating leases. Future minimum payments for the next five years and thereafter under such leases at March 31, 2016 are as follows (in thousands):


Twelve months ended March 31,	Capital Leases		Operating Leases
2017	$	94,211	$	141,560
2018		99,539		137,281
2019		97,592		133,700
2020		100,048		131,589
2021		102,501		123,480
Thereafter		3,342,845		239,590
Total future minimum lease payments		3,836,736	$	907,200
Less amount representing interest		(2,778,005)
Capital lease obligation		1,058,731
Less current portion		(1,847)
Long-term capital lease obligation	$	1,056,884

Capital Lease Obligations

The capital lease obligations represent the present value of minimum lease payments under such capital lease and cease use arrangements and bear imputed interest at rates ranging from 3.5% to 12.8% at March 31, 2016, and mature at dates ranging from 2016 to 2047.

Deferred Lease Balances

At March 31, 2016 and December 31, 2015, the Company had $52.6 million and $54.7 million, respectively, of favorable leases net of accumulated amortization, included in identifiable intangible assets, and $33.9 million and $35.5 million, respectively, of unfavorable leases net of accumulated amortization included in other long-term liabilities on the consolidated balance sheet. Favorable and unfavorable lease assets and liabilities arise through the acquisition of leases in place that requires those contracts be recorded at their then fair value. The fair value of a lease is determined through a comparison of the actual rental rate with rental rates prevalent for similar assets in similar markets. A favorable lease asset to the Company represents a rental stream that is below market, and conversely an unfavorable lease is one with cost above market rates. These assets and liabilities amortize as lease expense over the remaining term of the respective leases on a straight-line basis. At March 31, 2016 and December 31, 2015, the Company had $28.3 million and $27.3 million, respectively, of deferred straight-line rent balances included in other long-term liabilities on the consolidated balance sheet.

Lease Covenants

Certain lease agreements contain a number of restrictive covenants that, among other things and subject to certain exceptions, impose operating and financial restrictions on the Company and its subsidiaries. These leases also require the Company to meet defined financial covenants, including a minimum level of consolidated liquidity, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage. At March 31, 2016, the Company was in compliance with its covenants under its lease arrangements.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

performance may not generate sufficient operating results to maintain compliance with its quarterly lease covenant compliance requirements. Should the Company fail to comply with its lease covenants at a future measurement date, it would be in default under certain of its existing lease agreements.

(9)Financing Obligation

Future minimum payments for the next five years and thereafter under leases classified as financing obligations at March 31, 2016 are as follows (in thousands):


Twelve months ended March 31,
2017	$	277,805
2018		285,744
2019		293,908
2020		302,310
2021		310,945
Thereafter		9,841,789
Total future minimum lease payments		11,312,501
Less amount representing interest		(8,219,905)
Financing obligations	$	3,092,596
Less current portion		(1,230)
Long-term financing obligations	$	3,091,366

(10)Income Taxes

The Company effectively owns 58% of FC-GEN, an entity taxed as a partnership for U.S. income tax purposes. This is the Company’s only source of taxable income. FC-GEN is subject to income taxes in several U.S. state and local jurisdictions. The income taxes assessed by these jurisdictions are included in the Company’s tax provision, but at its 58% ownership of FC-GEN.

For the three months ended March 31, 2016, the Company recorded an income tax expense of $3.1 million from continuing operations, representing an effective tax rate of (4.5)%, compared to an income tax benefit of $5.6 million from continuing operations, representing an effective tax rate of 4.6%, for the same period in 2015.

The decrease in the effective tax rate is attributable to the full valuation allowance against the Company’s deferred tax assets, excluding the Company’s deferred tax asset on its Bermuda captive insurance company’s discounted unpaid loss reserve. On December 31, 2015, in assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, management determined that the Company would not realize its deferred tax assets and established a valuation allowance against the deferred tax assets. As of March 31, 2016, management has determined that the valuation allowance is still necessary.

Beginning with the fourth quarter of 2014, the Company initiated rehabilitation therapy services within the People’s Republic of China. In this quarter ended March 31, 2016, the Company initiated rehabilitation therapy services within Hong Kong. At March 31, 2016, these business operations remain in their respective startup stage. Management does not anticipate these operations will generate taxable income in the near term. The operations currently do not have a material effect on the Company’s effective tax rate.

Exchange Rights and Tax Receivable Agreement

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

exchanges, the Company’s membership interest in FC-GEN will increase and its purchase price will be reflected in its share of the tax basis of FC-GEN’s tangible and intangible assets. Any resulting increases in tax basis are likely to increase tax depreciation and amortization deductions and, therefore, reduce the amount of income tax the Company would otherwise be required to pay in the future. Any such increase would also decrease gain (or increase loss) on future dispositions of the affected assets. There have been no exchanges for the quarters ended March 31, 2016 and 2015, respectively.

Concurrent with the Combination, the Company entered into a tax receivable agreement (TRA) with the owners of FC-GEN. The agreement provides for the payment by the Company to the owners of FC-GEN of 90% of the cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes as a result of (i) the increases in tax basis attributable to the owners of FC-GEN and (ii) tax benefits related to imputed interest deemed to be paid by the Company as a result of the TRA. Under the TRA, the benefits deemed realized by the Company as a result of the increase in tax basis attributable to the owners of FC-GEN generally will be computed by comparing the actual income tax liability of the Company to the amount of such taxes that the Company would have been required to pay had there been no such increase in tax basis.

Estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis and deductions, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including:

the timing of exchanges—for instance, the increase in any tax deductions will vary depending on the fair value of the depreciable or amortizable assets of FC-GEN and its subsidiaries at the time of each exchange, which fair value may fluctuate over time;

the price of shares of Company Class A Common Stock at the time of the exchange—the increase in any tax deductions, and the tax basis increase in other assets of FC-GEN and its subsidiaries is directly proportional to the price of shares of Company Class A Common Stock at the time of the exchange;

the amount and timing of the Company’s income—the Company is required to pay 90% of the deemed benefits as and when deemed realized. If FC-GEN does not have taxable income, the Company is generally not required (absent a change of control or circumstances requiring an early termination payment) to make payments under the TRA for that taxable year because no benefit will have been actually realized. However, any tax benefits that do not result in realized benefits in a given tax year likely will generate tax attributes that may be utilized to generate benefits in previous or future tax years. The utilization of such tax attributes will result in payments under the TRA; and

future tax rates of jurisdictions in which the Company has tax liability.

The TRA also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, FC-GEN (or its successor’s) obligations under the TRA would be based on certain assumptions defined in the TRA. As a result of these assumptions, FC-GEN could be required to make payments under the TRA that are greater or less than the specified percentage of the actual benefits realized by the Company that are subject to the TRA. In addition, if FC-GEN elects to terminate the TRA early, it would be required to make an early termination payment, which upfront payment may be made significantly in advance of the anticipated future tax benefits.

Payments generally are due under the TRA within a specified period of time following the filing of FC-GEN’s U.S. federal and state income tax return for the taxable year with respect to which the payment obligation arises. Payments under the TRA generally will be based on the tax reporting positions that FC-GEN will determine. Although FC-GEN does not expect the Internal Revenue Service (IRS) to challenge the Company’s tax reporting positions, FC-GEN will not be reimbursed for any overpayments previously made under the TRA, but any overpayments will reduce future

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

payments. As a result, in certain circumstances, payments could be made under the TRA in excess of the benefits that FC-GEN actually realizes in respect of the tax attributes subject to the TRA.

The term of the TRA generally will continue until all applicable tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA and make an early termination payment.

In certain circumstances (such as certain changes in control, the election of the Company to exercise its right to terminate the agreement and make an early termination payment or an IRS challenge to a tax basis increase) it is possible that cash payments under the TRA may exceed actual cash savings.

(11)Commitments and Contingencies

Loss Reserves For Certain Self-Insured Programs

General and Professional Liability and Workers’ Compensation

The Company self-insures for certain insurable risks, including general and professional liabilities and workers’ compensation liabilities through the use of self-insurance or retrospective and self-funded insurance policies and other hybrid policies, which vary among states in which the Company operates, including wholly owned captive insurance subsidiaries, to provide for potential liabilities for general and professional liability claims and workers’ compensation claims. Policies are typically written for a duration of twelve months and are measured on a “claims made” basis. Regarding workers’ compensation, the Company self-insures to its deductible and purchases statutorily required insurance coverage in excess of its deductible. There is a risk that amounts funded by the Company’s self-insurance programs may not be sufficient to respond to all claims asserted under those programs. Insurance reserves represent estimates of future claims payments. This liability includes an estimate of the development of reported losses and losses incurred but not reported. Provisions for changes in insurance reserves are made in the period of the related coverage. The Company also considers amounts that may be recovered from excess insurance carriers in estimating the ultimate net liability for such risks.

The Company’s management employs its judgment and periodic independent actuarial analysis in determining the adequacy of certain self-insured workers’ compensation and general and professional liability obligations recorded as liabilities in the Company’s financial statements. The Company evaluates the adequacy of its self-insurance reserves on a semi-annual basis or more often when it is aware of changes to its incurred loss patterns that could impact the accuracy of those reserves. The methods of making such estimates and establishing the resulting reserves are reviewed periodically and are based on historical paid claims information and nationwide nursing home trends. The foundation for most of these methods is the Company’s actual historical reported and/or paid loss data. Any adjustments resulting therefrom are reflected in current earnings. Claims are paid over varying periods, and future payments may be different than the estimated reserves.

The Company utilizes third-party administrators (TPAs) to process claims and to provide it with the data utilized in its assessments of reserve adequacy. The TPAs are under the oversight of the Company’s in-house risk management and legal functions. These functions ensure that the claims are properly administered so that the historical data is reliable for estimation purposes. Case reserves, which are approved by the Company’s legal and risk management departments, are determined based on an estimate of the ultimate settlement and/or ultimate loss exposure of individual claims.

The reserves for loss for workers’ compensation risks are discounted based on actuarial estimates of claim payment patterns using a discount rate of approximately 1% for each policy period presented. The discount rate for the current policy year is 0.97%. The discount rates are based upon the risk-free rate for the appropriate duration for the respective policy year. The removal of discounting would have resulted in an increased reserve for workers’ compensation risks of

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

$8.8 million and $8.6 million as of March 31, 2016 and December 31, 2015, respectively. The reserves for general and professional liability are recorded on an undiscounted basis.

For the three months ended March 31, 2016 and 2015, the provision for general and professional liability risk totaled $34.9 million and $26.2 million, respectively. The reserves for general and professional liability were $381.7 million and $371.6 million as of March 31, 2016 and December 31, 2015, respectively.

For the three months ended March 31, 2016 and 2015, the provision for workers’ compensation risk totaled $18.1 million and $18.0 million, respectively. The reserves for workers’ compensation risks were $228.9 million and $223.7 million as of March 31, 2016 and December 31, 2015, respectively.

Health Insurance

The Company offers employees an option to participate in self-insured health plans. Health insurance claims are paid as they are submitted to the plans’ administrators. The Company maintains an accrual for claims that have been incurred but not yet reported to the plans’ administrators and therefore have not yet been paid. The liability for the self-insured health plan is recorded in accrued compensation in the consolidated balance sheets. Although management believes that the amounts provided in the Company’s consolidated financial statements are adequate and reasonable, there can be no assurances that the ultimate liability for such self-insured risks will not exceed management’s estimates.

Legal Proceedings

The Company and certain of its subsidiaries are involved in various litigation and regulatory investigations arising in the ordinary course of business. While there can be no assurance, based on the Company’s evaluation of information currently available, with the exception of the specific matters noted below, management does not believe the results of such litigation and regulatory investigations would have a material adverse effect on the results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may be affected by limited information (particularly in the early stages of government investigations). Accordingly, the Company’s assessment of materiality may change in the future based upon availability of discovery and further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

From time to time the Company may enter into confidential discussions regarding the potential settlement of pending investigations or litigation. There are a variety of factors that influence the Company’s decisions to settle and the amount it may choose to pay, including the strength of the Company’s case, developments in the investigation or litigation, the behavior of other interested parties, the demand on management time and the possible distraction of the Company’s employees associated with the case and/or the possibility that the Company may be subject to an injunction or other equitable remedy. The settlement of any pending investigation, litigation or other proceedings could require the Company to make substantial settlement payments and result in its incurring substantial costs.

Creekside Hospice Litigation

On August 2, 2013, the United States Attorney for the District of Nevada and the Civil Division of the U.S. Department of Justice (the DOJ) informed the Company that its Civil Division was investigating Skilled, as well as its subsidiary, Creekside Hospice II, LLC, for possible violations of federal and state healthcare fraud and abuse laws and regulations (the Creekside Hospice Litigation). Those laws could have included the federal False Claims Act (FCA) and the Nevada False Claims Act (NFCA). The FCA provides for civil and administrative fines and penalties, plus treble damages. The NFCA provides for similar fines and penalties, including treble damages. Violations of those federal or state laws could also subject the Company and/or its subsidiaries to exclusion from participation in the Medicare and Medicaid programs. Any damages, fines, penalties, other sanctions and costs that the Company may incur as a result of

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

any federal or state suit could be significant and could have a material and adverse effect on its results of operations and financial condition.

On or about August 6, 2014, in relation to the investigation the DOJ filed a notice of intervention in two pending qui tam proceedings filed by private party relators under the FCA and the NFCA and advised that it intends to take over the actions. The DOJ filed its complaint in intervention on November 25, 2014, against Creekside, Skilled Healthcare Group, Inc., and Skilled Healthcare, LLC, asserting, among other things, that certain claims for hospice services provided by Creekside in the time period 2010 to 2013 did not meet Medicare requirements for reimbursement and are in violation of the civil False Claims Act. The DOJ is pursuing False Claims Act and federal common law claims remedies in an unspecified amount, with a request to treble provable damages and impose penalties per proved false claim in the amount ranging from $5,500 to $11,000 per claim, as applicable.

The Company has had discussions with the DOJ regarding this matter and the Therapy Matters Investigation (defined below), the Staffing Matters Investigation (defined below) and the SunDance Part B Therapy Matter (defined below). While the Company denies the allegations and will vigorously defend this action, including any portion of the action that the private party relators may continue to pursue, the Company has accrued a combined $39.1 million as a contingent liability in connection with those four matters. However, it could ultimately cost more than that amount to settle or otherwise resolve the matter(s), including to satisfy any judgment that might be rendered against the Company or Creekside Hospice if the litigation defense were ultimately unsuccessful.

Therapy Matters Investigation

In February 2015, representatives of the DOJ informed the Company that they are investigating and may pursue legal action against the Company and certain of its subsidiaries including Hallmark Rehabilitation GP, LLC for alleged violations of the federal and state healthcare fraud and abuse laws and regulations related to the provision of therapy services at certain Skilled facilities from 2005 through 2013 (the Therapy Matters Investigation). These laws could include the FCA and similar state laws. As noted above, the FCA provides for civil and administrative fines and penalties, including civil fines ranging from $5,500 to $11,000 per claim plus treble damages. Applicable state laws provide for similar penalties. Violations of these federal or state laws could also subject the Company and/or its subsidiaries to exclusion from participation in the Medicare and Medicaid programs. Any damages, fines, penalties, other sanctions and costs that the Company may incur as a result of any federal and/or state suit could be significant and could have a material and adverse effect on its results of operations and financial condition. As noted above, the Company has had discussions with the DOJ regarding this matter, the Creekside Hospice Litigation, the Staffing Matters Investigation and the SunDance Part B Therapy Matter. The Company has accrued a combined $39.1 million as a contingent liability in connection with those four matters. However, it could ultimately cost more than that amount to settle or otherwise resolve the matter(s), including to satisfy any judgment that might be rendered against the Company if legal proceedings are commenced. At this time, the Company cannot predict what additional effect, if any, the investigation or any potential claims arising under applicable federal or state laws and regulations could have on the Company. While the Company will continue to cooperate with the government’s investigation of the matter, the Company intends to vigorously defend against any legal action that may be brought in the matter.

Staffing Matters Investigation

On February 10, 2015, the DOJ informed the Company that it intends to pursue legal action against the Company and certain of its subsidiaries related to staffing and certain quality of care allegations related to the issues adjudicated against the Company and those subsidiaries in a previously disclosed class action lawsuit that Skilled settled in 2010 (the Staffing Matters Investigation). The laws under which the DOJ could seek to pursue legal action could include the FCA and similar state laws. As noted above, violations of the FCA or similar state laws and regulations could subject the Company and/or its subsidiaries to severe monetary and other penalties and remedies. Any damages, fines, penalties, other sanctions and costs that the Company may incur as a result of any federal or state suit could be significant and

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

could have a material and adverse effect on its results of operations and financial condition. As noted above, the Company has had discussions with the DOJ regarding this matter, the Creekside Hospice Litigation, the Therapy Matters Investigation, and the SunDance Part B Therapy Matter. The Company has accrued a combined $39.1 million as a contingent liability in connection with those four matters. However, it could ultimately cost more than that amount to settle or otherwise resolve the matter(s), including to satisfy any judgment that might be rendered against the Company if legal proceedings are commenced. At this time, the Company cannot predict what additional effect, if any, the investigation or any potential claims arising under applicable federal or state laws and regulations could have on the Company. While the Company will continue to cooperate with the government's evaluation of the matter, the Company intends to vigorously defend against any legal action that may be brought in the matter.

SunDance Part B Therapy Matter

SunDance Rehabilitation Corp. (SunDance) operates an outpatient agency licensed to provide Medicare Part B therapy services at assisted/senior living facilities in Georgia and is a party to a qui tam proceeding that was filed by a private party relator under the FCA. No SunDance agencies outside of Georgia are part of the qui tam proceeding. The Civil Division of the United States Attorney's Office for the District of Georgia has recently filed a notice of intervention in this matter. It is believed that when filed, the complaint in intervention may assert, among other things, that certain claims for therapy services provided by SunDance to certain Georgia facilities from the time period 2008 to 2012 did not meet Medicare requirements for reimbursement and are in violation of the FCA. As noted above, the Company has had discussions with the DOJ regarding this matter, the Creekside Hospice Litigation, the Therapy Matters Investigation, and the Staffing Matters Investigation. While the Company denies the allegations and will vigorously defend this action, including any portion of the action that the private party relators may continue to pursue, the Company has accrued a combined $39.l million as a contingent liability in connection with those four matters. However, it could ultimately cost more than that amount to settle or otherwise resolve the matter(s), including to satisfy any judgment that might be rendered against the Company or SunDance if the litigation defense were ultimately unsuccessful.

(12)Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and equivalents, restricted cash, trade accounts receivable, investments in marketable securities, accounts payable, short and long-term debt and derivative financial instruments.

The Company’s financial instruments, other than its trade accounts receivable and accounts payable, are spread across a number of large financial institutions whose credit ratings the Company monitors and believes do not currently carry a material risk of non-performance. Certain of the Company’s financial instruments, including its interest rate cap arrangements, contain an off-balance-sheet risk.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recurring Fair Value Measures

Fair value is defined as an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as shown below. An instrument’s classification within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.


	Level 1 —		Quoted prices (unadjusted) in active markets for identical assets or liabilities.
	Level 2 —		Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.
	Level 3 —		Inputs that are unobservable for the asset or liability based on the Company’s own assumptions (about the assumptions market participants would use in pricing the asset or liability).

