-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GHSXnaCmuwklKdKmNDC9HJ8LuVVuK7EQvRsXqjEanjXqNquH1g+5R66XeQGxtqvT M/YyriF5SnHi724kYRMyWA== 0000950116-96-000413.txt : 19960517 0000950116-96-000413.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950116-96-000413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS HEALTH VENTURES INC /PA CENTRAL INDEX KEY: 0000874265 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 061132947 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11666 FILM NUMBER: 96567726 BUSINESS ADDRESS: STREET 1: 148 W STATE ST STE 100 CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 148 W STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File Number: 1-11666 GENESIS HEALTH VENTURES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 06-1132947 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 148 West State Street Kennett Square, Pennsylvania 19348 (Address, including zip code, of principal executive offices) (610) 444-6350 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [x] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of May 8, 1996: 24,509,545 TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION........................................ 1 Item 1. Financial Statements.................................... 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 6 PART II. OTHER INFORMATION........................................... 11 Item 1. Legal Proceedings....................................... 11 Item 2. Changes in Securities................................... 11 Item 3. Defaults Upon Senior Securities......................... 11 Item 4. Submission of Matters to a Vote of Security Holders..... 11 Item 5. Other Information....................................... 11 Item 6. Exhibits and Reports on Form 8-K........................ 11 SIGNATURES............................................................ 12 PART I. FINANCIAL INFORMATION Item 1. Financial Statements GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, September 30, 1996 1995 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 7,798 $ 10,387 Accounts receivable, net of allowance for doubtful accounts of $7,557 at March 31, 1996 and $6,179 at September 30, 1995 120,874 101,124 Cost report receivables 31,936 26,271 Inventory 11,828 9,601 Other current assets 33,856 43,674 --------- --------- Total current assets 206,292 191,057 --------- --------- Property, plant and equipment 360,604 294,769 Accumulated depreciation (56,594) (51,108) --------- --------- 304,010 243,661 Goodwill and other intangibles, net 154,998 114,947 Other assets 68,776 50,724 --------- --------- TOTAL ASSETS $ 734,076 $ 600,389 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 58,958 $ 52,522 Current installments of long-term debt 2,438 2,539 Income taxes payable 411 1,882 --------- --------- Total current liabilities 61,807 56,943 --------- --------- Long-term debt 392,210 308,052 Deferred income taxes 5,783 8,698 Deferred gain and other liabilities 4,671 5,149 Shareholders' Equity: Common stock, par value $.02, authorized 60,000,000 shares, issued and outstanding, 24,494,572 and 24,448,971 at March 31, 1996; 22,081,267 and 22,035,666 at September 30, 1995 331 294 Additional paid-in capital 190,280 155,927 Retained earnings 79,237 65,569 -------- -------- 269,848 221,790 Less treasury stock, at cost ( 243) (243) -------- -------- Total shareholders' equity 269,605 221,547 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $734,076 $600,389 ======== ========
See accompanying notes to condensed consolidated financial statements. -1- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) ----------- Three Months Ended March 31, --------------------- 1996 1995 ---- ---- Net revenues: Basic healthcare services $ 83,066 $ 69,058 Specialty medical services 61,811 41,469 Management services and other 9,862 6,426 ----------- ----------- Total net revenues 154,739 116,953 Operating expenses: Salaries, wages and benefits 77,283 57,546 Other operating expenses 41,798 33,201 General corporate expense 6,262 4,142 Depreciation and amortization 6,087 4,652 Lease expense 4,068 3,408 Interest expense, net 6,939 4,816 ----------- ----------- Earnings before income taxes 12,302 9,188 Income taxes 4,492 3,375 ----------- ----------- Net income $ 7,810 $ 5,813 =========== =========== Per common share data: Primary Net income $ 0.31 $ 0.26 Weighted average shares of Common Stock and equivalents 25,306,685 22,674,336 Fully diluted Net income $ 0.30 $ 0.24 Weighted average shares of Common Stock and equivalents 28,797,732 28,411,333 See accompanying notes to condensed consolidated financial statements. -2- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) ----------- Six Months Ended March 31, ---------------------- 1996 1995 ---- ---- Net revenues: Basic healthcare services $ 155,260 $ 136,372 Specialty medical services 115,001 80,145 Management services and other 17,256 11,989 ----------- ----------- Total net revenues 287,517 228,506 Operating expenses: Salaries, wages and benefits 142,325 113,603 Other operating expenses 79,394 64,800 General corporate expense 11,101 8,281 Debenture conversion expense 1,090 --- Depreciation and amortization 11,235 8,984 Lease expense 7,861 6,730 Interest expense, net 12,979 9,393 ----------- ----------- Earnings before income taxes 21,532 16,715 Income taxes 7,864 6,092 ----------- ----------- Net income $ 13,668 $ 10,623 =========== =========== Per common share data: Primary Earnings excluding debenture conversion expense $ 0.58 $ 0.47 Debenture conversion expense (0.03) Net income 0.55 0.47 Weighted average shares of Common Stock and equivalents 24,730,819 22,618,641 Fully diluted Earnings excluding debenture conversion expense $ 0.55 $ 0.44 Debenture conversion expense (0.02) Net income 0.53 0.44 Weighted average shares of Common Stock and equivalents 28,816,719 28,369,497 See accompanying notes to condensed consolidated financial statements. -3- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) ----------- Six Months Ended March 31, --------------------- 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 13,668 $ 10,623 Adjustments to reconcile net income to net cash provided by operating activities: Charges (credits) included in operations not requiring funds: Provision for deferred taxes 1,966 1,523 Depreciation and amortization 11,235 8,984 Amortization of deferred gain (230) (230) Debenture conversion expense 1,090 --- Changes in assets and liabilities excluding effects of acquisitions: Increase in accounts receivable (7,519) (8,843) Increase in cost report receivables (6,941) (4,992) Increase in inventory (1,548) (753) (Increase) decrease in other current assets (10,932) (5,734) Increase (decrease) in accounts payable and accrued expenses 5,355 4,784 Increase in income taxes payable 1,508 636 --------- -------- Total adjustments (6,016) (4,625) --------- -------- Net cash provided by operating activities 7,652 5,998 Cash flows from investing activities: Capital expenditures (12,776) (9,723) Cash paid net--acquisitions (93,316) (934) Deferred and other long-term asset additions, net (11,593) (5,225) Increase in trustee-held funds (60) (168) --------- -------- Net cash used in investing activities (117,745) (16,050) --------- -------- Cash flows from financing activities: Net borrowings (repayments) under bank credit facility 107,200 9,800 Repayment of long-term debt (322) (382) Debenture conversion expense (1,090) --- Proceeds from exercise of common stock options 1,716 681 --------- -------- Net cash provided by financing activities 107,504 10,099 --------- -------- Net increase (decrease) in cash and cash equivalents (2,589) 47 --------- -------- Cash and cash equivalents: Beginning of the period 10,387 3,817 --------- -------- End of the period $ 7,798 $ 3,864 ========= ======== Supplemental disclosure of cash flow information: Interest paid $ 11,876 $ 9,177 --------- -------- Income taxes paid $ 12,005 $ 5,072 ========= ======== See accompanying notes to condensed consolidated financial statements. -4- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. General The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report for the fiscal year ended September 30, 1995. The information furnished is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results expected for the full year. 2. Earnings Per Share Primary and fully-diluted earnings per share are based on the weighted average number of common shares outstanding and the dilutive effect of stock options, convertible debentures and other common stock equivalents. 3. McKerley Acquisition Pro Forma Financial Information On November 30, 1995, the Company acquired all of the issued and outstanding stock and partnership interests of McKerley Health Care Centers, Inc., McKerley Health Care Center - Concord, Inc., McKerley Health Facilities and McKerley Health Care Center - Concord, L.P. (collectively, the "McKerley Entities"). The Company acquired the outstanding stock and partnership interests of the McKerley Entities for approximately $68.7 million, including assumed debt and after giving effect to the funds placed in escrow by the principals as described below. An additional $6.0 million of purchase price is payable if certain financial objectives are achieved through October 1997. The transaction was financed with borrowings under the Company's bank credit facility. Pursuant to certain agreements executed on November 30, 1995, the Company directly or through one or more subsidiaries, agreed to provide certain services to the principals during the period ending November 30, 1998, and the principals agreed to make certain lease payments on behalf of the Company with respect to certain lease obligations of the McKerley Entities. As security for the principals' or their affiliates' obligation to make the required payments as they become due, the principals placed approximately $6.5 million in an account with a third party escrow agent. The following unaudited pro forma statement of operations information gives effect to the McKerley acquisition described above as though it had occurred at the beginning of the periods presented, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense, increased interest expense on debt related to the acquisition and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the acquisition occurred at the beginning of the periods presented. (In thousands, except per share data) Six Months Ended March 31, March 31, 1996 1995 --------- --------- Pro Forma Statement of Operations Information: Total net revenues $ 297,393 $ 256,576 Net income 13,950 10,918 Primary earnings per share 0.56 0.48 Fully diluted earnings per share $ 0.54 $ 0.45 See accompanying notes to condensed consolidated financial statements. -5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Since the Company began operations in July 1985, it has focused its efforts on providing an expanding array of specialty medical services to elderly customers. The delivery of these services was originally concentrated in the eldercare centers owned and leased by the Company, but now also includes managed eldercare centers, independent healthcare facilities, outpatient clinics and home health care. The Company generates revenues from three sources: basic healthcare services, specialty medical services and management services. The Company includes in basic healthcare services revenues all room and board charges from its elderly customers at its owned and leased eldercare centers. Specialty medical services include all revenues from providing rehabilitation therapies, institutional pharmacy and medical supply services, subacute care programs, home health care, physician services, and other specialized services. Management services include fees earned for management of eldercare centers and development of life care communities. Genesis delivers its services through three divisions. The largest, in terms of revenues, is Genesis Health Centers, which at March 31, 1996 included 68 owned and leased eldercare centers. The second, Genesis Health Services, provides specialty medical services to all centers owned, leased or managed by Genesis as well as to over 500 independent healthcare providers. The third, Genesis Management Resources, Inc., manages 39 eldercare centers. Certain Transactions In May 1996, the Company agreed to acquire the outstanding stock of National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation, EIDOS, Inc. and Versalink, Inc., and all of the outstanding partnership interests of Delaware Avenue Partnership (collectively, "National Health") for total consideration of approximately $133,600,000, including assumed debt, subject to adjustment. The transaction is expected to close in the second calendar quarter of 1996 and is subject to normal regulatory approvals and certain third party consents. The consideration will be comprised of approximately $79,400,000 in cash and the assumption of approximately $54,200,000 of indebtedness. Genesis intends to repay all but approximately $18,000,000 of the assumed indebtedness concurrently with the closing of the transaction. The cash portion of the purchase price and repayment of indebtedness will be financed by borrowings under the Company's bank credit facilities. National Health owns six eldercare centers in Florida with 863 beds, leases four eldercare centers in Florida with 368 beds, owns six eldercare centers in Virginia with 1,168 beds, and leases one eldercare center in Connecticut with 120 beds. National Health also provides enteral nutrition and rehabilitation therapy services to the eldercare centers which it owns and leases. In addition, National Health manages four eldercare centers in Colorado with 283 beds pursuant to an agreement which expires in October 1997. Certain businesses, including home health care, infusion therapy and assisted living facilities in New York State, -6- which are currently owned by National Health, will not be acquired by Genesis as part of the transaction. In April 1996, the Company agreed to acquire the outstanding stock of NeighborCare Pharmacies, Inc. and certain related entities (collectively, "NeighborCare"), a privately held institutional pharmacy, infusion therapy and retail pharmacy business based in Baltimore, Maryland for approximately $57,250,000, including assumed debt. The transaction is expected to close in the second calendar quarter of 1996 and is subject to normal regulatory approvals. The consideration will be comprised of $29,250,000 in cash, the issuance of $10,000,000 in Common Stock and the assumption of NeighborCare debt of approximately $18,000,000. Genesis intends to repay substantially all of the assumed bank indebtedness concurrently with the closing of the transaction. The cash portion of the purchase price and repayment of debt will be financed by borrowings under the Company's bank credit facilities. The number of shares issued will be based on the average closing price of the Common Stock for a period prior to the closing of the transaction. In March 1996, the Company acquired for total consideration of approximately $31,900,000, including assumed debt, the remaining approximately 71% joint venture interests of four eldercare centers in Maryland and the remaining 50% joint venture interest of an eldercare center in Florida (the "Partnership Interest Purchase") which had been acquired as part of the acquisition of substantially all of the assets of Meridian, Inc., Meridian HealthCare, Inc. and their affiliated entities (the "Meridian Transaction"). In March 1996, the Company entered into a strategic alliance with Doctors Community Hospital, a 250-bed acute care hospital in Maryland, pursuant to which the Company sold to an affiliate of the hospital a 51% interest in Magnolia Gardens Center, a 104-bed eldercare center for approximately $2,900,000 (the "Magnolia Gardens Transaction"). As part of this transaction, the Company entered into a long-term agreement to manage the center. In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana for approximately $22,250,000 (the "Indiana Transaction"). The properties were acquired as part of the Meridian Transaction. In January 1996, the Company acquired the speech therapy, occupational therapy and physical therapy services businesses of Medical and Rehab Support Services, Inc., Professional Rehabilitation Network, Inc. and Healthcare Rehab Services, Inc. (collectively, "Therapy Companies") for approximately $9,300,000. The Therapy Companies provide these services in the Company's Baltimore, Maryland/ Washington, D.C. market. The acquisition was financed with borrowings under the Company's bank credit facilities. Prior to January 1, 1996, the Company provided management, development and marketing services to life care communities operated by Adult Community Total Services, Inc. ("ACTS"), a Pennsylvania non-profit corporation, pursuant to a management agreement which was to expire in April 1998. Effective January 1, 1996, Genesis restructured its relationship with ACTS. Under the revised arrangement, Genesis was paid a $2,000,000 restructuring fee and will no longer manage the ACTS life care communities. Genesis will continue to provide development services for a fee in an amount equal to five percent of the total cost of developing and completing facilities developed by ACTS. The development portion of the contract has been extended to December 2002 and Genesis is guaranteed a minimum annual development fee of approximately $1,500,000 per year. Genesis also continues to provide certain ancillary services to the ACTS communities. -7- In November 1995, the Company acquired McKerley Health Care Centers, Inc. and certain related entities (collectively, "McKerley") for total consideration of approximately $68,700,000. The transaction also provides for up to an additional $6,000,000 of contingent consideration payable upon the achievement of certain financial objectives through October 1997. McKerley owns or leases 15 eldercare centers in New Hampshire and Vermont with a total of 1,535 beds and operates a home healthcare company. The acquisition was financed with borrowings under the Company's bank credit facilities. In September 1995, the Company sold, and simultaneously entered into a three-year contract to manage, five eldercare centers totaling 606 beds to the Age Institute of Massachusetts for $19,570,000 (the "AIMASS Transaction"). Results of Operations Three months ended March 31, 1996 compared to three months ended March 31, 1995. The Company's total net revenues for the quarter ended March 31, 1996 were $154,739,000 compared to $116,953,000 for the quarter ended March 31, 1995, an increase of $37,786,000, or 32%. Basic healthcare services increased $14,008,000, or 20% due principally to the acquisition of the McKerley Entities, the Partnership Interest Purchase, a shift in payor mix from Medicaid to Medicare and rate increases; the increase was partially offset by the Indiana Transaction. Specialty medical services increased $20,342,000, or 49%, of which approximately $10,728,000 is due to the acquisitions of specialty medical business including the Therapy Companies, and approximately $1,096,000 is due to the commencement of pharmacy, medical supply and rehabilitation therapy business in the Florida market with the remainder due to volume growth in the institutional pharmacy, medical supply and contract therapy divisions. Specialty medical service revenue per patient day in the health centers division increased 15% to $29.04 in the quarter ended March 31, 1996 as compared to $25.23 for the same quarter in the prior year due primarily to treatment of higher acuity patients. Management services and other income increased $3,436,000, or 53%, including a net gain of approximately $2,700,000 recognized in connection with the sale of four eldercare centers and a pharmacy in Indiana, with the remainder primarily due to the sale of a majority interest in one eldercare center in Maryland and new management contracts with six eldercare centers (primarily as a result of the AIMASS Transaction) and an eldercare center and hospital-based subacute unit in Maryland (as a result of the Magnolia Gardens Transaction). The Company's operating expenses before depreciation, amortization and lease expense were $125,343,000 in the quarter ended March 31, 1996 compared to $94,889,000 in the comparable prior period, an increase of $30,454,000, or 32%, which was primarily due to the acquisition of the McKerley Entities, an increase in cost of goods sold related to increased sales of specialty medical services and inflationary wage and benefit increases. -8- Interest expense increased $2,123,000 or 44%. This increase reflects increased debt levels used to fund acquisitions and operations and a higher average prevailing interest rate due to the issuance of $120,000,000 of 9.75% Senior Subordinated Debentures due 2005. Six months ended March 31, 1996 compared to six months ended March 31, 1995. The Company's total net revenues for the six months ended March 31, 1996 were $287,517,000 compared to $228,506,000 for the six months ended March 31, 1995, an increase of $59,011,000 or 26%. Basic healthcare services increased $18,888,000 or 14%, which is primarily due to the acquisition of the McKerley Entities, the Partnership Interest Purchase, a shift in payor mix from Medicaid to Medicare and rate increases; the increase was partially offset by the AIMASS Transaction and the Indiana Transaction. Specialty medical service revenue increased $34,856,000 or 43%, of which approximately $14,520,000 is due to acquisitions of special medical businesses, including the Therapy Companies, approximately $2,199,000 is due to the commencement of pharmacy, medical supply and rehabilitation therapy business in Florida, with the remainder due to other volume growth in the institutional pharmacy, medical supply and contract therapy divisions. Specialty medical service revenue per patient day in the health centers division increased 23% to $28.51 in the six months ended March 31, 1996 as compared to $23.18 for the same period in the prior year due primarily to treatment of higher acuity patients. Management services and other income increased $5,267,000 or 44% including a net gain of approximately $2,700,000 recognized in connection with the sale of four eldercare centers and a pharmacy in Indiana, the sale of a majority interest in one eldercare center in Maryland, and new management contracts with six eldercare centers in Massachusetts (primarily as a result of the AIMASS Transaction) and an eldercare center and hospital-based subacute unit in Maryland (as a result of the Magnolia Gardens Transactions). The Company's operating expenses before debenture conversion expense, depreciation, amortization and lease expense were $232,820,000 compared to $186,684,000 in the comparable prior period, an increase of $46,136,000 or 25%, which was primarily due to the acquisition of the McKerley Entities, an increase in cost of goods sold related to increased specialty medical service revenues, and inflationary wage and benefit increases. In the quarter ended December 31, 1995 the Company converted approximately $33,500,000 of its 6% Convertible Senior Subordinated Debentures (the "Debentures") due 2003. In connection with the early conversion of the Debentures, the Company paid approximately $1,100,000 representing the prepayment of interest to converting debenture holders. The non-recurring cash payment is presented as debenture conversion expense in the results of operations for the six months ended March 31, 1996. Interest expense increased $3,586,000 or 38%. This increase reflects increased debt levels used to fund acquisitions and operations and a higher average prevailing interest rate due to the issuance of $120,000,000 of 9.75% Senior Subordinated Debentures due 2005. Liquidity and Capital Resources Working capital increased to $144, 485 ,000 at March 31, 1996 from $134,114,000 at September 30, 1995. Accounts receivable increased to $120,874,000 at March 31, 1996 from $101,124,000 at September 30, 1995. Approximately $4,800,000 of this increase relates to accounts receivables purchased as part of the acquisition of the McKerley Entities, approximately $3,000,000 relates to accounts receivables purchased as part of the acquisition of three rehabilitation therapy companies in January 1996, approximately $3,800,000 relates to the acquisition of the remaining interest of four eldercare centers in Maryland and one eldercare center in Florida, and the remaining $8,150,000 relates primarily to the continuing shift in business mix to specialty medical services including the specialty medical businesses acquired during fiscal 1995. Days of revenue in accounts receivable decreased from 72 to 71 during this period. -9- In May 1996, the Company filed a registration statement with the Securities and Exhange Commission to sell 6,000,000 shares of Common Stock. The Company intends to use the net proceeds from the offering to repay amounts outstanding under its bank credit facilities. In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana for approximately $22,250,000. The Company used the net proceeds from the sale to repay a portion of its revolving credit facility. In November 1995, the Company received in cash approximately $18,000,000 in connection with the September 1995 sale of five facilities in Massachusetts. The Company used the proceeds from the sale to repay a portion of the revolving credit facility. The Company's cash flow from operations for the six months ended March 31, 1996 was $7,652,000 compared to $5,998,000 for the six months ended March 31, 1996. In the quarter ended December 31, 1995, the Company converted approximately $33,500,000 of Debentures. In connection with the early conversion of the Debentures, the Company paid approximately $1,100,000 representing the prepayment of interest to converting debenture holders. The conversion of a portion of the outstanding Debentures improves the Company's leverage and provides the Company with the ability to borrow under its revolving credit facilities at lower rates. In September 1995, the Company amended and restructured its credit facility to provide for a $200,000,000 revolving credit facility and a $100,000,000 acquisition credit facility. Both credit facilities bear interest at a floating rate equal, at the Company's option, to prime rate or LIBOR plus 1.25%. Amounts outstanding under the credit facilities in September 1998 convert to a term loan that provides for equal annual amortization payable quarterly. At March 31, 1996, $73,700,000 was outstanding under the revolving credit facility and $100,000,000 was outstanding under the acquisition credit facility. The Company used the borrowings under the acquisition credit facility to fund the acquisitions of the McKerley Entities, the Partnership Interest Purchase, and the Therapy Companies. The credit facilities are secured by the stock of the Company's subsidiaries and first priority liens on the Company's accounts receivable, inventory and all other personal property. In June 1995, the Company completed an offering of $120,000,000 of 9 3/4% Senior Subordinated Notes due 2005 resulting in net proceeds of approximately $115,800,000. The Company used $100,000,000 of the net proceeds from the offering to repay in full the term loan component of the credit facility and the remaining net proceeds to repay a part of the revolving portion of the credit facility. The Company believes that its liquidity needs can be met by expected operating cash flow and availability of borrowings under its bank credit facilities. At May 10, 1996, $169,900,000 was outstanding under the credit facility, and $13,200,000 was outstanding under letters of credit issued under the credit facilities. Seasonality The Company's earnings generally fluctuate from quarter to quarter. This seasonality is related to a combination of factors which include the timing of Medicaid rate increases, seasonal census cycles, and the number of calendar days in a given quarter. Impact of Inflation The healthcare industry is labor intensive. Wages and other labor costs are especially sensitive to inflation and resulting marketplace labor shortages. To date, the Company has offset its increased operating costs by increasing charges for its services and expanding its services. Genesis has also implemented cost control measures to limit increases in operating costs and expenses but cannot predict its ability to control such operating cost increases in the future. -10- PART II: OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. Effective March 29, 1996, the Company declared a partial stock split of its Common Stock in the form of a three-for-two stock dividend. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. On February 28, 1996, the Company held its Annual Meeting of Shareholders (the "Annual Meeting"). Proxies were solicited for the Annual Meeting pursuant to Regulation 14 of the Securities Exchange Act of 1934. At the Annual Meeting the following matters were voted on: (i) Allen R. Freedman, Richard R. Howard and Samuel H. Howard were all elected to serve on the Board of Directors of the Company for three-year terms and until their respective successors are duly elected and qualified, each receiving 11,993,370 votes for their election and 236,400 votes against their election (with 103,400 broker non-votes and abstentions); and (ii) an amendment to the Company's 1985 Amended and Restated Employee Stock Option Plan increasing the number of shares which may be issued under the plan to 2,500,000 shares was approved by a vote of 7,605,568 votes for the amendment and 4,540,442 votes against the amendment (with 187,247 broker non-votes and abstentions). Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Number Description 2.1 Agreement to Purchase Partnership Interests, made as of March 1, 1996, by and among Meridian Health, Inc., Fairmont Associates, Inc. and MHC Holding Company. 2.2 Purchase and Sale Agreement, dated January 16, 1996, by and among Genesis Health Ventures of Indiana, Inc. and Hallmark Healthcare Limited Partnership, as seller, and Hunter Acquisitions, L.L.C., as purchaser. 3.1 Articles of Incorporation. 11 Earnings Per Share Calculation. 27 Financial Data Schedule. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated April 21, 1996, reporting an agreement by the Company to acquire the outstanding stock of NeighborCare for consideration of approximately $57,250,000, including assumed debt. The Company filed a Current Report on Form 8-K dated May 3, 1996 reporting the agreement by the company to acquire National Health Care Affiliates, Inc. and related entities which included the following financial statements: Audited Combined Financial Statements as of and for the year ended December 31, 1995. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereto duly authorized. GENESIS HEALTH VENTURES, INC. Date: May 15, 1996 /s/ George V. Hager, Jr. ------------------------------------------------- George V. Hager, Jr. Senior Vice President and Chief Financial Officer -12- EX-2.1 2 EXHIBIT 2.1 AGREEMENT TO PURCHASE PARTNERSHIP INTERESTS AGREEMENT, made as of this 1st day of March, 1996, by and among Meridian Health, Inc., a Pennsylvania corporation ("Buyer"), Fairmount Associates, Inc., a Maryland corporation ("Fairmount") and MHC Holding Company, a Maryland corporation ("MHC") (Fairmount and MHC are hereinafter sometimes collectively referred to as "Sellers"). BACKGROUND Fairmount and MHC own an aggregate of 50% of the issued and outstanding limited partnership interests in Polk Meridian Limited Partnership, a Maryland limited partnership ("POLK"). Fairmount owns a 1% general partnership interest and Fairmount and MHC together own an aggregate 69.7071% limited partnership interest in Meridian/Constellation Limited Partnership, a Maryland limited partnership ("MCLP"). MCLP owns a 99% limited partnership interest in each of the following Maryland limited partnerships: Meridian Valley View Limited Partnership, Meridian Edgewood Limited Partnership, Meridian Perring Limited Partnership and Meridian Valley Limited Partnership. All of the partnership interests owned by Fairmount and MHC in Polk are hereinafter sometimes referred to as the "Polk Interests." All of the partnership interests owned by Fairmount and MHC in MCLP are hereinafter sometime referred to as the "MCLP Interests." The Polk Interests and MCLP Interests are hereinafter sometimes referred to as the "Seller Partnership Interests." Buyer owns 49% of the issued and outstanding limited partnership interests of Polk and is an affiliate of Meridian Healthcare, Inc., a Pennsylvania corporation and a general and limited partner of MCLP that owns all of the general and limited partnership interests of MCLP not owned by Sellers. Sellers desire to sell the Seller Partnership Interests to Buyer and Buyer desires to purchase the Seller Partnership Interests on the terms stated in this Agreement. NOW, THEREFORE intending to be legally bound, and in consideration of the mutual agreements and covenants contained herein, the parties agree as follows: 1. Certain Definitions. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (1) the terms defined in this Section have the meanings assigned to them in this Section, wherever they appear in this Agreement (2) all accounting terms not otherwise defined herein have the meanings assigned under generally accepted accounting principles consistently applied and as in effect on the date hereof ("GAAP") and (3) all words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. 1.1 "Affiliate" means, with respect to a specified Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the specified Person. 1.2 "Code" means the Internal Revenue Code of 1986, as amended. 1.3 "Consent" means any consent, approval, order or authorization of, or any declaration, filing or registration with, or any application, notice or report to, or any waiver by, or any other action (whether similar or dissimilar to any of the foregoing) of, by or with, any Person, which is necessary in order to take a specified action or actions in a specified manner and/or to achieve a specified result or to avoid the occurrence of a default. 1.4 "Contract" means any written or oral contract, agreement, instrument, order, commitment or binding arrangement, express or implied, of any nature whatsoever. 1.5 "Documents" means and includes any document, agreement, instrument, certificate, notice, Consent, affidavit, correspondence (by letter, telegram, telex or otherwise), written statement, schedule or exhibit whatsoever. 1.6 "Encumbrance" means any lien, security interest, pledge, mortgage, easement, leasehold, assessment, covenant, restriction, or any other encumbrance, claim, burden or charge of any kind or nature whatsoever. 1.7 "Hazardous Substances" means any dangerous, toxic or hazardous pollutant, contaminant, waste, chemical, material or substance as defined in or governed by any federal, state or local Law, or other requirement of any governmental agency relating to such substances or otherwise relating to human health or safety or the environment, and also including, but not limited to, urea-formaldehyde, polychlorinated byphenyls, asbestos or asbestos-containing materials, nuclear or radioactive fuel or waste, radon, explosives, known and suspected carcinogens, petroleum, petroleum products, biomedical, biohazardous, infectious or other medical waste, or any other waste, material, substance, pollutant or contaminant that would subject the Sellers, the Buyer or the Partnerships to any claims, causes of action, costs damages, penalties, expenses, demands or liabilities, however defined, under any applicable Law. 1.8 "Indebtedness" means all items which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date Indebtedness is to be determined. 1.9 "Judgment" means any order, writ, injunction, fine, citation, award, decree or any other judgment of any kind whatsoever of any foreign, federal, state or local court, governmental body, administrative agency, regulatory authority or arbitration tribunal. - 2 - 1.10 "Law" means any provision of any law, statute, ordinance, order, constitution, charter, treaty, rule or regulation enacted, approved or adopted by any governmental, administrative or regulatory authority. 1.11 "Liabilities" means any direct or indirect Indebtedness, liability, claim, loss, damage, Judgment, deficiency or obligation, known or unknown, fixed or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise whether or not of a kind required by GAAP to be set forth on financial statements. 1.12 "Losses" means any and all Liabilities, Proceedings, causes of action, costs and expenses including, without limitation, costs of investigation, actual interest costs, penalties and attorneys' fees. 1.13 "Obligation" means any debt, Liability or obligation of any nature whatsoever, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or otherwise. 1.14 "Person" means any individual, sole proprietorship, joint venture, partnership, corporation, limited liability company or partnership, association, joint-stock company, unincorporated organization, cooperative, trust, estate, government entity or authority (including any branch, subdivision or agency thereof), administrative or regulatory authority, or any other entity of any kind or nature whatsoever. 1.15 "Proceeding" means any claim, suit, action, equitable action, litigation, investigation, arbitration, administrative hearing or any other judicial or administrative proceeding of any kind or nature whatsoever. 1.16 "Taxes" include (1) any foreign, federal, state or local income, earnings, profits, franchise, capital stock, sales, use, occupancy, property, transfer, excise, unemployment compensation tax or other tax of any kind or nature whatsoever, (2) any foreign, federal, state or local corporate or other organizational fee, qualification fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or other fee or charge of any kind or nature whatsoever, or (3) any deficiency, interest or penalty imposed with respect to any of the foregoing. 1.17 "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 2. Sale and Purchase of Seller Partnership Interests. On the Closing Date (as defined in Section 4), and subject to the other provisions of this Agreement, Sellers shall sell, assign and transfer to Buyer, and Buyer shall - 3 - purchase from Sellers, all of Sellers' right, title and interest in and to the Seller Partnership Interests. 3. Purchase Price for Partnership Interests. 3.1 In consideration of the sale, transfer, conveyance and delivery to Buyer of the Seller Partnership Interests, and in reliance upon the representations and warranties made herein by Sellers to Buyer, Buyer shall, in full payment thereof, pay to Sellers the following consideration (the "Purchase Price"): (1) Cash Payment On Closing Date. On the Closing Date, Buyer shall pay to Sellers by wire transfer of immediately available funds $8,940,000 plus an amount of interest on such amount calculated at the rate of 6% per annum from March 1, 1996 to the Closing Date. (2) Contingent Payment. Buyer shall pay to Sellers an amount (the "Contingent Payment") equal to the sum of (i) 50% multiplied by the amount by which the balance in all third party reimbursement accounts of Polk as of September 30, 1995 (as finally determined after considering changes to such accounts (if any) from September 30, 1995 to September 30, 1996) exceeds $1,063,912 and (ii) 70.7071% multiplied by the amount by which the balance in all third party reimbursement accounts of MCLP as of September 30, 1995 (as finally determined after considering changes to such accounts (if any) from September 30, 1995 to September 30, 1996) exceeds the negative amount of ($763,694). Notwithstanding anything to the contrary contained herein the amount, if any, payable pursuant to this Section 3.1(2) shall be reduced by (i) 50% of the amount, if any, by which the balance in all third party reimbursement accounts of Polk as of September 30, 1995 (as finally determined after considering changes to such accounts (if any) from September 30, 1995 to September 30, 1996) is less than $1,063,912 and (ii) 70.7071% of the amount, if any, by which the balance in all third party reimbursement accounts of MCLP as of September 30, 1995 (as finally determined after considering changes to such accounts (if any) from September 30, 1995 to September 30, 1996) is less than the negative amount of ($763,694). The Contingent Payment, if any, shall be paid by wire transfer of immediately available funds on November 15, 1996. (3) Partnership Distributions. Buyer shall (i) cause Polk to distribute to Sellers 50% of the book earnings before taxes, depreciation and amortization of Polk from October 1, 1995 through February 29, 1996 and (ii) cause MCLP to distribute to Sellers 70.7071% of the book earnings before taxes, depreciation and amortization of MCLP from October 1, 1996 to February 29, 1996 less a credit in the amount of $468,723.02 which was previously distributed to Sellers with respect to MCLP for such period. The amount payable pursuant to this Section shall be determined by Buyer in consultation with Sellers and, together with interest on such amount calculated at the rate of 6% per annum from March 1, 1996 until paid by Buyer, shall be paid to Sellers by wire transfer of immediately available funds within 60 days after the - 4 - Closing Date or, if Sellers dispute the amount determined by Buyers to be payable on such dates as such amount is finally determined by the Arbitrator (so hereinafter defined). 3.2 If Sellers dispute the amount determined by Buyer to be payable pursuant to Section 3.1(2) or Section 3.1(3) Buyer shall be notified in writing within 10 business days after Sellers' receipt of Buyer's determination of such amount and such notice shall specify in reasonable detail the nature of the dispute. During the 30-day period following the receipt of such notice by Buyer, the Sellers and Buyer shall attempt to resolve such dispute. If at the end of the 30-day period, the Sellers and Buyer shall have failed to reach a written agreement with respect to such dispute, the matter shall be referred to KPMG Peat Marwick LLP (the "Arbitrator"), which shall act as an arbitrator and shall issue its report as to the amount payable pursuant to Section 3.1(2) or 3.1(3) within sixty (60) days after such dispute is referred to the Arbitrator. Each of the parties hereto shall bear all costs and expenses incurred by it in connection with such arbitration, except that the fees and expenses of the Arbitrator hereunder shall be borne equally by the Sellers and Buyer; provided, however, (i) if the amounts determined payable by the Arbitrator is less than $50,000 more than the amount determined payable by the Buyer then such fees and expenses shall be paid by the Sellers; and (ii) if the amount determined payable by the Arbitrator is more than $50,000 more than the amount determined payable by the Buyer then such fees and expenses shall be paid by the Buyer. This provision for arbitration shall be specifically enforceable by the parties and the decision of the Arbitrator in accordance with the provisions hereof shall be final and binding and there shall be no right of appeal therefrom. 4. Closing. Consummation of the transactions contemplated by this Agreement with respect to the purchase and sale of the Seller Partnership Interests (the "Closing") shall take place on the "Closing Date." The term "Closing Date" shall mean any date on or prior to March 15, 1996 on which the parties mutually agree in writing to consummate the transactions contemplated in this Agreement. The Closing shall take place at the offices of Blank, Rome, Comisky & McCauley, 12 Four Penn Center, Philadelphia, PA 19103, commencing at 10:00 a.m., on the Closing Date, or at such other time or place as the parties may agree in writing. Notwithstanding anything to the contrary set forth herein, Buyer may elect to consummate the Closing of the Polk Interests on a date which is later than the date on which the purchase of the MCLP Interests is consummated but not later than March 29, 1996 (the "Election"). The Election shall be effective upon Buyer giving notice in writing to Sellers that it has made the Election. If the Election is in effect, then upon consummation of the Closing with respect to the MCLP Interests and satisfaction of all conditions precedent to the consummation of the Closing with respect to the Polk Interests, (i) Buyer shall deposit with Gallagher, Evelius & Jones ("Escrow Agent") $1,820,000, which amount represents the portion of the cash payable by Buyer to Sellers with respect to the Purchase Price pursuant to Section 3.1(1) which is allocable to the purchase of the Polk Interests and (ii) Buyer and Sellers shall -5- execute and deliver to the Escrow Agent the documents required to be delivered pursuant to Sections 8.3 and 9.2. Upon making such deposit with the Escrow Agent, Buyer shall be deemed to have satisfied in full its obligations pursuant to Section 3.1(1). The funds deposited with the Escrow Agent shall be held and distributed in accordance with the terms of the Escrow Agreement (as hereinafter defined). If the Election is in effect, the term "Closing" or "Closing Date" shall be deemed to refer to two separate closings or closing dates, a first closing on the closing date for the consummation of the acquisition of the MCLP Interests and a second closing on the closing date for the consummation of the acquisition of the Polk Interests (which shall occur on or before March 29, 1996). 5. Representations and Warranties. Knowing that Buyer relies thereon, Sellers represent, warrant and covenant to Buyer on the date hereof and on and as of the Closing Date as follows: 5.1 Due Organization and Authority of Fairmount. Fairmount is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Fairmount has the full power and authority to own, lease and operate its assets, Properties and business, to carry on its business as and where such business is now conducted and, to enter into and perform this Agreement and to consummate the transactions contemplated hereby upon the terms and conditions herein provided. Schedule 5.1 sets forth all names under which and addresses at which Fairmount has done business at any time since January 1, 1991. Schedule 5.1 sets forth the names of all shareholders of Fairmount (the "Shareholders"). Fairmount is not a party to or bound by any agreement relating to the sale or other disposition of any portion of the Seller Partnership Interests owed by it. 5.2 Due Organization and Authority of MHC. MHC is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. MHC has the full power and authority to own, lease and operate its assets, Properties and business, to carry on its business as and where such business is now conducted and, to enter into and perform this Agreement and to consummate the transactions contemplated hereby upon the terms and conditions herein provided. Schedule 5.2 sets forth all names under which and addresses at which MHC has done business at any time since January 1, 1991. MHC is not a party to or bound by any agreement relating to the sale or other disposition of any portion of the Seller Partnership Interests owed by it. 5.3 Title to Seller Partnership Interests. Sellers owns outright and have good and marketable title to the Seller Partnership Interests free and clear of all Encumbrances. Upon consummation of the transactions contemplated in this Agreement, Buyer will have acquired the Seller Partnership Interests free and clear of all Encumbrances. -6- 5.4 Partnership Interests. There are no outstanding subscriptions, rights, options, warrants, calls, commitments or agreements to which any Seller is a party or by which any Seller is bound or may be bound which relate to sale of any ownership interest in Polk or MCLP. 5.5 Authority to Execute and Perform Agreement. Sellers have the full legal right and power and all authority and approvals required to enter into, execute, deliver and perform this Agreement and their Obligations hereunder. The execution, delivery and performance of this Agreement (and all other agreements required to effect the transactions contemplated) and the consummation of the transactions contemplated herein have been duly authorized by all action required under Sellers' Certificates or Articles of Incorporation or Bylaws. This Agreement, and each other agreement to be executed by Sellers to effect the transactions, contemplated by this Agreement, is and will be the valid and legally binding obligation of Sellers enforceable in accordance with its terms, except as enforceability hereof may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights or contractual obligations generally. 5.6 No Breach. Except as set forth in Schedule 5.6, the consummation of the transactions herein contemplated including, without limitation, the execution, delivery and consummation of this Agreement and the documents required to effect the transactions herein contemplated, do not and will not (1) constitute a violation of or default under (either immediately or upon notice, lapse of time or both), conflict with or result in a breach of (a) the Certificate or Articles of Incorporation of any Seller, (b) the terms of any Contract to which any Seller is a party, (c) any Judgment, or (d) any Laws; or (2) result in the creation or imposition of any Encumbrance on the Seller Partnership Interests or give to any Person any interest or right in the Seller Partnership Interests. 5.7 Consents; Proceedings. Except as set forth in Schedule 5.7, no Consent is required in connection with the execution, delivery and performance by Sellers of this Agreement or the consummation by Sellers of the transactions contemplated hereby. There are no Proceedings existing, and Sellers have no knowledge of any such Proceedings pending or threatened against or affecting any of the Sellers which would prevent the consummation of the transactions contemplated herein. 5.8 No Broker. No broker, finder, agent or similar intermediary has acted for or on behalf of Sellers in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker's fee, finder's fee, or similar fee or -7- commission in connection therewith based on any agreement, arrangement or understanding with Sellers or any action taken by Sellers. 5.9 Full Disclosure. All exhibits, schedules, notices and affidavits delivered by or on behalf of Sellers in connection with this Agreement and the transactions contemplated hereby are true and complete; all such exhibits, schedules, notices and affidavits are authentic. The information furnished by or on behalf of Sellers to Buyer in connection with this Agreement and the transactions contemplated hereby do not contain any untrue statement of material fact and do not fail to state any material fact necessary to make the statements made, in the context in which they are made, not false or misleading. 5.10 Representations and Warranties on Closing Date. The representations and warranties contained in this Section 5 shall be true on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 6. Representations and Warranties of Buyer and Genesis. Knowing that Sellers rely thereon, Buyer represents, warrants and covenants to Sellers on the date hereof and on the Closing Date as follows: 6.1 Organization. Buyer is a corporation duly organized, validly existing and in6.1 good standing under the laws of Pennsylvania, the state of its incorporation. Buyer is qualified as a foreign corporation in good standing to transact business in each jurisdiction in which the nature of its business or location of its business, properties or employees requires such qualification, except where the failure to do so would not have any material adverse effect on Buyer's business, assets or financial condition and would not subject Buyer to any material penalty. Buyer has the full corporate power and authority to own its assets, conduct its business as and where such business is presently conducted, and, subject to the approval of its board of directors, enter into this Agreement. 