-----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, MVr4awNugFzjCiT3Y/RSrYF8uTk51VhVsI78LKL5wFhuZBZVeO7zwvdebKq1F/Kd ylwIPHItUhmrtgVf1GkpwA== 0000950116-02-000228.txt : 20020414 0000950116-02-000228.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950116-02-000228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 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: 02546588 BUSINESS ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 101 EAST STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-Q 1 ten-q.txt 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 December 31, 2001 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: 000-33217 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) 101 East 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 has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (ii) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ] Indicate by check mark whether the registrant has filed all reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [x] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of February 8, 2002: 39,764,798 shares of common stock issued and 1,366,221 are to be issued in connection with a plan confirmed by a court. TABLE OF CONTENTS
Page ---- CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS..........................................2 Part I: FINANCIAL INFORMATION Item 1. Financial Statements.............................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................16 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................25 Part II: OTHER INFORMATION Item 1. Legal Proceedings...............................................................26 Item 2. Changes in Securities...........................................................27 Item 3. Defaults Upon Senior Securities.................................................27 Item 4. Submission of Matters to a Vote of Security Holders.............................27 Item 5. Other Information...............................................................27 Item 6. Exhibits and Reports on Form 8-K................................................27 SIGNATURES........................................................................................28
1 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS As used herein, unless the context otherwise requires, "Genesis," the "Company," "we," "our" or "us" refers to Genesis Health Ventures, Inc. and its subsidiaries. Statements made in this report, and in our other public filings and releases, which are not historical facts contain "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to: o certain statements in "Management's Discussion and Analysis of Financial Condition and Results Of Operations," such as our ability to meet our liquidity needs, scheduled debt and interest payments and expected future capital expenditure requirements; o certain statements in the Notes to Unaudited Condensed Consolidated Financial Statements concerning pro forma adjustments; and o certain statements in "Legal Proceedings" regarding the effects of litigation. The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. You are cautioned that these statements are not guarantees of future performance and that actual results and trends in the future may differ materially. Factors that could cause actual results to differ materially include, but are not limited to the following: o changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other measures to reduce the reimbursement for our services; o changes in pharmacy legislation and payment formulas; o the expiration of enactments providing for additional governmental funding; o efforts of third party payors to control costs; o the impact of federal and state regulations; o changes in payor mix and payment methodologies; o further consolidation of managed care organizations and other third party payors; o competition in our business; o litigation regarding our NeighborCare(R)pharmacy operations' provision of service to HCR Manor Care; o an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; o competition for qualified staff in the healthcare industry; o our ability to control operating costs, return to profitability and generate sufficient cash flow to meet operational and financial requirements; and o an economic downturn or changes in the laws affecting our business in those markets in which we operate. These risks are described in more detail in our Annual Report on Form 10-K. 2 Part I: FINANCIAL INFORMATION Item 1. Financial Statements Genesis Health Ventures, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets (in thousands, except share and per share data)
Successor Company Successor Company - -------------------------------------------------------------------------------------------------------------------------------- December 31, September 30, 2001 2001 - -------------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 60,077 $ 32,139 Restricted investments in marketable securities 57,316 51,625 Accounts receivable, net of allowance for doubtful accounts 398,654 399,816 Inventory 66,806 65,222 Prepaid expenses and other current assets 33,801 35,753 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 616,654 584,555 - -------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 831,714 822,740 Notes receivable and other investments 16,456 14,539 Other long-term assets 44,664 45,698 Investments in unconsolidated affiliates 12,824 12,504 Identifiable intangible assets, net 31,418 33,591 Goodwill, net 313,452 320,953 - -------------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,867,182 $ 1,834,580 ================================================================================================================================ Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt $ 10,734 $ 41,241 Accounts payable and accrued expenses 250,466 244,799 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 261,200 286,040 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt 643,305 603,268 Deferred income taxes 1,310 - Other long-term liabilities 61,263 65,677 Minority interest 6,396 2,137 Redeemable preferred stock, including accrued dividends 43,230 42,600 Shareholders' equity: Common stock, par $.02, 200,000,000 shares authorized, 39,671,279 shares issued and outstanding at December 31, and September 30, 2001; and 1,366,221 and 1,328,721 shares to be issued at December 31, and September 30, 2001, respectively 820 820 Additional paid-in capital 832,710 832,710 Retained earnings 16,735 1,136 Accumulated other comprehensive income 213 192 - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 850,478 834,858 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 1,867,182 $ 1,834,580 ================================================================================================================================
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 Genesis Health Ventures, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (in thousands, except share and per share data)
Successor Company | Predecessor Company Three months ended | Three months ended - ----------------------------------------------------------------------------------------------------------------------------------- December 31, | December 31, 2001 | 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Net revenues: | Inpatient services $ 354,010 | $ 333,699 Pharmacy and medical supply services 273,394 | 255,574 Other revenue 42,090 | 39,746 - ----------------------------------------------------------------------------------------------------------------------------------- Total net revenues 669,494 | 629,019 - ----------------------------------------------------------------------------------------------------------------------------------- | Operating expenses: | Salaries, wages and benefits 293,464 | 273,196 Cost of sales 162,646 | 151,370 Other operating expenses 151,842 | 144,435 Gain on sale of eldercare center - | (1,770) Depreciation and amortization 15,794 | 26,926 Lease expense 6,835 | 9,405 Interest expense (contractual interest for the | three months ended December 31, 2000 was $61,752) 13,059 | 34,154 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before debt restructuring and reorganization costs, income taxes, | equity in net income (loss) of unconsolidated | affiliates and minority interest 25,854 | (8,697) Debt restructuring and reorganization costs - | 14,209 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes, equity in net income (loss) | of unconsolidated affiliates and minority interest 25,854 | (22,906) Income taxes 10,083 | - - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before equity in net income (loss) of unconsolidated affiliates | and minority interest 15,771 | (22,906) Equity in net income (loss) of unconsolidated affiliates 615 | (216) Minority interest (157) | 1,811 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) 16,229 | (21,311) Preferred stock dividends 630 | 11,500 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) attributed to common shareholders $ 15,599 | $ (32,811) =================================================================================================================================== Per common share data: | Basic | Net income (loss) $ 0.38 | $ (0.67) Weighted average shares 41,037,500 | 48,641,194 - ----------------------------------------------------------------------------------------------------------------------------------- Diluted | Net income (loss) $ 0.37 | $ (0.67) Weighted average shares 42,108,032 | 48,641,194 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 Genesis Health Ventures, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows (in thousands)