The tables below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):


	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	March 31,		Identical Assets		Observable Inputs		Inputs
Assets:	2016		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	52,204	$	52,204	$	—	$	—
Restricted cash and equivalents		25,120		25,120		—		—
Restricted investments in marketable securities		165,731		165,731		—		—
Total	$	243,055	$	243,055	$	—	$	—


	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	December 31,		Identical Assets		Observable Inputs		Inputs
Assets:	2015		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	61,543	$	61,543	$	—	$	—
Restricted cash and equivalents		34,370		34,370		—		—
Restricted investments in marketable securities		163,757		163,757		—		—
Total	$	259,670	$	259,670	$	—	$	—

The Company places its cash and equivalents and restricted investments in marketable securities in quality financial instruments and limits the amount invested in any one institution or in any one type of instrument. The Company has not experienced any significant losses on such investments.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Debt Instruments

The table below shows the carrying amounts and estimated fair values of the Company’s primary long-term debt instruments:


	March 31, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facilities	$	323,374	$	323,374	$	352,746	$	352,746
Term loan facility		210,134		203,370		210,842		210,271
Real estate bridge loans		364,433		364,433		484,533		484,533
HUD insured loans		171,379		167,837		106,250		106,250
Mortgages and other secured debt (recourse)		13,770		13,770		13,934		13,934
Mortgages and other secured debt (non-recourse)		30,045		30,045		30,331		30,331
	$	1,113,135	$	1,102,829	$	1,198,636	$	1,198,065

The fair value of debt is based upon market prices or is computed using discounted cash flow analysis, based on the Company’s estimated borrowing rate at the end of each fiscal period presented. The Company believes that the inputs to the pricing models qualify as Level 2 measurements.

Non-Recurring Fair Value Measures

The Company recently applied the fair value measurement principles to certain of its non-recurring nonfinancial assets in connection with an impairment test.

The following table presents the Company’s hierarchy for nonfinancial assets measured at fair value on a non-recurring basis (in thousands):


			Impairment Charges -
	Carrying Value		Three months ended
	March 31, 2016		March 31, 2016
Assets:
Property and equipment, net	$	3,981,879	$	—
Goodwill		470,735		—
Intangible assets		203,080		—

			Impairment Charges -
	Carrying Value		Three months ended
	December 31, 2015		March 31, 2015
Assets:
Property and equipment, net	$	4,085,247	$	—
Goodwill		470,019		—
Intangible assets		209,967		—

The fair value of tangible and intangible assets is determined using a discounted cash flow approach, which is a significant unobservable input (Level 3). The Company estimates the fair value using the income approach (which is a discounted cash flow technique). These valuation methods required management to make various assumptions, including, but not limited to, future profitability, cash flows and discount rates. The Company’s estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Developing discounted future cash flows in applying the income approach requires the Company to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates of revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows requires the selection of risk premiums, which can materially impact the present value of future cash flows.

The Company estimated the fair value of acquired tangible and intangible assets using discounted cash flow techniques that included an estimate of future cash flows, consistent with overall cash flow projections used to determine the purchase price paid to acquire the business, discounted at a rate of return that reflects the relative risk of the cash flows.

The Company believes the estimates and assumptions used in the valuation methods are reasonable.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition as of the dates and for the periods presented and should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q. As used in this MD&A, the words “we,” “our,” “us” and the “Company,” and similar terms, refer collectively to Genesis Healthcare, Inc. and its wholly-owned subsidiaries, unless the context requires otherwise. This MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included in this report, as well as the financial information and MD&A contained in the our Annual Report (defined below).

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue,” “plans” or “prospect,” or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about the Company’s expectations and beliefs regarding its future operations and financial performance. Historical results may not indicate future performance. Our forward-looking statements are based on current expectations and projections about future events, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of the Company may differ materially from that expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, particularly in Item 1A, “Risk Factors,” which was filed with the SEC on March 14, 2016 (the Annual Report), as well as others that are discussed in this Form 10-Q, including in Part II, Item 1A, “Risk Factors.” These risks and uncertainties could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. Our business is also subject to the risks that affect many other companies, such as employment relations, natural disasters, general economic conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. Any forward-looking statements contained herein are made only as of the date of this report. The Company disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.

Business Overview

Genesis is a healthcare services company that through its subsidiaries owns and operates skilled nursing facilities, assisted living facilities, hospices, home health providers and a rehabilitation therapy business. We have an administrative services company that provides a full complement of administrative and consultative services that allows our affiliated operators and third-party operators with whom we contract to better focus on delivery of healthcare services. We provide inpatient services through 512 skilled nursing, senior/assisted living and behavioral health centers located in 34 states. Revenues of our owned, leased and otherwise consolidated centers constitute approximately 84% of our revenues.

We also provide a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by us, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 12% of our revenues.

We provide an array of other specialty medical services, including management services, physician services, staffing services, hospice and home health services, and other healthcare related services, which comprise the balance of our revenues.

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Recent Transactions

The Combination with Skilled

Sale of Kansas ALFs

On January 1, 2016, we sold 18 Kansas assisted/senior living facilities acquired in the Combination for $67.0 million. . Of the proceeds received, $54.2 million were used to pay down partially the Real Estate Bridge Loans. See Note 7 – “Long-Term Debt – Real Estate Bridge Loans.”

Sale of Hospice and Home Health

On March 9, 2016, we announced that we had signed an agreement with FC Compassus LLC, a nationwide network of community-based hospice and palliative care programs, to sell its hospice and home health operations for $84 million. Through the asset purchase agreement, we retained certain liabilities. See Note 11 – “Commitments and Contingencies – Legal Proceedings - Creekside Hospice Litigation.” Certain members of our board of directors indirectly beneficially hold ownership interests in FC Compassus LLC totaling less than 10% in the aggregate.

Effective May 1, 2016, we completed the sale and received $72 million in cash and a $12 million short-term note. The cash proceeds were used to pay down partially our Term Loan Facility. See Note 7 – “Long-Term Debt – Term Loan Facility.”

HUD Insured Loans

On March 31, 2016, we closed on the HUD insured financing of ten skilled nursing facilities acquired in the Combination for $67.9 million. On April 28, 2016, we closed on the HUD insured financing of three additional skilled nursing facilities acquired in the Combination for $9.2 million. The $77.1 million in total proceeds from the financings were used to pay down partially the Real Estate Bridge Loans. See Note 7 – “Long-Term Debt – Real Estate Bridge Loans.”

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, (ASU 2014-09) which changes the requirements for recognizing revenue when entities enter into contracts with customers. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is not permitted. We are still evaluating the effect, if any, ASU 2014-09 will have on our consolidated financial condition and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern, (ASU 2014-15) requiring management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern and to provide disclosures in certain circumstances. ASU 2014-15 is effective for annual and interim periods ending after December 31, 2016. We are still evaluating the effect, if any, ASU 2014-15 will have on our consolidated financial condition and results of operations.

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In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (ASU 2016-01), which is intended to improve the recognition and measurement of financial instruments. The new guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. We are still evaluating the effect, if any, ASU 2016-01 will have on our consolidated financial condition and results of operations.

In February 2016, the FASB issued amended authoritative guidance on accounting for leases. The new provisions require that a lessee of operating leases recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments, with the right-of-use asset based upon the lease liability. The classification criteria for distinguishing between finance (or capital) leases and operating leases are substantially similar to the previous lease guidance, but with no explicit bright lines. As such, operating leases will result in straight-line rent expense similar to current practice. For short term leases (term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities, which would generally result in lease expense being recognized on a straight-line basis over the lease term. The guidance is effective for annual and interim periods beginning after December 15, 2018, and will require application of the new guidance at the beginning of the earliest comparable period presented. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition. The adoption of this standard is expected to have a material impact on our financial position. We are still evaluating the impact on our results of operations and does not expect the adoption of this standard to have an impact on liquidity.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09), which is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are still evaluating the effect, if any, ASU 2016-09 will have on our consolidated financial condition and results of operations.

Industry Trends

Healthcare Reform Initiatives

Many provisions within the Patient Protection and Affordable Care Act of 2010 (PPACA) have had an impact, or could in the future impact, our business. The expansive potential impact of the PPACA is discussed in Item 1, “Business” and Item 1A, “Risk Factors” in our Annual Report and in Part II, “Other Information”, Item 1A, “Risk Factors” in this Form 10-Q.

We believe we are transforming our business and operations for success in a post-healthcare reform environment. As healthcare reform continues to be implemented, we believe post-acute healthcare providers who provide quality diversified care, have density and strong reputations in local markets, have good relationships with acute care hospitals and payors and operate with scale will have a competitive advantage in an episodic payment environment. We believe our previously described organic and strategic growth strategies should position us to become a valuable partner to acute care hospitals and managed care organizations that are seeking to increase care coordination, reduce lengths of stay and hospital readmissions, more effectively manage healthcare costs and develop new care delivery and payment models.

As the industry and its regulators engage in this new environment, we are positioning ourselves to adapt to changes that are ultimately made to the delivery system:

Medicare Shared Savings Program (MSSP) – Effective January 1, 2016, we entered Genesis Physician Services (GPS), our physician services subsidiary, into the MSSP. While beneficiary attribution is retrospective, preliminary data show that we are managing approximately 15,000 Medicare fee for service beneficiaries with

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annualized Medicare spending of more than $800 million. While these numbers are subject to modification and will not be reconciled by the Centers for Medicare and Medicaid Services (CMS) until mid-2017, we have received sufficient benchmark data to measure and monitor performance in this program beginning in the third quarter of this year. The gain share track requires us to save at least approximately three percent of the total Medicare spend under management in order to share in up to 50 percent of the savings with CMS predicated upon achieving certain quality initiatives. Once the savings hurdle has been reached, Genesis begins sharing based on the first dollar of savings.

Bundled Payments for Care Improvement (BPCI) – Participation success is determined retrospectively given the lack of available historical data around the bundles, however, we have received two quarterly reconciliations in early 2016 representing the second and third fiscal quarters of 2015. The reconciliations for the second quarter of 2015 and the results for three centers were not significant. The reconciliation for the third quarter of 2015 represented 13 facilities and netted a positive $0.5 million. We expect to receive the reconciliation from the fourth quarter of 2015 in July 2016 and believe we will continue to see positive outcomes for that quarter.

Comprehensive Care for Joint Replacement (CJR) – On April 1, 2016, the CJR Program went into effect in 67 metropolitan statistical areas (MSAs) throughout the country. We have approximately 100 facilities in roughly 22 of those MSAs. While the program was recently enacted, we have already experienced a significant decline from this class of DRGs from recent years primarily due to the proliferation of Accountable Care Organizations (ACOs) and the BPCI program resulting from the PPACA. For the 2009-2012 period compared to the average number of CJR cases coming to our facilities in key states in 2014, we have already experienced a 29% decrease in applicable CJR type admissions. There were several states that saw slight increases, but many averaged decreases between 13% - 65%. Moreover, in studying our 32 facilities in the model 3 BPCI program from 2009-2012 compared to 2015, we have observed a decrease of nearly 16% in total CJR type admissions.

Vitality to You – We continue to make great progress with our new Vitality to You service offering that extends our rehabilitation therapy services into the community. Vitality to You now cares for approximately 1,615 patients per day, growing 47% since February 2015.

Key Financial Performance Indicators

In order to assess our financial performance between periods, we evaluate certain key performance indicators for each of our operating segments separately for the periods presented. Results and statistics presented in the Key Performance Indicators may not be comparable period-over-period due to the impact of acquisitions and dispositions, or the impact of new and lost therapy contracts.

The following is a glossary of terms for some of our key performance indicators and non-GAAP measures:

“Actual Patient Days” is defined as the number of residents occupying a bed (or units in the case of an assisted/senior living center) for one qualifying day in that period.

“Adjusted EBITDA” is defined as EBITDA adjusted for (1) the conversion to cash basis leases (2) newly acquired or constructed businesses with start-up losses and (3) other adjustments. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAP measures.

“Adjusted EBITDAR” is defined as EBITDAR adjusted for (1) the conversion to cash basis leases (2) newly acquired or constructed businesses with start-up losses and (3) other adjustments. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, non-GAAP measures.

“Available Patient Days” is defined as the number of available beds (or units in the case of an assisted/senior living center) multiplied by the number of days in that period.

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“Average Daily Census” or “ADC” is the number of residents occupying a bed (or units in the case of an assisted/senior living center) over a period of time, divided by the number of calendar days in that period.

“EBITDA” is defined as EBITDAR less lease expense. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAP measures.

“EBITDAR” is defined as net income or loss before depreciation and amortization expense, interest expense, lease expense, loss (gain) on extinguishment of debt, other (income) loss, transaction costs, long-lived asset impairment, Skilled Healthcare and other loss contingency expense, income tax expense (benefit) and loss from discontinued operations, net of taxes. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with non-GAAP measures.

“Insurance” refers collectively to commercial insurance and managed care payor sources, but does not include managed care payors serving Medicaid residents, which are included in the Medicaid category;

“Occupancy Percentage” is measured as the percentage of Actual Patient Days relative to the Available Patient Days;

“Skilled Mix” refers collectively to Medicare and Insurance payor sources.

“Therapist Efficiency” is computed by dividing billable labor minutes related to patient care by total labor minutes for the period.

Key performance indicators for our businesses are set forth below, followed by a comparison and analysis of our financial results:


	Three months ended March 31,
	2016		2015
	(In thousands)
Financial Results
Net revenues	$	1,472,218	$	1,343,001
EBITDAR		169,728		175,347
EBITDA		132,412		138,928
Adjusted EBITDAR		178,351		177,803
Adjusted EBITDA		53,534		60,425

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INPATIENT SEGMENT:


	Three months ended March 31,
	2016			2015
Occupancy Statistics - Inpatient
Available licensed beds in service at end of period		57,908			56,672
Available operating beds in service at end of period		56,446			54,890
Available patient days based on licensed beds		5,274,061			4,776,173
Available patient days based on operating beds		5,133,219			4,628,881
Actual patient days		4,417,347			4,088,847
Occupancy percentage - licensed beds		83.8	%		85.6	%
Occupancy percentage - operating beds		86.1	%		88.3	%
Skilled mix		21.2	%		22.9	%
Average daily census		48,542			45,432

Revenue per patient day (skilled nursing facilities)
Medicare Part A	$	513		$	500
Medicare total (including Part B)		552			533
Insurance		441			438
Private and other		303			314
Medicaid		219			215
Medicaid (net of provider taxes)		200			194
Weighted average (net of provider taxes)	$	274		$	273

Patient days by payor (skilled nursing facilities)
Medicare		569,749			579,898
Insurance		312,148			287,759
Total skilled mix days		881,897			867,657
Private and other		298,752			286,586
Medicaid		2,975,751			2,646,502
Total Days		4,156,400			3,800,745

Patient days as a percentage of total patient days (skilled nursing facilities)
Medicare		13.7	%		15.3	%
Insurance		7.5	%		7.6	%
Skilled mix		21.2	%		22.9	%
Private and other		7.2	%		7.5	%
Medicaid		71.6	%		69.6	%
Total		100.0	%		100.0	%

Facilities at end of period
Skilled nursing facilities
Leased		381			382
Owned		49			32
Joint Venture		5			5
Managed *		40			36
Total skilled nursing facilities		475			455
Total licensed beds		57,904			55,365

Assisted/Senior living facilities:
Leased		30			29
Owned		4			22
Joint Venture		1			1
Managed		2			4
Total assisted/senior living facilities		37			56
Total licensed beds		3,001			3,952
Total facilities		512			511

Total Jointly Owned and Managed— (Unconsolidated)		21			18

* Includes 20 facilities located in Texas for which the real estate is owned by Genesis

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REHABILITATION THERAPY SEGMENT:


	Three months ended March 31,
	2016			2015
Revenue mix %:
Company-operated		36	%		39	%
Non-affiliated		64	%		61	%
Sites of service (at end of period)		1,634			1,569
Revenue per site	$	166,499		$	168,751
Therapist efficiency %		70	%		69	%

Reasons for Non-GAAP Financial Disclosure

The following discussion includes references to EBITDAR, Adjusted EBITDAR, EBITDA and Adjusted EBITDA, which are non-GAAP financial measures (collectively, Non-GAAP Financial Measures). For purposes of SEC Regulation G, a non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position and cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, we have provided reconciliations of the Non-GAAP Financial Measures to the most directly comparable GAAP financial measures.

We believe the presentation of Non-GAAP Financial Measures provides useful information to investors regarding our results of operations because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business. By excluding certain expenses and other items that may not be indicative of our core business operating results, these Non-GAAP Financial Measures:

allow investors to evaluate our performance from management’s perspective, resulting in greater transparency with respect to supplemental information used by us in our financial and operational decision making;

facilitate comparisons with prior periods and reflect the principal basis on which management monitors financial performance;

facilitate comparisons with the performance of others in the post-acute industry;

provide better transparency as to the relationship each reporting period between our cash basis lease expense and the level of operating earnings available to fund lease expense; and

allow investors to view our financial performance and condition in the same manner its significant landlords and lenders require us to report financial information to them in connection with determining our compliance with financial covenants.

We use Non-GAAP Financial Measures primarily as performance measures and believe that the GAAP financial measure most directly comparable to them is net income (loss). We use Non-GAAP Financial Measures as measures to assess the relative performance of our operating businesses, as well as the employees responsible for operating such businesses. Non-GAAP Financial Measures are useful in this regard because they do not include such costs as interest expense, income taxes and depreciation and amortization expense which may vary from business unit to business unit depending upon such factors as the method used to finance the original purchase of the business unit or the tax law in the state in which a business unit operates. By excluding such factors when measuring financial performance, many of which

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are outside of the control of the employees responsible for operating our business units, we are better able to evaluate the operating performance of the business unit and the employees responsible for business unit performance. Consequently, we use these Non-GAAP Financial Measures to determine the extent to which our employees have met performance goals, and therefore may or may not be eligible for incentive compensation awards.

We also use Non-GAAP Financial Measures in our annual budget process. We believe these Non-GAAP Financial Measures facilitate internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. The presentation of these Non-GAAP Financial Measures is consistent with our past practice and we believe these measures further enable investors and analysts to compare current non-GAAP measures with non-GAAP measures presented in prior periods.

Although we use Non-GAAP Financial Measures as financial measures to assess the performance of our business, the use of these Non-GAAP Financial Measures is limited because they do not consider certain material costs necessary to operate the business. These costs include our lease expense (only in the case of EBITDAR and Adjusted EBITDAR), the cost to service debt, the depreciation and amortization associated with our long-lived assets, losses (gains) on extinguishment of debt, transaction costs, long-lived asset impairment charges, federal and state income tax expenses, the operating results of our discontinued businesses and the income or loss attributed to non-controlling interests. Because Non-GAAP Financial Measures do not consider these important elements of our cost structure, a user of our financial information who relies on Non-GAAP Financial Measures as the only measures of our performance could draw an incomplete or misleading conclusion regarding our financial performance. Consequently, a user of our financial information should consider net income (loss) as an important measure of its financial performance because it provides the most complete measure of our performance.

Other companies may define Non-GAAP Financial Measures differently and, as a result, our Non-GAAP Financial Measures may not be directly comparable to those of other companies. Non-GAAP Financial Measures do not represent net income (loss), as defined by GAAP. Non-GAAP Financial Measures should be considered in addition to, not a substitute for, or superior to, GAAP financial measures.

