Hazardous Materials Indemnity

Loan No. 99-407


HAZARDOUS MATERIALS INDEMNITY AGREEMENT


This HAZARDOUS MATERIALS INDEMNITY AGREEMENT (this "Agreement") is made as of December 30, 1999 by and among BALANCED CARE REALTY AT STATE COLLEGE, INC., a Delaware corporation, BALANCED CARE REALTY AT ALTOONA, INC., a Delaware corporation, BALANCED CARE REALTY AT LEWISTOWN, INC., a Delaware corporation, BALANCED CARE REALTY AT READING, INC., a Delaware corporation, BALANCED CARE REALTY AT BERWICK, INC., a Delaware corporation, BALANCED CARE REALTY AT PECKVILLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SCRANTON, INC., a Delaware corporation, BALANCED CARE REALTY AT MARTINSBURG, INC., a Delaware corporation, BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware corporation, BALANCED CARE REALTY AT MOUNTAIN HOME, INC., a Delaware corporation and BALANCED CARE REALTY AT MANSFIELD, INC., a Delaware corporation (collectively, "Borrower"), and BALANCED CARE CORPORATION, a Delaware corporation ("BCC") in favor of HELLER HEALTHCARE FINANCE, INC., a Delaware corporation ("Lender"), whose address is 2 Wisconsin Circle, Suite 400, Chevy Chase, Maryland 20815.


RECITALS


A. Each Borrower is the owner in fee simple of that certain real property described in Exhibit A attached hereto (collectively called the "Properties") and together with all rights and appurtenances thereto and all improvements presently located or hereafter constructed thereon are hereinafter collectively called the "Project").


B. Concurrently herewith, Lender is making a loan to Borrower in the principal sum of Thirty-Two Million and No/100 Dollars ($32,000,000.00) (the "Loan").


C. To evidence the Loan, Borrower has executed and delivered to Lender a Promissory Note A of even date herewith in the face amount of Twenty-Five Million Six Hundred Thousand and No/100 Dollars ($25,600,000.00) and a Subordinated Promissory Note B of even date herewith in the face amount of Six Million Four Hundred Thousand and No/100 Dollars ($6,400,000.00) (said notes and any and all renewals, amendments, modifications, increases and extensions thereof are hereinafter collectively 2 called the "Note") and a Loan Agreement of even date herewith (as amended from time to time, the "Loan Agreement").


D. Concurrently herewith, each Borrower has granted to Lender a first mortgage or deed of trust (as amended from time to time, the "Mortgages") encumbering its Property. The Notes, the Loan Agreement, the Mortgages, and any other documents evidencing or securing the Loan or executed in connection therewith, and any modification, renewal or extension of any of the foregoing are collectively called the "Loan Documents".


E. BCC owns, directly or indirectly, one hundred percent (100%) of all issued and outstanding capital stock of each Borrower.


F. Lender, as a condition to making the Loan, has requested that Borrower and BCC enter into this Agreement to indemnify Lender against liabilities arising from Hazardous Materials (as hereinafter defined) used or located on, or affecting the Project or any part thereof, and that Borrower and BCC acknowledge and agree that their execution and delivery of this Agreement and their performance of the covenants contained herein are material inducements for Lender's agreement to make the Loan.


AGREEMENTS


NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and BCC hereby represent, warrant, covenant and agree as follows:


1. No Hazardous Materials on Project. Borrower and BCC represent and warrant to the best of their knowledge, and covenant that there are no, nor will there be, for as long as any indebtedness or obligations remain outstanding under the Loan, any Hazardous Materials generated, released, stored, buried or deposited over, beneath, in or upon the Project or any part thereof or on or beneath the surface of adjacent property, except as such Hazardous Materials may be generated, used, stored or transported in connection with the permitted uses of the Project or any part thereof and then only to the extent permitted by law after obtaining all necessary permits and licenses therefor. "Hazardous Materials" shall mean and include any pollutants, flammables, explosives, petroleum (including crude oil) or any fraction thereof, radioactive materials, hazardous wastes, dangerous or toxic substances or related materials, including substances defined as or included in the definition of toxic or hazardous substances, wastes or materials under any federal, state or local laws, ordinances, regulations or guidances which relate 3 to pollution, the environment or the protection of public health and safety, or limiting, prohibiting or otherwise regulating the presence, sale, recycling, generation, manufacture, use, transportation, disposal, release, storage, treatment of, or response or exposure to, toxic or hazardous substances, wastes or materials. Such laws, ordinances and regulations, now or hereafter in effect, and as the same may be amended from time to time, are hereinafter collectively referred to as the "Hazardous Materials Laws."


2. Compliance with Laws. For as long as any indebtedness or obligations remain outstanding under the Loan Documents, Borrower and BCC shall, and shall cause their respective employees, agents, tenants, contractors and subcontractors and any other persons from time to time present on or occupying the Project or any part thereof to, keep and maintain the Project in compliance with, and not cause or knowingly permit the Project or any part thereof to be in violation of, any applicable Hazardous Materials Laws. None of Borrower, BCC or any of their respective employees, agents, tenants, contractors or subcontractors or any other persons occupying or present on the Project or any part thereof shall generate, use, store, manufacture or dispose of on, under or about any part of the Project or transport to or from the Project or any part thereof any Hazardous Materials, except such Hazardous Materials as may be generated, used, stored or transported in connection with the permitted uses of the Project or any part thereof and then only to the extent permitted by law after obtaining all necessary permits and licenses therefor.


3. Hazardous Materials Claims. Borrower and BCC shall immediately advise Lender in writing of: (a) any notices received by Borrower or BCC or their Affiliates (as defined in the Loan Agreement) (whether such notices are from the Environmental Protection Agency, or any other federal, state or local governmental agency or regional office thereof) of the violation or potential violation of any applicable Hazardous Materials Laws occurring on, under or about the Project or any part thereof; (b) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Borrower, BCC or the Project or any part thereof pursuant to any Hazardous Materials Laws; (c) all claims made or threatened by any third party against Borrower, BCC or the Project or any part thereof relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (a), (b) and (c) above are hereinafter referred to as "Hazardous Materials Claims"); and (d) the discovery by Borrower or BCC or their Affiliates of any occurrence or condition on the Project or any part thereof or any 4 real property adjoining or in the vicinity of the Project or any part thereof that could cause the Project or any part thereof or any part thereof to be subject to any Hazardous Materials Claims. Lender shall have the right but not the obligation to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and Borrower and BCC shall pay to Lender, upon demand, all attorneys' and consultants' fees incurred by Lender in connection therewith.


4. Other Hazardous Materials Laws. Borrower and BCC hereby represent, warrant and certify to the best of their knowledge, based on due inquiry, that (a) there ...