Successor Company | Predecessor Company Three months ended | Three months ended - ----------------------------------------------------------------------------------------------------------------------------------- December 31, | December 31, 2001 | 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: | Net income (loss) $ 16,229 | $ (21,311) Net charges included in operations not requiring funds 34,380 | 45,483 Changes in assets and liabilities: | Accounts receivable (6,329) | (19,251) Accounts payable and accrued expenses 28,103 | (5,348) Other, net 1,295 | (2,313) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities before debt | restructuring and reorganization costs 73,678 | (2,740) - ---------------------------------------------------------------------------------------------------------------------------- Cash paid for debt restructuring and reorganization costs (25,974) | (11,392) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 47,704 | (14,132) - ---------------------------------------------------------------------------------------------------------------------------- | Cash flows from investing activities: | Net purchases of restricted marketable securities (5,669) | (3,111) Proceeds from sale of eldercare center - | 7,010 Capital expenditures (10,821) | (11,564) Purchase of eldercare centers (10,453) | - Notes receivable and other investments, and | other long-term asset additions, net (2,354) | (2,081) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (29,297) | (9,746) - ---------------------------------------------------------------------------------------------------------------------------- | Cash flows from financing activities: | Net borrowings under working capital revolving credit facilities - | 21,500 Repayment of long-term debt and payment of sinking fund requirements (23,469) | (694) Proceeds from issuance of long-term debt 33,000 | - - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 9,531 | 20,806 - ---------------------------------------------------------------------------------------------------------------------------- | Net increase (decrease) in cash and equivalents 27,938 | (3,072) Cash and equivalents: | Beginning of period 32,139 | 22,948 - ---------------------------------------------------------------------------------------------------------------------------- End of period $ 60,077 | $ 19,876 ============================================================================================================================
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 Genesis Health Ventures, Inc. and Subsidiaries Notes To Unaudited Condensed Consolidated Financial Statements 1. Business Genesis Health Ventures, Inc. and its subsidiaries ("Genesis" or the "Company") provides a broad range of healthcare services to the geriatric population, principally within five geographic markets in the eastern United States. The Company's operations are comprised of two primary business segments: inpatient services and pharmacy and medical supply services. Inpatient services are provided through a network of skilled nursing and assisted living centers. Pharmacy and medical supply services are provided through long-term care pharmacies serving approximately 254,000 institutional beds; medical supply and home medical equipment distribution; community-based pharmacies and infusion therapy services. These segments are complemented by an array of other service capabilities through the Genesis ElderCare(R) delivery model of integrated healthcare networks. 2. Basis of Presentation 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 on Form 10-K for the fiscal year ended September 30, 2001. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited condensed consolidated financial statements include all necessary adjustments consisting of normal recurring accruals and, from June 22, 2000 (the "Petition Date") to September 30, 2001, all adjustments pursuant to the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") for a fair presentation of the financial position and results of operations for the periods presented. Also in accordance with the provisions of SOP 90-7, the unaudited condensed consolidated balance sheets include all necessary adjustments incorporating the provisions of fresh-start reporting at September 30, 2001. Certain prior year amounts have been reclassified to conform to the current year presentation. 3. Factors Affecting Comparability of Financial Information As a consequence of the implementation of fresh-start reporting effective September 30, 2001 (see "Footnote 4 - Reorganization"), the financial information presented in the unaudited condensed consolidated statement of operations and the corresponding statements of cash flows for the three months ended December 31, 2001 are generally not comparable to the financial results for the three months ended December 31, 2000. Any financial information herein labeled "Predecessor Company" refers to periods prior to the adoption of fresh-start reporting, while those labeled "Successor Company" refer to periods following the Company's reorganization. The lack of comparability in the accompanying unaudited condensed consolidated financial statements is most apparent in the Company's capital costs (lease, interest, depreciation and amortization), as well as with income taxes, minority interests, debt restructuring and reorganization costs, and preferred dividends. Management believes that business segment operating revenues and operating expenses of the Predecessor Company are generally comparable to those of the Successor Company. 4. Reorganization Background. On June 22, 2000, Genesis and certain of its direct and indirect subsidiaries filed for voluntary relief under Chapter 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On the same date, The Multicare Companies, Inc. and certain of its direct and indirect subsidiaries ("Multicare") and certain of its affiliates also filed for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court (singularly and collectively referred to herein as "the Chapter 11 cases" or "the bankruptcy cases" unless the context otherwise requires). 6 Genesis and Multicare's financial difficulties were attributed to a number of factors. First, the federal government made fundamental changes to the reimbursement for medical services provided to individuals. The changes had a significant adverse impact on the healthcare industry as a whole and on Genesis and Multicare's cash flows. Second, the federal reimbursement changes have exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various state Medicaid programs. Third, numerous other factors adversely affected Genesis and Multicare's cash flows, including increased labor costs, increased professional liability and other insurance costs, and increased interest rates. Finally, as a result of declining governmental reimbursement rates and in the face of rising inflationary costs, Genesis and Multicare were too highly leveraged to service their debt, including their long-term lease obligations. On October 2, 2001, (the "Effective Date"), Genesis and Multicare consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to a September 20, 2001 order entered by the Bankruptcy Court approving the Plan proposed by Genesis and Multicare. The principal provisions of the Plan were as follows: o Multicare became a wholly-owned subsidiary of Genesis. Genesis previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis Eldercare(R) brand name; o New senior notes, new convertible preferred stock, new common stock and new warrants were issued to Genesis and Multicare's creditors. Approximately 93% of the Successor Company's new common stock, $242.6 million in new senior notes and new preferred stock with a liquidation preference of $42.6 million were issued to the Genesis and Multicare senior secured creditors. Approximately 7% of the new common stock is to be issued to the Genesis and Multicare unsecured creditors as well as new one year warrants to purchase an additional 11% of the new common stock; o Holders of Genesis and Multicare pre-chapter 11 preferred and common stock received no distribution and those instruments were canceled; o Claims between Genesis and Multicare were set-off against one another and any remaining claims were waived and released; and o A new Board of Directors was consummated. On the Effective Date, and in connection with the consummation of the Plan, the Successor Company entered into a new Senior Credit Facility (defined in "Footnote 6 - Long-Term Debt"). In accordance with SOP 90-7, the Company has recorded all expenses incurred as a result of the bankruptcy filing separately as debt restructuring and reorganization costs. A summary of the principal categories of debt restructuring and reorganization costs are as follows (in thousands):
Successor | Predecessor Company | Company - ------------------------------------------------------------------------------------------------ For the three | For the three months ended | months ended December 31, 2001 | December 31, 2000 - ------------------------------------------------------------------------------------------------ Debt restructuring and reorganization costs: | Professional, bank and other fees $ - | $ 10,099 Employee benefit related costs, including severance - | 4,110 - ------------------------------------------------------------------------------------------------ $ - | $ 14,209 - ------------------------------------------------------------------------------------------------
7 Fresh-Start Reporting. For financial reporting purposes, the Company adopted the provisions of fresh-start reporting effective September 30, 2001. In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes. In adopting the requirements of fresh-start reporting as of September 30, 2001, the provisions of the Company's reorganization plan were implemented, assets and liabilities were adjusted to their estimated fair values and the Company's accumulated deficit was eliminated. Merger of Genesis and Multicare. In accordance with the Plan, Multicare became a wholly-owned subsidiary of Genesis on the Effective Date. Under fresh-start reporting, the Company consolidated its 100% interest in Multicare as of September 30, 2001. Genesis previously owned 43.6% of Multicare. The consummation of the Company's Plan constitutes a change in the controlling interests of the Company. The provisions of the Plan have a material effect on the operating results of the Successor Company in periods following the Reorganization. The following unaudited pro forma statement of operations information gives effect to the Plan as if it were consummated on October 1, 2000. The unaudited pro forma financial information has been prepared to reflect the consolidation of the financial results of Multicare, with no minority interest. The pro forma financial information includes consideration for the Company's new capital structure, the elimination of restructuring related charges, and changes in depreciation and amortization expense following the revaluation of assets and liabilities to their estimated fair value. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the reorganization actually occurred at the beginning of the period presented.