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The following tables provide reconciliations to EBITDAR, Adjusted EBITDAR, EBITDA and Adjusted EBITDA from net income (loss) the most directly comparable financial measure presented in accordance with GAAP:

GENESIS HEALTHCARE, INC.

RECONCILIATION OF NET (LOSS) INCOME TO EBITDA, EBITDAR, ADJUSTED EBITDA AND ADJUSTED EBITDAR

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)


	As reported		Adjustments						As adjusted
					Newly acquired
					or constructed
					businesses with
					start-up losses
	Three months		Conversion to		and newly				Three months
	ended March 31,		cash basis		divested		Other		ended March 31,
	2016		leases (a)		facilities (b)		adjustments (c)		2016
Net revenues	$	1,472,218	$	—	$	(10,544)	$	—	$	1,461,674
Salaries, wages and benefits		867,717		—		(5,854)		(2,130)		859,733
Other operating expenses		361,097		—		(6,388)		(1,367)		353,342
General and administrative costs		48,427		—		—		(2,746)		45,681
Provision for losses on accounts receivable		26,493		—		(276)		(407)		25,810
Lease expense		37,316		89,273		(1,772)		—		124,817
Depreciation and amortization expense		61,765		(34,408)		(252)		—		27,105
Interest expense		135,181		(105,526)		—		—		29,655
Investment income		(481)		—		1		—		(480)
Other loss		12		—		—		(12)		—
Transaction costs		1,754		—		—		(1,754)		—
Skilled Healthcare and other loss contingency expense		1,626		—		—		(1,626)		—
Equity in net income of unconsolidated affiliates		(763)		—		—		—		(763)
(Loss) income before income tax benefit	$	(67,926)	$	50,661	$	3,997	$	10,042	$	(3,226)
Income tax expense (benefit)		3,064		11,759		928		2,331		18,082
(Loss) income from continuing operations	$	(70,990)	$	38,902	$	3,069	$	7,711	$	(21,308)
Loss from discontinued operations, net of taxes		38		(205)		—		—		(167)
Net (loss) income attributable to noncontrolling interests		(27,989)		21,262		1,678		4,215		(834)
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(43,039)	$	17,845	$	1,391	$	3,496	$	(20,307)
Depreciation and amortization expense		61,765		(34,408)		(252)		—		27,105
Interest expense		135,181		(105,526)		—		—		29,655
Other loss		12		—		—		(12)		—
Transaction costs		1,754		—		—		(1,754)		—
Skilled Healthcare and other loss contingency expense		1,626		—		—		(1,626)		—
Income tax expense (benefit)		3,064		11,759		928		2,331		18,082
Loss from discontinued operations, net of taxes		38		(205)		—		—		(167)
Net (loss) income attributable to noncontrolling interests		(27,989)		21,262		1,678		4,215		(834)
EBITDA / Adjusted EBITDA	$	132,412	$	(89,273)	$	3,745	$	6,650	$	53,534
Lease expense		37,316		89,273		(1,772)		—		124,817
EBITDAR / Adjusted EBITDAR	$	169,728	$	—	$	1,973	$	6,650	$	178,351

(Loss) income per common share:
Diluted:
Weighted average shares outstanding for diluted (loss) income from continuing operations per share (d)		89,198								153,671
Diluted net (loss) income from continuing operations per share (e)	$	(0.48)							$	(0.13)

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GENESIS HEALTHCARE, INC.

RECONCILIATION OF NET (LOSS) INCOME TO EBITDA, EBITDAR, ADJUSTED EBITDA AND ADJUSTED EBITDAR

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)


	As reported		Adjustments						As adjusted
					Newly acquired
					or constructed
					businesses with
					start-up losses
	Three months		Conversion to		and newly				Three months
	ended March 31,		cash basis		divested		Other		ended March 31,
	2015		leases (a)		facilities (b)		adjustments (c)		2015
Net revenues	$	1,343,001	$	—	$	(12,383)	$	620	$	1,331,238
Salaries, wages and benefits		790,733		—		(7,066)		—		783,667
Other operating expenses		312,561		—		(5,470)		—		307,091
General and administrative costs		41,533		—		—		(1,683)		39,850
Provision for losses on accounts receivable		23,396		—		—		—		23,396
Lease expense		36,419		83,908		(2,949)		—		117,378
Depreciation and amortization expense		59,933		(33,592)		(1,244)		—		25,097
Interest expense		121,313		(102,334)		(32)		—		18,947
Loss on extinguishment of debt		3,234		—		—		(3,234)		—
Investment income		(416)		—		—		—		(416)
Other (income) loss		(7,611)		—		—		7,611		—
Transaction costs		86,069		—		—		(86,069)		—
Equity in net income of unconsolidated affiliates		(153)		—		—		—		(153)
(Loss) income before income tax benefit	$	(124,010)	$	52,018	$	4,378	$	83,995	$	16,381
Income tax (benefit) expense		(5,648)		12,074		1,016		19,497		26,939
(Loss) income from continuing operations	$	(118,362)	$	39,944	$	3,362	$	64,498	$	(10,558)
Loss (income) from discontinued operations, net of taxes		(112)		460		—		—		348
Net loss attributable to noncontrolling interests		(5,684)		14,555		1,225		23,502		33,598
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(112,566)	$	24,929	$	2,137	$	40,996	$	(44,504)
Depreciation and amortization expense		59,933		(33,592)		(1,244)		—		25,097
Interest expense		121,313		(102,334)		(32)		—		18,947
Loss on extinguishment of debt		3,234		—		—		(3,234)		—
Other (income) loss		(7,611)		—		—		7,611		—
Transaction costs		86,069		—		—		(86,069)		—
Income tax (benefit) expense		(5,648)		12,074		1,016		19,497		26,939
Loss (income) from discontinued operations, net of taxes		(112)		460		—		—		348
Net loss attributable to noncontrolling interests		(5,684)		14,555		1,225		23,502		33,598
EBITDA / Adjusted EBITDA	$	138,928	$	(83,908)	$	3,102	$	2,303	$	60,425
Lease expense		36,419		83,908		(2,949)		—		117,378
EBITDAR / Adjusted EBITDAR	$	175,347	$	—	$	153	$	2,303	$	177,803

(Loss) income per common share:
Diluted:
Weighted average shares outstanding for diluted (loss) income from continuing operations per share (d)		75,234
Diluted net (loss) income from continuing operations per share (e)	$	(1.50)								Not calculated

(a)

Our leases are classified as either operating leases, capital leases or financing obligations pursuant to applicable guidance under U.S. GAAP. We view the primary provisions and economics of these leases, regardless of their accounting treatment, as being nearly identical. Virtually all of our leases are structured with triple net terms, have fixed annual rent escalators and have long-term initial maturities with renewal options. Accordingly, in connection with our evaluation of our financial performance, we reclassify all of our leases to operating lease treatment and reflect lease expense on a cash basis. This approach allows us to better understand the relationship in each reporting period of our operating performance, as measured by EBITDAR and Adjusted EBITDAR, to the cash basis obligations to our landlords in that reporting period, regardless of the lease accounting treatment. This presentation and approach is also consistent with the financial reporting and covenant compliance requirements contained in

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all of our major lease and loan agreements. The following table summarizes the reclassification adjustments necessary to present all leases as operating leases on a cash basis:


	Three months ended March 31,
	2016		2015
	(in thousands)
Lease expense:
Cash rent - capital leases	$	23,301	$	22,925
Cash rent - financing obligations		67,297		62,770
Non-cash - operating lease arrangements		(1,325)		(1,787)
Lease expense adjustments	$	89,273	$	83,908

Depreciation and amortization expense:
Capital lease accounting	$	(8,981)	$	(8,779)
Financing obligation accounting		(25,427)		(24,813)
Depreciation and amortization expense adjustments	$	(34,408)	$	(33,592)

Interest expense:
Capital lease accounting	$	(26,378)	$	(25,486)
Financing obligation accounting		(79,148)		(76,848)
Interest expense adjustments	$	(105,526)	$	(102,334)

Total pre-tax lease accounting adjustments	$	(50,661)	$	(52,018)

(b)

The acquisition and construction of new businesses has become an important element of our growth strategy. Many of the businesses we acquire have a history of operating losses and continue to generate operating losses in the months that follow our acquisition. Newly constructed or developed businesses also generate losses while in their start-up phase. We view these losses as both temporary and an expected component of our long-term investment in the new venture. We adjust these losses when computing Adjusted EBITDAR and Adjusted EBITDA in order to better evaluate the performance of our core business. The activities of such businesses are adjusted when computing Adjusted EBITDAR and Adjusted EBITDA until such time as a new business generates positive Adjusted EBITDA. The operating performance of new businesses is no longer adjusted when computing Adjusted EBITDAR and Adjusted EBITDA beginning in the period in which a new business generates positive Adjusted EBITDA and all periods thereafter. The divestiture of underperforming or non-strategic facilities has also become an important element of our earnings optimization strategy. We eliminate the results of divested facilities beginning in the quarter in which they become divested. We view the losses associated with the wind-down of such divested facilities as non-recurring and not indicative of the performance of our core business.

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(c)

Other adjustments represent costs or gains associated with transactions or events that we do not believe are reflective of our core recurring operating business. Other adjustments also include the effect of expensing non-cash stock-based compensation related to restricted stock units. The following items were realized in the periods presented:


	Three months ended March 31,
	2016		2015
	(in thousands)
Severance and restructuring (1)	$	3,016	$	1,658
Regulatory defense and related costs (2)		940		645
Other non-recurring costs (3)		834		—
Transaction costs (4)		1,754		86,069
Skilled Healthcare and other loss contingency expense (5)		1,626		—
Loss on early extinguishment of debt		—		3,234
Other loss (income) (6)		12		(7,611)
Stock based compensation (7)		1,860		—
Tax benefit from total adjustments		(2,331)		(19,497)
Total other adjustments	$	7,711	$	64,498

(1) We incurred costs related to the termination, severance and restructuring of certain components of the our business.

(2) We incurred legal defense and other related costs in connection with certain matters in dispute or under appeal with regulatory agencies.

(3) We incurred other miscellaneous expenses we do not believe are reflective of our core recurring operating business.

(4) We incurred costs associated with transactions including the combination with Skilled Healthcare Group, Inc., the Revera acquisition and other transactions.

(5) We recognized a loss contingency expense in the three months ended March 31, 2016 associated with the SunDance Part B Therapy matter.

(6) We realized net gains and losses on the sale of certain assets in the three months ended March 31, 2016 and 2015.

(7) We incurred non-cash stock-based compensation related to restricted stock units.

(d)

Assumes 153.7 million diluted weighted average common shares outstanding and common stock equivalents on a fully exchanged basis.

(e)

Pro forma adjusted income from continuing operations per share assumes a calculated tax rate of 40%, and is computed as follows: Pro forma adjusted income before income taxes x (1 - 40% tax rate) / diluted weighted average shares on a fully exchanged basis.

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Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

A summary of our unaudited results of operations for the three months ended March 31, 2016 as compared with the same period in 2015 follows:


	Three months ended March 31,
	2016				2015				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
	(in thousands, except percentages)
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,208,433	82.0	%	$	1,104,990	82.3	%	$	103,443	9.4	%
Assisted/Senior living facilities		30,919	2.1	%		33,657	2.5	%		(2,738)	(8.1)	%
Administration of third party facilities		3,079	0.2	%		2,671	0.2	%		408	15.3	%
Elimination of administrative services		(375)	—	%		(501)	—	%		126	(25.1)	%
Inpatient services, net		1,242,056	84.3	%		1,140,817	84.9	%		101,239	8.9	%

Rehabilitation therapy services:
Total therapy services		285,112	19.4	%		263,051	19.6	%		22,061	8.4	%
Elimination intersegment rehabilitation therapy services		(106,432)	(7.2)	%		(105,906)	(7.9)	%		(526)	0.5	%
Third party rehabilitation therapy services		178,680	12.2	%		157,145	11.7	%		21,535	13.7	%

Other services:
Total other services		56,626	3.8	%		52,546	3.9	%		4,080	7.8	%
Elimination intersegment other services		(5,144)	(0.3)	%		(7,507)	(0.6)	%		2,363	(31.5)	%
Third party other services		51,482	3.5	%		45,039	3.4	%		6,443	14.3	%

Net revenues	$	1,472,218	100.0	%	$	1,343,001	100.0	%	$	129,217	9.6	%


	Three months ended March 31,
	2016				2015				Increase / (Decrease)
			Margin				Margin
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
	(in thousands, except percentages)
EBITDAR:
Inpatient services	$	192,419	15.5	%	$	183,678	16.1	%	$	8,741	4.8	%
Rehabilitation therapy services		21,687	7.6	%		29,028	11.0	%		(7,341)	(25.3)	%
Other services		3,591	6.3	%		4,018	7.6	%		(427)	(10.6)	%
Corporate and eliminations		(47,969)	—	%		(41,377)	—	%		(6,592)	15.9	%

EBITDAR	$	169,728	11.5	%	$	175,347	13.1	%	$	(5,619)	(3.2)	%

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A summary of our unaudited condensed consolidating statement of operations follows:



	Three months ended March 31, 2016
			Rehabilitation
	Inpatient		Therapy
	Services		Services		Other Services		Corporate		Eliminations		Consolidated
	(In thousands)
Net revenues	$	1,242,431	$	285,112	$	56,524	$	102	$	(111,951)	$	1,472,218
Salaries, wages and benefits		588,902		240,436		38,379		—		—		867,717
Other operating expenses		438,699		20,341		14,008		—		(111,951)		361,097
General and administrative costs		—		—		—		48,427		—		48,427
Provision for losses on accounts receivable		23,345		2,648		546		(46)		—		26,493
Lease expense		36,296		24		530		466		—		37,316
Depreciation and amortization expense		53,839		3,120		314		4,492		—		61,765
Interest expense		108,989		14		16		26,162		—		135,181
Investment income		(458)		—		—		(23)		—		(481)
Other loss		12		—		—		—		—		12
Transaction costs		—		—		—		1,754		—		1,754
Skilled Healthcare and other loss contingency expense		—		—		—		1,626		—		1,626
Equity in net (income) loss of unconsolidated affiliates		(476)		—		—		(636)		349		(763)
(Loss) income before income tax expense		(6,717)		18,529		2,731		(82,120)		(349)		(67,926)
Income tax (benefit) expense		(2,162)		—		—		5,226		—		3,064
(Loss) income from continuing operations	$	(4,555)	$	18,529	$	2,731	$	(87,346)	$	(349)	$	(70,990)

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	Three months ended March 31, 2015
			Rehabilitation
	Inpatient		Therapy
	Services		Services		Other Services		Corporate		Eliminations		Consolidated
	(In thousands)
Net revenues	$	1,141,318	$	263,051	$	52,336	$	210	$	(113,914)	$	1,343,001
Salaries, wages and benefits		542,692		214,797		33,244		—		—		790,733
Other operating expenses		396,542		15,399		14,533		—		(113,913)		312,561
General and administrative costs		—		—		—		41,533		—		41,533
Provision for losses on accounts receivable		19,073		3,827		541		(45)		—		23,396
Lease expense		35,528		41		459		391		—		36,419
Depreciation and amortization expense		48,225		2,867		362		8,479		—		59,933
Interest expense		103,654		1		10		17,771		(123)		121,313
Loss on extinguishment of debt		—		—		—		3,234		—		3,234
Investment income		(358)		—		—		(181)		123		(416)
Other income		—		—		—		(7,611)		—		(7,611)
Transaction costs		371		—		—		85,698		—		86,069
Equity in net (income) loss of unconsolidated affiliates		(309)		—		—		(220)		376		(153)
(Loss) income before income tax benefit		(4,100)		26,119		3,187		(148,839)		(377)		(124,010)
Income tax benefit		—		—		—		(5,648)		—		(5,648)
(Loss) income from continuing operations	$	(4,100)	$	26,119	$	3,187	$	(143,191)	$	(377)	$	(118,362)

Prior to February 1, 2015, our results of operations exclude the revenue and expenses of Skilled’s businesses. For comparability, those revenue and expense variances attributed solely to the Combination of Skilled’s businesses with ours, commencing on February 1, 2015, will be identified in the discussion of the results of operations. References to “legacy” businesses identify those businesses operating as either Skilled or Genesis, respectively, prior to the Combination.

On December 1, 2015, we acquired 15 skilled nursing facilities and entered into management agreements to manage five skilled nursing facilities from Revera Assisted Living, Inc. (Revera) for $206.0 million, financed through a $134.1 million bridge loan (Acquisition from Revera). Prior to December 1, 2015, our results of operations exclude the revenue and expenses of the acquired Revera businesses. For comparability, those revenue and expense variances attributed solely to the Acquisition from Revera, commencing on December 1, 2015, will be identified in the discussion of the results of operations.

Other, less significant transactions which impact comparability are identified as acquired or under development for businesses which are growing period over period, or as divested for those businesses that we have closed or otherwise exited period over period.

Net Revenues

Net revenues for the three months ended March 31, 2016 as compared with the three months ended March 31, 2015 increased by $129.2 million. Of that increase, Skilled’s businesses contributed $61.9 million and the addition of Revera contributed $59.4 million. The remaining increase of $7.9 million or 0.7% is primarily attributed to growth in our rehabilitation services business.

Inpatient Services – Revenue increased $101.2 million, or 8.9%, in the three months ended March 31, 2016 as compared with the same period in 2015. Of this growth, $55.1 million is due to the Combination, $56.8 million is due to the Acquisition from Revera and $16.5 million is due to the acquisition or development of seven facilities, offset by

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$18.8 million of revenue attributed to the divestiture of 26 underperforming facilities, including 18 assisted living facilities in Kansas sold January 1, 2016. The remaining decrease of $8.4 million, or 0.7%, is due to a decline in the occupancy of legacy Genesis inpatient facilities, partially offset by increased payment rates. We attribute the decline in census principally to the pressures of healthcare reforms largely driven by the requirements under the PPACA.

Rehabilitation Therapy Services – Revenue increased $21.5 million, or 13.7% comparing the three months ended March 31, 2016 with the same period in 2015. The Combination and Acquisition from Revera combined to contribute $5.3 million of the revenue growth, while the legacy Genesis rehabilitation therapy services business revenue increased another $16.2 million, driven by new therapy contract revenue exceeding lost business contract revenue and partially offset with market pricing adjustments with intercompany contracts with Genesis skilled nursing facilities.

Other Services – Other services revenue increased $6.4 million, or 14.3% in the three months ended March 31, 2016 as compared with the same period in 2015. Of this increase, the Combination contributed $4.1 million through the hospice and home health businesses. The remaining increase of $2.3 million or 5.1% was principally attributed to new business growth in our staffing services business line.

EBITDAR

EBITDAR for the three months ended March 31, 2016 decreased by $5.6 million, or 3.2% when compared with the same period in 2015. Skilled’s businesses contributed $7.5 million to EBITDAR and the Acquisition from Revera contributed $6.8 million, each after an estimated overhead allocation of 2.5% of their respective revenues. The remaining decrease of approximately $19.9 million or 11.4% is described further in our discussion below of segment results and corporate overhead.