6.2 Effect of Agreement. Buyer's execution, delivery and performance of this Agreement, and the consummation by Buyer of the transactions contemplated hereby, (a) upon the approval hereof by the board of directors of Buyer will have been duly authorized by all necessary corporate action of Buyer, (b) do not constitute a violation of or default under Buyer's Articles of Incorporation or bylaws or any contract or agreement to which Buyer is a party or by which Buyer is bound, (c) do not constitute a violation of any Law or Judgment, applicable to Buyer, and (d) do not require the Consent of any Person. This Agreement constitutes the valid and legally binding agreement of Buyer, enforceable against Buyer in accordance with its terms. -8- 6.3 Proceedings. There are no Proceedings existing, and Buyer has no knowledge of any such Proceedings pending or threatened, against or affecting Buyer, which would prevent the consummation of the transactions contemplated herein. 6.4 No Broker. No broker, finder, agent or similar intermediary has acted for or on behalf of Buyer in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker's fee, finder's fee, or similar fee or commission in connection therewith based on any agreement, arrangement or understanding with Buyer or any action taken by Buyer. 6.5 Full Disclosure. All exhibits, schedules, notices or affidavits delivered by or on behalf of Buyer in connection with this Agreement and the transactions contemplated hereby are true and complete; all such exhibits, schedules, notices or affidavits are authentic. The information furnished by or on behalf of Buyer to Sellers in connection with this Agreement and the transactions contemplated hereby do not contain any untrue statement of material fact and do not fail to state any material fact necessary to make the statements made, in the context in which they are made, not false or misleading. 6.6 Representations and Warranties on Closing Date. The representations and warranties contained in this Section 6 shall be true on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 7. Covenants and Agreements. The parties agree and covenant as follows 7.1 Continued Effectiveness of Representations and Warranties of Sellers. From the date hereof through the Closing Date, Sellers will conduct their affairs in such a manner so that the representations and warranties contained in Section 5 herein shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and Buyer shall promptly be given notice of any event, condition or circumstance known to Sellers and occurring from the date hereof through the Closing Date which would cause any of such representations and warranties to become untrue in any respect. 7.2 No Shopping. Sellers shall not, directly or indirectly, through any director, officer, employee, agent or otherwise, solicit, initiate or encourage submission of proposals or offers from any Person relating, directly or indirectly, to any acquisition of any of the Seller Partnership Interests or participate in any negotiation regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to or seek, directly or indirectly, to acquire any of the Seller Partnership Interests. Sellers shall promptly notify Buyer if any such proposal or offer, or any inquiry or contact with any Person with respect thereto, is made. -9- 7.3 Taxes and Tax Returns. Buyer and Sellers acknowledge and agree that the sale of Seller Partnership Interests, as set forth herein, will result in a termination of Polk and MCLP for federal income tax and certain state and local tax purposes. Buyer will cause to be filed all Tax Returns for all taxable periods which end on or prior to the Closing Date as a result of such termination. Prior to filing such Tax Returns, Buyer shall provide to Sellers an opportunity to review and comment upon such Tax Returns. The income and expenses of Polk and MCLP will be apportioned to the period up to and including the Effective Time (as hereinafter defined) and the period after the Effective Time by closing the books of Polk and MCLP as of the end of the Effective Time. Sellers and Buyer hereby agree that each party to this Agreement shall be liable for their respective allocable shares (as defined below) of any Taxes which may arise as a result of the transactions contemplated in this Agreement and which are either imposed upon Polk or MCLP, as the case may be, and/or allocated to the partners of such entities in their capacity as partners of either Polk or MCLP. For purposes of the immediately preceding sentence, a partner's allocable share of any Taxes shall be based on such partner's relative percentage partnership interests in Polk or MCLP, as the case may be, as determined immediately prior to the Closing Date. 7.4 Allocation. The Purchase Price shall be allocated in accordance with Schedule 7.4 hereto. Sellers and Buyer shall file Internal Revenue Service Form 8594, if required, as jointly prepared, with respect to the assets of Polk and MCLP. Sellers and Buyer shall (with respect to any asset sold or acquired by such party pursuant to this Agreement) use the respective allocations set forth on Schedule 7.4 and on Form 8594 for all reporting purposes including, without limitation, all matters relating to federal, state and local income and franchise taxes. Sellers, if requested by Buyer, will consent to the filing of a Code Section 754 election by Polk or MCLP, and will timely execute any instrument required to effect such an election. 8. Conditions Precedent to the Obligations of Buyer. Each and every obligation of Buyer to complete the Closing is subject to the satisfaction of the following conditions (any one or more of which may be waived in writing by Buyer): 8.1 Agreements, Representations and Warranties. The agreements, representations and warranties of Sellers contained in this Agreement shall be true on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. Sellers shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date. Sellers shall have delivered to Buyer a Certificate dated as of the Closing Date and signed by -10- the Vice President and Controller of Fairmount and MHC, certifying that all representations and warranties of Sellers are true on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, that all conditions to Buyers obligations hereunder have been satisfied. 8.2 Board Approval. The board of directors of Buyer shall have approved and authorized this Agreement and all the transactions contemplated thereby. 8.3 Delivery of Documents. Sellers shall have executed and/or delivered to Buyer, on or before the Closing Date, the following, which shall be in form and substance acceptable to Buyer and Buyer's counsel: (1) Documents and instruments of transfer for the Seller Partnership Interests including, without limitation, Sellers withdrawal as partners of Polk and MHLC and any required amendments to the limited partnership certificates and agreements of Polk and MHLC; (2) A certificate, dated no earlier than thirty days prior to the Closing Date, that Sellers are in good standing in their states of organization; (3) A receipt acknowledging Buyer's payment to Sellers of the Purchase Price payable on the Closing Date; (4) Certificate of incumbency and specimen signatures of all signatory officers of Sellers; (5) A guarantee executed by each of the Shareholders, in substantially the form attached hereto as Exhibit A, which guarantees the prompt performance by Sellers of all their obligations under this Agreement, including, without limitation, the indemnification obligations set forth in Section 12. (6) If the Election is in effect, an escrow agreement executed by Buyer, Sellers and the Escrow Agent, in substantially the form attached hereto as Exhibit B (the "Escrow Agreement"). (7) All such further Documents and Contracts which may be requested by Buyer or its counsel, in order to more effectively transfer title to the Seller Partnership Interests, or to effectuate and carry out any provision of this Agreement and the transaction provided herein. (8) Copies of resolutions of the board of directors of Sellers authorizing the execution and delivery of this agreement, certified by officers of Sellers. -11- 8.4 Proceedings. No Proceeding shall have been instituted or threatened to restrain or prevent the carrying out of the transactions contemplated hereby or to seek damages in connection with such transactions. 8.5 Permits and Consents. Buyer shall have obtained any and all Permits and Consents from any Person required for the consummation of the Closing, all of which shall be in form and substance satisfactory to Buyer. 8.6 Due Diligence. Buyer shall be satisfied with the results of its due diligence investigation. 9. Conditions Precedent to the Obligations of Sellers. Each and every obligation of Sellers to complete the Closing is subject to the payment of the Purchase Price payable on the Closing Date and satisfaction of the following conditions (any one or more of which may be waived in writing by Sellers): 9.1 Agreements, Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. Buyer shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by it on or before the Closing Date. Buyer shall have delivered to Sellers a Certificate dated as of the Closing Date and signed by an officer of Buyer, certifying that all representations and warranties of Buyer are true on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date and that all conditions to Sellers obligations hereunder have been satisfied. 9.2 Delivery of Documents. Buyer shall have executed and/or delivered to Sellers on or before the Closing Date the following, which shall be in form and substance acceptable to Sellers and Sellers' counsel: (1) A certificate, dated no earlier than thirty days prior to the Closing Date, that Buyer is a corporation in good standing in the state of incorporation; (2) Copies of resolutions of the appropriate authority of Buyer authorizing the execution and delivery of this Agreement, certified by an officer of Buyer; (3) A certificate of incumbency and specimen signatures of all signatory officers of Buyer, certified by an officer of Buyer; (4) If the Election is in effect, an escrow agreement executed by Buyer, Sellers and the Escrow Agent, in substantially the form attached hereto as Exhibit B (the "Escrow Agreement"). -12- (5) All such further documents that may be requested by Sellers or their counsel, in order to effectuate and carry out any provision of this Agreement and the transaction provided herein. 9.3 Proceedings. No Proceeding shall have been instituted or threatened to restrain or prevent the carrying out of the transactions contemplated hereby or to seek damages in connection with such transactions. 10. Termination. Anything herein to the contrary notwithstanding: 10.1 The obligations of Buyer and Sellers under this Agreement may be terminated (i) by written mutual consent of Buyer and Sellers, or (ii) by Buyer pursuant to notice in writing delivered to Sellers prior to the Closing Date if Buyer is not reasonably satisfied with the results of its due diligence review. 10.2 In the event this Agreement is terminated pursuant to this Section, written notice shall be given to the other party and this Agreement shall terminate and the transactions contemplated by this Agreement shall be abandoned. Upon such termination, no party shall have any further obligation to the other with respect to such obligations; provided however, nothing herein shall be a waiver of or prejudice the rights and remedies of any party arising from any default under or breach of the provisions of this Agreement. 11. Interpretation and Survival of Representations and Warranties. Each warranty, representation and covenant contained herein is independent of all other warranties, representations and covenants contained herein (whether or not covering identical or related subject matter) and must be independently and separately complied with and satisfied. All representations, warranties, covenants and agreements shall survive the execution and delivery hereof and the Closing for a period of one year, except, however, the representation and warranty contained in Section 5.3 shall survive indefinitely. 12. Indemnification. 12.1 Sellers' Obligation to Indemnify. From and after the Closing Date, Sellers shall indemnify and hold harmless Buyer (and its respective successors, assigns, directors and officers) from and against any and all Losses arising out of or caused by, directly or indirectly, any or all of the following: (1) Any misrepresentation, breach or failure of any warranty, representation or certification made by Sellers in this Agreement or pursuant hereto; -13- (2) Any failure or refusal by Sellers to satisfy or perform any term or condition of this Agreement to be satisfied or performed by Sellers. (3) Any failure by the Sellers to pay their allocable share of any Taxes referred to in Section 7.3 of this Agreement. 12.2 Indemnification for Environmental Matters. From and after the Closing Date Sellers shall indemnify and hold harmless Buyer (and its respective successors, assigns, directors and officers) from and against any and all Losses imposed upon, suffered by or asserted against Buyer by reason of the presence, release or threat of release, between November 30, 1993 and the Closing Date, of any Hazardous Substances on, under, above or from the real property owned directly or indirectly by the Partnerships, (hereinafter "Environmental Contamination"), provided, however, that Sellers' duty of indemnification under this Section (a) shall not extend to Environmental Contamination which first arises after the Closing Date; and (b) shall be in proportion to their respective interests in Polk and MCLP. 12.3 Notice to Indemnifying Party. If any party (the "Indemnitee") receives notice of any claim or the commencement of any Proceeding with respect to which any other party (or parties) is obligated to provide indemnification (the "Indemnifying Party") pursuant to Section 12.1, the Indemnitee shall promptly give the Indemnifying Party notice thereof. Such notice shall be a condition precedent to any Liability of the Indemnifying Party under the provisions for indemnification contained in this Agreement. Except as provided below, the Indemnifying Party may compromise, settle or defend, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any such matter involving the asserted Liability of the Indemnitee. In any event, the Indemnitee, the Indemnifying Party and the Indemnifying Party's counsel, as the case may be, shall cooperate in the compromise of, settlement or defense against, any such asserted Liability. The Indemnifying Party shall defend any asserted liability and the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. 12.4 Limitations on Sellers' Obligations to Indemnify. Notwithstanding anything to the contrary contained herein, Sellers shall have no obligation to indemnify Buyer (i) unless Buyer's claims for Losses exceed in the aggregate $50,000, provided, however, with respect to claims relating to Taxes there shall be limitation on Sellers' obligation to indemnify Buyer; and (ii) with respect to matters relating to Taxes unless Buyer's claim for indemnification is made within seven years after the Closing Date and with respect to environmental matters unless Buyer's claim for indemnification is made within 18 months after the Closing Date. -14- 13. Expenses. Whether or not the transactions contemplated by this Agreement shall be consummated, each party shall pay its own expenses incident to preparing for, entering into and carrying into effect this Agreement and the transactions contemplated hereby. 14. Further Assurances. 14.1 At any time and from time to time after the Closing Date, at Buyer's request and without further consideration, Sellers will promptly execute and deliver all such further Documents or perform such acts as Buyer may reasonably request in order to more fully consummate the transactions contemplated herein and in order to more effectively vest, transfer, confirm, protect and defend the right, title and interest of Buyer in the Seller Partnership Interests and to assist Buyer in exercising its rights and privileges with respect thereto. 15. Trade Secrets. Sellers, jointly and severally, will not, at any time after the date hereof, except with the express prior written consent of Buyer, directly or indirectly, disclose, communicate or divulge to any Person, or use for the benefit of any Person, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the business of Polk or MCLP including, but not limited to, customers, prospects, costs, designs, marketing methods and strategies, finances and suppliers. 16. Miscellaneous. 16.1 Publicity. The parties will treat this Agreement and the transaction contemplated by this Agreement with strict confidence and will consult with one another prior to issuing any press release, trade release or making any statement that could become public, unless otherwise required by Law. 16.2 Notices. Any notice or other communication required or which may be given hereunder shall be in writing and either delivered personally to the addressee, telegraphed, telecopied or telexed to the addressee or mailed, certified or registered mail or express mail, postage prepaid, or sent by a nationally recognized courier service, service charges prepaid, and shall be deemed given when so delivered personally, telegraphed, telecopied or telexed, if by certified or registered mail, four days after the date of mailing or if express mailed or sent by a nationally recognized courier service, two days after the date of mailing, as follows: -15- (1) If to Buyer: 148 West State Street Kennett Square, PA 19348 Attention: Chairman and Chief Executive Officer With a required copy to: Blank, Rome, Comisky & McCauley Four Penn Center Plaza Philadelphia, PA 19103 Attention: Stephen E. Luongo, Esquire (2) If to Sellers: Fairmount Associates, Inc. 515 Fairmount Avenue, Suite 900 Towson, MD 21286 Attention: Michael J. Batza, Jr. With a required copy to: Gallagher, Evelius & Jones Park Charles, Suite 400 218 North Charles Street Baltimore, MD 21201 Attention: Thomas B. Lewis, Esquire and to such other address or addresses as Buyer or Sellers, as the case may be, may designate to the other by notice as set forth above. 16.3 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto) contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous agreements, written or oral, with respect thereto. 16.4 Waivers and Amendments. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any -16- other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which any party may otherwise have at law or in equity. The rights and remedies of any party arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence, or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 16.5 Binding Agreement. All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by each of the parties hereto and their respective heirs, legal representatives, executors, successors and assigns. 16.6 Assignment. This Agreement and the rights and obligations of the parties hereto shall not be assigned by any party to any one or more Persons, except Buyer may assign and/or delegate any or all of its rights and obligations hereunder to one or more Persons which are direct or indirect wholly-owned subsidiaries of Genesis Health Ventures, Inc. Nothing in this Agreement, unless otherwise expressly provided, is intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies under or by reason of this Agreement. 16.7 Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. 16.8 Severability. If any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the remaining provisions of this Agreement, all of which shall remain in full force and effect. 16.9 Governing Law. This Agreement shall be governed and construed in accordance with the Laws of the Commonwealth of Pennsylvania applicable to agreements made, delivered and to be performed entirely within the Commonwealth of Pennsylvania. 16.10 Consent to Jurisdiction and Service of Process. Any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted in the Court of Common Please of Philadelphia County or, if jurisdiction for the matter exists solely in federal court, in the District Court of the Eastern District of Pennsylvania, -17- and each party waives any objection which such party may now or hereafter have to the laying of the venue of any such Proceeding, and irrevocably submits to the jurisdiction of any such court in any such Proceeding. Any and all service of process and any other notice in any such Proceeding shall be effective against any party if given by registered or certified mail, return receipt requested, or by any other means of mail which requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or to commence legal Proceedings or otherwise proceed against any other party in any jurisdiction other than Pennsylvania. 16.11 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 16.12 Exhibits and Schedules. The Exhibits and Schedules to this Agreement are a part of this Agreement as if set forth in full herein. 16.13 Effective Time. Notwithstanding anything to the contrary contained herein, the effective time of the consummation of the transaction contemplated herein shall be deemed to have occurred as of 12:01 a.m. on March 1, 1996 (the "Effective Time"). 16.14 Option Regarding Structure. At any time prior to the Closing with respect to the Polk Interests, Buyer may elect to change the structure of the transaction from the purchase of partnership interests from Sellers (followed by the redemption by Polk of all its outstanding limited partnership interests and the subsequent liquidation of Polk and distribution of all its assets to Meridian Healthcare, Inc.) to the purchase of substantially all of the assets of Polk by Meridian Healthcare, Inc. or another wholly-owned subsidiary of Genesis Health Ventures, Inc. followed by a liquidation of Polk and distribution of its assets to its partners. So long as such change shall have no substantive negative economic effect to the Sellers, the execution of this Agreement by Sellers shall be deemed Sellers' consent as partners of Polk to such sale of assets. Any change in structure shall be accomplished by Buyer and Sellers in a manner which changes the rights and obligations of the parties hereto and the terms and conditions of this Agreement only to the extent necessary to accommodate changes which are necessary to reflect the change in structure. -18- 16.15 Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MERIDIAN HEALTH, INC. By:_____________________________________________ Name: Title FAIRMOUNT ASSOCIATES, INC. By:_____________________________________________ Name: Title: MHC HOLDING COMPANY By:_____________________________________________ Name: Title: -19- SCHEDULE 5.1 Names and Address of Fairmount and Shareholders 1. Fairmount Associates, Inc. 515 Fairmount Avenue, Suite 900 Towson, MD 21286 2. Michael J. Batza, Jr. Edward A. Burchell Earl L. Linehan Roger C. Lipitz Arnold I. Richman (All c/o Fairmount Associates, Inc. at above address) SCHEDULE 5.2 Names and Addresses of MHC 515 Fairmount Avenue, Suite 900 Towson, MD 21286 SCHEDULE 5.6 No Breach (Except to the extent the contemplated transactions would cause a breach under financing documents which are intended to be paid off and terminated concurrently with Closing hereunder). SCHEDULE 5.7 Consents (Except to the extent the contemplated transactions would cause a consent to be required to be obtained pursuant to the financing documents which are intended to be paid off and terminated with Closing hereunder). SCHEDULE 7.4 Allocation of Purchase Price Polk Interests - $1,820,000 MCLP Interests - $7,120,000 EX-2.2 3 EXHIBIT 2.2 PURCHASE AND SALE AGREEMENT by and among GENESIS HEALTH VENTURES OF INDIANA, INC. and HALLMARK HEALTHCARE LIMITED PARTNERSHIP, collectively, as Seller and HUNTER ACQUISITION L.L.C., as Purchaser for the following: (1) Meridian Nursing Center-Cardinal, 1121 E. LaSalle Ave., South Bend, Indiana 46617; (2) Meridian Nursing Center-Dyer, 601 Sheffield Avenue, Dyer, Indiana 46311; (3) Meridian Nursing Center-East Lake, 1900 Jeanwood Drive, Elkhart, Indiana 46514; (4) Meridian Nursing Center-River Park, 915 S. 27th Street, South Bend, Indiana 46615; and (5) an institutional pharmacy business in the State of Indiana commonly known as "ASCO". TABLE OF CONTENTS