Three Months Ended (Unaudited, in thousands, except per share amounts) December 31, 2000 - -------------------------------------------------------------------------------------------- Pro Forma Statement of Operations Information: - -------------------------------------------------------------------------------------------- Total net revenues $ 629,019 Net income attributable to common shareholders 13,083 Net income per common share - Basic 0.32 Net income per common share - Diluted $ 0.31 - --------------------------------------------------------------------------------------------
5. Certain Significant Risks and Uncertainties Revenue Sources. The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third party payors and long-term care facilities which utilize the Company's pharmacy and other specialty medical services. The healthcare industry is experiencing the effects of the federal and state governments' trend toward cost containment, as government and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, have resulted in reduced rates of reimbursement for services provided by the Company. A number of the provisions of the recently enacted Balanced Budget Refinement Act ("BBRA") and the Benefits Improvement Protection Act ("BIPA") which provide additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002. Expiring provisions are estimated to, on average, reduce per beneficiary per diems by $30. Moreover, the Centers for Medicare and Medicaid Services have indicated its desire to complete refinements to the case mix classification system (RUG refinements) as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. Combined, the Medicare skilled nursing facility sector faces an 18% reduction in the average median per diems. If Genesis were to experience an 18% decline in its current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67 million would have a material adverse effect on the Company's financial position, results of operations and cash flows. Trade organizations representing the skilled nursing facility sector are aggressively pursuing strategies to minimize the potentially adverse impact of the "Medicare Rate Cliff." 8 It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on the Company's business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect the Company's business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company's financial condition and results of operations may be affected by the reimbursement process, which in the Company's industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. Legal Proceedings Potentially Affecting Revenues. Certain service contracts permit the Company's NeighborCare(R) pharmacy operations to provide services to HCR Manor Care constituting approximately ten percent and four percent of the net revenues of NeighborCare and Genesis, respectively. These service contracts with HCR Manor Care are the subject of certain litigation. See "Part II: Other Information, Item 1 - Legal Proceedings" herein and in the Company's Annual Report on Form 10-K. 9 6. Long-Term Debt Long-term debt at December 31, 2001 and September 30, 2001 consist of the following (in thousands):
December 31, September 30, - ----------------------------------------------------------------------------------------------- 2001 2001 - ----------------------------------------------------------------------------------------------- Secured debt Senior Credit Facility Term Loan $ 285,000 $ 285,000 Delayed Draw Term Loan 33,000 - - ----------------------------------------------------------------------------------------------- Total Senior Credit Facility 318,000 285,000 Senior Secured Notes 242,605 242,605 Mortgage and other secured debts 93,434 116,904 - ----------------------------------------------------------------------------------------------- Total debt 654,039 644,509 Less: Current portion of long-term debt (10,734) (41,241) - ----------------------------------------------------------------------------------------------- Long-term debt $ 643,305 $ 603,268 - -----------------------------------------------------------------------------------------------
Senior Credit Facility. On the Effective Date, and in connection with the consummation of the Plan, the Successor Company entered into a Senior Credit Facility consisting of the following: (1) a $150 million revolving line of credit (the "Revolving Credit Facility"); (2) a $285 million term loan (the "Term Loan") and (3) an $80 million delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The outstanding amounts under the Term Loan and the Delayed Draw Term Loan bear interest at the London Inter-bank Offered Rate ("LIBOR") plus 3.50%, or approximately 5.40% at December 31, 2001. The outstanding amounts under the Revolving Credit Facility, if any, bear interest based upon a performance related grid. The Senior Credit Facility requires the Successor Company to maintain compliance with certain financial and non-financial covenants, including minimum EBITDAR (as defined); limitations on capital expenditures, maximum leverage ratios, minimum fixed charge coverage ratios and minimum net worth. In December 2001, the Senior Credit was amended in order to extend the date by which the Company is required to achieve certain levels of fixed versus variable interest rate exposure. As amended, by June 30, 2002, the Company is required to enter into interest rate swap agreements that effectively fix or cap the interest cost on at least 50% of its consolidated debt. At December 31, 2001, the Company's debt mix is approximately 14% fixed and 86% variable. The Revolving Credit Facility is available to fund obligations under the Plan and for general working capital requirements. The Revolving Credit Facility matures on October 2, 2006. Usage under the Revolving Credit Facility is subject to a Borrowing Base (as defined) calculation based upon real property collateral value and a percentage of eligible accounts receivable (as defined). Excluding an approximately $0.9 million posted letter of credit, no borrowings were outstanding under the Revolving Credit Facility at December 31, 2001. The Delayed Draw Term Loan, as originally contracted, was to be used to (1) fund the purchase price of a proposed acquisition of a pharmacy operation, (2) pay certain outstanding amounts owed to ElderTrust on certain loans secured by mortgages; (3) fund the exercise of an option to purchase three eldercare centers and (4) to make other Specific Payments (as defined). Once repaid, the Delayed Draw Term Loan can not be re-borrowed. The Delayed Draw Term Loan amortizes at a rate of one percent per year, and matures on April 2, 2007. As a result of subsequent developments in the Company's bid to consummate a proposed acquisition of a pharmacy operation, the Delayed Draw Term Loan was amended in December 2001 to allow available borrowings that were otherwise earmarked for the proposed pharmacy transaction to be used to restructure credit terms with NeighborCare pharmacy's primary supplier of pharmacy products. 10 In the first fiscal quarter of 2002, the Company utilized approximately $10 million from the Delayed Draw Term Loan to fund the exercise of the purchase option previously described, and the Company utilized approximately $23 million from the Delayed Draw Term Loan to satisfy certain mortgages as previously described. During the second quarter of fiscal 2002, through February 8, 2002, the Company borrowed approximately $42 million from the Delayed Draw Term Loan to finance the repayment of all trade balances due to NeighborCare Pharmacy's primary supplier of pharmacy products. Prospectively, this change in credit terms will result in reduced pharmacy product acquisition costs, partially offset by an increase in interest expense on the incremental Delayed Draw Term Loan borrowings. Senior Secured Notes. On the Effective Date, and in connection with the consummation of the Plan, the Successor Company entered an indenture agreement in the principal amount of $242.6 million (the "Senior Secured Notes"). The Senior Secured Notes bear interest at LIBOR plus 5.0% (approximately 6.90% at December 31, 2001), and amortize one percent each year and mature on April 2, 2007. Other Secured Indebtedness. During the three months ended December 31, 2001, the Company refinanced approximately $23 million of other secured indebtedness with proceeds from the Delayed Draw Term Loan. At December 31, 2001, the Company had approximately $93.4 million of other secured debt consisting principally of revenue bonds and secured bank loans. 7. Income Taxes The Company's provision for income taxes for the three months ended December 31, 2001 was $10.1 million. The Company realized a $7.5 million tax benefit through the realization of Net Operating Loss ("NOL") carryforwards and $1.3 million of deferred tax liabilities due to temporary differences between book and tax basis goodwill amortization. Pursuant to SOP 90-7, the income tax benefit of any future realization of the NOL carryforwards are to be applied first as a reduction to goodwill. 11 8. Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted net income (loss) attributed to common shares (in thousands, except per share data):
Successor | Predecessor Company | Company | Three | Three Months | Months Ended | Ended December 31, | December 31, 2001 2000 - ------------------------------------------------------------------------------------------- Basic: | Net income (loss) attributed to common | shareholders (Numerator) $ 15,599 | $ (32,811) | Weighted average shares (Denominator) 41,037 | 48,641 | - ------------------------------------------------------------------------------------------- Net income (loss) attributed to common | shareholders per share $ 0.38 | $ (0.67) - ------------------------------------------------------------------------------------------- | Diluted: | Net income (loss) attributed to common | shareholders (Numerator) $ 15,599 | $ (32,811) | Weighted average shares - basic 41,037 | 48,641 Add: | Dilutive effect of restricted stock grants 713 | - Dilutive effect of warrants 260 | - Dilutive effect of stock options 98 | - - ------------------------------------------------------------------------------------------- Weighted average shares - diluted (Denominator) 42,108 | 48,641 | - ------------------------------------------------------------------------------------------- Net income (loss) attributed to common | shareholders per share $ 0.37 | $ (0.67) - -------------------------------------------------------------------------------------------