Inpatient Services – EBITDAR increased in the three months ended March 31, 2016 as compared with the same period in 2015, by $8.7 million, or 4.8%. Of the increase, $6.7 million is attributed to the Combination, $7.3 million is due to the Acquisition from Revera, $3.1 million is due to the acquisition or development of seven facilities, and partially offset by $3.2 million for the losses attributed to the divestiture or closure of 26 underperforming facilities, including 18 assisted living facilities in Kansas sold January 1, 2016. The remaining $5.2 million decrease is principally due to an increased level of provision for general and professional liability claims in the three months ended March 31, 2016. The benefit of continued realization of cost reductions which we began implementing in early 2015 served to largely offset the decline in occupancy of legacy Genesis inpatient facilities in the three months ended March 31, 2016.

Rehabilitation Therapy Services – EBITDAR of the rehabilitation therapy segment decreased by $7.3 million or 25.3% comparing the three months ended March 31, 2016 with the same period in 2015. The Combination and Acquisition from Revera contributed $2.1 million and $0.9 million, respectively, while the EBITDAR of the legacy Genesis rehabilitation therapy business EBITDAR for the three months ended March 31, 2016 decreased $10.3 million from the same period in 2015. Market pricing adjustments and restructured respiratory therapy service delivery to our Genesis skilled nursing centers resulted in $7.7 million of the rehabilitation therapy services EBITDAR reduction and are included in the cost reductions noted in the Inpatient Services discussion above. The remaining decrease of $2.6 million is principally due to the escalating startup costs of our China operations. New therapy contracts exceeded lost therapy contracts and Therapist Efficiency improved from 69% to 70% in the three months ended March 31, 2016 compared with the same period in 2015.

Other Services – EBITDAR decreased $0.4 million in the three months ended March 31, 2016 as compared with the same period in 2015. The Combination contributed $0.2 million, principally through the addition of hospice and home health businesses offset by a $0.6 million decrease principally attributed to the staffing services businesses and the physician services business.

Corporate and Eliminations — Corporate overhead costs increased $6.6 million, or 15.9%, in the three months ended March 31, 2016 as compared with the same period in 2015. This increase was largely due to the added overhead costs of Skilled and operating as a public company for the entire period.

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Other Expense

The following discussion applies to the consolidated expense categories between consolidated EBITDAR and (loss) income from continuing operations of all reportable segments, other services, corporate and eliminations in our consolidating statement of operations for the three months ended March 31, 2016 as compared with the same period in 2015.

Lease expense — Lease expense represents the cash rents and non-cash adjustments required to account for operating leases. We have operating leases in each reportable segment, other services and corporate overhead, but the inpatient services business incurs the greatest proportion of this expense for those skilled nursing and assisted living facilities leases accounted for as operating leases. Lease expense increased $0.9 million in the three months ended March 31, 2016 as compared with the same period in the prior year. Of that increase, $2.1 million resulted from the Combination and $0.4 million resulted from one new operating lease, with the remaining decrease of $1.6 million principally due to our efforts to divest underperforming leased facilities.

Depreciation and amortization — Each of our reportable segments, other services and corporate overhead have depreciating property, plant and equipment, including depreciation on leased properties accounted for as capital leases or as a financing obligation. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. The majority of the $1.8 million increase in depreciation and amortization in the three months ended March 31, 2016 compared with the same period in the prior year is attributed to the Combination, the Acquisition from Revera and other acquisition and construction activities in 2015.

Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our Revolving Credit Facilities, Term Loan Facility, Real Estate Bridge Loans and mortgage instruments, as well as the expense associated with leases accounted for as capital leases or financing obligations. Interest expense increased $13.9 million in the three months ended March 31, 2016 as compared with the same period in the prior year. Of this increase, $3.4 million and $4.5 million are attributed to the debt assumed or issued in the Combination and Acquisition from Revera, respectively. The remaining $6.0 million increase is primarily attributable to growth in interest pertaining to existing lease obligations and obligations incurred in connection with newly acquired or constructed facilities.

Skilled Healthcare and other loss contingency expense — For the three months ended March 31, 2016, we accrued $1.6 million for contingent liabilities. We are engaged in discussions with representatives of the Department of Justice in an effort to reach mutually acceptable resolution of two investigations involving therapy matters and staffing matters and hospice litigation related to Skilled’s business prior to the Combination. Additionally, we have one therapy matter under investigation relating to Sun Healthcare’s Sundance Therapy business prior to our acquisition of those businesses in 2012. Discussions have progressed to a point where we believe it is appropriate to recognize an estimated loss contingency reserve relative to these matters. Recognition of the loss contingency reserve is not an admission of liability or fault by us or any of our subsidiaries. Because these discussions are ongoing, there can be no certainty about the timing or likelihood of a definitive resolution. As these discussions proceed and additional information becomes available, the amount of the estimated loss contingency reserve may need to be increased or decreased to reflect this new information. See Note 11 – “Commitments and Contingencies – Legal Proceedings.”

Transaction costs — In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the three months ended March 31, 2016 and 2015 were $1.8 million and $86.1 million, respectively, and of the amount in the 2015 period, the Combination contributed $84.7 million.

Income tax expense (benefit) — For the three months ended March 31, 2016, we recorded an income tax expense of $3.1 million from continuing operations representing an effective tax rate of (4.5)% compared to an income tax benefit of $5.6 million from continuing operations, representing an effective tax rate of 4.6% for the same period in 2015. The 9.1% decrease in the effective tax rate is attributable to the full valuation allowance against our deferred tax assets, excluding the deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. On

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December 31, 2015, in assessing the requirement for, and amount of, a valuation allowance in accordance with the “more likely than not” standard, we determined that we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of March 31, 2016, we have determined that the valuation allowance is still necessary.

Liquidity and Capital Resources

Our available cash is held in accounts at third-party financial institutions. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash or cash equivalents will not be impacted by adverse conditions in the financial markets.

The following table presents selected data from our consolidated statements of cash flows (in thousands):


	Three months ended March 31,
	2016		2015
Net cash provided by (used in) operating activities	$	24,446	$	(2,482)
Net cash provided by investing activities		58,117		6,290
Net cash (used in) provided by financing activities		(91,902)		4,352
Net (decrease) increase in cash and cash equivalents		(9,339)		8,160
Beginning of period		61,543		87,548
End of period	$	52,204	$	95,708

Net cash provided by operating activities in the three months ended March 31, 2016 of $24.4 million was unfavorably impacted by funded transaction costs of approximately $1.8 million. Adjusted for transaction costs, net cash provided by operating activities in the three months ended March 31, 2016 would have been approximately $26.2 million. Net cash used in operating activities in the three months ended March 31, 2015 of $2.5 million was unfavorably impacted by funded transaction costs of approximately $29.5 million. Adjusted for funded transaction costs, net cash provided by operating activities in the three months ended March 31, 2015 would have been $27.0 million. The cash provided by operating activities before funded transaction costs in the 2016 period as compared to the 2015 period was relatively flat, with incremental growth of accounts receivable balances from the Acquisition from Revera and new rehabilitation services contracts through the three months ended March 31, 2016 being principally offset with the timing of payments for payroll and other accrued expenses.

Net cash provided by investing activities in the three months ended March 31, 2016 was $58.1 million, compared to a source of cash of $6.3 million in the three months ended March 31, 2015. The three months ended March 31, 2016, as compared with the same period in 2015, included the receipt of $67 million and $9.4 million for the sale of 18 assisted living facilities in Kansas and an office building in Albuquerque, New Mexico, respectively. The three months ended March 31, 2015 included the receipt of $26.4 million of asset and investment in joint venture sale proceeds. Routine capital expenditures for the three months ended March 31, 2016 exceeded the same period in the prior year by $9.5 million. The remaining incremental source of cash from investing activities of $11.3 million in the three months ended March 31, 2016 as compared with the same period in 2015 is principally due to growth in invested premiums of our captive insurance companies.

Net cash used in financing activities was $91.9 million in the three months ended March 31, 2016 compared to a source of $4.4 million in the three months ended March 31, 2015. The net increase in cash used in financing activities of $96.3 million is principally attributed to debt extinguishments in the 2016 period exceeding proceeds of new borrowing activities. In the three months ended March 31, 2016 we had net reduction of borrowings under the Revolving Credit Facilities of $30.0 million as compared with a $4.5 million reduction in the same period in 2015. In the three months ended March 31, 2016 we refinanced 10 skilled nursing facilities with $67.9 million of HUD insured loans and used the proceeds to pay down partially the Real Estate Bridge Loans. In the same period we used $54.2 million of the proceeds from the sale of 18 assisted living facilities in Kansas to also pay down partially the Real Estate Bridge Loans. In the three months ended March 31, 2015 we used proceeds from the Skilled Real Estate Bridge Loan to repay $326.6 million of indebtedness assumed in the Combination and other transaction costs. The remaining net source of cash of $16.8

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million in the three months ended March 31, 2016 as compared to the same period in 2015 is principally due to the debt issuance costs in the 2015 period related to the Combination exceeding the debt issuance costs in the 2016 period related to the HUD financing activities.

Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our revolving credit facility.

The objectives of our capital planning strategy are to ensure we maintain adequate liquidity and flexibility. Pursuing and achieving those objectives allows us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment. Maintaining adequate liquidity is a function of our unrestricted cash and cash equivalents and our available borrowing capacity.

At March 31, 2016, we had cash and cash equivalents of $52.2 million and available borrowings under our revolving credit facilities of $142.9 million, after taking into account $68.2 million of letters of credit drawn against our revolving credit facilities. During the three months ended March 31, 2016, we maintained liquidity sufficient to meet our working capital, capital expenditure and development activities and we believe we will continue to meet those needs for at least the subsequent twelve month period.

As of March 31, 2016, we have debt obligations that, as a result of scheduled maturity dates or maturity date acceleration features, have $581.1 million in debt obligations due in the next two years. If we are unable to extend (or refinance, as applicable) any of our maturing credit facilities prior to their scheduled maturity or accelerated maturity dates, there could be a material and adverse impact on our liquidity and financial condition. In addition, even if we are able to extend or refinance our maturing debt credit facilities, the terms of the new financing may be less favorable to us than the terms of the existing financing.

Financing Activities

We are progressing on our near-term capital strengthening priorities to refinance our Real Estate Bridge Loans with lower cost HUD insured loans or other permanent financing and to reduce our overall indebtedness through a combination of non-strategic asset sale proceeds and free cash flow.

During the first quarter of 2016, we closed on 10 HUD insured loans totaling $67.9 million and closed an additional three HUD insured loans totaling $9.2 million subsequent to March 31, 2016. Since the Combination, we have repaid or refinanced $131.3 million of Real Estate Bridge Loans with $362.8 million remaining outstanding. We expect to continue to seek refinancing opportunities for the Real Estate Bridge Loans with lower cost HUD insured loans or other permanent financing between now and the end of 2016.

In March 2016, we closed on the sale lease back of a corporate office building, generating $9.4 million of proceeds, which were used to pay down partially our Revolving Credit Facility debt.

Effective May 1, 2016, we completed the sale of our hospice and home health operations. The operations were sold for $84 million, consisting of cash consideration of $72 million and a $12 million short-term note. We used the cash proceeds to repay partially our Term Loan Facility maturing in December of 2017.

Financial Covenants

The Revolving Credit Facilities, the Term Loan, the Skilled Real Estate Bridge Loan and the Revera Real Estate Bridge Loan (collectively, the Credit Facilities) each contain a number of restrictive covenants that, among other things, impose operating and financial restrictions on us. The Credit Facilities also require us to meet defined financial covenants, including interest coverage ratio, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio, all as defined in the applicable agreements. The Credit Facilities also contain other customary covenants and events of default. At March 31, 2016, we were in compliance with our debt covenants. See Note 7 – “Long-Term Debt.”

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Certain of our lease agreements contain a number of restrictive covenants that, among other things and subject to certain exceptions, impose operating and financial restrictions on us. These leases also require us to meet defined financial covenants, including a minimum level of consolidated liquidity, a maximum consolidated net leverage ratio, and a minimum consolidated fixed charge coverage. At March 31, 2016, we were in compliance with our lease covenants. See Note 8 – “Leases and Lease Commitments.”

The level of our funded indebtedness and the current operating environment has presented challenges as they relate to our ability to comply with the covenants in the agreements governing our indebtedness and leasing arrangements. At March 31, 2016, we were in compliance with all of our financial covenants under our debt and lease agreements. However, we anticipate that we are likely to breach certain financial covenants in future periods, which would require us to seek a waiver or amendment from our lenders and/or landlords. If we are unable to reach an agreement with our creditors or find acceptable alternative financing, it will lead to an event of default under the Credit Facilities and certain of our lease agreements.

We are actively engaged in discussions with new credit parties in an effort to refinance the Term Loan Facility maturing in December of 2017. We expect to use a combination of non-strategic asset sale proceeds, available borrowings under our revolving credit facility and an expected newly issued term loan currently being marketed. We believe a successful refinancing of the Term Loan Facility will enable us to renegotiate financial covenants with our other lenders and landlords. There can be no assurances that our efforts will be successful or that we will remain compliant with all financial covenants prior to completion of these efforts.

Off Balance Sheet Arrangements

We had outstanding letters of credit of $68.2 million under our letter of credit sub-facility on our revolving credit facilities as of March 31, 2016. These letters of credit are principally pledged to landlords and insurance carriers as collateral. We are not involved in any other off-balance-sheet arrangements that have or are reasonably likely to have a material current or future impact on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures, or capital resources.

Contractual Obligations

The following table sets forth our contractual obligations, including principal and interest, but excluding non-cash amortization of discounts or premiums and debt issuance costs established on these instruments, as of March 31, 2016 (in thousands):


									More than
	Total		1 Yr.		2-3 Yrs.		4-5 Yrs.		5 Yrs.
Revolving credit facilities	$	384,188	$	13,353	$	26,707	$	344,128	$	—
Term loan facility		261,531		34,575		226,956		—		—
Real estate bridge loans		428,066		41,735		386,331		—		—
HUD insured loans		281,550		8,532		17,621		17,621		237,776
Mortgages and other secured debt (recourse)		14,674		1,059		11,631		1,984		—
Mortgages and other secured debt (non-recourse)		33,523		1,795		14,491		2,617		14,620
Financing obligations		11,312,501		277,805		579,652		613,255		9,841,789
Capital lease obligations		3,836,736		94,211		197,131		202,549		3,342,845
Operating lease obligations		907,200		141,560		270,981		255,069		239,590
	$	17,459,969	$	614,625	$	1,731,501	$	1,437,223	$	13,676,620

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates. To the extent these interest rates increase, our interest expense will increase, which will make our interest payments and funding other fixed costs more expensive, and our available cash flow may be adversely affected. We routinely monitor risks associated with fluctuations in interest rates and consider the use of derivative financial instruments to hedge these exposures. We do not enter into derivative financial instruments for trading or speculative purposes nor do we enter into energy or commodity contracts.

Interest Rate Exposure—Interest Rate Risk Management

Our Term Loan Facility, Skilled Real Estate Bridge Loan, Revera Real Estate Bridge Loan and Revolving Credit Facilities expose us to variability in interest payments due to changes in interest rates. As of March 31, 2016, there is no derivative financial instrument in place to limit that exposure.

The table below presents the principal amounts, weighted-average interest rates and fair values by year of expected maturity to evaluate Genesis’ expected cash flows and sensitivity to interest rate changes:


	Twelve months ended March 31,
	2017			2018			2019			2020			2021			Thereafter			Total		Fair Value
Fixed-rate debt	$	3,474		$	3,701		$	3,789		$	4,534		$	4,967		$	158,970		$	179,435	$	190,299
Average interest rate (1)		3.9	%		3.9	%		3.9	%		3.8	%		2.9	%		3.8	%
Variable-rate debt (2)	$	13,394		$	585,927		$	21,554		$	—		$	333,000		$	—		$	953,875	$	947,112
Average interest rate (1)		9.5	%		9.6	%		3.2	%		—	%		3.8	%		—	%

(1)

Based on one month LIBOR of 0.44% on March 31, 2016.

(2)

Excludes unamortized original issue discounts, debt premiums and debt issuance costs which amortize through interest expense on a non-cash basis over the life of the instrument.

The Revolving Credit Facilities consist of a senior secured, asset-based revolving credit facility of up to $550 million under three separate tranches: Tranche A-1, Tranche A-2 and FILO Tranche. Interest accrues at a per annum rate equal to either (x) a base rate (calculated as the highest of the (i) prime rate, (ii) the federal funds rate plus 3.00%, or (iii) LIBOR plus the excess of the applicable margin between LIBOR loans and base rate loans) plus an applicable margin or (y) LIBOR plus an applicable margin. The applicable margin is based on the level of commitments for all three tranches, and in regards to LIBOR loans (i) for Tranche A-1 ranges from 3.25% to 2.75%; (ii) for Tranche A-2 ranges from 3.00% to 2.50%; and (iii) for FILO Tranche is 5.00%. The applicable margin with respect to base rate borrowings for Tranche A-1, Tranche A-2 and FILO were 2.25%, 2.00%, and 4.00%, respectively, at March 31, 2016. The applicable margin with respect to LIBOR borrowings for Tranche A-1, Tranche A-2 and FILO were 3.00%, 3.00%, and 5.00%, respectively, at March 31, 2016.

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to the applicable margin plus, at our option, either (1) LIBOR determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, or (2) a base rate determined by reference to the highest of (a) the lender defined prime rate, (b) the federal funds rate effective plus one half of one percent and (c) LIBOR described in sub clause (1) plus 1.0%. LIBOR based loans are subject to an interest rate floor of 1.5% and base rate loans are subject to a floor of 2.5%. The applicable margin with respect to LIBOR borrowings was 8.5% at March 31, 2016.

Borrowings under the Skilled Real Estate Bridge Loan bear interest at a rate per annum equal to the sum of (1) LIBOR, defined as greater of (a) 0.50% per annum or (b) the one-month duration LIBOR for an amount comparable to loan amount according to a lender approved reference bank, (2) the applicable margin and (3) 675 basis points (BPS). The applicable margin escalates every 90 days after the initial 149 days of the two year term. The margin ranges from 0 BPS to 650 BPS in the initial term, 675 and up to 700 BPS if a second renewal term is opted for. The applicable interest rate on this loan was 10.75% as of March 31, 2016.

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Borrowings under the Revera Real Estate Bridge Loan bear interest at a rate per annum equal to the sum of (1) LIBOR, defined as the greater of (a) 0.50% per annum or (b) the one-month duration LIBOR for an amount comparable to the loan amount according to a lender-approved reference bank, (2) the applicable margin, (3) 675 BPS and (4) 25 BPS multiplied by the result of dividing the number of percentage points by which the loan-to-value ratio, defined as the ratio, expressed as a percentage, of (i) the outstanding principal balance to (ii) the total appraised value of the facilities as of the closing date, exceeds 75% by five. The applicable margin escalates every 90 days after the initial 149 days of the two year term. The margin ranges from 0 BPS to 650 BPS in the initial term and 675 to 700 BPS if a second renewal term is opted for. The applicable interest rate on this loan was 8.00% as of March 31, 2016.

A 1% increase in the applicable interest rate on our variable-rate debt would result in an approximately $9.5 million increase in our annual interest expense.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2016 because of the outstanding material weakness in our internal control over financial reporting as discussed in more detail in our Form 10-K for the year ended December 31, 2015 under Part II, Item 9A. Management has begun implementation of the remediation plan described in our 10-K for the year ended December 31, 2015 and updated below to address this material weakness and is monitoring that implementation.