PAGE 1.1 PURCHASE AND SALE...............................................................................2 A. Purchase of the Facilities.............................................................2 B. Purchase of The Pharmaceutical Business................................................3 1.2 EXCLUDED ASSETS.................................................................................4 2. PURCHASE PRICE; LIABILITIES.....................................................................5 3. CLOSING.........................................................................................6 4. CONVEYANCES.....................................................................................6 5. COSTS AND EXPENSES..............................................................................6 6. PRORATIONS......................................................................................7 7. PATIENT ACCOUNTING..............................................................................7 8. POSSESSION......................................................................................7 9. SELLER REPRESENTATIONS AND WARRANTIES...........................................................7 (a) Status of Seller.......................................................................7 (b) Authority..............................................................................8 (c) Title..................................................................................8 (d) The Facilities.........................................................................8 (e) Licensure..............................................................................8 (f) Cost Reports...........................................................................9 (g) Patients...............................................................................9 (h) Employees of the Property; Unions......................................................9 (i) Facilities' Compliance with Law.......................................................10 (j) The Pharmaceutical Business' Compliance with Laws.....................................10 (k) Surveys and Reports...................................................................11 (l) Necessary Action......................................................................11 (m) Inventory.............................................................................11 (n) Taxes and Tax Returns.................................................................11 (o) Litigation............................................................................11 (p) Liens.................................................................................12 (q) Defaults Under Contracts and Leases...................................................12 (r) Financial Statements..................................................................12 (s) Life Safety Code Waivers, Etc.........................................................12 (t) [Intentionally deleted]...............................................................12 (u) Insurability..........................................................................12 (v) Liabilities...........................................................................12 (w) Full Disclosure.......................................................................13 (x) Utilities.............................................................................13 (y) Improvements and Personal Property....................................................13 10. PURCHASER REPRESENTATIONS AND WARRANTIES.......................................................13 (a) Status of Purchaser...................................................................13 (b) Authority.............................................................................13 (c) Necessary Action......................................................................14 (d) Litigation............................................................................14 (e) Full Disclosure.......................................................................14 11. BROKER.........................................................................................14 12. SELLER COVENANTS...............................................................................14 (a) Pre-Closing...........................................................................14 (b) Casualty/Condemnation.................................................................17 (c) Closing...............................................................................18 (d) Title Insurance Premium...............................................................19 (e) Post-Closing..........................................................................19 13. PURCHASER COVENANTS............................................................................20 (a) Pre-Closing...........................................................................20 (b) Closing...............................................................................20 (c) Post-Closing..........................................................................20 14. MUTUAL COVENANTS...............................................................................21 15. CONDITIONS TO PURCHASER'S OBLIGATIONS..........................................................22 (a) Seller's Representations, Warranties and Covenants True at Closing....................22 (b) Seller's Performance..................................................................22 (c) Hart-Scott Condition Precedent........................................................22 (d) Title Insurance.......................................................................22 (e) No Defaults...........................................................................22 (f) Inspection............................................................................22 (g) Absence of Litigation.................................................................23 (h) Licenses and Consents.................................................................23 (i) No Material Change....................................................................23 (j) Removal of Personal Property Liens....................................................23 (k) Environmental Matters.................................................................23 -ii- 16. CONDITIONS TO SELLER'S OBLIGATIONS.............................................................23 (a) Purchaser's Representations, Warranties and Covenants True at Closing. ...............23 (b) Purchaser's Performance...............................................................23 (c) Absence of Litigation.................................................................24 (d) Hart-Scott Condition Precedent........................................................24 17. TERMINATION....................................................................................24 18. INDEMNIFICATION................................................................................24 19. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..........................................26 20. SURVEYS AND TITLE POLICIES.....................................................................26 21. ACCOUNTS RECEIVABLE............................................................................27 22. PATIENT FUNDS..................................................................................29 23. TRANSFER OF PATIENT FUNDS......................................................................29 24. SELLER INDEMNITY REGARDING PATIENT FUNDS.......................................................29 25. EMPLOYEE MATTERS AND PATIENT RECORDS...........................................................29 26. TERMINATION OF SELLER EMPLOYEES................................................................29 27. DELIVERY OF MEDICAL RECORDS....................................................................29 28. BULK SALES LAW.................................................................................30 29. NOTICES........................................................................................30 30. ASSIGNMENT.....................................................................................30 31. SOLE AGREEMENT.................................................................................31 32. SUCCESSORS.....................................................................................31 33. CAPTIONS.......................................................................................31 34. GOVERNING LAW..................................................................................31 35. SEVERABILITY...................................................................................31 -iii- 36. GENDER.........................................................................................31 37. RISK OF LOSS...................................................................................31 38. HOLIDAYS.......................................................................................31 39. COUNTERPARTS...................................................................................31 40. DEFINITION OF KNOWLEDGE........................................................................31
LIST OF EXHIBITS A. Description of Real Property of Nursing Homes B. Pharmaceutical Business Services and Products C. Leases with respect to the Nursing Homes D. Assumed Contracts for the Facilities E. Description of Pharmacy Real Property F. Pharmacy Personal Property G. Assumed Pharmacy Contracts, Program Agreements and Blue Cross and Other Third Party Payor Contracts H. Allocation of Purchase Price H(a). Form of Estoppel Certificate I. Facilities Contracts Not Terminable Without Penalty in Thirty Days J. Employee Grievances K. Life Safety Code Waivers, Vendor Holds and Decertification Proceedings L. Copies of Pharmacy Licenses, Deficiency Reports and List of Licensing Regulatory Bodies M. Opinion of Counsel for Seller N. Opinion of Counsel for Purchaser O. Allocated Amounts of Title Insurance -iv- LIST OF SCHEDULES Schedule 1(A)(e) -- List of Provider Agreements Schedule 1.1(A)(f) -- List of Licenses Schedule 1.1(B)(j) -- List of Pharmacy Intangibles Schedule 4 -- List of Title Exceptions Schedule 9(e)(i) -- List of License Restrictions Schedule 9(i)(iii) -- Notices of Claims from Licensing Agencies Schedule 9(o) -- List of Litigation -v- PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into this ______ day of January, 1996 by and among GENESIS HEALTH VENTURES OF INDIANA, INC., a Pennsylvania corporation ("Genesis") and HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership ("Hallmark") (Genesis and Hallmark collectively "Seller") and HUNTER ACQUISITION L.L.C., an Illinois limited liability company, or its nominee or assignee ("Purchaser"). WITNESSETH: WHEREAS, Seller owns four long term care skilled and intermediate care nursing homes in the State of Indiana, having the following common names, located at the following common addresses and each having the respective number of beds so indicated for each such nursing home (collectively, the "Nursing Homes"): (1) Meridian Nursing Center-Cardinal, 1121 E. LaSalle Ave., South Bend, Indiana 46617, containing 291 beds; (2) Meridian Nursing Center-Dyer, 601 Sheffield Avenue, Dyer, Indiana 46311, containing 140 beds; (3) Meridian Nursing Center-East Lake, 1900 Jeanwood Drive, Elkhart, Indiana 46514, containing 160 beds; (4) Meridian Nursing Center-River Park, 915 S. 27th Street, South Bend, Indiana 46615, containing 44 beds WHEREAS, the legal description and square footage of the real property upon which each such Nursing Home is located is more particularly described in the legal descriptions attached hereto as Exhibit A and made a part hereof by this reference (collectively, the "Land"); WHEREAS, Seller owns and operates an institutional pharmacy business in the State of Indiana, commonly known as ASCO, all as more particularly described on Exhibit B attached hereto and made a part hereof, which Exhibit B sets forth the type of services and products provided by Seller from the pharmacy to the approximately 635 beds which it serves (all of the business and assets comprising that certain institutional pharmacy, including all inventory and carts, the "Pharmaceutical Business"); WHEREAS, except for the Excluded Assets (as such term is defined in Section 1.2 hereinbelow), Seller desires to sell and transfer to Purchaser the Property (as such term is defined in Section 1.1(B) below) to Purchaser, and Purchaser desires to purchase the same from Seller, subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the mutual covenants contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows: 1.1 PURCHASE AND SALE. On the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Purchaser and Purchaser shall purchase from Seller the following: A. Purchase of the Facilities: (a) The Land which is more particularly described in Exhibit A attached hereto and made a part hereof by this reference, together with all right, title and interest of Seller in and to all easements, tenements, hereditaments, privileges and appurtenances belonging thereto and the improvements, and structures located thereon that constitute each of the Nursing Homes, as well as any other structures located thereon (collectively the "Real Property"); (b) All equipment, furniture, furnishings, and fixtures, inventory, supplies and other tangible personal property owned and/or leased by Seller and located on the Real Property and/or used in connection with the operation of the skilled and/or intermediate care nursing home located on the Real Property and as of the Closing (the "Personal Property"); (c) Those leases or rental agreements specifically assumed by Purchaser set forth on Exhibit C attached hereto ("Leases"); (d) All intangible property, whether enumerated herein or not, in which Seller has an interest, now or hereafter used in connection with the operation of the Real Property and the skilled and/or intermediate care nursing homes located upon the Land ("Intangibles"), including, but not limited to, Seller's licenses, permits and certificates with respect to the Facilities (as such term is described in this Section 1.1(A)) to the extent assignable to Purchaser, and all service contracts for the benefit of the Facilities specifically assumed by Purchaser as set forth on Exhibit D attached hereto ("Contracts"); (e) The rights of Seller under the provider agreements with Medicare, Medicaid or any other third-party payor programs (excluding the right to any reimbursement accrued prior to the Closing Date (hereinafter defined)), to the extent assignable by Seller and accepted and assumed by Purchaser ("Provider Agreements") listed on Schedule 1.1(A)(e); (f) The licenses, permits, accreditation, and certificates of occupancy listed on Schedule 1.1(A)(f) issued by any federal, state, municipal or quasi-governmental authority relating to the use, maintenance or operation of the Nursing Homes, running to, or in favor of, Seller, to the extent assignable by Seller and accepted and assumed by Purchaser ("Licenses"); -2- (g) All documents, charts, personnel records, property manuals, resident/patient records and lists of the Facilities (subject to the resident's rights to access to his/her medical records as provided by law and confidentiality requirements), books, records, files and other business records attributable to the business or operations of the Nursing Homes ("Records"), except for those Excluded Assets (hereinafter defined); (h) All existing agreements with residents and any guarantors thereof of the Nursing Homes, to the extent assignable by Seller and accepted and assumed by Purchaser ("Resident Agreements"); (i) All claims and causes of actions of Seller against any third parties relating to the Facilities heretofore existing or hereinafter accruing to Seller ("Claims"); and (j) The business of the Seller as conducted at each Nursing Home located on one of the Real Properties as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein (the "Nursing Home Business"). The Real Property, Personal Property, Leases, Intangibles, Contracts, Provider Agreements, Licenses, Records, Resident Agreements, Claims, and Nursing Home Business are collectively referred to as the "Facilities." B. Purchase of The Pharmaceutical Business: (a) All right, title and interest in the assets listed on the Exhibits and Schedules referred to in this Section 1.1(B), free and clear of all encumbrances, mortgages, pledges, liens, security interests, obligations and liabilities other than the Assumed Pharmacy Contracts (as defined in Section 1.1(B)(i) below), as follows: (b) All right, title and interest of Seller in and to the land and real estate owned or leased by Seller and used in connection with the Pharmaceutical Business, as listed on Exhibit E attached hereto (any existing leases or rental agreements collectively, the "Pharmacy Leases"), together with all right, title and interest of Seller in and to all easements, tenements, hereditaments, privileges and appurtenances belonging thereto and the improvements, and structures located thereon that constitute the Pharmacy, as well as any other structures located thereon (collectively, the "Pharmacy Real Property"); (c) The equipment, computers, furniture, furnishings, fixtures, inventory, supplies and other tangible personal property owned and/or leased by Seller, used in connection with the Pharmaceutical Business and located on Pharmacy Real Property (collectively, the "Pharmacy Personal Property"), the computers and inventory being listed on Exhibit F attached hereto; (d) All accounts and inventory of goods and supplies used or maintained in connection with the Pharmaceutical Business (collectively, the "Pharmacy Inventory"); -3- (e) All patient, medical, personnel and other records related to the Pharmaceutical Business (including both hard and microfiche copies) to the extent assignable; and all manuals, books and records used in operating the Pharmaceutical Business, including, without limitation, personnel policies and files and manuals, accounting records and computer software (the "Pharmacy Records"); (f) To the full extent transferable, all licenses, permits, registrations, certificates, consents, accreditations, approvals and franchises necessary to operate and conduct the Pharmaceutical Business, together with assignments thereof, if required, and all waivers which Seller currently has, if any, of any requirements pertaining to such licenses, permits, registrations, certificates, consents, accreditations; approvals and franchises (the "Pharmacy Licenses"); (g) All goodwill, and, to the extent assignable by Seller, all warranties (express or implied) and rights and claims related to the assets or the operation of the Pharmaceutical Business (the "Pharmacy Goodwill"); (h) [intentionally deleted]; (i) The contract and leasehold rights and interests pursuant to contracts for purchase or lease of personal property, franchise agreements, contracts for purchase, sale or lease of pharmaceuticals, supplies, equipment, goods or services currently furnished or to be furnished in connection with the Pharmaceutical Business that are specifically assumed by Purchaser, as set forth on Exhibit G attached hereto (the "Assumed Pharmacy Contracts"); and (j) The intangible or intellectual property listed on Schedule 1.1(B)(j) (the "Pharmacy Intangibles"); The Pharmacy Lease, the Pharmacy Real Property, the Pharmacy Personal Property, the Pharmacy Inventory, the Pharmacy Records, the Pharmacy Licenses, the Pharmacy Goodwill, the Assumed Pharmacy Contracts, the Pharmacy Intangibles and the Pharmaceutical Business are collectively herein referred to as the "Pharmacy Assets". The Facilities and the Pharmacy Assets are collectively herein referred to as the "Property". 1.2 EXCLUDED ASSETS. Seller is not selling, assigning or conveying to Purchaser any assets, rights or property of Seller not specifically referred to in Section 1.1. Without limiting the foregoing, the following shall be excluded from the Property sold by Seller to Purchaser hereunder (the "Excluded Assets"): (a) The consideration delivered to Seller pursuant to this Agreement; (b) Seller's cash, cash equivalents and accounts receivable on and as of the Closing Date; -4- (c) any tangible or intangible property, wherever located, owned by third parties not affiliated with Seller or not used by Seller in the operations of the Facilities or the Pharmaceutical Business; (d) the capital stock owned or held by Seller in any subsidiary or affiliate of Seller or the corporate and partnership records of Seller; (e) the assets owned or held by any subsidiary or affiliate of Seller or any other division of Seller; (f) the names Meridian Healthcare, Genesis Health Ventures, ASCO Healthcare, Hallmark Healthcare and all derivations of those names; and (g) all of Seller's proprietary manuals, such as employee training manuals, policy manuals, any manuals that relate to Seller or Genesis Health Ventures, Inc., a Pennsylvania corporation ("Parent") and all of Seller's minute books and stock records. 2. PURCHASE PRICE; LIABILITIES. (a) The purchase price (the "Purchase Price") payable by Purchaser to Seller for the Property shall be Twenty Two Million Two Hundred Fifty Thousand Dollars ($22,250,000.00), plus or minus normal and customary prorations and shall be allocated as set forth on Exhibit H attached hereto (the "Allocation"). The Purchase Price shall be payable as follows: (i) Upon execution of this Agreement by all parties hereto an earnest money deposit (the "Earnest Deposit") in the amount of $500,000.00 shall be deposited by Purchaser by wire transfer of immediately available funds with Lawyers Title Insurance Company in its capacity as escrow agent (the "Escrowee") into an interest bearing escrow account with the interest for the benefit of Purchaser. (ii) A payment in immediately available funds at Closing (as herein defined) of the balance of the Purchase Price less the Earnest Deposit plus or minus the prorations specified in this Agreement. (b) Purchaser shall not assume or pay, and Seller shall continue to be responsible for, any debt, obligation or liability of any kind or nature, fixed or contingent, known or unknown, of Seller not expressly assumed by Purchaser in this Agreement. Specifically, without limiting the foregoing, Purchaser shall not assume any claim, action, suit or proceeding pending as of the Closing or any subsequent claim, action, suit or proceeding arising out of or relating to any such other event occurring with respect to the manner in which Seller conducted its business on or prior to the date of the Closing. -5- (c) The parties to this Agreement expressly agree that the Allocation set forth on Exhibit H hereto shall be used by them for all purposes including tax, reimbursement and other purposes. Each party to this Agreement agrees that it will report the transaction completed pursuant to this Agreement in accordance with the Allocation, including any report made under Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and that no such party will take a position inconsistent with the Allocation except with the prior written consent of the other parties hereto. 3. CLOSING. The closing of the purchase and sale pursuant to this Agreement (the "Closing") shall take place through a "New York Style" escrow (the "Closing Escrow") to be established with Lawyers Title Insurance Company (the "Title Company") pursuant to form escrow instructions which shall be modified to be consistent with the terms and provisions of this Agreement and which shall be mutually agreed upon by the parties hereto in order to effect a New York Style closing. The Closing shall take place on March 1, 1996 ("Closing Date") or such earlier or later date upon which Purchaser and Seller may agree in writing. 4. CONVEYANCES. Conveyance of the Property to Purchaser shall be effected by: (i) special warranty deeds and bills of sale (each of the foregoing with covenants solely against grantor's acts) in forms acceptable to counsel for both Seller and Purchaser; and (ii) to the extent Seller occupies the Pharmacy Real Property as a tenant pursuant to a Pharmacy Lease, an assignment of tenant's rights in said Pharmacy Lease consented to by the Lessor thereunder and any underlying mortgagee, if required, together with an estoppel certificate from said Lessor in substantially the form attached as Exhibit H(a). Fee simple marketable title to the Real Property and Pharmacy Real Property, and marketable title to the Personal Property and Pharmacy Personal Property, shall be conveyed from Seller to Purchaser free and clear of all liens, charges, easements and encumbrances of any kind, other than the "Permitted Exceptions", as such term is defined in this Section 4. The term "Permitted Exceptions" shall mean: (i) each of the items on Schedule 4 attached hereto, public, private and utility easements and building line and use or occupancy restrictions and covenants of record, provided that none of the foregoing are violated by the existing improvements or the present use thereof; (ii) the lien of real estate taxes, water, rent and sewer charges that are not yet due and payable on the Closing Date; (iii) matters disclosed by the "Surveys", as such term is defined in Section 20 hereinbelow; (iv) such other title matters existing on the Closing Date that are accepted or deemed accepted by Purchaser pursuant to Section 20 hereinbelow; (v) the rights of patients in possession; and (vi) zoning, use and building laws, regulations, ordinances and codes of any governmental authority or agency applicable to the Real Property, provided that the existing improvements on, and the uses of, the Real Property are in substantial compliance with the foregoing. 5. COSTS AND EXPENSES. (a) Seller shall pay any federal, state, county and local transfer, sales, purchase, use, value added, excise or similar taxes arising out of the transfer of the Property and shall pay for any documentary or revenue stamps required as a result of the transfer hereunder of the Property. -6- (b) Seller shall pay up to $40,000 of the cost of the Title Policies described in Section 20 hereof; Purchaser shall pay the cost of the Surveys described in Section 20. (c) Purchaser and Seller shall each pay their own attorney's fees. (d) Seller and Purchaser shall share any Escrow fees on a 50-50 basis. (e) Purchaser shall pay the filing fee required in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (f) Seller shall be and remain responsible for any employee severance pay which may be or become payable arising out of any contractual obligation between Seller and any of its employees at the Property. 6. PRORATIONS. The following shall be prorated as of and shall be settled as soon as practicable after the Closing Date: (a) (i) General and special real and other ad valorem taxes affecting the Real Property; (ii) taxes and assessments and tax escrow amounts held by the Lessor of the Pharmacy Real Property; and (iii) any other real and personal property taxes which are accrued but not yet due and payable. Said prorations shall be made on an accrual basis with reference to the most recent available tax information with a further adjustment being made after Closing within twenty (20) days after the receipt of the actual tax bill. Any tax escrows for the payment of future real estate taxes relating to the Real Property shall be returned to Seller. (b) Charges and deposits for water, fuel, gas, oil, heat, electricity and other utility and operating charges and prepaid service contracts. Seller shall, if possible, obtain final utility meter readings as of the Closing Date. 7. PATIENT ACCOUNTING. Seller shall deliver to Purchaser on the Closing Date any advance payments by patients of the Facilities or customers of the Pharmacy and, as provided in Sections 22-24 below, any patient funds held in trust by Seller. 8. POSSESSION. Purchaser shall be entitled to possession of the Property on the Closing Date subject to the possessory rights of patients and to the Permitted Exceptions, at which time Seller shall deliver to Purchaser all patient records and other relevant records used or developed in connection with the business conducted at the Property. 9. SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby warrants and represents to Purchaser that: (a) Status of Seller. Genesis is a corporation duly organized and validly existing under the laws of the Commonwealth of Pennsylvania and Hallmark is a limited partnership duly organized and -7- validly existing under the laws of the State of Maryland and each is duly qualified to own their respective property and conduct their respective business in the State of Indiana. (b) Authority. Genesis has the full corporate power and authority and Hallmark has the full partnership power and authority to execute and to deliver this Agreement and all related documents, and to carry out the transactions contemplated herein, and Parent has the full corporate power and authority to execute the Joinder to this Agreement and to carry out the transactions contemplated therein. This Agreement is, and all instruments and documents delivered pursuant hereto at the Closing will be, valid, binding and enforceable against Seller in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer and similar laws affecting creditors' rights generally. The execution, delivery and performance of this Agreement and all related documents and the consummation of the transaction contemplated herein will not: (a) result in a breach of the terms and conditions of nor constitute a default under or violation of the organizational documents of Seller or any law, regulation, court order, mortgage, note, bond, indenture, agreement, license, charter, by-laws, or other instrument or obligation to which Seller is now a party or by which Seller or any of the assets of Seller may be bound or affected; or (b) result in the creation of any mortgage, pledge, lien, claim, charge, encumbrance or other adverse interest upon the Property; or (c) terminate or modify, or give any party the right to terminate or modify, any Contract, Lease, Pharmacy Contract or Pharmacy Lease. (c) Title. Seller will convey to Purchaser title to the Property free and clear of all liens, encumbrances, covenants, conditions, restrictions, leases, tenancies, licenses, claims, options and other matters affecting title thereto except only the matters permitted under Sections 4 and 20 hereof. (d) The Facilities. Each of the Facilities is licensed for the number of beds set forth opposite the name of the applicable Facility in the First Recital to this Agreement and, to Seller's knowledge, the Personal Property at each Facility includes all equipment and property required under applicable state and federal law to operate each Facility as a skilled and/or intermediate care nursing home with the number of beds applicable to each such Facility as set forth in said First Recital. All rights, properties and assets used in the operation of the Facilities are either owned by Seller or licensed or leased to Seller and are included in the assets to be transferred hereunder, and, to Seller's knowledge, all such properties and assets are in good operating condition and repair, ordinary wear and tear excepted. Except as provided in Exhibit I, there are no leases or other agreements affecting the Facilities which cannot be terminated, without penalty, by Seller or its assignees upon thirty (30) or fewer days' notice. (e) Licensure. (i) The Facilities. Each of the Facilities is a duly and properly licensed, skilled and/or intermediate care nursing home Facility pursuant to a license containing no restrictions except as set forth on Schedule 9(e)(i) attached hereto and has current provider agreements under Title XVIII and Title XIX of the Social Security Act (herein "Title XVIII and XIX") for reimbursement for skilled and -8- intermediate nursing care. There is no action pending, or, to Seller's knowledge, threatened or recommended by the appropriate state or federal agency having jurisdiction thereof, to revoke, withdraw or suspend any license to operate the Facilities, to terminate the participation of the Facilities in the Title XVIII and XIX programs, to terminate or fail to renew any provider agreement related to the Facilities, or to take any action of any other type (other than actions applicable to long-term care facilities generally) which would have a material adverse effect on the Facilities, their operations or business. (ii) The Pharmaceutical Business. Seller has all Pharmacy Licenses necessary for Seller to occupy, operate and conduct in all material respects the Pharmaceutical Business and there do not exist any waivers or exemptions relating thereto. There is no default on the part of Seller or, to Seller's knowledge, any other party under any of the Pharmacy Licenses. To Seller's knowledge there exist no actions pending or, to Seller's knowledge, recommended for revocation, suspension or limitation of any of the Pharmacy Licenses. Copies of each of the Licenses and Permits are attached to and listed on Exhibit L attached hereto. The most recent licensure surveys and deficiency reports related to each of these items has also been included in Exhibit L. Seller is, and at the time of Closing will be, licensed by the regulatory bodies listed on Exhibit L. No notices have been received by Seller with respect to any threatened, pending, or possible revocation, termination, suspension or limitation of the Pharmacy Licenses. Each employee of Seller has all Pharmacy Licenses required for each such employee to perform such employees' designated functions and duties for Seller in connection with conducting in all material respects the Pharmaceutical Business, and there exists no waivers or exemptions relating thereto. There is no default under, nor, to Seller's knowledge, does there exist any grounds for revocation, suspension or limitation of, any such Pharmacy Licenses. The Pharmaceutical Business currently serves, and on the Closing will serve, 635 beds, as listed on Exhibit B. (f) Cost Reports. Seller has filed all cost reports (the "Cost Reports") required to be filed as of the date hereof under Title XVIII and Title XIX. All such Cost Reports have been prepared in all material respects in accordance with and in substantial compliance with all applicable government rules and regulations and to Seller's knowledge do not contain any errors, omissions or disallowable costs or expenses. (g) Patients. There are no patient care agreements or life care contracts with residents of the Facilities or with any other persons or organizations which deviate in any material respect from the standard form customarily used at the Facilities. All patient records at the Facilities, including patient trust fund accounts, are true and correct in all material respects. (h) Employees of the Property; Unions. Seller is not a party to any collective bargaining agreement, severance pay, or pension or retirement plans with respect to its employees at either the Facilities or the Pharmaceutical Business. Seller is not a party to or aware of any labor dispute or grievance with respect to either the Facilities or the Pharmaceutical Business, except as set forth in Exhibit J attached hereto. Except as disclosed in Exhibit J, no person or party (including, without -9- limitation, any governmental agency) has asserted, or to the best knowledge of Seller, has threatened to assert, any claim for any action or proceeding, against Seller (or any officer, director, employee, agent or shareholder of Seller) arising out of any statute, ordinance or regulation relating to wages, collective bargaining, discrimination in employment or employment practices or occupational safety and health standards (including, without limitation, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act or the Family and Medical Leave Act). (i) Facilities' Compliance with Law. (i) The Facilities and their operation and use now are in substantial compliance (without waivers) with all applicable municipal, county, state and federal laws, regulations, ordinances, standards and orders and with all municipal, including without limitation, all health, building, fire and zoning ordinances and life safety codes; (ii) To Seller's knowledge there are no outstanding deficiencies or work orders of any authority having jurisdiction over the Facilities requiring conformity to any applicable statute, regulation, ordinance or by-law pertaining to nursing homes in general, including but not limited to the Medicare and Medicaid Programs; (iii) Except as set forth in Schedule 9(i)(iii), Seller has not received any notice of any claim, requirement or demand of any licensing or certifying agency supervising or having authority over the Facilities or otherwise to rework or redesign it or to provide additional furniture, fixtures, equipment or inventory so as to conform to or comply with any existing law, code or standard which has not been fully satisfied prior to the date hereof or which will not be satisfied prior to the Closing Date; and (iv) The Facilities are in compliance, in all material respects, with all Conditions and Standards of Participation in the Medicaid Program. (j) The Pharmaceutical Business' Compliance with Laws. (i) The Pharmaceutical Business participates in the Medicare and Medicaid Programs (the "Programs"). A list of and copies of its existing Medicare and Medicaid contracts or, if such contracts do not exist, other documentation evidencing such participation (collectively, the "Program Agreements") are included in Exhibit G attached hereto. Seller is, and will be at the time of Closing, in substantial compliance with all of the material terms, conditions and provisions of the Program Agreements. (ii) No notice of any offsets against future reimbursements under or pursuant to the Programs has been received by Seller, nor, to Seller's knowledge, is there any basis therefor. There are no pending appeals, adjustments, challenges, audits, litigation or notices of intent -10- to recoup past or present reimbursements with respect to the Programs. Seller has not been subject to or, to its knowledge, threatened with loss of waiver of liability for utilization review denials with respect to the Programs during the past twelve (12) months, nor has Seller received notice of any pending, threatened or possible decertification or other loss of participation in, any of the Programs. (iii) Seller currently has contractual arrangements with Blue Cross and other third party payors. A list of and copies of its existing Blue Cross contracts and other third party payor contract(s) are included in Exhibit G attached hereto. Seller is, and will be at the time of Closing, in full compliance with all of the material terms, conditions and provisions of such contracts. (k) Surveys and Reports. Complete copies of survey reports, any waivers of deficiencies, plans of correction, and any other governmental investigation reports issued with respect to the Facilities during the past 24 months have been provided to Purchaser prior to, or will be provided to Purchaser promptly following, execution of this Agreement. (l) Necessary Action. The Board of Directors of Genesis has taken all appropriate corporate action necessary to enter into this Agreement and to carry out the terms of this Agreement; the Board of Directors of each of the general partners of Hallmark has taken all appropriate partnership action necessary to enter into this Agreement and to carry out the terms of this Agreement; and the Board of Directors of Parent has taken all appropriate corporate action necessary to authorize Seller to enter into this Agreement and to carry out the terms of this Agreement and to authorize Parent to execute the Joinder to this Agreement and to carry out the terms of this Agreement applicable to Parent as set forth in said Joinder. (m) Inventory. (i) Facilities' Inventory. All inventories of non-perishable food, central supplies, linen, housekeeping and other supplies located at the Facilities are in sufficient quantity to operate the Facilities as currently being operated for a period of at least one week. (ii) Pharmacy Inventory. The Pharmacy Inventory is, and on Closing will be, of a quantity presently used by Seller in the ordinary course of business determined and valued consistent with Seller's past practice. (n) Taxes and Tax Returns. All returns, reports and filings of any kind or nature, other than the Cost Reports referred to in Section 9(f) hereof, required to be filed by Seller prior to Closing which relate to the Facilities have been completed and timely filed in compliance with all applicable requirements and all taxes or other obligations which are due and payable have been timely paid. -11- (o) Litigation. Except as set forth in Schedule 9(o), there is no litigation, investigation or other proceedings pending or, to Seller's knowledge, threatened against or relating to business, Seller's right to carry on and conduct its business, or to this Agreement, including, but not limited to, condemnation proceedings, and the transactions contemplated herein have not been challenged by any governmental agency or any other person, nor does Seller know or have reasonable grounds to know, of any basis for any such litigation, investigation or other proceeding. (p) Liens. As of the Closing, there will be no mechanics', materialmen's or similar claims or liens claimed or which may be claimed against any of the Property for work performed or commenced prior to the Closing Date, Seller having made or caused to be made arrangements for payments of all those improvements now under construction or development. (q) Defaults Under Contracts and Leases. Seller is not in material default under any material monetary or other obligation on its part to be observed or performed under any of the Contracts, Pharmacy Contracts, Leases or Pharmacy Leases. (r) Financial Statements. Seller has furnished to Purchaser copies of the unaudited income and expense statements, operating statements and balance sheet which relate to the operations of the all of the Property (collectively the "Financial Statements") for the calendar years 1993 and 1994 and fiscal year ending September 30, 1995. The Financial Statements which have been delivered to Purchaser or will be delivered to Purchaser have been prepared in accordance with generally accepted accounting principles as of the date thereof. (s) Life Safety Code Waivers, Etc. Exhibit K to this Agreement contains a complete and accurate list of all life safety code waivers, vendor holds, decertification proceedings or licensure revocations, termination or suspension proceedings affecting the Facilities during the prior eighteen (18) months. (t) [Intentionally deleted]. (u) Insurability. Seller has not received any notice or request from any insurance company or board of fire underwriters setting forth any defects or inadequacies in any of the Property which might affect the insurability thereof, requesting the performance of any work or alteration of the Property or of any defect or inadequacy in Seller's operation of the Property which would materially and adversely affect the ability of Seller or of Purchaser, following Closing, to: (i) operate each of the Facilities as a skilled and/or intermediate care nursing home with the number of beds applicable to each such Facility as set forth in the First Recital to this Agreement; and (ii) operate the Pharmaceutical Business in material compliance with all applicable laws, rules and regulations governing the same. (v) Liabilities. Seller has paid, will pay or will provide for the payment of, all of its debts, liabilities and obligations arising from the ownership and operation of the Property including, but not limited to, salaries, taxes and accounts payable incurred by Seller for the period -12- prior to the Closing Date, and such liabilities have been paid, will be paid, or provisions will be made for the payment of the same, by Seller in the ordinary course of business. (w) Full Disclosure. No representation or warranty by Seller in this Agreement or in any instrument, certificate or statement furnished to Purchaser pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading. (x) Utilities. To Seller's knowledge, all utilities are installed and available to each of the Facilities in an amount adequate and sufficient for purpose of operating each of the Facilities. (y) Improvements and Personal Property. To Seller's knowledge there are no defects in the improvements on the Real Property or Pharmacy Real Property, all systems therein, all structural components of the buildings located thereon (including by way of illustration and not limitation the roofs and the exterior walls) and the Personal Property and Pharmacy Personal Property. To Seller's knowledge, all operating systems of the Facilities and Pharmaceutical Property, including, without limitation, the air conditioning system, the heating system, the plumbing system, the electrical system, the fire alarm system, if any, the sprinkling system, if any, and the elevators, if any, and all Personal Property and Pharmacy Personal Property are adequate and in good working order and condition and will be in good working condition on the Closing Date. 10. PURCHASER REPRESENTATIONS AND WARRANTIES. Purchaser hereby warrants and represents to Seller that: (a) Status of Purchaser. Purchaser is a limited liability company duly organized and validly existing under the laws of the State of Illinois and is duly qualified to own property and conduct its business in the State of Illinois. (b) Authority. Purchaser has full power and authority to execute and to deliver this Agreement and all related documents, and to carry out the transaction contemplated herein. This Agreement is, and all instruments and documents delivered pursuant hereto at the Closing will be, valid and binding documents enforceable against Purchaser in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer and similar laws affecting creditors' rights generally. The execution, delivery and performance of this Agreement and all related documents and the consummation of the transaction contemplated herein will not (a) result in a breach of the terms and conditions of nor constitute a default under or violation of Purchaser's organizational agreement, or any law, regulation, court order, mortgage, note, bond, indenture, agreement, license or other instrument or obligation to which Purchaser is now a party or by which Purchaser or any of the assets of Purchaser may be bound or affected; or (b) terminate, accelerate or modify, or give any party the right to terminate, accelerate or modify any notes or other financing arrangements or agreements to which any of the shareholders of Purchaser is a party or by which any of them may be bound or affected. -13- (c) Necessary Action. Purchaser has taken all action required under its organizational agreement necessary to enter into this Agreement and to carry out the terms of this Agreement. This Agreement has been, and the other documents to be executed by Purchaser when delivered at Closing will have been, duly executed and delivered by Purchaser. (d) Litigation. To the best of Purchaser's knowledge, there is no litigation, investigation or other proceeding pending or threatened against or relating to Purchaser, its properties or business, Purchaser's right to carry on and conduct its business, or to this Agreement and the transaction contemplated herein has not been challenged by any governmental agency or any other person, nor does Purchaser know or have reasonable grounds to know of any basis for any such action. (e) Full Disclosure. No representation or warranty by Purchaser in this Agreement or in any instrument, certificate or statement furnished to Purchaser pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading. 11. BROKER. Purchaser hereby represents, covenants, and warrants to Seller that it has not employed any broker, agent or finder in connection with the transaction contemplated herein and agrees to indemnify Seller against any claim for any commission made by any broker claiming to have been retained by Purchaser. Seller hereby represents, covenants and warrants to Purchaser that it has not employed any broker, agent or finder in connection with the transaction contemplated herein, and agrees to indemnify Purchaser against any claim for any commission made by any broker claiming to have been retained by Seller. 12. SELLER COVENANTS. Seller covenants that: (a) Pre-Closing. Between the date hereof and the Closing Date, except as contemplated by this Agreement or with the prior written consent of Purchaser: (i) Seller will operate the Property only in the ordinary course of business and with due regard to the proper maintenance and repair of the Real Property, the Pharmacy Real Property, the Personal Property and Pharmacy Personal Property; (ii) Seller will take all actions reasonably necessary to preserve the goodwill and the present patient occupancy level of the Facilities and to preserve the goodwill of the Pharmaceutical Business and all of the suppliers, clientele, patients and others having business relations with Seller, the Facilities or the Pharmaceutical Business; (iii) Seller will make no material change in the operation of the Property nor sell or agree to sell any items of machinery, equipment or other assets of the Property (other than such sales of -14- Pharmaceutical Inventory as are sold in the Pharmaceutical Business in the ordinary course of business) nor otherwise enter into an agreement affecting the Property; (iv) Seller will use commercially reasonable efforts to retain the services and goodwill of the employees of Seller; (v) Seller will maintain in force the existing hazard and liability insurance policies, or comparable coverage, for all of the Property as now in effect; (vi) Seller will maintain the inventories of perishable food, non-perishable food, central supplies, linen, housekeeping and other supplies at the Facilities at substantially the same condition and quantity as presently being maintained; (vii) Seller will not increase the compensation or other benefits or bonuses payable or to become payable to any of the Seller's employees and Seller shall, following the Closing, offer health continuation coverage as required under Internal Revenue Code Section 4980B to all of Seller's employees and their eligible dependents. (viii) Seller will not enter into any material contract or commitment affecting the Property except in the ordinary course of business; (ix) Other than as set forth in Section 4 hereof, Seller will satisfy and discharge all claims, liens, security interests, tenancies, liabilities or other financial obligations which constitute a lien or encumbrance on any of the Personal Property or Pharmacy Personal Property; (x) During normal business hours and at mutually agreeable times and locations, Seller will provide designated representatives of Purchaser with access to any of the Property, provided: (1) Purchaser does not materially interfere with the operation of any of the Property, and (2) Purchaser provides Shirley Liguori with sufficient advance notice to enable Shirley Liguori to arrange for Purchaser or its representatives to have access to the Property for the purpose of conducting the inspections permitted to be conducted by Purchaser under this Agreement. At such times Seller shall permit Purchaser to inspect the books and records of any of the Property in order to ascertain that the records and books of any of the Property are true and accurate and have been kept in accordance with generally accepted accounting principles, provided that if for any reason the Closing fails to take place, Purchaser shall maintain the confidentiality of, and shall not disclose to any third party, any proprietary or other confidential information of Seller obtained through any such inspections; (xi) Seller will file all returns, reports and filings of any kind or nature, including but not limited to, cost reports referred to in Section 9(f) hereof, required to be filed by Seller on a timely -15- basis and will timely pay all taxes or other obligations and liabilities which are due and payable with respect to the Property in the ordinary course of business; (xii) Seller will cause all of the Property to be operated in compliance with all applicable municipal, county, state and federal laws, regulations, ordinances, standards and orders as now in effect (including without limitation, the life safety code as currently applied and waived with respect to the Facilities) where the failure to comply therewith could have a material adverse effect on the business, property, condition (financial or otherwise) or operation of the Facilities taken as a whole as skilled and/or intermediate nursing care Facilities with the applicable number of beds per Facility as are set forth in the First Recital to this Agreement or the Pharmaceutical Business; (xiii) Seller will take all actions reasonably necessary to achieve compliance with any laws, regulations, ordinances, standards and orders which are entered after execution of this Agreement and prior to Closing; (xiv) There will be no change in ownership or control of any of the Property prior to Closing and Seller will not take any other action inconsistent with its obligations under this Agreement or which could hinder or delay the consummation of the transaction contemplated by this Agreement; (xv) Seller will maintain all of the Property in substantially the same condition as it was on the date of Purchaser's inspection thereof, ordinary wear and tear excepted; (xvi) Seller will promptly notify Purchaser in writing of any material adverse change of which Seller becomes aware in the condition or prospects of the Property including, but not limited to, sending Purchaser, within three (3) days after receipt copies of all surveys and inspection reports of all governmental agencies received after the date hereof and prior to Closing; (xvii) Seller shall obtain all necessary third party consents for the valid conveyance, transfer, assignment or delivery of the material assets constituting the Property to the extent that assignment is required under this Agreement; (xviii) Within fifteen (15) days after the date hereof, Seller will deliver to Purchaser certificates dated after the date hereof evidencing the results of searches conducted to ascertain the existence of any financing statements and tax and judgment liens affecting or relating to all of the Property which have been filed or recorded with the Office of the Secretary of State in which the Property is located and the appropriate County Recorder's Office and in the State wherein Seller is domiciled and incorporated (the "UCC Searches"); -16- (xix) Seller will promptly comply with any notices received pursuant to Section 9(u) hereof and shall deliver to Purchaser a copy of any notice