Included in the calculation of basic weighted average shares of 41,037,500 are 1,328,721 shares to be issued in connection with a plan confirmed by a court and 37,450 shares authorized and deemed earned, but not issued, in connection with a restricted stock plan. Weighted average diluted shares include 712,500 shares of unvested restricted stock grants. As the restricted stock grants vest, the Company will recognize compensation expense and the related vested shares will be included in the calculation of weighted average basic shares. For the three months ended December 31, 2000, no exercise of stock options is assumed since their effect is antidilutive. 12 9. Comprehensive Income (Loss) The following table sets forth the computation of comprehensive income (loss) (in thousands):
Successor | Predecessor Company | Company | Three | Three Months | Months Ended | Ended December 31, | December 31, 2001 | 2000 - --------------------------------------------------------------------------------------------- Net income (loss) attributed to common | shareholders $ 15,599 | $ (32,811) Unrealized gain on marketable securities 21 | 687 - --------------------------------------------------------------------------------------------- Total comprehensive income (loss) $ 15,620 | $ (32,124) - ---------------------------------------------------------------------------------------------
10. Segment Information The Company's principal operating segments are identified by the types of products and services from which revenues are derived and are consistent with the reporting structure of the Company's internal organization. The Company has two reportable segments: (1) inpatient services and (2) pharmacy and medical supplies services. The Company includes in inpatient services revenues all room and board charges and ancillary service revenue for its eldercare customers at its 192 owned and leased eldercare centers. The centers offer three levels of care for their customers: skilled, intermediate and personal. The Company provides pharmacy and medical supply services through its NeighborCare pharmacy subsidiaries. Included in pharmacy and medical supply service revenues are institutional pharmacy revenues, which include the provision of infusion therapy, medical supplies and equipment provided to eldercare centers it operates, as well as to independent healthcare providers by contract. The Company provides these services through 65 institutional pharmacies (eight are jointly-owned) and 23 medical supply and home medical equipment distribution centers (four are jointly-owned) located in its various market areas. In addition, the Company operates 31 community-based pharmacies (two are jointly-owned) which are located in or near medical centers, hospitals and physician office complexes. The community-based pharmacies provide prescription and over-the-counter medications and certain medical supplies, as well as personal service and consultation by licensed professional pharmacists. Approximately 91% of the sales attributable to all pharmacy operations are generated through external contracts with independent healthcare providers with the balance attributable to centers owned or leased by the Company. The accounting policies of the segments are the same as those of the consolidated organization. All intersegment sales prices are market based. The carrying value of the Company's assets in the following segment information at December 31, 2001 and September 30, 2001, and the capital costs (depreciation and amortization, lease expense, and interest), as well as income taxes, minority interest and preferred dividends for the three months ended December 31, 2001 reflect the provisions of the plan of reorganization and the impact of fresh-start accounting. These costs for periods prior to the Company's emergence from bankruptcy generally were recorded based on historical costs or contractual agreements and do not reflect the provisions of the plan of reorganization. Accordingly, capital costs of the Successor Company for the three months ended December 31, 2001 are not comparable to those of the Predecessor Company for the same period in the prior year. 13 Summarized financial information concerning the Company's reportable segments is shown in the following table. The "All other" category of revenues and operating income represents operating information of business units below the prescribed quantitative thresholds. These business units derive revenues from the following services: rehabilitation therapy, management services, consulting services, homecare services, physician services, transportation services, diagnostic services, hospitality services, group purchasing fees, respiratory health servcies, staffing services and other healthcare related services. The "Corporate and adjustments" category consists of the Company's general and administrative function, for which there is generally no revenue generated, as well as other unallocated expenses.
Successor | Predecessor Company | Company Three months ended | Three months ended (in thousands) December 31, 2001 | December 31, 2000(1) - ------------------------------------------------------------------------------------------------------------- Revenues: | Inpatient services - external $ 354,010 | $ 333,699 Pharmacy and medical supply services: | External 273,394 | 255,574 Intersegment 26,246 | 22,170 All other: | External 42,090 | 39,746 Intersegment 42,469 | 47,015 Elimination of intersegment revenues (68,715) | (69,185) - ------------------------------------------------------------------------------------------------------------- Total net revenues $ 669,494 | $ 629,019 - ------------------------------------------------------------------------------------------------------------- | Operating income: | Inpatient services $ 45,207 | $ 39,212 Pharmacy and medical supply services 26,254 | 23,206 All other 10,741 | 10,929 Corporate and other adjustments (20,660) | (13,329) - ------------------------------------------------------------------------------------------------------------- Total operating income $ 61,542 | $ 60,018 - ------------------------------------------------------------------------------------------------------------- | Capital and other: | Consolidated: | Depreciation and amortization $ 15,794 | $ 26,926 Lease expense 6,835 | 9,405 Interest expense 13,059 | 34,154 Gain on sale of eldercare center - | (1,770) Debt restructuring and reorganization costs - | 14,209 Income taxes 10,083 | - Equity in (earnings) loss of unconsolidated affiliates (615) | 216 Minority interest 157 | (1,811) Preferred stock dividends 630 | 11,500 - ------------------------------------------------------------------------------------------------------------- Net income (loss) attributed to common shareholders $ 15,599 | $ (32,811) - ------------------------------------------------------------------------------------------------------------- Successor Successor Company Company December 31, September 30, (in thousands) 2001 2001 (1) - ------------------------------------------------------------------------------------------------------------- Assets: Inpatient services $ 1,084,798 $ 1,079,791 Pharmacy and medical supply services 672,818 672,234 Other 109,566 82,555 - ------------------------------------------------------------------------------------------------------------- $ 1,867,182 $ 1,834,580 =============================================================================================================
(1) The December 31, 2000 and September 30, 2001 periods were restated to conform to the current period presentation which considers direct overhead costs in the calculation of inpatient services operating income and realigns overhead businesses within the inpatient services segment for the asset information. The summary segment information for pharmacy and medical supplies has historically included direct overhead costs. 14 11. Restricted Assets At December 31, 2001 and September 30, 2001, the Company reported restricted investments in marketable securities of $57.3 million and $51.6 million, respectively, which are held by Liberty Health Corp. LTD. ("LHC"), Genesis' wholly-owned captive insurance subsidiary incorporated under the laws of Bermuda. The investments held by LHC are restricted by statutory capital requirements in Bermuda. In addition, certain of these investments are pledged as security for letters of credit issued by LHC. As a result of such restrictions and encumbrances, Genesis and LHC are precluded from freely transferring funds through intercompany loans, advances or cash dividends. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Since we began operations in July 1985, we have focused our efforts on providing an expanding array of specialty medical services to elderly customers. We generate revenues primarily from two sources: inpatient services and pharmacy and medical supply services. However, we also derive revenue from other sources. Inpatient services revenues include all room and board charges and ancillary service revenue for our eldercare customers at our 192 owned and leased eldercare centers. We provide pharmacy and medical supply services through our NeighborCare(R) pharmacy operations. Included in pharmacy and medical supply services revenues are institutional pharmacy revenues, which include the provision of infusion therapy, medical supplies and equipment provided to eldercare centers operated by us, as well as to independent healthcare providers by contract. We provide these services through 65 institutional pharmacies (eight are jointly-owned) and 23 medical supply and home medical equipment distribution centers (four are jointly-owned) located in our various market areas. In addition, we operate 31 community-based pharmacies (two are jointly-owned) which are located in or near medical centers, hospitals and physician office complexes. The community-based pharmacies provide prescription and over-the-counter medications and certain medical supplies, as well as personal service and consultation by licensed professional pharmacists. We include the following service revenue in other revenues: rehabilitation therapy services, management fees, consulting services, homecare services, physician services, transportation services, diagnostic services, hospitality services, group purchasing fees, respiratory health services, staffing services and other healthcare related services. Certain Transactions and Events Reorganization: Background. On June 22, 2000, (the "Petition Date") Genesis Health Ventures, Inc. and certain of its direct and indirect subsidiaries filed for voluntary relief under Chapter 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On the same date, The Multicare Companies, Inc. and certain of its direct and indirect subsidiaries ("Multicare") and certain of its affiliates also filed for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court (singularly and collectively referred to herein as "the Chapter 11 cases" or "the bankruptcy cases" unless the context otherwise requires). Our and Multicare's financial difficulties were attributed to a number of factors. First, the federal government made fundamental changes to the reimbursement for medical services provided to individuals. The changes had a significant adverse impact on the healthcare industry as a whole and on our and Multicare's cash flows. Second, the federal reimbursement changes have exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various state Medicaid programs. Third, numerous other factors adversely affected our cash flows, including increased labor costs, increased professional liability and other insurance costs, and increased interest rates. Finally, as a result of declining governmental reimbursement rates and in the face of rising inflationary costs, we and Multicare were too highly leveraged to service our debt, including our long-term lease obligations. 