During the three months ended March 31, 2016, we continued to review the design of our controls, make adjustments and continued implementing controls to alleviate the noted control deficiencies. As part of the remediation process, we engaged a third party specialist to assess the segregation of duties control weakness and to assist in the design of the control remediation. While significant progress was made to enhance our internal control over financial reporting relating to the previously reported material weaknesses, we are still in the process of implementing and testing these processes and procedures and additional time is required to complete implementation and to assess and ensure the sustainability of these procedures over a meaningful period of time. We are unable at this time to estimate when the remediation effort will be completed.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter covered that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

For information regarding certain pending legal proceedings to which we are a party or our property is subject, see Note 11 — “Commitments and Contingencies—Legal Proceedings,” to our consolidated financial statements included elsewhere in this report, which is incorporated herein by reference.

Item 1A. Risk Factors

With the exception of the revision to an existing risk factor below, there have been no material changes to the risk factors disclosed in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on March 14, 2016.

Reforms to the U.S. healthcare system have imposed new requirements upon us.

PPACA and the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act) included sweeping changes to how healthcare is paid for and furnished in the U.S. It has imposed new obligations on skilled nursing facilities, requiring them to disclose information regarding ownership, expenditures and certain other information. Moreover, the law requires skilled nursing facilities to submit electronically verifiable data on direct care staffing. CMS rules implementing these reporting requirements are in development with a target implementation date of July 1, 2016.

To address potential fraud and abuse in federal healthcare programs, including Medicare and Medicaid, PPACA includes provider screening and enhanced oversight periods for new providers and suppliers, as well as enhanced penalties for submitting false claims. It also provides funding for enhanced anti-fraud activities. PPACA imposes an enrollment moratoria in elevated risk areas by requiring providers and suppliers to establish compliance programs. PPACA also provides the federal government with expanded authority to suspend payment if a provider is investigated for allegations or issues of fraud. PPACA provides that Medicare and Medicaid payments may be suspended pending a “credible investigation of fraud,” unless the Secretary of Health and Human Services determines that good cause exists not to suspend payments. To the extent the Secretary applies this suspension of payments provision to one of our affiliated facilities for allegations of fraud, such a suspension could adversely affect our results of operations.

PPACA gave authority to the U.S. Department of Health and Human Services (HHS) to establish, test and evaluate alternative payment methodologies for Medicare services. Various payment and services models have been developed by the Centers for Medicare and Medicaid Innovations. Current models provide incentives for providers to coordinate patient care across the continuum and to be jointly accountable for an entire episode of care centered around a hospitalization.

PPACA attempts to improve the healthcare delivery system through incentives to enhance quality, improve beneficiary outcomes and increase value of care. One of these key delivery system reforms is the encouragement of ACOs. ACOs will facilitate coordination and cooperation among providers to improve the quality of care for Medicare beneficiaries and reduce unnecessary costs. Participating ACOs that meet specified quality performance standards will be eligible to receive a share of any savings if the actual per capita expenditures of their assigned Medicare beneficiaries are a sufficient percentage below their specified benchmark amount. Quality performance standards will include measures in such categories as clinical processes and outcomes of care, patient experience and utilization of services. Initiatives by managed care payors, conveners and referring acute care hospital systems to reduce lengths of stay and avoidable hospital readmissions and to divert referrals to home health or other community based care settings may have an adverse impact on our census and length of stays. It is not currently possible to project if the impact of these initiatives will be temporary or permanent.

In addition, PPACA required HHS to develop a plan to implement a value-based purchasing program for Medicare payments to skilled nursing facilities. HHS delivered a report to Congress outlining its plans for implementing this value-based purchasing program. Based in part on the findings of the demonstration project, Congress, as part of the

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Protecting Access to Medicare Act, enacted legislation directing CMS to implement a value-based purchasing requirement for skilled nursing facilities to be effective in 2018. Under this legislation, HHS is required to develop by October 1, 2016 measures and performance standards regarding preventable hospital readmissions from skilled nursing facilities. Beginning October 1, 2018, HHS will withhold 2% of Medicare payments from all skilled nursing facilities and distribute this pool of payment to skilled nursing facilities as incentive payments for preventing readmissions to hospitals. Measurement requirements were published in final fiscal year 2016 skilled nursing facility PPS rules released in late August 2015. In addition to the requirements that are being implemented, legislation is pending in Congress to broaden the value-based purchasing requirements featuring a payment withholding designed to fund the program across all post-acute services. We are unable to determine the degree to which our participation in innovative “pay for value” programs with other providers of service will affect our financial results versus traditional business models for the long-term care industry.

The provisions of PPACA discussed above are examples of some federal health reform provisions that we believe may have a material impact on the long-term care industry and on our business. However, the foregoing discussion is not intended to constitute, nor does it constitute, an exhaustive review and discussion of PPACA. It is possible that these and other provisions of PPACA may be interpreted, clarified, or applied to our affiliated facilities or operating subsidiaries in a way that could have a material adverse impact on our results of operations.

We currently cannot predict what effect these changes will have on our business, including the demand for our services or the amount of reimbursement available for those services. However, it is possible these new laws may reduce reimbursement and adversely affect our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a)Exhibits.


Number		Description


10.1	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and Daniel A. Hirschfeld
10.2	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and JoAnne Reifsnyder
10.3	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and Robert A. Reitz

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10.4	Second Amended and Restated Revolving Credit Agreement, dated as of March 31, 2016, among certain borrower entities set forth therein, certain guarantor entities set forth therein, certain lender entities set forth therein, and Healthcare Financial Solutions, LLC, as administrative agent and collateral agent, regarding HUD centers
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

________________


*	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GENESIS HEALTHCARE, INC.

Date:	May 10, 2016	By	/S/ GEORGE V. HAGER, JR.
			George V. Hager, Jr.
			Chief Executive Officer

Date:	May 10, 2016	By	/S/ THOMAS DIVITTORIO
			Thomas DiVittorio
			Chief Financial Officer
			(Principal Financial Officer and Authorized Signatory)

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EXHIBIT INDEX


Number		Description


10.1	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and Daniel A. Hirschfeld
10.2	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and JoAnne Reifsnyder
10.3	Employment Agreement dated as of February 2, 2015 by and between Genesis Administrative Services, LLC and Robert A. Reitz
10.4	Second Amended and Restated Revolving Credit Agreement, dated as of March 31, 2016, among certain borrower entities set forth therein, certain guarantor entities set forth therein, certain lender entities set forth therein, and Healthcare Financial Solutions, LLC, as administrative agent and collateral agent, regarding HUD centers
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

________________


*	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended

Ex10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) dated February 2, 2015, effective as of immediately following the Closing, as defined in the Purchase Agreement, as defined below, by and between Genesis Administrative Services, LLC, a Delaware limited liability company (the “Company”), and Daniel A. Hirschfeld (“Executive”).

WITNESSETH

WHEREAS, pursuant to the Purchase and Contribution Agreement, dated as of August 18, 2014 (the “Purchase Agreement”), by and between the parent of the Company, FC-GEN Operations Investment, LLC, a Delaware limited liability company (“Genesis”), and Skilled Healthcare Group, Inc., a Delaware corporation (“Skilled”), Skilled will contribute its assets to Genesis in exchange for equity of Genesis.

WHEREAS, prior to the Closing, the Executive was employed by the Company pursuant to an Amended and Restated Employment Agreement effective as of April 1, 2011, as amended (the “Current Employment Agreement”);

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 continue to employ Executive as Executive Vice President and Executive's principal place of business shall be located at 515 Fairmount Avenue Towson MD, 21286; provided that from time to time, Executive will travel to the Company’s (or its subsidiaries’ or affiliates’) other offices or locations, as may be necessary, appropriate or convenient to perform Executive’s duties. Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. Executive will perform such other duties as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company or his designee (the “CEO”), 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 title with similar companies. 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 Executive's duties hereunder or violate the terms of Section 6 hereof. For purposes of this Agreement, a transfer of the Executive’s employment among the Company, its subsidiaries or its affiliates, or to any businesses operated by them (all such entities together, “Company Group”) shall not be deemed to be a termination of the Executive’s employment, and the entity to which Executive’s employment is transferred shall thereafter be deemed to be the Company for purposes of this Agreement. Executive further agrees to serve as an officer of Genesis Healthcare, Inc. and any other member of the Company Group.

2.Period of Employment.

(a)Period of Employment. The period of Executive's employment under this Agreement shall commence immediately following the Closing and shall, unless sooner terminated pursuant to Section 4, terminate on the second anniversary of the Closing (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 the second anniversary of the Closing and on each anniversary of the Closing thereafter (each such anniversary, an "Automatic Extension Date") the Term shall be extended for an additional period of one year, except as otherwise provided in Section 2(c). If the Closing does not occur, this Agreement shall be null and void and the Current Employment Agreement will continue to be in effect in accordance with its terms.

(b)Termination of Automatic Extension by Notice. The Company or 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 90 days prior to the second anniversary of this Agreement or not less than 90 days prior to the applicable Automatic Extension Date.

3.Compensation and Benefits.

(a)Base Salary. As long as Executive remains an employee of the Company, Executive will be paid a base salary of $437,749.95 which shall continue at this rate, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed periodically and the Company may increase such base salary, by an amount, if any, that the Company 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 Executive's Base Salary not deferred in accordance with its customary periodic payroll practices.

(b)Incentive Compensation. Executive shall be eligible to participate in short-term and long-term incentive plans (including any equity incentive plan) sponsored by the Company or its affiliates after the Closing on terms and conditions similar to those applicable to other senior executive officers of the Company generally, but at a level generally consistent with Executive's position with the Company and the Company's then current policies and practices.

(c)Benefits, Perquisites and Expenses.

(1)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 and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement.

(2)Vacation. During the Term, Executive shall be entitled to the number of paid vacation days in each year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Except as required by law, 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, during the Term or upon termination of employment.

(3)Perquisites. 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.

(4)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 if in accordance with the generally applicable written reimbursement or business expense policies and practices of the Company in effect from time to time. Any such expense reimbursement will be made within thirty (30) days following Executive’s proper submission to the Company of any required documentation, but in no event later than the last day of the calendar year following the calendar year in which the reimbursable expense was incurred.

4.Employment Termination.

The Term of employment under this Agreement may be earlier terminated only as follows:

(a)Cause. The Company shall have the right to terminate Executive's employment for Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of the CEO upon at least 15 days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" because of (1) Executive's conviction of, or plea of guilty or nolo contendere to, any felony (whether or not involving the Company or any other member of the Company Group, as defined below) or any other crime involving moral turpitude which subjects, or if generally known, would subject, any member of the Company Group to public ridicule or embarrassment, (2) fraud or other willful misconduct by Executive in respect of Executive's obligations under this Agreement, or (3) Executive’s

continued willful and intentional failure to substantially comply with the reasonable mandates of the CEO commensurate with his/her position after a written demand for substantial compliance is delivered to him/her by the CEO, which demand specifically identifies the mandate(s) with which the CEO believes he/she has not substantially complied, and which failure is not substantially corrected by him/her within 10 days after receipt of such demand. Executive shall not be considered to have failed to substantially comply if (I) he/she fails to so comply by reason of total or partial incapacity due to physical or mental illness or (II) the requested action is illegal. For the avoidance of doubt, Executive shall not be subject to termination for Cause if Executive acts or refrains from acting: (1) in reliance upon and in accordance with a resolution duly adopted by the Board of Directors of Genesis Healthcare, Inc. (the “Board”); (2) in reliance upon and in accordance with the advice of outside counsel to the Company; or (3) in the good faith reasonable belief that an action is in the best interests of the Company (or in the case of refraining from taking an action, that such action is not in the best interests of the Company), provided, however, that the Executive may not act or refrain from acting in reliance upon this Clause (3) where the CEO has issued a written demand specifically directing the Executive to take or refrain from taking a specified action.

(b)Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company may, at any time after at least 90 days prior written notice in accordance with Section 4(f) hereof to Executive, terminate Executive's employment hereunder without Cause.

(c)Death or Disability. If Executive dies, Executive's employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment for Disability. As used in this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused Executive to be unable to perform the essential functions of Executive’s position with a reasonable accommodation with the Company on a full time basis for (1) a period of six consecutive months, or (2) for shorter periods aggregating more than six months in any twelve month period. During any period of Disability, Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company.

(d)Good Reason.

(1)Except as provided in Section 4(d)(2), Executive may terminate Executive's employment at any time during the Term of this Agreement for Good Reason upon not less than thirty (30) days’ prior written notice given within one hundred and twenty (120) 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. For purposes of this Agreement, "Good Reason" shall mean any of the following, without Executive's written consent:

(A) the assignment to Executive by the Company of any duties materially adversely inconsistent with Executive's status with the Company or a substantial alteration in the nature or status of Executive's responsibilities from those in effect immediately following the Closing, or a reduction in Executive's titles or offices as in effect immediately following the Closing, or any removal of Executive from, or any failure to reelect Executive to, any of such positions, except in connection with the termination of Executive's employment for Disability or Cause or as a result of Executive's death or by Executive other than for Good Reason;

(B) a reduction by the Company in 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;

(C) Executive ceases to participate in long-term incentive plans (including any equity incentive plan) sponsored by the Company or its affiliates after the Closing, on terms and conditions similar to those applicable to other senior executive officers of the Company generally, but at a level generally consistent with Executive's position with the Company and the Company's then current policies and practices;

(D) any relocation of Executive's principal place of employment to a location more than forty-five (45) miles from Executive’s current residence to the proposed relocated principal place of employment; provided, however, that, if Executive currently resides more than forty-five (45) miles from the location set forth in Section 1 of this Agreement, any relocation of Executive's principal place of employment to a location more than ten (10) miles further than the distance from Executive’s current residence to the location set forth in Section 1 of this Agreement.

(e)Executive's Voluntary Termination. Notwithstanding anything to the contrary contained in this Agreement, Executive may, at any time after at least 90 days prior written notice in accordance with Section 4(g) hereof to the Company, terminate voluntarily Executive's employment hereunder. Upon receiving such notice, the Company may relieve Executive of some or all of Executive’s duties at any time during the notice period without constituting “Good Reason” for termination.

(f)Expiration of Term. Executive’s employment with the Company and its subsidiaries shall cease automatically on the expiration of the Term if the Agreement is not renewed pursuant to Section 2(b) of this Agreement (“Termination by Non-Renewal”).

(g)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 Executive's employment under the provision so indicated.

(h)Date of Termination. "Date of Termination" shall mean (1) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to Executive (provided that Executive shall not have returned to the performance of Executive's duties on a full-time basis during such 30-day period), (2) if Executive's employment is terminated due to Executive's death, on the date of death; (3) if Executive's employment is terminated due to Executive's voluntary resignation pursuant to Section 4(e), the date specified in the notice given in accordance with said section; or (4) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination in accordance with this Agreement.

5.Payments upon Termination.

or termination of employment by reason of Executive's Disability in a lump sum 30 days after the Date of Termination or as otherwise required by applicable law, (B) all deferred compensation of any kind (in accordance with the terms of the plan), including, without limitation, any amounts earned but not yet paid under any bonus plan in a lump sum 30 days after the Date of Termination, and (C) if any bonus, under any bonus plan of the Company, shall be payable in respect of the year in which Executive's death or termination of employment by reason of Executive's Disability occurs, such bonus(es) prorated up to the last day of the month of Executive's death or termination of employment by reason of Executive's Disability in a lump sum 30 days after the Date of Termination, and (2) all restricted stock, stock option and performance share awards made to Executive and outstanding as of the Date of Termination shall automatically become fully vested as of the Date of Termination.

(b)Termination for Cause and Resignation Without Good Reason. If Executive's employment shall be terminated for Cause or Executive resigns during the Term without Good Reason, the Company shall pay Executive, within 30 days after the Date of Termination or as otherwise required by applicable law (i) Executive's full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and (ii) all deferred compensation of any kind to which Executive is entitled on his Date of Termination in accordance with the terms of any deferred compensation agreement. The Company shall have no further obligations to Executive under this Agreement.

(c)Termination by Executive for Good Reason or by the Company for Reasons other than Cause, Disability or Death. In the event (A) the Company terminates Executive's employment during the Term other than for Cause, death, or Disability (including if the Company terminates Executive’s employment by Non-Renewal); or (B) Executive resigns during the Term for Good Reason, then the Company will pay Executive (a) Executive's Average Base Salary (as defined below) and (b) Executive's Average Assumed Cash Incentive Compensation (as defined below), over the one-year periods following termination of employment. Payments under this Section 5(c) for Executive’s Base Salary or Average Base Salary will be made in accordance with Section 3(a) of this Agreement as if they were Base Salary. All stock options, stock awards and similar equity right, if any, granted to Executive and outstanding as of the Date of Termination shall vest and become exercisable immediately prior to the Date of Termination and shall remain exercisable for a period of ninety (90) days following the Date of Termination (or, if sooner, the end of the scheduled term). "Executive's Average Base Salary" means Executive's Base Salary for the most recent two years (including the year in which the Date of Termination occurs) divided by two. "Executive's Average Assumed Cash Incentive Compensation" means all annual bonuses earned as incentive compensation including under the Company's annual performance bonus, but not including the value of any long-term incentive awards, in consideration of services for the two (2) most recent completed fiscal years prior to the Date of Termination, divided by two (2), or the average annual bonuses earned in such shorter number of fiscal years during which an annual bonus incentive program existed.

The payments under this Section 5(c) are subject to, and conditional upon, Executive executing a general release within 60 days after the Date of Termination of all statutory and common law claims relating to employment and termination from employment in the form attached hereto as Exhibit A (which release must also be signed by the Company and promptly provided to Executive) and such release becoming irrevocable during such 60-day period. Except as provided in the following paragraph with respect to benefit coverage during such 60-day period, if the 60-day period begins in one taxable year and ends in a second taxable year, no payments or benefits will commence until the second taxable year (and, in such event, the first such payment will include any amount that would, but for

the requirement that the payment or benefit commence in the second year, have been paid in the first such taxable year.)

In the event (A) the Company terminates Executive's employment during the Term other than for Cause, death, or Disability (including if the Company terminates Executive’s employment by Non-Renewal); or (C) Executive resigns during the Term for Good Reason, the Company shall also maintain in full force and effect, for the continued benefit of Executive and Executive’s dependents for a period equal to two (2) years, all employee insurance benefit plans and programs to which Executive was entitled prior to the Date of Termination (including, without limitation, the health, dental, vision, life and other voluntary insurance programs, but specifically excluding any company paid disability plan or program provided by the Company) if Executive's continued participation is permissible under the general terms and provisions of such plans and programs and Executive continues to pay all applicable premiums. In the event that Executive's participation in any health, medical or life insurance plan or program is barred by the terms thereof or by law, including the 2010 health care reform law, the Company shall increase the payment above, by a lump sum amount equal to the premiums, if any, that would have been paid with respect to Executive by the Company during the two (2) year period described in the preceding sentence under the plans or programs in which Executive’s participation is barred.. Coverage shall be provided during the 60-day period following termination of employment whether or not a release (described above) has been executed, but will not continue beyond that time absent execution of, and failure to revoke, the required release.

Executive recognizes and accepts that the Company shall not, in any case, be responsible for any additional amount, severance pay, termination pay, severance obligation, incentive compensation payments, costs, attorney’s fees or other damages whatsoever arising from termination of Executive's employment, above and beyond those specifically provided for herein. Notwithstanding anything herein to the contrary, Executive shall maintain his/her rights under any Company sponsored qualified or nonqualified retirement plan.