received pursuant to that Section and evidence of compliance with such notice; and (xx) Seller will (with the assistance of the Purchaser if and when required) timely and promptly make, and Purchaser will or if Purchaser is not the "ultimate parent entity" it will cause its "ultimate parent entity" (with the assistance of Seller if and when required) to timely and promptly make, all filings which are required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Antitrust Improvements Act"). The parties will use commercially reasonable efforts, and it shall be a condition precedent to Purchaser's Obligations to consummate the transactions contemplated by this Agreement (the "Hart-Scott Condition Precedent"), to obtain the approval of the United States Federal Trade Commission or the Antitrust Division of the United States Department of Justice, as the case may be, to the purchase of the Property by Purchaser or expiration or early termination prior to the Closing Date of the waiting period under the Antitrust Improvements Act without the commencement of litigation, or threat thereof, by the appropriate governmental enforcement agency to restrain the transactions contemplated by this Agreement. (b) Casualty/Condemnation. (i) Seller shall promptly notify Purchaser of any casualty damage or notice of condemnation which Seller receives prior to the Closing Date. Seller shall timely notify any insurance companies with respect to any damage and shall promptly submit claims for such damage. (ii) If: (a) any portion of a Nursing Home is damaged by fire or casualty after the Execution Date and is not repaired and restored substantially to its original condition prior to Closing, and (b) at the time of Closing the estimated cost of repairs is Five Hundred Thousand Dollars ($500,000.00) or less as determined by an independent adjuster, there shall be no abatement or adjustment in the Purchase Price and Purchaser shall be required to purchase the Property in accordance with the terms of this Agreement and Purchaser shall either: (x) receive a credit at Closing of the estimated cost or repairs as determined by the aforesaid independent adjuster; or (y) at Closing Seller shall: (1) assign to Purchaser, without recourse, all insurance claims and proceeds with respect thereto (less sums theretofore expended, if any, by Seller for temporary repairs or barricades) (in which event Purchaser shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage), and (2) pay to Purchaser an amount equal to Seller's insurance deductible. Seller shall have no liability or obligation with respect to the condition of the Property as a result of such fire or casualty. If, at the time of Closing, the estimated cost of repairing such damage is more than Five Hundred Thousand Dollars ($500,000.00) as determined by such independent adjuster, Purchaser may, at its sole option: (x) terminate this Agreement with respect to the Nursing Home and -17- the associated Real Property affected by the fire or casualty only by notice to Seller, in which event the Purchase Price shall be reduced by an amount equal to the amount attributable to the Nursing Home as set forth on Exhibit H attached hereto, Seller shall return to Purchaser the portion of the Earnest Deposit attributable to such Nursing Home, and the parties shall proceed to Closing with respect to the remainder of the Property, and no party shall have any further liability to any other party under this Agreement with respect to such Nursing Home and associated Real Property, except as otherwise provided in this Agreement; or (y) proceed to Closing as provided in this Paragraph for fires or casualties under Five Hundred Thousand Dollars ($500,000.00). Seller agrees to maintain its existing property insurance coverage with respect to the Real Property. (iii) If, prior to Closing, any of the Nursing Homes is materially taken by eminent domain, this Agreement shall become null and void with respect to such Nursing Home and its associated Real Property at Purchaser's option, and upon receipt by Seller of written notice of an election by Purchaser to treat this Agreement as null and void with respect to such Nursing Home and its associated Real Property, the Purchase Price shall be reduced by an amount equal to the amount attributable to the Nursing Home as set forth on Exhibit H attached hereto, Seller shall return to Purchaser the portion of the Earnest Deposit attributable to such Nursing Home, and the parties shall proceed to Closing with respect to the remainder of the Property. If Purchaser elects to proceed and to consummate the purchase despite said material taking (such election being deemed to have been made unless Purchaser notifies Seller to the contrary within fifteen (15) days after notice from Seller to Purchaser of any taking), or if there is less than a material taking prior to Closing, there shall be no reduction in or abatement of the Purchase Price and Purchaser shall be required to purchase the Property in accordance with the terms of this Agreement, and Seller shall assign to Purchaser, without recourse, all of Seller's right, title and interest in and to any award made or to be made in the condemnation proceeding (in which event Purchaser shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage). For the purpose of this Paragraph, the term "materially" shall mean any taking of in excess of ten percent (10%) of the square footage of either of a particular Nursing Home or fifty percent (50%) of the Real Property associated with any Nursing Home, provided, further, that: (i) Purchaser shall have the ability after said taking to operate the applicable Nursing Home in compliance with the Licenses applicable to said Nursing Home with the same number of beds at the applicable Nursing Home as are existing with respect to said Nursing Home as of the date of this Agreement; (ii) there remains after said taking means of egress and ingress to and from the Nursing Home to a public highway; and (iii) the use of the Nursing Home after said taking is in compliance with all applicable zoning and building rules, regulations and ordinances. (c) Closing. On or before the Closing Date, Seller agrees that it will deliver the following documents into the Escrow (hereinafter the "Closing Documents"): -18- (i) Executed warranty deeds and bills of sale satisfying the requirements of Section 4(i), endorsements, assignments and other instruments of transfer and conveyance as shall be reasonably satisfactory in form and substance to counsel for Purchaser transferring and assigning to Purchaser the Property to be transferred as herein provided ("Instruments of Assignment"); (ii) An opinion of counsel for Seller, dated as of the Closing Date in the form attached hereto as Exhibit M; (iii) A certificate of a responsible officer of Seller dated as of the date of Closing, certifying to Purchaser the fulfillment of the conditions set forth in Section 15(a) hereof; (iv) The patient trust fund accounting more fully described in Section 22 hereof; (v) The employee benefits schedules more fully described in Section 25 hereof; (vi) Seller shall deliver to Purchaser certificates of good standing from the Secretary of State of its state of organization, and from each jurisdiction in which Seller is qualified to do business, certified copies of the Bylaws and Charter of Seller (all dated the most recent practical date prior to Closing), certified copies of the resolutions of the Board of Directors of Seller authorizing the execution, delivery and consummation of this Agreement and the execution, delivery and consummation of all other agreements and documents executed in connection herewith by them, including all deeds, bills of sale and other instruments required hereunder, sufficient in form and content to meet the requirements of the law of the state of Seller's incorporation relevant to such transactions and certified by the Secretary of Seller as adopted and in full force and effect and unamended as of Closing; and (vii) A certificate of non-foreign status signed by the appropriate party and sufficient in form and substance to relieve Purchaser of all withholding obligations under Section 1445 of the Code. (d) Title Insurance Premium. At Closing, Seller will pay in accordance with Section 5(b) hereinabove the premium for the title insurance coverage in connection with the title insurance policy described in Section 20 hereof. (e) Post-Closing. After the Closing, Seller agrees that it will take such actions and properly execute and deliver to Purchaser such further instruments of assignment, conveyance and transfer as, in the reasonable opinion of counsel for Purchaser, may be necessary to assure, complete and evidence the full and effective transfer and conveyance of the Property. -19- 13. PURCHASER COVENANTS. Purchaser hereby covenants as follows: (a) Pre-Closing. Between the date hereof and the Closing Date, except as contemplated by this Agreement or with the consent of Seller, Purchaser agrees that it will not take any action inconsistent with its obligations under this Agreement or which could hinder or delay the consummation of the transaction contemplated by this Agreement. (b) Closing. On or before the Closing Date, Purchaser agrees that it will: (i) Deposit the cash portion of the Purchase Price due at Closing in accordance with the requirements of Section 2(a) hereof into the Closing Escrow; (ii) Deliver into the Closing Escrow (the "Closing Documents") an opinion of counsel of Purchaser, dated as of the Closing Date in the form attached hereto as Exhibit N; (iii) Deliver into the Closing Escrow a certificate of a responsible officer of Purchaser dated as of the date of Closing, certifying to Seller the fulfillment of the conditions set forth in Section 16(a) hereof; and (iv) Deliver to Seller certificates of good standing from the Secretary of State of its state or organization, and from each jurisdiction in which Purchaser is qualified to do business, certified copies of the Bylaws and Charter of Purchaser (all dated the most recent practical date prior to Closing), certified copies of the resolutions of the Board of Directors of Purchaser authorizing the execution, delivery and consummation of this Agreement and the execution, delivery and consummation of all other agreements and documents executed in connection herewith by it, including all instruments required hereunder, sufficient in form and content to meet the requirements of the law of the state of Purchaser's incorporation relevant to such transactions and certified by the Secretary of Purchaser as adopted and in full force and effect and unamended as of Closing. (c) Post-Closing. On or after the Closing of this Agreement, Purchaser agrees that it will: (i) Provide Seller with access during normal business hours to any books or records which Seller may need to file or to defend cost reports, tax returns or other filings or with respect to any pending litigation filed prior or subsequent to the Closing Date which relate to periods prior to the Closing Date; (ii) Take such actions and properly execute and deliver such further instruments as may be convenient or necessary to assure, complete and evidence the transactions provided for in this Agreement; and -20- (iii) within thirty (30) days following the Closing remove or cause to be removed all signs on the Real Property containing the names of Seller listed as an item of the Excluded Assets in Section 1.2(d) hereinabove. 14. MUTUAL COVENANTS. Following the execution of this Agreement, Purchaser and Seller agree: (a) If any event should occur, either within or without the knowledge or control of Purchaser or Seller, which would prevent fulfillment of the conditions to the obligations of any party hereto to consummate the transaction contemplated by this Agreement, to use commercially reasonable efforts to cure the same as expeditiously as possible; (b) To cooperate fully with each other in preparing, filing, prosecuting, and taking any other reasonable actions with respect to, any applications, requests, or actions which are or may be reasonable and necessary to obtain the consent of any governmental instrumentality or any third party or to accomplish the transaction contemplated by this Agreement; and (c) Purchaser has received from Seller a Phase I Environmental Audit of the Real Property dated January, 1994 and prepared by Dames & Moore. Purchaser shall have the right at its sole expense to commission a Phase I Environmental Audit of the Real Property from an environmental consultant selected by Purchaser (said entity, the "Environmental Consultant"). If the Environmental Consultant recommends that a Phase II Environmental Audit be prepared and the financial institution providing financing for Purchaser's acquisition of the Property requires that a Phase II Environmental Audit be prepared, Purchaser (at Purchaser's sole cost and expense) shall have the right until February 16, 1996 (the "Inspection Period") to have a Phase II Environmental Audit prepared provided, however, that Seller shall be entitled to receive prior written notice that any such Phase II Environmental Audit is to be prepared and to participate in the preparation of the same, said participation being intended to include the right of Seller to have advance notice of any borings to be made to the soil located on the Real Property and to have such of its agents present at the Real Property during the preparation of any such Phase II Environmental Audit. The Phase II Environmental Audit shall be performed by the Environmental Consultant and shall include such sampling and testing as shall be necessary and prudent to confirm the presence or absence of hazardous substances and hazardous materials. If the Phase II Environmental Audit confirms the existence of hazardous materials or hazardous substances at any of the Real Property sites and the aggregate cost of remediation required to remedy any violations of Environmental Laws resulting from the existence of said hazardous materials or hazardous substances exceeds Two Hundred Thousand Dollars ($200,000.00), Purchaser, within the expiration of the Inspection Period, may either: (i) terminate this Agreement, in which event the Earnest Deposit shall be returned to Purchaser; or (ii) waive its right to terminate this Agreement pursuant to this Section 14(c), whereupon the transactions contemplated by this Agreement shall be consummated as scheduled and Purchaser shall take title to the Real Property and the improvements subject to the existence of said hazardous materials. For purposes of this Agreement, the term "hazardous materials "shall mean any asbestos, urea formaldehyde or other hazardous wastes and substances defined as "hazardous substances" in the -21- Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended 42 U.S.C. Sec. 9601 et seq. P.L. 96-510, the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq., the Superfund Amendments and Reauthorization Act of 1986, P.L. 99- 499 and the Federal Water Pollution Control Act, as amended, Sec. 311(b)(A)(2), P.L. 92-500 and all amendments thereto and regulations adopted pursuant to said laws (all of the foregoing collectively, the "Environmental Laws"). 15. CONDITIONS TO PURCHASER'S OBLIGATIONS. All obligations of Purchaser under this Agreement are subject to fulfillment, prior to or at Closing, of each of the following conditions, any one or all of which may be waived in writing by Purchaser. (a) Seller's Representations, Warranties and Covenants True at Closing. Seller's representations, warranties and covenants contained in this Agreement or in any certificate or docu ment delivered in connection with this Agreement or the transactions contemplated herein shall be true at the date hereof and as of the Closing Date in all material respects as though such representations, warranties and covenants were then again made. (b) Seller's Performance. Seller shall have substantially performed in all material respects all of its obligations and covenants under this Agreement that are to be performed prior to or at Closing. (c) Hart-Scott Condition Precedent. Prior to the Closing Date, the Hart-Scott Condition Precedent shall have been satisfied. (d) Title Insurance. A title insurance company acceptable to the parties shall have committed to issue to Purchaser as of the date of Closing owners' policies of title insurance in accordance with the requirements of Section 20 hereof. (e) No Defaults. Seller shall not be in material default under any Lease, Contract Pharmacy Lease or Pharmacy Contract or under any other mortgage, contract, lease or other agreement affecting or relating to any of the Property. (f) Inspection. Until the expiration of the Inspection Period, Purchaser shall have the right to inspect the Property and be satisfied with the results of the inspection. If the inspection of the Property reveals, with respect to the Real Property, structural defects in the air conditioning system, parking lot, the heating system, the plumbing system, the electrical system, the fire alarm system, if any, the sprinkling system, if any, the elevators, if any, and the roof and roof components (said defects collectively, the "Structural Defects") which in the judgment of the third parties inspecting the Real Property (the "Inspectors") reveals the existence of Structural Defects and the aggregate cost of remediation required to remedy any Structural Defects exceeds Three Hundred Thousand Dollars ($300,000.00), as estimated by the Inspectors, Purchaser, within the expiration of the Inspection Period, may either: (i) terminate this Agreement, in which event the Earnest Deposit shall be returned to Purchaser; or (ii) waive its right to terminate this Agreement pursuant to this Section 15(f), whereupon the -22- transactions contemplated by this Agreement shall be consummated as scheduled and Purchaser shall take title to the Real Property and the improvements subject to the existence of said Structural Defects. (g) Absence of Litigation. No action or proceeding shall have been instituted, nor any judgment, order or decree entered by any court or governmental body or authority preventing the acquisition by Purchaser of the Property or the consummation of the transaction contemplated hereby. (h) Licenses and Consents. Purchaser shall have received no written notice that any licenses, permits, accreditation, certifications, consents and other authorizations required for the continued operation of the Property as now operated, including the continuation of presently existing reimbursement arrangements with Medicaid and Medicare, will not be issued. (i) No Material Change. No material adverse change shall have occurred, in the reasonable opinion of Purchaser, in the physical condition or business of the Property. (j) Removal of Personal Property Liens. Seller shall have removed all personal property liens disclosed by the UCC Searches which are related to the Property and the Property shall be free and clear of all liens, claims and encumbrances other than those permitted by Sections 4 and 20 hereof. (k) Environmental Matters. Purchaser shall have waived its right to terminate this Agreement pursuant to Section 14(c) hereinabove. In the event Purchaser is dissatisfied with the results of any of its due diligence or any of the conditions set forth in Sections 15(a) through (e) and (g) through (j) have not been satisfied prior to the Closing Date, Purchaser may terminate this Agreement with no liability to either party hereunder and the Earnest Deposit shall be returned to Purchaser. 16. CONDITIONS TO SELLER'S OBLIGATIONS. All obligations of Seller under this Agreement are subject to the fulfillment, prior to or at Closing, of each of the following conditions, any one or all of which may be waived by Seller in writing. (a) Purchaser's Representations, Warranties and Covenants True at Closing. Purchaser's representations, warranties and covenants contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein shall be true at the date hereof and as of the date of Closing as though such representations, warranties and covenants were then again made. (b) Purchaser's Performance. Purchaser shall have substantially performed its obligations and covenants under this Agreement that are to be performed prior to or at Closing. -23- (c) Absence of Litigation. No action or proceeding shall have been instituted, nor any judgment, order or decree entered by any court or governmental body or authority preventing the acquisition by Purchaser of the Property or the consummation of the transaction contemplated hereby. (d) Hart-Scott Condition Precedent. Prior to the Closing Date, the Hart-Scott Condition Precedent shall have been satisfied. 17. TERMINATION. (a) Either party may terminate this Agreement if a condition to its obligation to consummate the transaction contemplated by this Agreement has not been satisfied by the Closing Date. In that event, if the other party is not in default under this Agreement, the parties shall have no further obligations or liabilities to one another and the Earnest Deposit shall be returned to Purchaser. (b) If Seller is in material breach of its obligation to consummate the transaction contemplated by this Agreement pursuant to the terms hereof, then Purchaser may at its option elect as its remedy to (i) seek specific performance of this Agreement or (ii) have the Earnest Deposit returned to Purchaser. In either event, Purchaser shall have the right to recover its costs and expenses incurred in such actions, including, but not limited to, reasonable attorney's fees. (c) If Purchaser is in material breach of its obligation to consummate the transaction contemplated by this Agreement pursuant to the terms hereof, then, as Seller's sole and exclusive remedy for Purchaser's default, the Earnest Deposit shall be delivered to Seller as liquidated damages and not as a penalty. (d) Upon termination of this Agreement for any reason, and subject to the foregoing Paragraphs, the parties hereto agree to promptly direct the Escrowee to deliver the Earnest Money in accordance with the terms of this Agreement. 18. INDEMNIFICATION. (a) Seller, for itself and its successors and assigns, hereby indemnifies and agrees to defend and hold Purchaser and its successors, assigns, affiliates, directors, officers, agents, servants and employees harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys' fees, costs and expenses) which any of them may suffer as a result of the untruth of any of the representations or breach of any of the warranties of Seller herein or given pursuant hereto, or any default by Seller in the performance of any of its commitments, covenants or obligations under this Agreement, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the ownership and use of the Property by Seller or for any liability which may arise from operations -24- of the Property prior to the Closing Date, including but not limited to any liabilities or obligations under the Indiana Family & Social Service Administration and Medicare Programs supervised by the Department of Health and Human Services. It is acknowledged and agreed that any claims, liabilities or charges arising or any provider assessment program, under the Medicare and Medicaid or other reimbursement programs for the period prior to the Closing Date shall be the sole responsibility of Seller and Purchaser shall in no way be liable therefore. Seller shall be solely and exclusively responsible for any overpayments made to the Property in which a repayment amount is owed to the Department of Public Aid. The rights of Purchaser under this paragraph are without prejudice to any other remedies not inconsistent herewith which Purchaser may have against Seller. Purchaser shall notify Seller in writing of any claim or demand. Within thirty (30) days after such notice and subject to the terms and provisions of Section 18(e) hereinbelow, Seller shall promptly pay to Purchaser a sum of money sufficient to pay in full such claim or demand, or promptly cure such breach or contest such claim in accordance with Section 18(c) hereinbelow. (b) Purchaser, for itself and its successors and assigns, hereby indemnifies and agrees to defend and hold Seller, its successors, assigns, affiliates, directors, officers, agents, servants and employees harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys' fees, costs and expenses) which Seller may suffer as a result of the untruth of any of the representations or breach of any of the warranties of Purchaser herein or given pursuant hereto, or any default by Purchaser in the performance of any of its commitments, covenants or obligations under this Agreement, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the ownership and use of the Property by Purchaser or for any liability which may arise from operation of the Property or the nursing home located thereon following the Closing Date. (c) If any party (the "Indemnitee") receives notice of any claim or the commencement of any proceeding with respect to which any other party (or parties) is obligated to provide indemnification (the "Indemnifying Party") pursuant to Section 18(a) or 18(b), the Indemnitee shall promptly give the Indemnifying Party notice thereof. Except as provided below, the Indemnifying Party may compromise, settle or defend, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any such matter involving the asserted liability of the Indemnitee. In any event, the Indemnitee, the Indemnifying Party and the Indemnifying Party's counsel shall cooperate in the compromise of, settlement or defense against, any such asserted Liability. Both the Indemnitee and the Indemnifying Party may participate in the defense of such asserted liability and neither may settle or compromise any claim over the reasonable objection of the other. Notwithstanding anything to the contrary contained herein, if Purchaser is the Indemnitee, Purchaser may, at its option, assume control of the defense or resolution of any such matter if Purchaser reasonably believes that the defense or resolution of such matter might materially and adversely affect the Property and so long as Seller has not commenced a compromise of, settlement or defense against an asserted liability within thirty (30) days of the date of the notice of any claim, provided that Seller shall continue to be obligated to indemnify Purchaser in connection with such matter and that Purchaser may not settle or compromise any such matter without the consent of Seller which shall not be unreasonably withheld. If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party, at reasonable times and upon reasonable notice, any books, records or other documents within its control that are necessary or appropriate for such defense. -25- (d) The sole and exclusive obligation of Purchaser or Seller, or any of Purchaser's or Seller's subsidiaries and affiliated companies or any of their respective directors, officers, agents, servants and employees, for any misrepresentation herein or breach of warranty hereunder, or for any failure by Seller or Purchaser or any of Seller's or Purchaser's subsidiaries and affiliated companies to perform any of its covenants, or for any act or omission of Seller or Purchaser, shall be the liabilities and obligations of Seller or Purchaser under, and subject to the conditions and limitations of, this Section 18. (e) Seller will have no liability (for indemnification or otherwise) with respect to the matters described in Section 18(a) until the total of all damages with respect to such matters exceeds Four Hundred Fifty Thousand Dollars ($450,000), and then only for the amount by which such damages exceed Four Hundred Fifty Thousand Dollars ($450,000). In addition, the liability of Seller to indemnify Purchaser under Section 18(a) shall be limited to a maximum aggregate amount of $5,000,000.00. 19. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants in this Agreement, or in any certificate or other writing delivered pursuant hereto, shall survive the closing of the transaction described in this Agreement for a period of twelve (12) months. Further, with respect to any matter as to which a claim has been asserted hereunder and is pending or unresolved at the end of the foregoing period, such claim shall continue to be covered by the indemnification provisions hereof, and the indemnitor shall remain liable therefor, until finally terminated or otherwise resolved. 20. SURVEYS AND TITLE POLICIES. Seller has provided to Purchaser photocopies of Seller's owner's title insurance policies issued by the Title Company with respect to the Real Property (the "Prior Title Policies") and ALTA surveys for each of the Nursing Homes (the "Current Surveys") . During the term of the Inspection Period, Purchaser shall at its expense order updates of the Current Surveys (the "Survey Updates"), which Survey Updates shall reflect thereon all visible utility easements, and shall apply to the Title Company for new title insurance commitments (ALTA Form "B") (collectively, the "Title Commitments") agreeing to issue to Purchaser, upon recording of the deeds required to be delivered pursuant to Section 4 hereinabove owner's policies of title insurance (collectively, the "Title Policies") in the aggregate amount of the Purchase Price, allocated to each Nursing Home in the amounts set forth on Exhibit O attached hereto. Said Title Commitments shall agree: (i) to insure the proposed title of the Purchaser to the Real Property subject only to the Permitted Exceptions, such other title exceptions as Purchaser has agreed to accept or is deemed to have accepted pursuant to this Section 20, and any other exceptions which shall be discharged by Seller at or before Closing; and (ii) to delete the standard general exceptions and insure by 3.1 zoning endorsements that the Real Property is in compliance with all applicable zoning and building codes, laws, rules, ordinances and regulations. If: (i) title to the Real Property contains -26- title exceptions other than the Permitted Exceptions to which Purchaser reasonably objects or the Title Company is unable to perform the matters set forth in clause (ii) of the preceding sentence (any of the foregoing a "Title Defect"); or (ii) the Survey Updates reflect any matters which raise exceptions other than Permitted Exceptions to which Purchaser reasonably objects ("Survey Defects"), Purchaser shall notify Seller of such fact, which notice shall specify the Title Defect or Survey Defect and shall be accompanied with information sufficient to Seller, in Seller's sole judgment, to enable Seller to respond. Purchaser's notice shall be given no later than thirty (30) days from the date hereof, after which Seller shall have the right, but not the obligation, to cure such Title Defect or Survey Defect, and if Seller elects to attempt to cure the Title Defect or Survey Defect, and such Title Defect or Survey Defect cannot or is not cured on or before the Closing Date, then Closing (as hereinafter defined), may be extended by Seller for up to sixty (60) days to enable Seller to effect such cure. If the Title Defect or Survey Defect is not cured, Purchaser shall have the option, as its sole and exclusive remedy, of: (i) accepting title to the Real Property without abatement of the Purchase Price (provided, however, that if any such Title Defects are liens of a definite and ascertainable amount and are not the current mortgages encumbering the Real Property as set forth on Exhibit O attached hereto, Purchaser shall have the right to deduct from the Purchase Price the amount of such lien unless Seller elects to deposit with the Title Company an amount sufficient to cause the Title Company to delete said lien as an exception to the applicable Title Policy); or (ii) terminating this Agreement by giving notice to Seller of such election within five (5) days after receipt of Seller's notice that Seller does not intend or is unable to cure the Title Defect or Survey Defect, and in the latter event, the rights and liabilities of the parties hereto shall cease and terminate, except as otherwise provided in this Agreement and Purchaser shall be entitled to the return not only of the Earnest Deposit but an amount equal to the amounts paid by Purchaser for the Title Commitments and Survey Updates. Notwithstanding the foregoing, Purchaser shall be deemed to have accepted the condition of title and any such Title Defect unless it has given Seller notice of the Title Defect within thirty (30) days of the date hereof as herein provided, after which time any such Title Defect shall automatically be a Permitted Exception. 21. ACCOUNTS RECEIVABLE. (a) Purchaser shall assume responsibility for remitting to Seller any payments received by Purchaser on account of services rendered by Seller on and after the Closing Date. (b) Seller shall continue to own all accounts receivable due to Seller (the "Seller's Accounts Receivable") for any and all services rendered or goods provided prior to the Closing Date. At Closing, Seller shall deliver to Purchaser a schedule identifying Seller's Accounts Receivable and specifically identifying the accounts receivable due Seller from private pay patients ("Seller's Private Pay Receivables"). (For purposes of this Agreement private pay patients shall not include any patient who has applied for public aid and such public aid application has been denied.) Any payments received by Purchaser from Medicare, Medicaid or other third party government or financial payor which are allocated to a particular receivable and time period shall be applied in payment of the particular receivable and time period to which such payment has been so allocated, except, however, for social security checks, which will be credited to the payment due in the month in which such checks -27- were received. With respect to the post-closing billing practice to be applied with respect to Seller's Private Pay Receivables, promptly after Closing Seller will prepare and send to the private pay patients their private-pay bills for all periods up to and including the Closing Date, with instructions notifying the private-pay patient or responsible party to send payment to Seller, with said payment payable to Seller or such other party as Seller directs. Payments received by Purchaser with respect to a private pay patient shall be applied first to payment of the particular Seller's Private Pay Receivable until such private pay receivable is paid. (c) The term "Seller's Public Pay Receivables" shall mean all of Seller's Accounts Receivables due Seller from Medicare, Medicaid or other third party government of financial payor. With respect to the post-closing billing practice to be applied with respect to Seller's Non-Private Pay Receivables, the billing for the same shall be made post-Closing from each of the Nursing Homes, with the exception of Medicare Part A bills for the months of December, 1995 and January, 1996. For a period of one hundred and twenty (120) days following Closing, Seller shall upon twenty four (24) hours' prior notice be allowed access during Purchaser's normal business hours to such books and records of Purchaser as are necessary in order for Seller at its own cost to prepare the bills for Seller's Public Pay Receivables. In order to account for all sums received by Seller for Seller's non- Private Pay Receivables, Seller shall also immediately notify Aetna Fort Washington, its Medicare intermediary, to remit payment directly to Seller. To the extent that Purchaser receives any remittances payable to Purchaser which are in fact attributable to Seller's Accounts Receivables, Purchaser shall deposit such remittances in its account. To the extent any such remittances are in the form of checks or other negotiable instruments payable to Seller, Purchaser shall forward said checks or negotiable instruments directly to Seller. Every Monday during the first 120 days following Closing, Purchaser shall provide to Seller a weekly reconciliation (the "Receipts Report") for Seller's review and approval, together with a copy of the remittance advice sent to Purchaser by any third party intermediary with respect to Seller's Non-Private Pay Receivables. The Receipts Report shall be sent by Purchaser to Seller every other Monday once the first 120 days after Closing have expired until such time as all of Seller's Accounts Receivables have been paid to Seller and during such period following said first 120 days after Closing Seller shall upon twenty four hours (24) prior notice be allowed access necessary in order for Seller at its own cost to verify the Receipts Reports that it has received from Purchaser, which access right shall in all events expire at the earlier of sixty (60) days following Seller's receipt of the final Receipts Report or two (2) years following the Closing Date. Seller hereby acknowledges that all receipts attributable to Seller's Accounts Receivable will be commingled with Purchaser's funds but, in all events shall be remitted to Seller no later than the third business day next following the date when the Receipts Report was, or should have been, delivered to Seller. Seller shall instruct Blue Cross to remit payments under Seller's current provider number directly to Seller. (d) For a period of one hundred and twenty (120) days following Closing, Seller shall also upon twenty-four (24) hours' prior notice be allowed access during Purchaser's normal business hours to such books and records of Purchaser as are necessary for Seller to review in order for Seller to verify that Seller is being remitted the payments required to be remitted to Seller pursuant to this Paragraph 21. -28- 22. PATIENT FUNDS. On the Closing Date, Seller shall provide Purchaser with an accounting of all funds belonging to patients at the Property which are held by Seller in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and the Seller's warranty that the accounting is true, correct and complete. 23. TRANSFER OF PATIENT FUNDS. On the Closing Date, Seller, in accordance with all applicable rules and regulations, shall transfer the funds referred to in Section 22 hereof to a bank account designated by Purchaser, and Purchaser shall in writing acknowledge receipt of and expressly assume all the Seller's financial and custodial obligations with respect thereto. 24. SELLER INDEMNITY REGARDING PATIENT FUNDS. Notwithstanding the foregoing, Seller will indemnify and hold Purchaser harmless from all liabilities, claims and demands, including reasonable attorney's fees, in the event the amount of funds, if any, transferred to Purchaser's bank account as provided in Section 23 above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Seller as custodian or with respect to any matters relating to patient funds which arise or relate to any period prior to the Closing Date. 25. EMPLOYEE MATTERS AND PATIENT RECORDS. At the Closing Date, Seller shall provide Purchaser with a schedule of the gross amount of all earned and accrued sick pay, vacation pay, personal holiday pay, FICA, federal unemployment taxes and workers' compensation payments as of the Closing Date ("Seller's Benefits"), which schedule shall include the names and addresses of the employees to whom Seller's Benefits are owed. Purchaser shall be entitled to a credit against the cash portion of the Purchase Price equal to the amount of Seller's Benefits. 26. TERMINATION OF SELLER EMPLOYEES. Effective as of 11:00 p.m. on the day immediately preceding the Closing Date, the Seller shall terminate the employment of all of the employees and shall pay to all of the employees all salaries, wages due or accrued for periods prior to 11:01 p.m. on the day immediately preceding the Closing Date. The Seller timely shall pay to all applicable governmental and regulatory authorities all employment-related taxes due with respect to the employees for periods prior to 11:01 p.m. on the day immediately preceding the Closing Date. On the Closing Date, the Purchaser shall offer employment to such employees as Purchaser may elect in its sole discretion. Such offers of employment shall be on such terms and at such salary or wage and benefit levels as Purchaser may determine. Anything to the contrary notwithstanding, this Agreement shall not be deemed to create any third party beneficiary rights to any third party. 27. DELIVERY OF MEDICAL RECORDS. Seller shall, on the Closing Date, transfer and deliver to Purchaser all medical records and other personal information concerning all patients residing at the Property as of the Closing Date. Such transfer and delivery shall be in accordance with all applicable laws, rules and regulations concerning the transfer of medical records and other types of patient records. -29- 28. BULK SALES LAW. Purchaser hereby waives compliance by Seller with the provisions of any applicable Bulk Sales Law. Seller hereby agrees to indemnify and hold Purchaser harmless against and in respect of any claims, losses, liabilities, damages or expenses (including reasonable attorney's fees) incurred by or asserted against Purchaser as a result of such non-compliance; provided that nothing herein shall prevent Seller from contesting any such liability in good faith. 29. NOTICES. Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be sent by recognized overnight courier or registered or certified mail, postage prepaid, return receipt requested to the following address: To Seller: Genesis Development Group Attn: Joseph Travaglini 375 Morris Road, P.O. Box 200 West Point, Pennsylvania 19486 Copy to: Blank, Rome, Comisky & McCauley Attn: Stephen E. Luongo, Esq. 1200 Four Penn Center Plaza Philadelphia, Pennsylvania 19103 To Purchaser: Hunter Acquisition L.L.C. c/o Eric Rothner 5301 W. Touhy Avenue Skokie, Illinois 60077 Copy to: Albert Milstein, Esq. Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Notice shall be deemed delivered three (3) days after deposit in the mail or upon receipt from an overnight courier. 30. ASSIGNMENT. Neither party may assign its rights hereunder without the other party's prior written consent, provided, however, that Purchaser shall have the right to cause to be formed prior to the Closing such number of Indiana limited liability companies as Purchaser in its sole discretion deems appropriate for purposes of being designated by Purchaser the nominee or nominees, as the case may be, of Purchaser's rights and obligations under this Agreement and Purchaser shall not be relieved of any liability under this Agreement as a result of such assignment. -30- 31. SOLE AGREEMENT. This Agreement may not be amended or modified in any respect whatsoever except by an instrument in writing signed by the parties hereto. This Agreement constitutes the entire agreement between the parties hereto. 32. SUCCESSORS. Subject to the limitations on assignment set forth above, all the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the heirs, successors and assigns of the parties hereto. 33. CAPTIONS. The captions of this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 34. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana. 35. SEVERABILITY. Should any one or more of the provisions of this Agreement be determined to be invalid, unlawful or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and each such provision shall be valid and remain in full force and effect. 36. GENDER. All nouns and pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons, firm or firms, corporation or corporations, entity or entities or any other thing or things may require. 37. RISK OF LOSS. Until the Closing the risk of loss for the Property shall be that of the Seller. The Purchaser shall bear the risk of loss of the Property from and after the Closing. 38. HOLIDAYS. Whenever under the terms and provisions of this Agreement the time for performance falls upon a Saturday, Sunday or legal holiday, such time for performance shall be extended to the next business day. 39. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 40. DEFINITION OF KNOWLEDGE. As used in this Agreement, an individual will be deemed to have "knowledge" of a particular fact or other matter if such individual is actually aware of such fact or other matter. A Person other than an individual will be deemed to have "knowledge" of a particular fact or other matter if any individual who is serving as a director, officer or partner of such person has "knowledge" of such fact or other matter. [Signature Page Follows] -31- IN WITNESS WHEREOF, the undersigned have duly executed this Agreement by parties legally entitled to do so as of the day and year first set forth above. SELLER: PURCHASER: GENESIS HEALTH VENTURES OF HUNTER ACQUISITION L.L.C., an INDIANA, INC., a Pennsylvania Illinois limited liability company corporation By: By: ------------------------------- -------------------------------- Its: Eric Rothner, one of its managing ------------------------ members HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Inc., a Pennsylvania corporation and one of its General Partners By: ----------------------- Its: ---------------- JOINDER GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation, hereby joins in the execution of this Agreement for the purpose of joining in as an Indemnifying Party on behalf of Seller with respect to the obligations of Seller set forth in Sections 18(a) and 12(a)(vii) of this Agreement. GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation By: ---------------------------------- Its: --------------------------------- -32- Exhibit H(a) FORM OF ESTOPPEL CERTIFICATE DATED: __________________ TO: Hunter Acquisition L.L.C. c/o Eric Rothner 5301 W. Touhy Avenue Skokie, Illinois 60077 Re: That certain property commonly known as -------------------------------- ----------------------------------------------------------------------- (the "Building"). ------------------------------------- Gentlemen: The following statements are made with the knowledge that you are relying on them in connection with the assignment to ______________________, your nominee (the "Nominee") of the Lease referred to below in connection therewith, and you and your Nominee and your respective successors and assigns may rely on them for that purpose. The undersigned hereby acknowledges receipt of that certain Assignment and Assumption Agreement executed by Tenant and Nominee and consents to the terms and conditions thereof. The undersigned ("Landlord"), being the Landlord under the lease referred to in Paragraph 1 below, covering certain premises ("Leased Premises") in the Building hereby certifies to you that the following statements are true, correct and complete as of the date hereof: 1. ___________________________________ ("Tenant") is the tenant under a lease with Landlord dated ______, 19 ___, demising to Tenant _________________ square feet in the Building. The initial term of the lease commenced on ____________, 19 __, will expire on , exclusive of unexercised renewal options and extension options contained in the lease. There have been no amendments, modifications or revisions to the lease, and there are no agreements of any kind between Landlord and Tenant regarding the Leased Premises, except as provided in the lease or except as follows: (if none, write "none"). The lease, and all amendments and other agreements referred to above are referred to in the following portions of this letter collectively as the "Lease." 2. The Lease has been duly authorized and executed by Landlord and is in full force and effect, and Landlord has attached hereto a true, correct and complete copy of the Lease. 3. Tenant has accepted and is in sole possession of the Leased Premises and is presently occupying the Leased Premises. The Lease has not been assigned, by operation of law or otherwise, by Landlord or Tenant and no sublease, concession agreement or license, covering the Leased Premises, or any portion of the Leased Premises, has been entered into by Tenant. 4. Tenant began paying rent on ___________. Tenant is obligated to pay fixed or base rent under the Lease in the annual amount of $____________, payable in monthly installments of $_______________. No rent under the Lease has been paid more than one (1) month in advance, and no other sums have been deposited with Landlord other than $_______________ deposited as security under the Lease. Except as specifically stated in the Lease, Tenant is entitled to no rent concessions or free rent. Percentage Rent for the last lease year ending ________, 19 ___, in the amount of $________________ based on Tenant's receipts of $__________________ has been paid by Tenant to Landlord. The Lease provides for the Tenant to pay _________________ percent (_______________%) of any increase in operating expenses and real property taxes in excess of the ____________ base year operating expenses and real property taxes of $_______________. 5. All conditions and obligations of Landlord relating to completion of tenant improvements and making the Leased Premises ready for occupancy by Tenant have been satisfied or performed and all other conditions and obligations under the Lease to be satisfied or performed, or to have been satisfied or performed, by Landlord as of the date hereof have been fully satisfied or performed. 6. There exists no defense to, or right of offset against, enforcement of the Lease by Landlord. Neither Landlord nor Tenant is in default under the Lease and no event has occurred which, with the giving of notice or passage of time, or both, could result in such a default. 7. Landlord has not received any notice of any present violation of any federal, state, county or municipal laws, regulations, ordinances, orders or directives relating to the use or condition of the Leased Premises or the Building. 8. Except as specifically stated in the Lease, Tenant has not been granted: (a) any option to extend the term of the Lease, (b) any option to expand the Leased Premises or to lease additional space within the Building, (c) any right of first refusal on any space in the Building, (d) any right to terminate the Lease prior to its stated expiration, or (e) any option or right of first refusal to purchase the Leased Premises or the Building or any part thereof. LANDLORD ---------------------------------------- (Name of Landlord) By: ------------------------------------- Title: -------------------------------- -2- EX-3.1 4 EXHIBIT 3.1 Microfilm Number ________ Filed with the Department of State on Feb 12, 1993 ------------- Entity Number 869683 --------- ------------------------------------------------ Secretary of the Commonwealth GENESIS HEALTH VENTURES, INC. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Genesis Health Ventures, Inc. ---------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 148 West State Street Kennett Square PA 19348 Chester - ------------------------------------------------------------------------------- Number and Street City State Zip County (b) c/o:___________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Act of May 5, 1933 (P.L. 364), as amended ------------------------------------------------------ 4. The date of its incorporation is: May 16, 1985 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): __x__ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. _____ The amendment shall be effective on:__________________________at____________________________ Date Hour 6. (Check one of the following): __x__ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. ss. 1914(a) and (b). _____ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. ss. 1914(c). 7. (Check, and if appropriate complete, one of the following): __x__ The amendment adopted by the corporation, set forth in full, is as follows: RESOLVED, that the Articles of Incorporation of the Company be and they hereby are amended and restated in their entirety as set forth on Exhibit "A" hereto. _____ The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): __x__ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this _______ day of ________, 1993. GENESIS HEALTH VENTURES, INC. By: /s/ Lewis J. Hoch -------------------------------- Lewis J. Hoch Secretary EXHIBIT "A" AMENDED AND RESTATED ARTICLES OF INCORPORATION OF GENESIS HEALTH VENTURES, INC. 1. The name of the corporation is Genesis Health Ventures, Inc. 2. The location and address of the registered office of the corporation is 148 West State Street, Kennett Square, Pennsylvania 19348. 3. The corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purposes: To have unlimited power to engage in or to do any lawful act concerning any or all lawful businesses for which corporations may be incorporated under the Pennsylvania Business Corporation Law, as amended, and to own, operate and manage businesses engaged in healthcare services. 