16 On October 2, 2001, (the "Effective Date"), we and Multicare consummated a joint plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to a September 20, 2001 order entered by the Bankruptcy Court approving the Plan proposed by us, and Multicare. The principal provisions of the Plan were as follows: o Multicare became our wholly-owned subsidiary. We previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis Eldercare(R) brand name; o New senior notes, new convertible preferred stock, new common stock and new warrants were issued to our and Multicare's creditors. Approximately 93% of new common stock, $242.6 million in new senior notes and new preferred stock with a liquidation preference of $42.6 million were issued to our and Multicare's senior secured creditors. Approximately 7% of the new common stock is to be issued to our and Multicare's unsecured creditors as well as new one year warrants to purchase an additional 11% of the new common stock; o Holders of our and Multicare's pre-chapter 11 preferred and common stock received no distribution and those instruments were canceled; o Claims between us and Multicare were set-off against one another and any remaining claims were waived and released; and o A new Board of Directors was consummated. On the Effective Date, and in connection with the consummation of the Plan, we entered into a Senior Credit Facility consisting of the following: (1) a $150 million revolving line of credit (the "Revolving Credit Facility"); (2) a $285 million term loan (the "Term Loan") and (3) an $80 million delayed draw term loan (the "Delayed Draw Term Loan") (collectively the "Senior Credit Facility"). The proceeds from the Term Loan were utilized to repay $196 million of the then outstanding amounts under the Genesis DIP Facility (later defined), and $50 million of the then outstanding synthetic lease facility, with the remaining $39 million provided to fund debt restructuring and reorganization related costs in accordance with the Plan. In accordance with SOP 90-7 (as defined below under "Fresh-Start Reporting"), we recorded all expenses incurred as a result of the Bankruptcy filing separately as debt restructuring and reorganization costs. A summary of the principal categories of debt restructuring and reorganization costs are as follows (in thousands):
Successor | Predecessor Company | Company - -------------------------------------------------------------------------------------------- For the three | For the three months ended | months ended December 31, 2001 | December 31, 2000 - --------------------------------------------------------------------------------------------- Debt restructuring and reorganization costs: | Professional, bank and other fees $ - | $ 10,099 Employee benefit related costs, including severance - | 4,110 - -------------------------------------------------------------------------------------------- $ - | $ 14,209 - --------------------------------------------------------------------------------------------
17 Fresh-Start Reporting. Upon emergence from our Chapter 11 proceedings, we adopted the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") / ("fresh-start reporting"). In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes. For financial reporting purposes, we adopted the provisions of fresh-start reporting effective September 30, 2001. In adopting the requirements of fresh-start reporting as of September 30, 2001, the provisions of our Plan were implemented, assets and liabilities were adjusted to their estimated fair values and our accumulated deficit was eliminated. Factors Affecting Comparability of Financial Information. As a consequence of the implementation of fresh-start reporting effective September 30, 2001, the financial information presented in the unaudited condensed consolidated statement of operations and the corresponding statement of cash flows for the three months ended December 31, 2001 are generally not comparable to the financial results for the three months ended December 31, 2000. Any financial information herein labeled "Predecessor Company" refers to periods prior to the adoption of fresh-start reporting, while those labeled "Successor Company" refer to periods following our reorganization. The lack of comparability in the accompanying unaudited condensed consolidated financial statements is most apparent in our capital costs (lease, interest, depreciation and amortization), as well as with income taxes, minority interests, debt restructuring and reorganization costs, and preferred dividends. We believe that business segment operating revenue and operating expenses of the Predecessor Company are generally comparable to those of the Successor Company. Merger of Genesis and Multicare. In accordance with the Plan, Multicare became our wholly-owned subsidiary on the Effective Date. Under fresh-start reporting, we consolidated our 100% interest in Multicare as of September 30, 2001. We previously owned 43.6% of Multicare. Results of Operations Three months ended December 31, 2001 compared to three months ended December 31, 2000 Inpatient Services Inpatient services revenue increased $20.3 million, or 6%, to $354.0 million for the three months ended December 31, 2001 from $333.7 million for the same period in the previous year. The addition of two eldercare centers subsequent to December 31, 2000 accounts for approximately $0.4 million of the overall increase. Approximately $25.4 million is principally attributed to increased payment rates and higher Medicare, private pay and insurance patient days ("Quality Mix") as a percentage of total patient days. Our average rate per patient day for the three months ended December 31, 2001 was $174 compared to $161 for the comparable period in the prior year. This increase in the average rate per patient day is principally driven by the effect of the BIPA on our average Medicare rate per patient day, which increased to $340 for the three months ended December 31, 2001 compared to $316 for the comparable period in the prior year. Our revenue Quality Mix for the three months ended December 31, 2001 was 50.4% compared to 50.1% for the comparable period in the prior year. These rate and Quality Mix increases are offset by a decrease in revenue of approximately $5.5 million resulting from the sale, closure or lease terminations of certain eldercare centers. Total patient days decreased 46,299 to 2,031,109 during the three months ended December 31, 2001 compared to 2,077,408 during the comparable period last year. Of this decrease, 50,853 patient days are attributed to the sale, closure or lease terminations of certain eldercare centers; offset by the addition of 6,254 patient days of two eldercare centers. The remaining decrease of 1,700 patient days is the result of a decrease in overall occupancy. 18 Operating expenses for the three months ended December 31, 2001 increased $14.3 million, or 5%, to $308.8 million from $294.5 million for the same period in the prior year. The primary cost for this segment is salary, wage and benefit costs, which increased $5.5 million, or 3% for the three month period ended December 31, 2001 to $173.2 million from $167.7 million for the same period in the prior year. Of this increase, approximately $0.4 million resulted from the addition of new businesses in the current year, offset by a reduction of approximately $3.8 million in salary, wage and benefit costs resulting from the sale, closure or lease terminations of certain eldercare centers. Salary, wage and benefit costs, considering the impact of new or exited businesses, increased $8.9 million, or 5%, driven by inflationary cost increases and the relative mix of employed labor versus agency labor costs. As a percentage of net revenue, salary, wage and benefit costs, once adjusted for the impact of new and exited businesses, declined to 48.8% for the three months ended December 31, 2001, compared to 49.9% for the comparable period in the prior year. This decrease as a percentage of revenue resulted primarily from a disproportionate per diem rate growth, largely created by the effect of the BIPA, previously discussed. Other operating expense, once reduced for the impact of new and exited businesses ($0.4 million and $1.9 million for the three months ended December 31, 2001 and 2000, respectively), increased $10.3 million, or 8%, to $135.2 million for the three months ended December 31, 2001 compared to $124.9 million for the same period last year. The increase was primarily driven by additional ancillary supply costs of approximately $4.7 million, increased agency labor costs (principally nursing costs) of approximately $2.7 million, increased property and general liability insurance of approximately $0.6 million and other operating costs of approximately $3.0 million. These increases were offset by reduced bad debt expense of $0.7 million. Operating income increased $6 million, to $45.2 million for three months ended December 31, 2001 from $39.2 million in the same period in the prior year. Pharmacy and medical supply services Pharmacy and medical supply services revenue (before intersegment eliminations) increased $21.9 million, or 8%, to $299.6 million for the three months ended December 31, 2001 compared to $277.7 million for the