6.Executive's Covenants. Executive hereby acknowledges that this Agreement provides Executive with additional benefits that he/she did not have under his/her prior agreement.

(a)Nondisclosure. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any Unauthorized Person Confidential Information relating to the members of the Company Group. For purposes of this Section 6, Confidential Information is all information relating to the members of the Company Group that is not known by or readily available to the general public or which becomes known by or readily available to the general public as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, Executive may reveal information, as necessary, (i) pursuant to Executive’s conducting Company business during the Term or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, or as otherwise required by law. For purposes of this Section 6, Unauthorized Person is any person or entity, within or without the Company, who does not need to know the Confidential Information in order to advance a legitimate business interest of the Company, unless the Company has a relationship or agreement with that person or entity such that the person or entity has an enforceable obligation to maintain the confidentiality of the Confidential Information; provided that nothing in this Section 6(a) shall prevent Executive from disclosing Confidential Information to any person

within or without the Company as Executive reasonably believes necessary to facilitate the performance of Executive’s material duties and responsibilities as specified in Section 1.

(b)Non-Competition. During the Term hereof and for a period of one (1) year following Executive's termination of employment for any reason, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any entity or person:

(1)Solicit any entity or person who is or during such period becomes a customer, supplier, salesman, agent or representative of any member of the Company Group, in any manner which interferes or might interfere with such entity or person's relationship with any member of the Company Group, or in an effort to obtain such entity or person as a customer, supplier, salesman, agent, or representative of any business in competition with any member of the Company Group which conducts operations within 15 miles of any office or facility owned, leased or operated by any member of the Company Group or in any county, or similar political subdivision, in which any member of the Company Group conducts substantial business.

(2)Solicit the employment of any person who is, or was at any time during the three (3) months immediately prior to the termination of Executive’s employment, an employee, consultant, officer or director of any member of the Company Group (except for such employment by any member of the Company Group);

(3)Hire any person (whether as an employee, officer, director, agent, consultant or independent contractor) who is, or was at any time during the three (3) months prior to termination of Executive’s employment, an officer or managing director of the any member of the Company Group (except for such employment by any member of the Company Group);

(4)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 entity or person in any business in competition with any member of the Company Group, if such entity or person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by any member of the Company Group or conducts substantial business in any county, or similar political subdivision, in which any member of the Company Group conducts substantial business, or act or conduct himself/herself in any manner which Executive would have reason to believe inimical or contrary to the best interests of the Company.

(c)If Executive’s employment is terminated in any manner, including non-renewal, other than by the Company with Cause or for Disability, or by the Executive without Good Reason, the time period for the restrictions in Section 6(b)(4) will be the same as the time period during which Executive is to continue to receive his or her Base Salary under this Agreement or, if the post-termination severance payments related to Base Salary is paid in a lump sum, the time period for the restrictions in Section 6(b)(4) will equal to the number of years of Base Salary payable to the Executive as severance (e.g., if Executive is entitled to payments under Section 5(c), time period for the restrictions in Section 6(b)(4) will equal one year).

(d)Enforcement. Executive acknowledges that any breach by Executive of any of the covenants and agreements of this Section 6 ("Covenants") will result in irreparable injury to the Company for which money damages could not adequately compensate the Company, and therefore, in the event of any such breach, the Company shall be entitled, in addition to all other rights and remedies which the 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 entities or persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other entity or person may have against the Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If the 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. For purposes of Section 8(d), the term “Company” shall include all affiliates and subsidiaries of the Company.

(e)Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the Covenants, the Company would not have agreed to enter into this Agreement.

(f)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.

7.No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.

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 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 Executive's employment in the circumstances contemplated by this Agreement.

8.Duties Upon Termination.

(a) Return of Materials. Executive agrees that he/she will, upon termination of his/her employment with the Company for any reason whatsoever, deliver to the Company or where delivery of the documents is not feasible, such as electronic documents and records, destroy 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 Executive’s possession by reason of his/her employment with the Company or which he/she holds for the Company, regardless of whether or not any of said items were prepared by Executive, and he/she 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 Executive 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, and Executive may retain copies of certain non-confidential materials, with the prior consent of the CEO.

(b) Resignation from All Positions. Notwithstanding any other provision of this Agreement, upon the termination of Executive's employment for any reason, unless otherwise requested by the CEO, Executive shall immediately resign from all positions that he/she holds or has ever held with any member of the Company Group (and with any other entities with respect to which the Company has requested Executive to perform services). Executive hereby agrees to execute any and all documentation to effectuate such resignations upon request by the Company, but he/she shall be treated for all purposes as having so resigned upon termination of his/her employment, regardless of when or whether he/she executes any such documentation.

(c) Cooperation. For a period of two (2) years following the termination of Executive’s employment, Executive will respond to reasonable, limited inquiries from any member of the Company Group with respect to matters within Executive's knowledge. Executive need only respond to such inquiries by telephone or E-mail, and the amount of detail in such response and the promptness with which it is made will depend on, among other things, the other demands on Executive's time.

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 (1) delivered personally, (2) mailed by first class certified mail, return receipt requested, postage prepaid, or (3) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (4) delivered by telecopy (with receipt, and with original delivered in accordance with any of (1), (2) or (3) 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.

To Executive at the Executive’s address in the Company’s records.

To the Company at:

Genesis Administrative Services, LLC

101 East State Street

Kennett Square PA 19348

Attention: Law Department

Attention: CEO

And with a copy to:

The Chairman of the Board at the address provided to the Executive by the Company from time to time

And with a copy to:

The Chairman of the Compensation Committee at the address provided to the Executive by the Company from time to time

(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. Upon effectiveness of this Agreement, this Agreement supersedes all prior agreements (including but not limited to the Current Employment Agreement) and discussions between the Company and Executive regarding the same subject matter.

(c)Modification. Except for increases in compensation made as provided in section 3(a), this Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by the Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless recommended by the CEO and approved by the Board.

(d)Termination of Prior Employment Agreements. All prior employment agreements between Executive and the Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the Effective Date.

(e)Assignability and Binding Effect. This Agreement (including the covenants set forth in Section 6) shall inure to the benefit of and shall be binding upon the Company and its successors (including successors to all or substantially all of the Company's assets) and permitted assigns and upon Executive and Executive's heirs, executors, legal representatives, successors and permitted assigns. This Agreement, including but not limited to the covenants contained in Section 6 above, may be assigned or otherwise transferred by the Company to any of its successors (including successors to all or substantially all of the Company's assets), subsidiaries or other affiliates and by such transferees to its subsidiaries or other affiliates, provided that, in any assignment or transfer the assignee or transferee agrees to be bound by the terms and conditions hereof. Upon assignment or transfer, the "Company" herein shall mean the buyer, assignee or transferee of this Agreement. This Agreement may not, however, be assigned by Executive to a third party, nor may Executive delegate his/her duties under this Agreement.

(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 penults.

(j)Governing Law and Venue. 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. The parties consent to the authority and exclusive jurisdiction of the Court of Common Pleas for Chester County, Pennsylvania or the United States District Court for the Eastern District of Pennsylvania for purposes of any dispute related to this Agreement.

(k)Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Managers of the Company upon the recommendation of the CEO.

(l)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.

(m)Attorney’s Fees. In the event that Executive institutes any legal action to enforce Executive’s rights under, or to recover damages for breach of this Agreement, Executive, if Executive is the prevailing party, shall be entitled to recover from the Company any reasonable expenses for attorney’s fees and disbursements incurred by Executive.

(n)Code Section 409A. This Agreement is intended to comply with Code Section 409A and Treasury Regulations thereunder (“409A”) and shall be administered and interpreted accordingly, including, without limitation, interpretation of “termination of employment” in a manner consistent with the definition of separation from service under 409A. Any installment payments hereunder shall be treated as separate payments for purposes of 409A’s rules regarding treatment of installment payments as single versus separate payments. Notwithstanding any other Section of this Agreement, any reimbursements hereunder (other than tax gross-up payments) shall be made by the end of the calendar year following the calendar year in which the related expense is incurred (or by such earlier date prescribed elsewhere in this Agreement). Any expense reimbursements hereunder during a calendar year will not affect the amount of expenses eligible for reimbursement during any other calendar year. The right to any expense reimbursement pursuant to this Agreement shall not be subject to liquidation or exchange for any other benefit. Notwithstanding any other Section of this Agreement, reimbursement of expenses incurred due to a tax audit or litigation and any tax-gross up payment shall be made by the end of the calendar year following the calendar year in which the related taxes are remitted to the applicable taxing authority, or where no taxes are remitted, the end of the calendar year following the calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation (or by such earlier date prescribed elsewhere in this Agreement.) In the event Executive is a specified employee of a public company on the Date of Termination then, to the extent required by 409A, payments hereunder shall be made or commence, as applicable, on the first day of the month following the six-month anniversary of the Date of Termination, with amounts that would have been paid during such six-month delay included

in the first payment. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under 409A, if any payments are due under Section 5(c) with respect to a termination of employment which occurred during 2015, such payments shall be made under payment timing rules provided for substantially similar payments under the Current Employment Agreement.

(o)Indemnification. (i) The Company shall maintain in effect, during the Term and for a period of at least six (6) years following the Term, directors’ and officers’ liability insurance and fiduciary liability insurance covering Executive and his Legal Representatives (as defined below), with benefits and levels of coverage at least as favorable as that provided under the Company’s policies as of immediately following the Closing. Such insurance shall be obtained from an insurance carrier with the same or better credit rating as the Company’s insurance carrier, with respect to such policies, as of immediately following the Closing. The Company shall indemnify Executive and Executive’s beneficiaries and successors (the “Legal Representatives”) to the fullest extent permitted by applicable law against all costs, charges, damages, amounts paid in settlement or expenses (including reasonable attorneys’ fees) whatsoever incurred or sustained by Executive or Executive’s Legal Representatives in connection with any threatened, pending or completed action, suit or proceeding to which Executive or Executive’s Legal Representatives may be made a party as a result of the entering into of this Agreement or the performance of services hereunder. This indemnification provision is in addition to, and is not in substitution for, any other indemnification rights that Executive might have under any insurance policy, the Company’s governance documents, or any other plan, policy or agreement which provides indemnification rights for Executive; provided, however, that any indemnity payments made pursuant to this Section (o) shall not be duplicative of payments made pursuant to any insurance policy, the Company’s governance documents, or any other plan, policy or agreement which provides indemnification rights for Executive.

(ii)Notice of Claim. Executive shall give to the Company notice of any claim made against him / her for which indemnification will or could be sought under this Section (o). In addition, Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within Executive’s power, at such times and places as are convenient for Executive.

(iii)Defense of Claim. With respect to any claim under this Section (o) as to which Executive notifies the Company of the commencement thereof:

(A)The Company will be entitled to participate therein at its own expense; and

(B)To the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Executive, which in the Company’s sole discretion may be regular counsel to the Company and may be counsel to other officers and directors of any member of the Company Group.

(C)The Company shall not be liable to indemnify Executive under this Section (o) for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner without Executive’s written consent, which (i) would impose any penalty or limitation on Executive, or (ii) does not deny all liability and wrongdoing by Executive.. Neither the Company nor Executive will unreasonably

withhold or delay their consent to any proposed settlement.

(iv)Timing of Payment. The Company shall pay all costs and expenses (including reasonable attorneys’ fees) incurred by Executive or Executive’s Legal Representatives in connection with the investigation, defense, settlement or appeal of any action, suit or proceeding within thirty days of presentation to the Company of an itemized statement of such costs and expenses. The Company shall pay any damages or settlement amounts to the claiming party when such amounts are due and owing under any court order or settlement document. If the Company does not pay any amounts on a timely basis, Executive or his Legal Representatives may bring a claim for payment against the Company and the Company shall pay Executive’s or his Legal Representative’s costs and expenses (including reasonable attorneys’ fees) in connection with such claim.

(v)Survival. Notwithstanding anything contained herein to the contrary, the provisions of this Section (o) shall survive the termination of this Agreement.

[Signature Page follows]

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.


	Genesis Administrative Services, LLC



By:	/s/ George V. Hager, Jr.
	Name:George V. Hager, Jr.
	Title:Chief Executive Officer

	EXECUTIVE:


	/s/ Daniel A. Hirschfeld
	Daniel A. Hirschfeld

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

FORM OF RELEASE AGREEMENT

This Release Agreement ("Release") is entered into as of this __ day of ___________, ___, hereinafter "Execution Date", by and between Daniel A. Hirschfeld (hereinafter "Employee"), and Genesis Administrative Services, LLC and its successors and assigns (hereinafter, the Company"). The Employee and the Company are sometimes collectively referred to as the "Parties".

1.The Employee's employment with the Company is terminated effective the __ day of __________, ____, (hereinafter "Termination Date"). The Parties have agreed to avoid and resolve any alleged existing or potential disagreements between them arising out of or connected with the Employee's employment with the Company including the termination thereof. The Company expressly disclaims any wrongdoing or any liability to the Employee.

2.The Company agrees to provide the Employee the severance benefits provided for in his/her Employment Agreement with the Company, after he/she executes this Release and the Release becomes effective pursuant to its terms.

3.Employee represents that he/she has not filed, and will not file, any complaints, lawsuits, administrative complaints or charges relating to his/her employment with, or resignation from, the Company, provided, however, that nothing contained in this Section 3 shall prohibit Employee from bringing a claim to challenge the validity of the ADEA Release in Section 9 herein. Employee acknowledges that he / she has been paid all salary, bonuses, and other compensation and reimbursable expenses due him / her from the Company. Employee further represents that he / she has advised the Company's General Counsel or Compliance Officer of any potential violation of law, regulation, contractual obligation or Company policy, by the Company or any entity acting for the Company, of which he / she is aware. In consideration of the benefits described in Section 2, for Employee and Employee’s heirs, administrators, representatives, executors, successors and assigns (collectively, "Releasers"), Employee agrees to release the Company, its subsidiaries, affiliates, and their respective parents, direct or indirect subsidiaries, divisions, affiliates and related companies or entities, regardless of its or their form of business organization, any predecessors, successors, joint ventures, and parents of any such entity, and any and all of their respective past or present shareholders, partners, directors, officers, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representatives and fiduciaries, including without limitation all persons acting by, through, under or in concert with any of them (collectively, the "Released Parties"), from any and all claims, charges, complaints, causes of action or demands of whatever kind or nature that Employee and his/her Releasers now have or have ever had against the Released Parties, whether known or unknown, including but not limited to: wrongful or tortious termination; constructive discharge; implied or express employment contracts and/or estoppel; discrimination and/or retaliation under any federal, state or local statute or regulation, specifically including any claims Employee may have under the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964 as amended, the discrimination or other employment laws of the Commonwealth of Pennsylvania; any claims brought under any federal or state statute or regulation for non-payment of wages or other compensation, including grants of stock options or any other equity compensation; and libel,

slander, or breach of contract other than the breach of this Release. This Release specifically excludes claims, charges, complaints, causes of action or demand that (a) post-date the Termination Date, (b) relate to any unemployment compensation claim Employee may have, (c) involve rights to receive vested benefits to which Employee is entitled as of the Termination Date under any qualified or nonqualified employee benefit plans and arrangements of the Company, or (d) relate to claims for indemnification as provided under applicable law, any applicable insurance policies, e.g., directors and officers insurance, the Articles of Incorporation or By-Laws of the Company or any affiliate of the Company, or any applicable policy statements or indemnification agreements by or with the Company or any affiliate of the Company.

4.The Company, on its own behalf and on behalf of the Released Parties, hereby releases Employee from all claims, causes of actions, demands or liabilities which arose against the Employee on or before the time it signs this Agreement. This release covers any claims, whether the facts or circumstances giving rise to them are currently known or unknown. This Paragraph, however, does not apply to or adversely affect any claims against Employee which allege or involve the following: (i) a failure to deal fairly with the Company or its shareholders in connection with a matter in which Employee has a conflict of interest; (ii) a violation of criminal law, unless Employee has reasonable cause to believe that his/her conduct was lawful; or (iii) willful misconduct or gross negligence by Employee; or (iv) post-termination obligations owed by him/her to the Company under the Employment Agreement date February 2, 2015 between the Company and the Employee. The Company will indemnify Employee for reasonable attorneys' fees, costs and damages which may arise in connection with any proceeding by the Company or any Released Party which is inconsistent with this Release by the Company and the Released Parties.

5.Employee agrees to keep the fact that this Release exists and the terms of this Release in strict confidence except to his/her immediate family and his/her financial and legal advisors on a need-to-know basis, except as required by law.

6.Employee agrees not to make any derogatory statement with regard to the performance, character, or reputation of the Company, its personnel or employees, officers, owners, or attorneys and any and all related entities, or assert that any current or former employee, agent, director or officer of same has acted improperly or unlawfully with respect to Employee. Employee acknowledges that during his/her employment with Employer he/she was one of Employer’s highest level executives. Employee further acknowledges that he/she participated in and was privy to attorney-client communications and other privileged matters. In addition to his/her post-termination non-disclosure obligations, Employee further agrees that he/she will also keep all such communications and matters confidential. Employee agrees that he/she will not provide information or testimony about any information he/she gained through his/her employment with Employer unless requested by Employer or unless Employee receives an enforceable subpoena compelling his/her testimony. Employee agrees to promptly notify Company of the receipt of any such subpoena. Employee also agrees not to communicate in any manner with the press (including, without limitation, internet, television, radio, magazine, and newspaper) without the express written consent of the Company, regarding the Company and its business activities.

7.Employee warrants that no promise or inducement has been offered for this Release other than

as set forth herein and that this Release is executed without reliance upon any other promises or representations, oral or written. Any modification of this Release must be made in writing and be signed by Employee and the Company.

8.If any provision of this Release or compliance by Employee or the Company with any provision of the Release constitutes a violation of any law, or is or becomes unenforceable or void, then such provision, to the extent only that it is in violation of law, unenforceable or void, will be deemed modified to the extent necessary so that it is no longer in violation of law, unenforceable or void, and such provision will be enforced to the fullest extent permitted by law. If such modification is not possible, such provision, to the extent that it is in violation of law, unenforceable or void, will be deemed severable from the remaining provisions of this Release, which provisions will remain binding on both Employee and the Company. This Release is governed by, and construed and interpreted in accordance with the laws of the State of Pennsylvania, without regard to principles of conflicts of law. Employee consents to venue and personal jurisdiction in the State of Pennsylvania for disputes arising under this Release. This Release represents the entire understanding with the Parties with respect to subject matter herein, no oral representations have been made or relied upon by the Parties.