4. The term for which the corporation is to exist is perpetual. 5. The aggregate number of shares which the corporation shall have authority to issue is twenty-five million (25,000,000) shares, consisting of (a) twenty million (20,000,000) shares of common stock, par value $.02 per share, and (b) five million (5,000,000) shares of preferred stock, as more fully described in Article 6 below ("Preferred Stock"). 6. The shares of Preferred Stock may be divided and issued from time to time in one or more series as may be designated by the Board of Directors of the corporation, each such series to be distinctly titled and to consist of the number of shares designated by the Board of Directors. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon (if any) shall accrue or be cumulative (or both). The designations, preferences, qualifications, limitations, restrictions, and special or relative rights (if any) of any series of Preferred Stock may differ from those of any and all other series at any time outstanding. The Board of Directors of the corporation is hereby expressly vested with authority to fix by resolution the designations, preferences, qualifications, limitations, restrictions and special or relative rights (if any) of the Preferred Stock and each series thereof which may be designated by the Board of Directors, including, but without limiting the generality of the foregoing, the following: (a) the voting rights and powers (if any) of the Preferred Stock and each series thereof; (b) the rates and times at which, and the terms and conditions on which, dividends (if any) on Preferred Stock, and each series thereof, will be paid, and any dividend preferences or rights of cumulation; (c) the rights (if any) of holders of Preferred Stock, and each series thereof, to convert the same into, or exchange the same for, shares of other classes (or series of classes) of capital stock of the corporation and the terms and conditions for such conversion or exchange, including provisions for adjustment of conversion or exchange prices or rates in such events as the Board of Directors shall determine; (d) the redemption rights (if any) of the corporation and the holders of the Preferred Stock and each series thereof and the times at which, and the terms and conditions on which, Preferred Stock, and each series thereof, may be redeemed; and (e) the rights and preferences (if any) of the holders of Preferred Stock, and each series thereof, upon the voluntary liquidation, dissolution or winding up of the corporation. 7. Shareholders of the corporation are not entitled to cumulate their votes in the election of directors. 8. (a) The Board of Directors shall be divided into three classes, Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, however, that each director in Class I shall hold office until the annual meeting of shareholders in 1995 (or until the action of shareholders in lieu thereof); each director in Class II shall hold office until the annual meeting of shareholders in 1996 (or until the action of shareholders in lieu thereof); and each director in Class III shall hold office until the annual meeting of shareholders in 1994 (or until the action of shareholders in lieu thereof). (b) The number of directors which shall constitute the whole Board of Directors of the corporation shall be the number from time to time fixed by the bylaws of the corporation (which number shall not be less than three), and such number of directors so fixed in such bylaws may be changed only by receiving the affirmative vote of (i) the holders of at least eighty percent (80%) of all the shares of the corporation then entitled to vote on such change, or (ii) seventy-five percent (75%) of the directors in office at the time of vote. When the number of directors is changed, any increase or decrease in the number of directorships shall be apportioned among the classes so as to make all classes as nearly equal in number as possible. The directors of this corporation need not be shareholders. (c) Each director shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal. Should a vacancy occur or be created, whether arising through death, resignation, retirement or removal of a director, such vacancy shall be filled by a majority vote of the remaining directors. A director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he was elected. (d) Any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least eighty percent (80%) of all of the outstanding shares of capital stock of the corporation entitled to vote for that purpose, except that if the Board of Directors, by an affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors, recommends removal of a director to the shareholders, such removal may be effected by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the corporation entitled to vote on the election of directors at a meeting of shareholders called for that purpose. 9. Special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of the Board and shall be called by the Secretary at the request in writing of a majority of the Board of Directors or shareholders entitled to cast thirty percent (30%) of the votes which all A-2 shareholders are entitled to cast at the particular meeting. Any such request of directors or shareholders shall state the purpose or purposes of the proposed meeting. 10. Except for a "Business Combination" (as defined below) which has been approved by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors of the corporation, any Business Combination, in addition to any affirmative vote required by law, shall require the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class (it being understood that for purposes of this Article 10, each share of the Voting Stock shall have the number of votes granted to it pursuant to Articles 5 and 6 of these Articles of Incorporation). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article 10 shall mean: (a) any merger or consolidation of the corporation or any corporation of which the shares of stock having a majority of the general voting power in electing the Board of Directors are, at the time as of which any determination is being made, owned by the corporation either directly or indirectly ("Subsidiary"); or (b) any sale, lease, exchange, transfer or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the corporation and its Subsidiaries; provided that transactions which are financing transactions (such as sale-leaseback transactions) shall not be deemed to be Business Combinations for purposes of this Article 10; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the corporation; or (d) any reclassification of securities (including any reverse stock split) or recapitalization of the corporation, or any merger or consolidation of the corporation with any Subsidiary. 11. Notwithstanding any other provisions of these Amended and Restated Articles of Incorporation or the bylaws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Amended and Restated Articles of Incorporation or the bylaws of the corporation), the affirmative vote of the holders of eighty percent (80%) or more of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with (collectively, "Amend") Articles 8, 9, 10, 11, 12 or 13 of these Articles of Incorporation, unless such Amendment has been approved by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors of the corporation, in which event such Amendment may be approved by the affirmative vote the holders of a majority of the outstanding Voting Stock, voting together as a single class. 12. As provided in the corporation's Amended and Restated Articles of Incorporation filed on March 29, 1991 with the Department of State of the Commonwealth of Pennsylvania, the corporation reaffirms that the provisions contained in Subchapters E, G, H, I and J of Chapter 25 of the Pennsylvania Business Corporation Law, as it may be amended from time to time, shall not be applicable to the corporation. A-3 13. (a) The Board of Directors may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but it is not legally obligated to, consider any pertinent issues. By way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to consider any and all of the following: (i) whether the offer price is acceptable based on the historical and present operating results or financial conditions of the corporation; (ii) whether a more favorable price could be obtained for the corporation's securities in the future; (iii) the impact which an acquisition of the corporation would have on the employees, suppliers and customers of the corporation and its Subsidiaries and on the communities served by the corporation and its Subsidiaries; (iv) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees, suppliers and customers of the corporation and its Subsidiaries and the future value of the corporation's stock; (v) the value of the securities, if any, which the offeror is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the entity whose securities are being offered; and (vi) any antitrust or other legal and regulatory issues that are raised by the offer. (b) If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any and all of the following: (i) advising shareholders not to accept the offer; (ii) commencing litigation against the offeror; (iii) filing complaints with all governmental and regulatory authorities; (iv) acquiring the corporation's securities; (v) selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; (vi) acquiring a company to create an antitrust or other regulatory problem for the offeror; and (vii) obtaining a more favorable offer from another individual or entity. A-4 Microfilm Number ________ Filed with the Department of State on March 11, 1994 ------------- Entity Number 869683 --------- ------------------------------------------------ Secretary of the Commonwealth GENESIS HEALTH VENTURES, INC. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Genesis Health Ventures, Inc. ---------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 148 West State Street Kennett Square PA 19348 Chester - ------------------------------------------------------------------------------ Number and Street City State Zip County (b) c/o:___________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Pennsylvania Business Corporation Law of 1988 ------------------------------------------------------ 4. The date of its incorporation is: May 16, 1985 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): __x__ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. _____ The amendment shall be effective on:__________________________at____________________________ Date Hour 6. (Check one of the following): __x__ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. ss. 1914(a) and (b). _____ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. ss. 1914(c). 7. (Check, and if appropriate complete, one of the following): __x__ The amendment adopted by the corporation, set forth in full, is as follows: RESOLVED, that Article 5 of the Articles of Incorporation of Genesis Health Ventures, Inc. should be amended and restated to read in full as follows: 5. The aggregate number of shares which the corporation shall have the authority to issue is Thirty million (30,000,000) shares, consisting of (a) Twenty-five million (25,000,000) shares of common stock, par value $.02 per share, and (b) Five million (5,000,000) shares of preferred stock, as more fully described in Article 6 below ("Preferred Stock"). 8. (Check if the amendment restates the Articles): _____ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 8th day of March, 1994. GENESIS HEALTH VENTURES, INC. By: /s/ Lewis J. Hoch --------------------------------------------- Lewis J. Hoch Vice President, General Counsel & Secretary Microfilm Number ________ Filed with the Department of State on March 21, 1995 ------------- Entity Number 869683 --------- ------------------------------------------------ Secretary of the Commonwealth GENESIS HEALTH VENTURES, INC. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Genesis Health Ventures, Inc. ---------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 148 West State Street Kennett Square PA 19348 Chester - ------------------------------------------------------------------------------ Number and Street City State Zip County (b) c/o:___________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Business Corporation Law, May 5, 1933, P.L. 364, as amended ----------------------------------------------------------- 4. The date of its incorporation is: May 16, 1985 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): __x__ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. _____ The amendment shall be effective on:__________________________at____________________________ Date Hour 6. (Check one of the following): __x__ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. ss. 1914(a) and (b). _____ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. ss. 1914(c). 7. (Check, and if appropriate complete, one of the following): __x__ The amendment adopted by the corporation, set forth in full, is as follows: Article 5 of the Articles of Incorporation of Genesis Health Ventures, Inc. should be amended and restated to read in full as follows: 5. The aggregate number of shares which the corporation shall have authority to issue is Forty-five million (45,000,000) shares, consisting of (a) Forty million (40,000,000) shares of common stock, par value $.02 per share, and (b) Five million (5,000,000) shares of preferred stock, as more fully described in Article 6 below ("Preferred Stock"). 8. (Check if the amendment restates the Articles): _____ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 16th day of March , 1995. GENESIS HEALTH VENTURES, INC. By: /s/ Lewis J. Hoch ------------------------------------------ Lewis J. Hoch Vice President, General Counsel & Secretary Microfilm Number ________ Filed with the Department of State on May 11, 1995 ------------- Entity Number 869083 --------- ------------------------------------------------ Secretary of the Commonwealth STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION DSCB:15-1522 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that: 1. The name of the corporation is: Genesis Health Ventures, Inc. ---------------------------- - -------------------------------------------------------------------------------- 2. (Check and complete one of the following): _____ The resolution amending the Articles under 15 Pa.C.S. ss. 1522(b) (relating to divisions and determinations by the board), set forth in full, is as follows: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __X__ The resolution amending the Articles under 15 Pa.C.S. ss. 1522(b) is set forth in full in Exhibit A attached hereto and made a part hereof. 3. The aggregate number of shares of such class or series established and designated by (a) such resolution, (b) all prior statements, if any, filed under 15 Pa.C.S. ss. 1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the Articles is 100,000 shares. 4. The resolution was adopted by the Board of Directors or an authorized committee thereof on: April 20, 1995. 5. (Check, and if appropriate complete, one of the following): __x__ The resolution shall be effective upon the filing of this statement with respect to shares in the Department of State. _____ The amendment shall be effective on:__________________________at____________________________ Date Hour IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement to be signed by a duly authorized officer thereof this 11th day of May, 1995. GENESIS HEALTH VENTURES, INC. BY: /s/ George V. Hager, Jr. ------------------------------------------------- George V. Hager, Jr. Senior Vice President and Chief Financial Officer EXHIBIT A FORM OF CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of GENESIS HEALTH VENTURES, INC. RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the corporation (the "Board") by the provisions of Article 6 of the Amended and Restated Articles of Incorporation of the corporation ("Articles") and the provisions of Sections 1521 and 1522 of the Pennsylvania Business Corporation Law of 1988, as amended, the Board hereby creates a series of preferred stock, par value $.01 per share, and determines the designation and number of shares which constitute such series and the relative rights, preferences and limitations of such series as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.02 per share (the "Common Stock"), of the corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable on the first business day of February, May, August and November in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") as provided in paragraphs (B) and (C) of this Section 2 in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 in cash or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount (payable in cash) of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. If the corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common A-1 Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. (B) The corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share payable in cash on the Series A Preferred Stock shall nevertheless accrue and be cumulative on the outstanding shares of Series A Preferred Stock as provided in paragraph (C) of this Section 2. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the corporation. If the corporation shall at any time declare of pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number the of shares of Common Stock that was outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the corporation having A-2 general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (C) Except as set forth herein or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, or declared and a sum sufficient for the payment therefor be set apart for payment and be in the process of payment, the corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled: (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the corporation ranking junior (as to both dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the holders of the respective series or classes. (B) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such A-3 shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or as to amounts payable upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of Series A Preferred Stock shall have received an amount per share (rounded to the nearest cent) equal to greater of (a) $1,000 per share, or (b) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, plus, in either case, an amount equal to accrued and unpaid dividends and distribution thereon, whether or not declared, to the date of such payment, or (2) to the holders of stock ranking on a parity (either as to dividends or as to amounts payable upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such Shares are entitled upon such liquidation, dissolution or winding up. If the corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1)(b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. If the corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, or any combination thereof, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provisions for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash or any other property (payable in kind), or any combination thereof, as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. Section 8. Redemption. The shares of Series A Preferred Stock shall not be redeemable. So long as any shares of Series A Preferred Stock remain outstanding, the corporation shall not purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock (except as provided in 4(A)(iii))unless the corporation shall substantially concurrently also purchase or acquire for consideration a proportionate number of shares of Series A Preferred Stock. A-4 Section 9. Rank. The Series A Preferred Stock shall rank, with respect to payment of dividends and the distribution of assets, junior to all series of any other class of the corporation's Preferred Stock provided the Board in its absolute discretion may issue other such series or classes of the corporation's Preferred Stock which rank junior to the Series A Preferred Stock. Section 10. Amendment. The Articles of Incorporation of the corporation shall not be amended in any manner which would materially alter or change the powers, preferences, privileges or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. A-5 Microfilm Number ________ Filed with the Department of State on March 13, 1996 ------------- Entity Number 869683 --------- ------------------------------------------------ Secretary of the Commonwealth GENESIS HEALTH VENTURES, INC. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Genesis Health Ventures, Inc. ---------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 148 West State Street Kennett Square PA 19348 Chester - ------------------------------------------------------------------------------ Number and Street City State Zip County (b) c/o:___________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Act of May 5, 1933 (P.L. 364), as amended ------------------------------------------------------ 4. The date of its incorporation is: May 16, 1985 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): _____ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. __x__ The amendment shall be effective on: March 15, 1996 at 12:01 a.m. ------------------------- ------------------------------------- Date Hour 6. (Check one of the following): _____ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. ss. 1914(a) and (b). __x__ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. ss. 1914(c). 7. (Check, and if appropriate complete, one of the following): _____ The amendment adopted by the corporation, set forth in full, is as follows: __x__ The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): _____ The restated Articles of Incorporation supersede the original Article and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 7th day of March, 1996. GENESIS HEALTH VENTURES, INC. By: /s/ Michael R. Walker ----------------------------------------- Michael R. Walker Chairman and Chief Executive Officer EXHIBIT "A" GENESIS HEALTH VENTURES, INC. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION Article 5 of the Articles of Incorporation of the corporation, as amended, shall be amended to read in full as follows: "The aggregate number of shares which the corporation shall have authority to issue is Sixty-Five Million (65,000,000) shares, consisting of: (a) Sixty Million (60,000,000) shares of common stock, par value $.02 per share, and (b) Five Million (5,000,000) shares of preferred stock, as more fully described in Article 6." EX-11 5 EXHIBIT 11 GENESIS HEALTH VENTURES COMPARATIVE EARNINGS PER SHARE CALCULATION QUARTERS ENDED MARCH 31, 1996 AND 1995 (in thousands, except share and per share data)
3/31/96 3/31/95 --------- --------- Primary Earnings Per Share: Reported earnings before debenture conversion expense $ 7,809 $ 5,813 Debenture conversion expense, net of tax ----------- ----------- Reported net income $ 7,809 $ 5,813 ----------- ----------- Weighted average shares & CSE's: 25,306,685 22,674,336 ----------- ----------- Primary EPS before debenture conversion expense $ 0.31 $ 0.26 Primary EPS - Debenture conversion expense =========== =========== Primary EPS - Net income $ 0.31 $ 0.26 =========== =========== Fully Diluted Earnings Per Share: Reported earnings before debenture conversion expense $ 7,809 $ 5,813 Debenture conversion expense, net of tax ----------- ----------- Reported net income $ 7,809 $ 5,813 ----------- ----------- Adjustments to net income: Interest expense, amortization and other costs related to the assumed conversion of the Convertible Debentures, net of tax 697 975 ----------- ----------- Adjusted net income $ 8,506 $ 6,788 ----------- ----------- Weighted average shares & CSE's: Common shares 25,306,685 22,674,336 Additional option shares 26,591 Convertible Debenture shares 3,491,048 5,710,407 ----------- ----------- Total 28,797,732 28,411,334 ----------- ----------- Fully diluted EPS before debenture conversion expense $ 0.30 $ 0.24 and cumulative effect of a change in Fully diluted EPS - Debenture conversion expense =========== =========== Fully diluted EPS - Net income $ 0.30 $ 0.24 =========== ===========
GENESIS HEALTH VENTURES COMPARATIVE EARNINGS PER SHARE CALCULATION SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (in thousands, except share and per share data)
3/31/96 3/31/95 --------- ---------- Primary Earnings Per Share: Reported earnings before debenture conversion expense $ 14,355 $ 10,623 Debenture conversion expense, net of tax (687) ------------ ------------ Reported net income $ 13,668 $ 10,623 ------------ ------------ Weighted average shares & CSE's: 24,730,820 22,618,641 ------------ ------------ Primary EPS before debenture conversion expense $ 0.58 $ 0.47 Primary EPS - Debenture conversion expense ($ 0.03) ------------ ------------ Primary EPS - Net income $ 0.55 $ 0.47 Fully Diluted Earnings Per Share: Reported earnings before debenture conversion expense $ 14,355 $ 10,623 Debenture conversion expense, net of tax (687) Cumulative effect on prior years of changing to a different method of accounting for income taxes ------------ ------------ Reported net income 13,668 10,623 Adjustments to net income: Interest expense, amortization and other costs related to the assumed conversion of the Convertible Debentures, net of tax 1,485 1,966 ------------ ------------ Adjusted net income $ 15,153 $ 12,589 ------------ ------------ Weighted average shares & CSE's: Common shares 24,730,820 22,618,641 Additional option shares 40,449 Convertible Debenture shares 4,085,900 5,710,407 ------------ ------------ Total 28,816,719 28,369,497 ------------ ------------ Fully diluted EPS before debenture conversion expense $ 0.55 $ 0.44 Fully diluted EPS - Debenture conversion expense ($ 0.02) ============ ============ Fully diluted EPS - Net income $ 0.53 $ 0.44 ============ ============
EX-27 6
5 1,000 6-MOS SEP-30-1996 MAR-31-1996 7,798 0 128,431 7,557 11,828 206,292 360,604 (56,594) 734,076 61,807 0 0 0 331 269,274 734,076 287,517 287,517 233,910 0 19,096 0 12,979 21,532 7,864 0 0 0 0 13,608 0.55 0.53
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