three months ended December 31, 2000. Revenues from intersegment customers, which are eliminated in consolidation, increased approximately $4.0 million, or 18%, to $26.2 million for the three months ended December 31, 2001 compared to $22.2 million for the same period of the prior year. The remaining increase in net pharmacy and medical supply service revenues of approximately $17.9 million, or 7%, is due primarily to rate increases and shifts in customer product mix with external customers. Cost of sales (before intersegment eliminations) increased $15.2 million for the three month period ended December 31, 2001, to $187.9 million from $172.7 million for the same period in the prior year. Of this growth, $13.6 million is attributed to pharmacy and medical supply revenue growth, and $1.6 million is attributed to changes in customer and product mix. Other operating expenses for this segment, including salaries, wages and benefits, increased $3.7 million to $85.5 million for the three months ended December 31, 2001 compared to $81.8 million for the same period in the prior year. As a percentage of revenue, other operating costs remained relatively consistent at 29% for both periods. Operating income increased $3.1 million, to $26.3 million for three months ended December 31, 2001 from $23.2 million in the same period in the prior year. During the second quarter of fiscal 2002 we borrowed approximately $42 million from the Delayed Draw Term Loan to finance the repayment of all trade balances due to NeighborCare pharmacy's primary supplier of pharmacy products. Prospectively, this change in credit terms will result in reduced pharmacy product acquisition costs. 19 All Other All other includes operating information of business units below the prescribed quantitative thresholds. These business units derive revenues and expenses from the following services: rehabilitation therapy, management services, consulting services, homecare services, physician services, transportation services, diagnostic services, hospitality services, group purchasing fees, respiratory health services, staffing services and other healthcare related services. Revenues, including intersegment revenues, from other segments decreased approximately $2.1 million to $84.6 million from $86.7 million for the three month periods ended December 31, 2001 and December 31, 2000, respectively. The decline was primarily caused by less management and development fee revenue, offset by growth in other service related businesses' revenue. Operating income for all other businesses remained relatively flat, declining $0.2 million, to $10.7 million for three months ended December 31, 2001 from $10.9 million in the same period in the prior year. Corporate and other adjustments The "Corporate and adjustments" category consists of our general and administrative function and other unallocated amounts, by which there is generally no revenue generated. Operating expenses increased $7.4 million in the three months ended December 31, 2001 to $20.7 million compared to $13.3 million in the comparable period in the prior year. Of this increase, approximately $3 million is related to increased expense levels for our cash based incentive compensation program and an executive non-cash stock based compensation program, approximately $2 million relates to other unallocated employee benefit costs, and the remaining increase of approximately $2.4 million is principally attributed to labor related and other operating expense growth in our corporate support functions. Capital costs and other Our capital costs for the three months ended December 31, 2001 reflect the impact of fresh-start reporting following the emergence from bankruptcy. Those adjustments materially changed the recorded amounts of capital costs, most notably depreciation and amortization, lease expense, interest expense, income taxes, minority interest and preferred stock dividends, and as a result, will not be comparable to those for the three months ended December 31, 2000. Depreciation and amortization expense decreased $11.1 million to $15.8 million for the three months ended December 31, 2001 compared to $26.9 million for the same period in the prior year. The decrease was primarily caused by the impact of fresh-start accounting on the carrying value of our property, plant and equipment, which were adjusted to their estimated fair value as of September 30, 2001. Lease expense decreased $2.6 million for the three months ended December 31, 2001, to $6.8 million compared to $9.4 million for the same period in the prior year. Of this decrease, approximately $1.0 million is attributed to the sale, closure or lease terminations or modifications of certain eldercare centers. The remaining decrease of approximately $1.6 million is principally attributed to the discharge in bankruptcy of our lease financing facility. Interest expense decreased $21.1 million for the three months ended December 31, 2001, to $13.1 million compared to $34.2 million for the same period in the prior year. For the three months ended December 31, 2000, in accordance with SOP 90-7, we ceased accruing interest following the Petition Date on certain long-term debt instruments classified as liabilities subject to compromise. Our contractual interest expense for the three months ended December 31, 2000 was $61.8 million, leaving $27.6 million of interest expense unaccrued for that period as a result of the Chapter 11 filings. Contractual interest expense for the three months ended December 31, 2001 has been accrued at the contractual rates. Contractual interest expense for the three months ended December 31, 2001 decreased by $48.7 million compared to the same period in the prior year. This decrease is attributed to the overall reduction of debt levels following our emergence from bankruptcy in addition to a lower weighted average borrowing rate. 20 In October of 2000, we sold an idle 232 bed eldercare center for cash consideration of approximately $7 million, resulting in a net gain on sale of approximately $1.8 million. During the three months ended December 31, 2000, we incurred legal, bank, accounting and other costs of approximately $10.1 million in connection with the Chapter 11 cases. In addition, we incurred costs of $4.1 million for certain salary and benefit related costs, principally for a court approved special recognition program. In connection with the adoption of fresh-start reporting, all contingent debt restructuring and reorganization costs related to the bankruptcy cases were accrued for at September 30, 2001. Income tax increased $10.1 million for the three months ended December 31, 2001 from zero in the same period in the prior year. Our provision for income taxes for the three months ended December 31, 2001 was $10.1 million. We realized a $7.5 million tax benefit through the realization of Net Operating Loss ("NOL") carryforwards and $1.3 million of deferred tax liabilities due to temporary differences between book and tax basis goodwill amortization. Pursuant to SOP 90-7, the income tax benefit of any future realization of the NOL carryforwards are to be applied first as a reduction to goodwill. Equity in net earnings of unconsolidated affiliates for the three months ended December 31, 2001 was $0.6 million compared to equity in net loss of unconsolidated affiliates of $0.2 million for the comparable period in the prior year, which is attributed to changes in the earnings / losses reported by our unconsolidated affiliates. Minority interest decreased $2.0 million during the three months ended December 31, 2001 to ($0.2) million compared to $1.8 million for the comparable period in the prior year. This decrease is principally attributed to an increase in net earnings of consolidated joint ventures. In addition, the three months ended December 31, 2000 included the 56.4% interest in the net losses of Multicare attributable to the joint venture partner. Upon our emergence from bankruptcy, we and Multicare merged, effectively terminating the joint venture and any interest the joint venture partners had in Multicare. Preferred stock dividends decreased $10.9 million to $0.6 million during the three months ended December 31, 2001 compared to $11.5 million for the comparable period in the prior year. This decrease is attributed to the cancellation of our preferred stock and related dividends, and offset with dividends on $42.0 million of Series A redeemable preferred stock issued in connection with the Plan. Liquidity and Capital Resources Working Capital and Cash Flows At December 31, 2001, we had a cash balance of $60.1 million, net working capital of $355.5 million and approximately $149.1 million of unused commitments under our $150 million Revolving Credit Facility. At December 31, 2001, we had restricted investments in marketable securities of $57.3 million, which are held by Liberty Health Corp. LTD., referred to as LHC, our wholly-owned captive insurance subsidiary incorporated under the laws of Bermuda. The investments held by LHC are restricted by statutory capital requirements in Bermuda. In addition, certain of these investments are pledged as security for letters of credit issued by LHC. As a result of such restrictions and encumbrances, we and LHC are precluded from freely transferring funds through intercompany loans, advances or cash dividends. Our cash flow from operations before debt restructuring and reorganization costs for the three months ended December 31, 2001 was a source of cash of $73.7 million compared to a use of cash of $2.7 million for the three months ended December 31, 2000, principally due to reduced interest and lease payments following our reorganization, improvement in the collection of accounts receivable and the timing of vendor and employee payments. Cash payments for debt restructuring and reorganization costs were approximately $26 million during the three months ended December 31, 2001 compared to $11.4 million for the same period in the prior year. We believe that cash flow from operations, along with available borrowings under our Revolving Credit Facility, are sufficient to meet our current liquidity needs. 