9.In further recognition of the above, Employee hereby releases and discharges the Released Parties from any and all claims, actions and causes of action that he/she may have against the Released Parties, as of the date of the execution of this Release, arising under the Age Discrimination in Employment Act of 1967, as amended ("ADEA"), and the applicable rules and regulations promulgated thereunder. The Employee acknowledges and understands that ADEA is a federal statute that prohibits discrimination on the basis of age in employment, benefits and benefit plans. Employee specifically agrees and acknowledges that: (A) the release in this Section 9 was granted in exchange for the receipt of consideration that exceeds the amount to which he/she would otherwise be entitled to receive upon termination of his/her employment; (B) his/her waiver of rights under this Release is knowing and voluntary as required under the Older Workers Benefit Protection Act; (B) that he/she has read and understands the terms of this Release; (C) he/she has hereby been advised in writing by the Company to consult with an attorney prior to executing this Release; (D) the Company has given him/her a period of up to twenty-one (21) days within which to consider this Release, which period shall be waived by the Employee's voluntary execution prior to the expiration of the twenty-one day period; and (E) following his/her execution of this Release he/she has seven (7) days in which to revoke his/her release as set forth in this Section 9 only and that, if he/she chooses not to so revoke, the Release in this Section 9 shall then become effective and enforceable and the payment listed above shall then be made to his/her in accordance with the terms of this Release. To cancel this Release, Employee understands that he/she must give a written revocation to the General Counsel of the Company, either by hand delivery or certified mail within the seven-day period. If he/she rescinds the Release, it will not become effective or enforceable and he/she will not be entitled to any benefits from the Company.

10.EMPLOYEE ACKNOWLEDGES AND AGREES THAT HE/SHE HAS CAREFULLY READ AND VOLUNTARILY SIGNED THIS RELEASE, THAT HE/SHE HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS/HER CHOICE, AND THAT HE/SHE SIGNS THIS RELEASE WITH THE INTENT OF RELEASING THE RELEASED PARTIES TO THE EXTENT SET FORTH HEREIN.

11.In the event that any provision of this Release should be held to be invalid or unenforceable, each and all of the other provisions of this Release shall remain in full force and effect. If any provision of this Release is found to be invalid or unenforceable, such provision shall be modified as necessary to permit this Release to be upheld and enforced to the maximum extent permitted by law.

ACCEPTED AND AGREED TO:

__________________________________________________

Genesis Administrative Services, LLCDaniel A. Hirschfeld

Dated: _______________________ Dated:________________________

Ex10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

WITNESSETH

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 continue to employ Executive as Chief Nursing Officer and Executive's principal place of business shall be located at 101 E State Street Kennett Square PA, 19348; provided that from time to time, Executive will travel to the Company’s (or its subsidiaries’ or affiliates’) other offices or locations, as may be necessary, appropriate or convenient to perform Executive’s duties. Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. Executive will perform such other duties as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company or his designee (the “CEO”), 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 title with similar companies. 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 Executive's duties hereunder or violate the terms of Section 6 hereof. For purposes of this Agreement, a transfer of the Executive’s employment among the Company, its subsidiaries or its affiliates, or to any businesses operated by them (all such entities together, “Company Group”) shall not be deemed to be a termination of the Executive’s employment, and the entity to which Executive’s employment is transferred shall thereafter be deemed to be the Company for purposes of this Agreement. Executive further agrees to serve as an officer of Genesis Healthcare, Inc. and any other member of the Company Group.

2. Period of Employment

(a) Period of Employment. The period of Executive's employment under this Agreement shall commence immediately following the Closing and shall, unless sooner terminated pursuant to Section 4, terminate on the second anniversary of the Closing (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 the second anniversary of the Closing and on each anniversary of the Closing thereafter (each such anniversary, an "Automatic Extension Date") the Term shall be extended for an additional period of one year, except as otherwise provided in Section 2(c). If the Closing does not occur, this Agreement shall be null and void and the Current Employment Agreement will continue to be in effect in accordance with its terms.

(b) Termination of Automatic Extension by Notice. The Company or 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 90 days prior to the second anniversary of this Agreement or not less than 90 days prior to the applicable Automatic Extension Date.

3. Compensation and Benefits.

(a) Base Salary. As long as Executive remains an employee of the Company, Executive will be paid a base salary of $325,001.58 which shall continue at this rate, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed periodically and the Company may increase such base salary, by an amount, if any, that the Company 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 Executive's Base Salary not deferred in accordance with its customary periodic payroll practices.

(b) Incentive Compensation. Executive shall be eligible to participate in short-term and long-term incentive plans (including any equity incentive plan) sponsored by the Company or its affiliates after the Closing on terms and conditions similar to those applicable to other senior executive officers of the Company generally, but at a level generally consistent with Executive's position with the Company and the Company's then current policies and practices.

(1) 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 and of itself, shall be construed to limit the ability of the Company to amend or terminate any particular plan, program or arrangement.

(2) Vacation. During the Term, Executive shall be entitled to the number of paid vacation days in each year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Except as required by law, 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, during the Term or upon termination of employment.

(3) Perquisites. 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.

(4) 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 if in accordance with the generally applicable written reimbursement or business expense policies and practices of the Company in effect from time to time. Any such expense reimbursement will be made within thirty (30) days following Executive’s proper submission to the Company of any required documentation, but in no event later than the last day of the calendar year following the calendar year in which the reimbursable expense was incurred.

4.Employment Termination.

The Term of employment under this Agreement may be earlier terminated only as follows:

(a) Cause. The Company shall have the right to terminate Executive's employment for Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of the CEO upon at least 15 days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" because of (1) Executive's conviction of, or plea of guilty or nolo contendere to, any felony (whether or not involving the Company or any other member of the Company Group, as defined below) or any other crime involving moral turpitude which subjects, or if generally known, would subject, any member of the Company Group to public ridicule or embarrassment, (2) fraud or other willful misconduct by Executive in respect of Executive's obligations under this Agreement, or (3) Executive’s continued willful and intentional failure to substantially comply with the reasonable mandates of

the CEO commensurate with his/her position after a written demand for substantial compliance is delivered to him/her by the CEO, which demand specifically identifies the mandate(s) with which the CEO believes he/she has not substantially complied, and which failure is not substantially corrected by him/her within 10 days after receipt of such demand. Executive shall not be considered to have failed to substantially comply if (I) he/she fails to so comply by reason of total or partial incapacity due to physical or mental illness or (II) the requested action is illegal. For the avoidance of doubt, Executive shall not be subject to termination for Cause if Executive acts or refrains from acting: (1) in reliance upon and in accordance with a resolution duly adopted by the Board of Directors of Genesis Healthcare, Inc. (the “Board”); (2) in reliance upon and in accordance with the advice of outside counsel to the Company; or (3) in the good faith reasonable belief that an action is in the best interests of the Company (or in the case of refraining from taking an action, that such action is not in the best interests of the Company), provided, however, that the Executive may not act or refrain from acting in reliance upon this Clause (3) where the CEO has issued a written demand specifically directing the Executive to take or refrain from taking a specified action.

(b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company may, at any time after at least 90 days prior written notice in accordance with Section 4(f) hereof to Executive, terminate Executive's employment hereunder without Cause.

(c) Death or Disability. If Executive dies, Executive's employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment for Disability. As used in this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused Executive to be unable to perform the essential functions of Executive’s position with a reasonable accommodation with the Company on a full time basis for (1) a period of six consecutive months, or (2) for shorter periods aggregating more than six months in any twelve month period. During any period of Disability, Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company.

(d) Good Reason.

(1) Except as provided in Section 4(d)(2), Executive may terminate Executive's employment at any time during the Term of this Agreement for Good Reason upon not less than thirty (30) days’ prior written notice given within one hundred and twenty (120) 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. For purposes of this Agreement, "Good Reason" shall mean any of the following, without Executive's written consent:

Closing, or any removal of Executive from, or any failure to reelect Executive to, any of such positions, except in connection with the termination of Executive's employment for Disability or Cause or as a result of Executive's death or by Executive other than for Good Reason;

(B) a reduction by the Company in 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;

(e) Executive's Voluntary Termination. Notwithstanding anything to the contrary contained in this Agreement, Executive may, at any time after at least 90 days prior written notice in accordance with Section 4(g) hereof to the Company, terminate voluntarily Executive's employment hereunder. Upon receiving such notice, the Company may relieve Executive of some or all of Executive’s duties at any time during the notice period without constituting “Good Reason” for termination.

(f) Expiration of Term. Executive’s employment with the Company and its subsidiaries shall cease automatically on the expiration of the Term if the Agreement is not renewed pursuant to Section 2(b) of this Agreement (“Termination by Non-Renewal”).

(g) 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 Executive's employment under the provision so indicated.

(h) Date of Termination. "Date of Termination" shall mean (1) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to Executive (provided that Executive shall not have returned to the performance of Executive's duties on a full-time basis during such 30-day period), (2) if Executive's employment is terminated due to Executive's death, on the date of death; (3) if Executive's employment is terminated due to Executive's voluntary resignation pursuant to Section 4(e), the date specified in the notice given in accordance with said section; or (4) if Executive's employment is terminated for any other

reason, the date specified in the Notice of Termination in accordance with this Agreement.

Payments upon Termination.

(a) Termination Due to Death or Disability. Upon Executive's death or the termination of Executive's employment by reason of the Disability of Executive, to the extent not theretofore paid or provided, (1) the Company shall pay to Executive's estate or Executive, as applicable, (A) Executive's full Base Salary and other accrued benefits earned up to the last day of the month of Executive's death or termination of employment by reason of Executive's Disability in a lump sum 30 days after the Date of Termination or as otherwise required by applicable law, (B) all deferred compensation of any kind (in accordance with the terms of the plan), including, without limitation, any amounts earned but not yet paid under any bonus plan in a lump sum 30 days after the Date of Termination, and (C) if any bonus, under any bonus plan of the Company, shall be payable in respect of the year in which Executive's death or termination of employment by reason of Executive's Disability occurs, such bonus(es) prorated up to the last day of the month of Executive's death or termination of employment by reason of Executive's Disability in a lump sum 30 days after the Date of Termination, and (2) all restricted stock, stock option and performance share awards made to Executive and outstanding as of the Date of Termination shall automatically become fully vested as of the Date of Termination.

(b) Termination for Cause and Resignation Without Good Reason. If Executive's employment shall be terminated for Cause or Executive resigns during the Term without Good Reason, the Company shall pay Executive, within 30 days after the Date of Termination or as otherwise required by applicable law (i) Executive's full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and (ii) all deferred compensation of any kind to which Executive is entitled on his Date of Termination in accordance with the terms of any deferred compensation agreement. The Company shall have no further obligations to Executive under this Agreement.

term). "Executive's Average Base Salary" means Executive's Base Salary for the most recent two years (including the year in which the Date of Termination occurs) divided by two. "Executive's Average Assumed Cash Incentive Compensation" means all annual bonuses earned as incentive compensation including under the Company's annual performance bonus, but not including the value of any long-term incentive awards, in consideration of services for the two (2) most recent completed fiscal years prior to the Date of Termination, divided by two (2), or the average annual bonuses earned in such shorter number of fiscal years during which an annual bonus incentive program existed.

6.Executive's Covenants. Executive hereby acknowledges that this Agreement provides Executive with additional benefits that he/she did not have under his/her prior agreement.

(a) Nondisclosure. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any Unauthorized Person Confidential Information relating to the members of the Company Group. For purposes of this Section 6, Confidential Information is all information relating to the members of the Company Group that is not known by or readily available to the general public or which becomes known by or readily available to the general public as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, Executive may reveal information, as necessary, (i) pursuant to Executive’s conducting Company business during the Term or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, or as otherwise required by law. For purposes of this Section 6, Unauthorized Person is any person or entity, within or without the Company, who does not need to know the Confidential Information in order to advance a legitimate business interest of the Company, unless the Company has a relationship or agreement with that person or entity such that the person or entity has an enforceable obligation to maintain the confidentiality of the Confidential Information; provided that nothing in this Section 6(a) shall prevent Executive from disclosing Confidential Information to any person within or without the Company as Executive reasonably believes necessary to facilitate the performance of Executive’s material duties and responsibilities as specified in Section 1.

(b) Non-Competition. During the Term hereof and for a period of one (1) year following Executive's termination of employment for any reason, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any entity or person:

(3)Hire any person (whether as an employee, officer, director, agent,

consultant or independent contractor) who is, or was at any time during the three (3) months prior to termination of Executive’s employment, an officer or managing director of the any member of the Company Group (except for such employment by any member of the Company Group);

(c) If Executive’s employment is terminated in any manner, including non-renewal, other than by the Company with Cause or for Disability, or by the Executive without Good Reason, the time period for the restrictions in Section 6(b)(4) will be the same as the time period during which Executive is to continue to receive his or her Base Salary under this Agreement or, if the post-termination severance payments related to Base Salary is paid in a lump sum, the time period for the restrictions in Section 6(b)(4) will equal to the number of years of Base Salary payable to the Executive as severance (e.g., if Executive is entitled to payments under Section 5(c), time period for the restrictions in Section 6(b)(4) will equal one year).

(d) Enforcement. Executive acknowledges that any breach by Executive of any of the covenants and agreements of this Section 6 ("Covenants") will result in irreparable injury to the Company for which money damages could not adequately compensate the Company, and therefore, in the event of any such breach, the Company shall be entitled, in addition to all other rights and remedies which the 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 entities or persons involved therein from continuing such breach. The existence of any claim or cause of action which Executive or any such other entity or person may have against the Company shall not constitute a defense or bar to the enforcement of any of the Covenants. If the 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. For purposes of Section 8(d), the term “Company” shall include all affiliates and subsidiaries of the Company.

(e) Consideration. Executive expressly acknowledges that the Covenants are a material part of the consideration bargained for by the Company and, without the agreement of Executive to be bound by the Covenants, the Company would not have agreed to enter into this Agreement.

(f) 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.

7. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.

8. Duties Upon Termination.

Executive’s employment, Executive will respond to reasonable, limited inquiries from any member of the Company Group with respect to matters within Executive's knowledge. Executive need only respond to such inquiries by telephone or E-mail, and the amount of detail in such response and the promptness with which it is made will depend on, among other things, the other demands on Executive's time.

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 (1) delivered personally, (2) mailed by first class certified mail, return receipt requested, postage prepaid, or (3) sent by a nationally recognized express courier service, postage or delivery changes prepaid, with receipt, or (4) delivered by telecopy (with receipt, and with original delivered in accordance with any of (1), (2) or (3) 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.

To Executive at the Executive’s address in the Company’s records.

To the Company at:

Genesis Administrative Services, LLC

101 East State Street

Kennett Square PA 19348

Attention: Law Department

Attention: CEO

And with a copy to:

The Chairman of the Board at the address provided to the Executive by the Company from time to time

And with a copy to:

The Chairman of the Compensation Committee at the address provided to the Executive by the Company from time to time

(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. Upon effectiveness of this Agreement, this Agreement supersedes all prior agreements (including but not limited to the Current Employment Agreement) and discussions between the Company and Executive regarding the same subject matter.

(c) Modification. Except for increases in compensation made as provided in section 3(a), this Agreement shall not be amended, modified, supplemented or terminated except in writing signed by both parties. No action taken by the Company hereunder, including without limitation any waiver, consent or approval, shall be effective unless recommended by the CEO and approved by the Board.

(d) Termination of Prior Employment Agreements. All prior employment agreements between Executive and the Company and/or any of its affiliates (and any of their predecessors) are hereby terminated as of the Effective Date.

(e) Assignability and Binding Effect. This Agreement (including the covenants set forth in Section 6) shall inure to the benefit of and shall be binding upon the Company and its successors (including successors to all or substantially all of the Company's assets) and permitted assigns and upon Executive and Executive's heirs, executors, legal representatives, successors and permitted assigns. This Agreement, including but not limited to the covenants contained in Section 6 above, may be assigned or otherwise transferred by the Company to any of its successors (including successors to all or substantially all of the Company's assets), subsidiaries or other affiliates and by such transferees to its subsidiaries or other affiliates, provided that, in any assignment or transfer the assignee or transferee agrees to be bound by the terms and conditions hereof. Upon assignment or transfer, the "Company" herein shall mean the buyer, assignee or transferee of this Agreement. This Agreement may not, however, be assigned by Executive to a third party, nor may Executive delegate his/her duties under this Agreement.

(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 penults.

(j) Governing Law and Venue. 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. The parties consent to the authority and exclusive jurisdiction of the Court of Common Pleas for Chester County, Pennsylvania or the United States District Court for the Eastern District of Pennsylvania for purposes of any dispute related to this Agreement.

(k) Approval and Authorizations. The execution and the implementation of the terms and conditions of this Agreement have been fully authorized by the Board of Managers of the Company upon the recommendation of the CEO.

(l) 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.

(m) Attorney’s Fees. In the event that Executive institutes any legal action to enforce Executive’s rights under, or to recover damages for breach of this Agreement, Executive, if Executive is the prevailing party, shall be entitled to recover from the Company any reasonable expenses for attorney’s fees and disbursements incurred by Executive.

(n) Code Section 409A. This Agreement is intended to comply with Code Section 409A and Treasury Regulations thereunder (“409A”) and shall be administered and interpreted accordingly, including, without limitation, interpretation of “termination of employment” in a manner consistent with the definition of separation from service under 409A. Any installment payments hereunder shall be treated as separate payments for purposes of 409A’s rules regarding treatment of installment payments as single versus separate payments. Notwithstanding any other Section of this Agreement, any reimbursements hereunder (other than tax gross-up payments) shall be made by the end of the calendar year following the calendar year in which the related expense is incurred (or by such earlier date prescribed elsewhere in this Agreement). Any expense reimbursements hereunder during a calendar year will not affect the amount of expenses eligible for reimbursement during any other calendar year. The right to any expense reimbursement pursuant to this Agreement shall not be subject to liquidation or exchange for any other benefit. Notwithstanding any other Section of this Agreement, reimbursement of expenses incurred due to a tax audit or litigation and any tax-gross up payment shall be made by the end of the calendar year following the calendar year in which the related taxes are remitted to the applicable taxing authority, or where no taxes are remitted, the end of the calendar year following the calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation (or by such earlier date prescribed elsewhere in this Agreement.) In the event Executive is a specified employee of a public company on the Date of Termination then, to the extent required by 409A, payments hereunder shall be made or commence, as applicable, on the first day of the month following the six-month anniversary of the Date of Termination, with amounts that would have been paid during such six-month delay included in the first payment. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under 409A, if any payments are due under Section 5(c) with respect to a termination of employment which occurred during 2015, such payments shall be made under payment timing rules provided for substantially similar payments under the Current Employment Agreement.

(o) Indemnification. (i) The Company shall maintain in effect, during the Term and for a period of at least six (6) years following the Term, directors’ and officers’ liability insurance and fiduciary liability insurance covering Executive and his Legal Representatives (as defined below), with benefits and levels of coverage at least as favorable as that provided under the Company’s policies as of immediately following the Closing. Such insurance shall be obtained from an insurance carrier with the same or better credit rating as the Company’s insurance carrier, with respect to such policies, as of immediately following the Closing. The Company shall indemnify Executive and Executive’s beneficiaries and successors (the “Legal Representatives”) to the fullest extent permitted by applicable law against all costs, charges, damages, amounts paid in settlement or expenses (including reasonable attorneys’ fees) whatsoever incurred or sustained by Executive or Executive’s Legal Representatives in connection with any threatened, pending or completed action, suit or proceeding to which Executive or Executive’s Legal Representatives may be made a party as a result of the entering into of this Agreement or the performance of services hereunder. This indemnification provision is in addition to, and is not in substitution for, any other indemnification rights that Executive might have under any insurance policy, the Company’s governance documents, or any other plan, policy or agreement which provides indemnification rights for Executive; provided, however, that any indemnity payments made pursuant to this Section (o) shall not be duplicative of payments made pursuant to any insurance policy, the Company’s governance documents, or any other plan, policy or agreement which provides indemnification rights for Executive.