21 Our days sales outstanding at December 31, 2001 was approximately 58 days compared to approximately 60 days at September 30, 2001. Our net cash used for investing activities for the three months ended December 31, 2001 was $29.3 million, and includes approximately $10.8 million of capital expenditures. Capital expenditures consist primarily of betterments and expansion of eldercare centers and investments in data processing hardware and software. In order to maintain our physical properties in a suitable condition to conduct our business and meet regulatory requirements, we expect to continue to incur capital expenditure costs at levels at or above those for the three months ended December 31, 2001 for the foreseeable future. Our investing activities for the three months ended December 31, 2001 also include: approximately $5.7 million in net investments in restricted investments in marketable securities, representing the current period funding of self insured workers' compensation and general / professional liability insurance retentions held by LHC; and approximately $10.5 million in connection with the exercise of an option to purchase three formerly leased eldercare centers. Our cash flows from investing activities for the three months ended December 31, 2000 include approximately $7 million of cash proceeds from the sale of an eldercare center. Our financing activities for the three months ended December 31, 2001, resulted in net cash inflows of $9.5 million, and include approximately $33 million of cash proceeds from borrowings under the Delayed Draw Term Loan. $10 million of the borrowings were used to finance the price of the purchase option previously described, and the remaining $23 million were used to refinance several mortgages at more favorable rates of interest. As a result of subsequent developments in our bid to consummate a proposed acquisition of a pharmacy operation, the Delayed Draw Term Loan was amended in December 2001 to allow available borrowings that were otherwise earmarked for the proposed pharmacy transaction to be used to restructure credit terms with NeighborCare pharmacy's primary supplier of pharmacy products. During the second quarter of fiscal 2002, through February 8, 2002, we borrowed approximately $42 million from the Delayed Draw Term Loan to finance the repayment of all trade balances due to NeighborCare Pharmacy's primary supplier of pharmacy products. Prospectively, this change in credit terms will result in reduced pharmacy product acquisition costs, partially offset by an increase in interest expense on the incremental Delayed Draw Term Loan borrowings. Assuming no future changes in variable rates of interest, the net impact of this transaction will be positive to our cash flows. In December 2001, the Senior Credit Facility was amended in order to extend the date by which we are required to achieve certain levels of fixed versus variable interest rate exposure. As amended, by June 30, 2002, we are required the enter into interest rate swap agreements that effectively fix or cap the interest cost on at least 50% of our consolidated debt. At December 31, 2001, our debt mix is approximately 14% fixed and 86% variable. For the three months ended December 31, 2001, we incurred approximately $6.8 million of lease obligation costs and expect to continue to incur lease costs at or above levels approximating those for the three months ended December 31, 2001 for the foreseeable future. 22 Financial Commitments Requests for providing commitments to extend financial guarantees and extend credit are reviewed and approved by senior management. Management regularly reviews all outstanding commitments, letters of credit and financial guarantees, and the results of these reviews are considered in assessing the need for any reserves for possible credit and guarantee loss. We have posted $3.5 million of outstanding letters of credit. The letters of credit guarantee performance to third parties of various trade activities. The letters of credit are not recorded as liabilities on our balance sheet unless they are utilized by the third party. The financial risk approximates the amount of outstanding letters of credit. We have extended approximately $7.3 million in working capital lines of credit to certain jointly owned and managed companies, of which $4.8 million were unused at December 31, 2001. Credit risk represents the accounting loss that would be recognized at the reporting date if the affiliate companies were deemed unable to repay any amounts utilized under the working capital lines of credit. Commitments to extend credit to third parties are conditional agreements generally having fixed expiration or termination dates and specific interest rates and purposes. We are a party to joint venture partnerships whereby our ownership interests are less than 50% of the total capital of the partnerships. We account for these partnerships using the equity method of accounting and, therefore; the assets, liabilities and operating results of these partnerships are not consolidated with ours. Although we are not contractually obligated to fund operating losses of these partnerships, in certain cases, we have extended credit to such joint venture partnerships in the past and may decide to do so in the future in order to realize economic benefits from our joint venture relationship. Management assesses the creditworthiness of such partnerships in the same manner it does other third-parties. We have provided $10.9 million of financial guarantees related to loan commitments of four jointly owned and managed companies. We have also provided $11.1 million of financial guarantees related to lease obligations of one jointly-owned and managed company. The guarantees are not recorded as liabilities on our balance sheet unless we are required to perform under the guarantee. Credit risk represents the accounting loss that would be recognized at the reporting date if counter-parties failed to perform completely as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that no amounts could be recovered from other parties. Warrants In connection with our Reorganization, we issued warrants (the "Warrants") to purchase 4,559,475 shares of new common stock. This represents approximately 11 % of the new common stock issued on the effective date. The Warrants expire on October 2, 2002 and have an exercise price of $20.33 per share of new common stock. Income Taxes Our provision for income taxes for the three months ended December 31, 2001 was $10.1 million. We realized a $7.5 million tax benefit through the realization of Net Operating Loss ("NOL") carryforwards and $1.3 million of deferred tax liabilities due to temporary differences between book and tax basis goodwill amortization. Pursuant to SOP 90-7, the income tax benefit of any future realization of the NOL carryforwards are to be applied first as a reduction to goodwill. Revenue Sources We receive revenues from Medicare, Medicaid, private insurance, self-pay residents, other third party payors and long-term care facilities which utilize our pharmacy and other specialty medical services. The healthcare industry is experiencing the effects of the federal and state governments' trend toward cost containment, as government and other third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. These cost containment measures, combined with the increasing influence of managed care payors and competition for patients, have resulted in reduced rates of reimbursement for services provided by us. 23 A number of the provisions of the recently enacted Balanced Budget Refinement Act ("BBRA") and the Benefits Improvement Protection Act ("BIPA") which provide additional funding for Medicare participating skilled nursing facilities expire on September 30, 2002. Expiring provisions are estimated to, on average, reduce per beneficiary per diems by $30. Moreover, the Centers for Medicare and Medicaid Services ("CMS") has indicated its desire to complete refinements to the case mix classification system as part of the Fiscal 2003 rule-making. Under the law, when these revisions are implemented, the add-on's authorized by the BBRA and BIPA will expire. Combined, the Medicare skilled nursing facility sector face an 18% reduction in the average median per diems. If we were to experience an 18% decline in our current average Medicare rate per patient day, the estimated annual reduction in Medicare revenues of approximately $67 million would have a material adverse affect on our financial position, results of operations, and cash flows. Trade organizations representing the skilled nursing facility sector are aggressively pursuing strategies to minimize the potential impact of the "Medicare Rate Cliff." It is not possible to fully quantify the effect of recent legislation, the interpretation or administration of such legislation or any other governmental initiatives on our business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect our business. There can be no assurance that payments under governmental and private third party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Our financial condition and results of operations may be affected by the reimbursement process, which in our industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. Certain service contracts permit our NeighborCare(R) pharmacy operations to provide services to HCR Manor Care, Inc. constituting $120 million, or approximately ten percent and four percent of the net annual revenues, of NeighborCare and us, respectively. These service contracts with HCR Manor Care are the subject of certain litigation. See "Part II: Other Information, Item 1 - Legal Proceedings" herein and in the Company's Annual Report of Form 10-K. Seasonality Our earnings generally fluctuate from quarter to quarter. This seasonality is related to a combination of factors which include the timing of Medicaid rate increases, seasonal census cycles, and the number of calendar days in a given quarter. 24 Item 3. Quantitative and Qualitative Disclosures about Market Risk We are exposed to the impact of interest rate changes. In the past, we employed established policies and procedures to manage our exposure to changes in interest rates. Our objective in managing exposure to interest rate changes is to limit the impact of such changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objective, we primarily use interest rate swap agreements to manage net exposure to interest rate changes related to our portfolio of borrowings. As of December 31, 2001, no interest rate swap agreements were in place. In December 2001, the Senior Credit Facility was amended in order to extend the date by which we are required to achieve certain levels of fixed versus variable interest rate exposure. As amended, by June 30, 2002, we are required to enter into interest rate swap agreements that effectively fix or cap the interest cost on at least 50% of our consolidated debt. At December 31, 2001, our debt mix is approximately 14% fixed and 86% variable. At December 31, 2001, we had $560.6 million of debt subject to variable market rates of interest. For each additional percentage point increase in the LIBOR, we will incur additional interest expense of approximately $5.6 million annually. 