(ii) Notice of Claim. Executive shall give to the Company notice of any claim made against him / her for which indemnification will or could be sought under this Section (o). In addition, Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within Executive’s power, at such times and places as are convenient for Executive.

(iii) Defense of Claim. With respect to any claim under this Section (o) as to which Executive notifies the Company of the commencement thereof:

(A) The Company will be entitled to participate therein at its own expense; and

(B) To the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Executive, which in the Company’s sole discretion may be regular counsel to the Company and may be counsel to other officers and directors of any member of the Company Group.

(C) The Company shall not be liable to indemnify Executive under this Section (o) for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner without Executive’s written consent, which (i) would impose any penalty or limitation on Executive, or (ii) does not deny all liability and wrongdoing by Executive.. Neither the Company nor Executive will unreasonably withhold or delay their consent to any proposed settlement.

(iv) Timing of Payment. The Company shall pay all costs and expenses

(including reasonable attorneys’ fees) incurred by Executive or Executive’s Legal Representatives in connection with the investigation, defense, settlement or appeal of any action, suit or proceeding within thirty days of presentation to the Company of an itemized statement of such costs and expenses. The Company shall pay any damages or settlement amounts to the claiming party when such amounts are due and owing under any court order or settlement document. If the Company does not pay any amounts on a timely basis, Executive or his Legal Representatives may bring a claim for payment against the Company and the Company shall pay Executive’s or his Legal Representative’s costs and expenses (including reasonable attorneys’ fees) in connection with such claim.

(v) Survival. Notwithstanding anything contained herein to the contrary, the provisions of this Section (o) shall survive the termination of this Agreement.

[Signature Page follows]

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.

Genesis Administrative Services, LLC



By:	/s/ George V. Hager, Jr
	Name:	George V. Hager, Jr.
	Title:	Chief Executive Officer

EXECUTIVE:


/s/ JoAnne Reifsnyder
JoAnne Reifsnyder

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

FORM OF RELEASE AGREEMENT

This Release Agreement ("Release") is entered into as of this __ day of ___________, ___, hereinafter "Execution Date", by and between JoAnne Reifsnyder (hereinafter "Employee"), and Genesis Administrative Services, LLC and its successors and assigns (hereinafter, the Company"). The Employee and the Company are sometimes collectively referred to as the "Parties".

The Employee's employment with the Company is terminated effective the __ day of __________, ____, (hereinafter "Termination Date"). The Parties have agreed to avoid and resolve any alleged existing or potential disagreements between them arising out of or connected with the Employee's employment with the Company including the termination thereof. The Company expressly disclaims any wrongdoing or any liability to the Employee.

The Company agrees to provide the Employee the severance benefits provided for in his/her Employment Agreement with the Company, after he/she executes this Release and the Release becomes effective pursuant to its terms.

Employee represents that he/she has not filed, and will not file, any complaints, lawsuits, administrative complaints or charges relating to his/her employment with, or resignation from, the Company, provided, however, that nothing contained in this Section 3 shall prohibit Employee from bringing a claim to challenge the validity of the ADEA Release in Section 9 herein. Employee acknowledges that he / she has been paid all salary, bonuses, and other compensation and reimbursable expenses due him / her from the Company. Employee further represents that he / she has advised the Company's General Counsel or Compliance Officer of any potential violation of law, regulation, contractual obligation or Company policy, by the Company or any entity acting for the Company, of which he / she is aware. In consideration of the benefits described in Section 2, for Employee and Employee’s heirs, administrators, representatives, executors, successors and assigns (collectively, "Releasers"), Employee agrees to release the Company, its subsidiaries, affiliates, and their respective parents, direct or indirect subsidiaries, divisions, affiliates and related companies or entities, regardless of its or their form of business organization, any predecessors, successors, joint ventures, and parents of any such entity, and any and all of their respective past or present shareholders, partners, directors, officers, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representatives and fiduciaries, including without limitation all persons acting by, through, under or in concert with any of them (collectively, the "Released Parties"), from any and all claims, charges, complaints, causes of action or demands of whatever kind or nature that Employee and his/her Releasers now have or have ever had against the Released Parties, whether known or unknown, including but not limited to: wrongful or tortious termination; constructive discharge; implied or express employment contracts and/or estoppel; discrimination and/or retaliation under any federal, state or local statute or regulation, specifically including any claims Employee may have under the Americans with Disabilities

Act, Title VII of the Civil Rights Act of 1964 as amended, the discrimination or other employment laws of the Commonwealth of Pennsylvania; any claims brought under any federal or state statute or regulation for non-payment of wages or other compensation, including grants of stock options or any other equity compensation; and libel, slander, or breach of contract other than the breach of this Release. This Release specifically excludes claims, charges, complaints, causes of action or demand that (a) post-date the Termination Date, (b) relate to any unemployment compensation claim Employee may have, (c) involve rights to receive vested benefits to which Employee is entitled as of the Termination Date under any qualified or nonqualified employee benefit plans and arrangements of the Company, or (d) relate to claims for indemnification as provided under applicable law, any applicable insurance policies, e.g., directors and officers insurance, the Articles of Incorporation or By-Laws of the Company or any affiliate of the Company, or any applicable policy statements or indemnification agreements by or with the Company or any affiliate of the Company.

The Company, on its own behalf and on behalf of the Released Parties, hereby releases Employee from all claims, causes of actions, demands or liabilities which arose against the Employee on or before the time it signs this Agreement. This release covers any claims, whether the facts or circumstances giving rise to them are currently known or unknown. This Paragraph, however, does not apply to or adversely affect any claims against Employee which allege or involve the following: (i) a failure to deal fairly with the Company or its shareholders in connection with a matter in which Employee has a conflict of interest; (ii) a violation of criminal law, unless Employee has reasonable cause to believe that his/her conduct was lawful; or (iii) willful misconduct or gross negligence by Employee; or (iv) post-termination obligations owed by him/her to the Company under the Employment Agreement date February 2, 2015 between the Company and the Employee. The Company will indemnify Employee for reasonable attorneys' fees, costs and damages which may arise in connection with any proceeding by the Company or any Released Party which is inconsistent with this Release by the Company and the Released Parties.

Employee agrees to keep the fact that this Release exists and the terms of this Release in strict confidence except to his/her immediate family and his/her financial and legal advisors on a need-to-know basis, except as required by law.

Employee agrees not to make any derogatory statement with regard to the performance, character, or reputation of the Company, its personnel or employees, officers, owners, or attorneys and any and all related entities, or assert that any current or former employee, agent, director or officer of same has acted improperly or unlawfully with respect to Employee. Employee acknowledges that during his/her employment with Employer he/she was one of Employer’s highest level executives. Employee further acknowledges that he/she participated in and was privy to attorney-client communications and other privileged matters. In addition to his/her post-termination non-disclosure obligations, Employee further agrees that he/she will also keep all such communications and matters confidential. Employee agrees that he/she will not provide information or testimony about any information he/she gained through his/her employment with Employer unless requested by Employer or unless Employee receives an enforceable subpoena compelling his/her

testimony. Employee agrees to promptly notify Company of the receipt of any such subpoena. Employee also agrees not to communicate in any manner with the press (including, without limitation, internet, television, radio, magazine, and newspaper) without the express written consent of the Company, regarding the Company and its business activities.

Employee warrants that no promise or inducement has been offered for this Release other than as set forth herein and that this Release is executed without reliance upon any other promises or representations, oral or written. Any modification of this Release must be made in writing and be signed by Employee and the Company.

If any provision of this Release or compliance by Employee or the Company with any provision of the Release constitutes a violation of any law, or is or becomes unenforceable or void, then such provision, to the extent only that it is in violation of law, unenforceable or void, will be deemed modified to the extent necessary so that it is no longer in violation of law, unenforceable or void, and such provision will be enforced to the fullest extent permitted by law. If such modification is not possible, such provision, to the extent that it is in violation of law, unenforceable or void, will be deemed severable from the remaining provisions of this Release, which provisions will remain binding on both Employee and the Company. This Release is governed by, and construed and interpreted in accordance with the laws of the State of Pennsylvania, without regard to principles of conflicts of law. Employee consents to venue and personal jurisdiction in the State of Pennsylvania for disputes arising under this Release. This Release represents the entire understanding with the Parties with respect to subject matter herein, no oral representations have been made or relied upon by the Parties.

In further recognition of the above, Employee hereby releases and discharges the Released Parties from any and all claims, actions and causes of action that he/she may have against the Released Parties, as of the date of the execution of this Release, arising under the Age Discrimination in Employment Act of 1967, as amended ("ADEA"), and the applicable rules and regulations promulgated thereunder. The Employee acknowledges and understands that ADEA is a federal statute that prohibits discrimination on the basis of age in employment, benefits and benefit plans. Employee specifically agrees and acknowledges that: (A) the release in this Section 9 was granted in exchange for the receipt of consideration that exceeds the amount to which he/she would otherwise be entitled to receive upon termination of his/her employment; (B) his/her waiver of rights under this Release is knowing and voluntary as required under the Older Workers Benefit Protection Act; (B) that he/she has read and understands the terms of this Release; (C) he/she has hereby been advised in writing by the Company to consult with an attorney prior to executing this Release; (D) the Company has given him/her a period of up to twenty-one (21) days within which to consider this Release, which period shall be waived by the Employee's voluntary execution prior to the expiration of the twenty-one day period; and (E) following his/her execution of this Release he/she has seven (7) days in which to revoke his/her release as set forth in this Section 9 only and that, if he/she chooses not to so revoke, the Release in this Section 9 shall then become effective and enforceable and the payment listed above shall then be made to his/her in accordance with the terms of this Release. To cancel this Release, Employee understands that he/she must give a written revocation to the General Counsel of the Company, either by hand delivery or

certified mail within the seven-day period. If he/she rescinds the Release, it will not become effective or enforceable and he/she will not be entitled to any benefits from the Company.

10.

EMPLOYEE ACKNOWLEDGES AND AGREES THAT HE/SHE HAS CAREFULLY READ AND VOLUNTARILY SIGNED THIS RELEASE, THAT HE/SHE HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS/HER CHOICE, AND THAT HE/SHE SIGNS THIS RELEASE WITH THE INTENT OF RELEASING THE RELEASED PARTIES TO THE EXTENT SET FORTH HEREIN.

11.

In the event that any provision of this Release should be held to be invalid or unenforceable, each and all of the other provisions of this Release shall remain in full force and effect. If any provision of this Release is found to be invalid or unenforceable, such provision shall be modified as necessary to permit this Release to be upheld and enforced to the maximum extent permitted by law.

ACCEPTED AND AGREED TO:



Genesis Administrative Services, LLC			JoAnne Reifsnyder


Dated:			Dated:

Ex10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

WITNESSETH

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 continue to employ Executive as Chief Operating Officer and Executive's principal place of business shall be located at 101 E State Street Kennett Square PA, 19348; provided that from time to time, Executive will travel to the Company’s (or its subsidiaries’ or affiliates’) other offices or locations, as may be necessary, appropriate or convenient to perform Executive’s duties. Executive accepts such employment and agrees to perform the customary responsibilities of such position during the term of this Agreement. Executive will perform such other duties as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company or his designee (the “CEO”), 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 title with similar companies. 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 Executive's duties hereunder or violate the terms of Section 6 hereof. For purposes of this Agreement, a transfer of the Executive’s employment among the Company, its subsidiaries or its affiliates, or to any businesses operated by them (all such entities together, “Company Group”) shall not be deemed to be a termination of the Executive’s employment, and the entity to which Executive’s employment is transferred shall thereafter be deemed to be the Company for purposes of this Agreement. Executive further agrees to serve as an officer of Genesis Healthcare, Inc. and any other member of the Company Group.

2. Period of Employment.

(a) Period of Employment. The period of Executive's employment under this Agreement shall commence immediately following the Closing and shall, unless sooner terminated pursuant to Section 4, terminate on the second anniversary of the Closing (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 the second anniversary of the Closing and on each anniversary of the Closing thereafter (each such anniversary, an "Automatic Extension Date") the Term shall be extended for an additional period of one year, except as otherwise provided in Section 2(c). If the Closing does not occur, this Agreement shall be null and void and the Current Employment Agreement will continue to be in effect in accordance with its terms.

(b) Termination of Automatic Extension by Notice. The Company or 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 90 days prior to the second anniversary of this Agreement or not less than 90 days prior to the applicable Automatic Extension Date.

3. Compensation and Benefits.

(a) Base Salary. As long as Executive remains an employee of the Company, Executive will be paid a base salary of $487,203.18 which shall continue at this rate, subject to adjustment as hereinafter provided. Executive's base salary shall be reviewed periodically and the Company may increase such base salary, by an amount, if any, that the Company 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 Executive's Base Salary not deferred in accordance with its customary periodic payroll practices.

(b) Incentive Compensation. Executive shall be eligible to participate in short-term and long-term incentive plans (including any equity incentive plan) sponsored by the Company or its affiliates after the Closing on terms and conditions similar to those applicable to other senior executive officers of the Company generally, but at a level generally consistent with Executive's position with the Company and the Company's then current policies and practices.

(2) Vacation. During the Term, Executive shall be entitled to the number of paid vacation days in each year determined by the Company from time to time for its senior executive officers, but not less than five (5) weeks in any year. Executive shall also be entitled to all paid holidays given by the Company to its senior officers. Except as required by law, 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, during the Term or upon termination of employment.

(3) Perquisites. 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.

(4) 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 if in accordance with the generally applicable written reimbursement or business expense policies and practices of the Company in effect from time to time. Any such expense reimbursement will be made within thirty (30) days following Executive’s proper submission to the Company of any required documentation, but in no event later than the last day of the calendar year following the calendar year in which the reimbursable expense was incurred.

4.Employment Termination.

The Term of employment under this Agreement may be earlier terminated only as follows:

(a) Cause. The Company shall have the right to terminate Executive's employment for Cause. For purposes hereof, a termination by the Company for "Cause" shall mean termination by action of the CEO upon at least 15 days prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" because of (1) Executive's conviction of, or plea of guilty or nolo contendere to, any felony (whether or not involving the Company or any other member of the Company Group, as defined below) or any other crime involving moral turpitude which subjects, or if generally known, would subject, any member of the Company Group to public ridicule or embarrassment, (2) fraud or other willful misconduct by Executive in respect of Executive's obligations under this Agreement, or (3) Executive’s continued willful and intentional failure to substantially comply with the reasonable mandates of

(b) Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company may, at any time after at least 90 days prior written notice in accordance with Section 4(f) hereof to Executive, terminate Executive's employment hereunder without Cause.

(c) Death or Disability. If Executive dies, Executive's employment shall terminate as of the date of death. If Executive develops a disability, the Company may terminate Executive's employment for Disability. As used in this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused Executive to be unable to perform the essential functions of Executive’s position with a reasonable accommodation with the Company on a full time basis for (1) a period of six consecutive months, or (2) for shorter periods aggregating more than six months in any twelve month period. During any period of Disability, Executive agrees to submit to reasonable medical examinations upon the reasonable request, and at the expense, of the Company.

(d) Good Reason.

(1) Except as provided in Section 4(d)(2), Executive may terminate Executive's employment at any time during the Term of this Agreement for Good Reason upon not less than thirty (30) days’ prior written notice given within one hundred and twenty (120) 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. For purposes of this Agreement, "Good Reason" shall mean any of the following, without Executive's written consent:

(B) a reduction by the Company in 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;

(e) Executive's Voluntary Termination. Notwithstanding anything to the contrary contained in this Agreement, Executive may, at any time after at least 90 days prior written notice in accordance with Section 4(g) hereof to the Company, terminate voluntarily Executive's employment hereunder. Upon receiving such notice, the Company may relieve Executive of some or all of Executive’s duties at any time during the notice period without constituting “Good Reason” for termination.

(f) Expiration of Term. Executive’s employment with the Company and its subsidiaries shall cease automatically on the expiration of the Term if the Agreement is not renewed pursuant to Section 2(b) of this Agreement (“Termination by Non-Renewal”).

(g) 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 Executive's employment under the provision so indicated.

(h) Date of Termination. "Date of Termination" shall mean (1) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to Executive (provided that Executive shall not have returned to the performance of Executive's duties on a full-time basis during such 30-day period), (2) if Executive's employment is terminated due to Executive's death, on the date of death; (3) if Executive's employment is terminated due to Executive's voluntary resignation pursuant to Section 4(e), the date specified in the notice given in accordance with said section; or (4) if Executive's employment is terminated for any other

reason, the date specified in the Notice of Termination in accordance with this Agreement.

Payments upon Termination.

(b) Termination for Cause and Resignation Without Good Reason. If Executive's employment shall be terminated for Cause or Executive resigns during the Term without Good Reason, the Company shall pay Executive, within 30 days after the Date of Termination or as otherwise required by applicable law (i) Executive's full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and (ii) all deferred compensation of any kind to which Executive is entitled on his Date of Termination in accordance with the terms of any deferred compensation agreement. The Company shall have no further obligations to Executive under this Agreement.

6.Executive's Covenants. Executive hereby acknowledges that this Agreement provides Executive with additional benefits that he/she did not have under his/her prior agreement.

(a) Nondisclosure. At all times during and after the term of this Agreement, Executive shall not disclose or reveal to any Unauthorized Person Confidential Information relating to the members of the Company Group. For purposes of this Section 6, Confidential Information is all information relating to the members of the Company Group that is not known by or readily available to the general public or which becomes known by or readily available to the general public as a result of any improper act or omission of Executive. Notwithstanding anything herein to the contrary, Executive may reveal information, as necessary, (i) pursuant to Executive’s conducting Company business during the Term or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, or as otherwise required by law. For purposes of this Section 6, Unauthorized Person is any person or entity, within or without the Company, who does not need to know the Confidential Information in order to advance a legitimate business interest of the Company, unless the Company has a relationship or agreement with that person or entity such that the person or entity has an enforceable obligation to maintain the confidentiality of the Confidential Information; provided that nothing in this Section 6(a) shall prevent Executive from disclosing Confidential Information to any person within or without the Company as Executive reasonably believes necessary to facilitate the performance of Executive’s material duties and responsibilities as specified in Section 1.

(b) Non-Competition. During the Term hereof and for a period of one (1) year following Executive's termination of employment for any reason, Executive shall not, except with the Company's express prior written consent, directly or indirectly, in any capacity, for the benefit of any entity or person:

(1) Solicit any entity or person who is or during such period becomes a customer, supplier, salesman, agent or representative of any member of the Company Group, in any manner which interferes or might interfere with such entity or person's relationship with any member of the Company Group, or in an effort to obtain such entity or person as a customer, supplier, salesman, agent, or representative of any business in competition with any member of the Company Group which conducts operations within 15 miles of any office or facility owned, leased or operated by any member of the Company Group or in any county, or similar political subdivision, in which any member of the Company Group conducts substantial business.

(2) Solicit the employment of any person who is, or was at any time during the three (3) months immediately prior to the termination of Executive’s employment, an employee, consultant, officer or director of any member of the Company Group (except for such employment by any member of the Company Group);

(3) Hire any person (whether as an employee, officer, director, agent,

(4) 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 entity or person in any business in competition with any member of the Company Group, if such entity or person has any office or facility at any location within 15 miles of any office or facility owned, leased or operated by any member of the Company Group or conducts substantial business in any county, or similar political subdivision, in which any member of the Company Group conducts substantial business, or act or conduct himself/herself in any manner which Executive would have reason to believe inimical or contrary to the best interests of the Company.