25 PART II: OTHER INFORMATION Item 1. Legal Proceedings We are a party to litigation arising in the ordinary course of business. The following discussions represent updates to the litigation previously described in our Annual Report on Form 10-K. For a more comprehensive discussion of our existing litigation matters see "Item 3: Legal Proceedings" in our Annual Report on Form 10-K. Manor Care, Inc. v. Genesis Health Ventures, Inc., D. Del. Civil Action No. 99-580 (Robinson, J.). On August 17, 1999, MCAI (then known as Manor Care, Inc.) filed a lawsuit in the United States District Court for the District of Delaware against Genesis. In this action, plaintiff brings claims under the federal securities laws resulting from alleged misrepresentations and omissions made by Genesis in connection with MCAI's acquisition of Genesis' Series G Preferred Stock as compensation for its sale of Vitalink to Genesis. Plaintiff seeks compensatory damages of unspecified amount, rescission of MCAI's purchase of the Series G Preferred Stock, and the return of the consideration paid by MCAI at the time of Genesis' acquisition of Vitalink from MCAI. Genesis filed a motion to dismiss this action. On September 29, 2000, the Court granted that motion in part and denied it in part. Specifically, the Court dismissed plaintiff's allegations regarding purportedly fraudulent statements concerning: Genesis' knowledge as to certain legislative changes to the Medicare program; the effect of Genesis' affiliate Multicare on Genesis' earnings; Genesis' intent with respect to the issuance of preferred stock; and Genesis' ability to declare dividends on the Series G Preferred Stock. Accordingly, the only allegations that were not dismissed from this action concern Genesis' alleged failure to include certain financial information on the Registration Statement it filed in connection with its acquisition of Vitalink, and allegedly fraudulent statements concerning Genesis' labor relations. Genesis' motion to consolidate this action with the Genesis Delaware Action described above has been denied. On October 22, 2001, plaintiff filed a motion to reconsider the Court's decision to dismiss this action in part, and Genesis has filed an opposition to that motion. On December 5, 2001, Genesis filed a motion to dismiss the entire action pursuant to Genesis' Joint Plan of Reorganization and the Bankruptcy Court's order confirming that Plan, which extinguish plaintiff's claims against Genesis except to the extent that those claims may be applied as set-off or recoupment against claims brought by Genesis. Briefing on these two motions was completed on February 8, 2002. U.S. ex rel Scherfel v. Genesis Health Ventures et al. In this action, brought in United States District Court for the District of New Jersey on March 16, 2000, the plaintiff alleges that a pharmacy purchased by NeighborCare failed to process Medicaid credits for returned medications. The allegations are vaguely alleged for other jurisdictions. While the action was under seal in United States District Court, we fully cooperated with the Department of Justice's evaluation of the allegations. On or about March 2001, the Department of Justice declined to intervene in the suit and prosecute the allegations. The U.S. District court action is no longer under seal but remains administratively stayed pending resolution of the bankruptcy issues. The plaintiff filed a proof of claim in our bankruptcy proceedings initially for approximately $650,000,000 and more recently submitted an amended claim in the amount of approximately $325,000,000. We believe the allegations have no merit and have objected to the proof of claim. In connection with an estimation of the proof of claim in the bankruptcy proceeding, Debtors filed a motion for summary judgment urging that the claim be estimated at zero. On or about January 24, 2002, the bankruptcy court granted Debtors' motion and estimated the claim at zero. On or about February 11, 2002, the plaintiff appealed the bankruptcy court's granting of summary judgment. 26 Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information On February 8, 2002, our common stock began trading on the NASDAQ National Market System under the symbol "GHVI" and our warrants began trading on the NASDAQ National Market System under the symbol "GHVIW". Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1(1) The Company's Amended and Restated Articles of Incorporation. 3.2 The Company's Amended and Restated By-laws. 10.1(2) Genesis Health Ventures Inc. Deferred Compensation Plan. 99.1 Amendment No. 1, dated as of December 31, 2001, to the Credit, Security, Guaranty and Pledge Agreement dated as of October 2, 2001, - ----------- 1) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 2001. 2) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 33-82206). (b) Reports on Form 8-K None 27 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: February 14, 2002 /s/ George V. Hager, Jr. ------------------------------------ George V. Hager, Jr. Executive Vice President and Chief Financial Officer 28 EX-3 3 ex3-2.txt EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS of GENESIS HEALTH VENTURES, INC. These Bylaws are adopted by the Corporation and are supplemental to the Pennsylvania Business Corporation Law as the name shall from time to time be in effect. ARTICLE I. SHAREHOLDERS AND DIRECTORS Section 101.1 Place of Shareholders' Meetings. All meetings of the shareholders shall be held at such place or places, inside or outside the Commonwealth of Pennsylvania, as determined by the Board of Directors from time to time. Section 101.2 Annual Shareholders' Meeting. The annual meeting of the shareholders, for the election of directors and the transaction of other business which is properly brought before such meeting, shall be held in each calendar year, at a time and place determined by the Board of Directors. Section 101.3 Special Meetings of Shareholders. Special meetings of the shareholders may be called at any time by the Board of Directors or the Chairman of the Board and Chief Executive Officer. Section 101.4 Conduct of Shareholders' Meetings. The Chairman of the Board shall preside at all Shareholders' meetings. In the absence of the Chairman of the Board, the President shall preside or, in his or her absence, any officer designated by the Board of Directors. The officer presiding over the shareholders' meeting may establish such rules and regulations for the conduct of the meeting as he or she may deem to be reasonably necessary or desirable for the orderly and expeditious conduct of the meeting. Unless the officer presiding over the shareholders' meeting otherwise requires, shareholders need not vote by ballot on any questions. Section 102.1 Management by Board of Directors. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, regulation, the Amended and Restated Articles of Incorporation or these Amended and Restated Bylaws directed or required to be exercised or done by the shareholders. Section 102.2. Nomination for Directors. Beginning with the annual meeting of the shareholders to be held in 2002, nominations by shareholders for directors to be elected at a meeting of shareholders and which have not been previously approved by the Board of Directors must be submitted to the Secretary of the Corporation in writing, either by personal delivery, nationally recognized express mail or United States mail, postage prepaid, not later than (i) with respect to an election to be held at an annual meeting of shareholders, the latest date upon which shareholder proposals must be submitted to the Corporation for inclusion in the Corporation's proxy statement relating to such meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or other applicable rules or regulations under the federal securities laws or, if no such rules apply, at least ninety (90) days prior to the date one year from the date of the immediately preceding annual meeting of shareholders, and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. Each such nomination shall set forth: (i) the name and address of the shareholder making the nomination and of the person or persons nominated; (ii) a representation that the shareholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to vote for the person or persons nominated; (iii) a description of all arrangements and understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations were made by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated by the Board of Directors; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. All late nominations shall be rejected. Notwithstanding the foregoing, at any time prior to the election of directors at a meeting of shareholders, the Board of Directors may designate a substitute nominee to replace any bona fide nominee who was nominated as set forth above and who, for any reason, becomes unavailable for election as a director. Section 102.3. Number of Directors. The Board of Directors shall consist of initially eight (8) directors and, after an initial one year term following the effectiveness of the Corporation's Plan of Reorganization dated September 12, 2001, (i) the Board of Directors shall consist of not less than 8 nor more than 13 directors as shall be established from time to time by majority vote of the members in office of the Board of Directors, and (ii) the Board shall be divided into three classes in accordance with the Corporation's Amended and Restated Articles of Incorporation. Section 102.4. Term of Directors. Each director shall serve until his successor is elected and qualifies, even though his term of office has otherwise expired, except in the event of his earlier resignation, removal or disqualification. Section 102.5. Resignations of Directors. Any director may resign at any time. Such resignation shall be in writing, but the acceptance thereof shall not be necessary to make it effective. Section 102.6. Vacancies in the Board of Directors. Should a vacancy in the Board of Directors occur or be created, whether arising through death, resignation, retirement or removal of a Director, such vacancy shall be filled by a majority vote of the remaining Directors. A Director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he was elected. -2- Section 102.7. Compensation of Directors. Unless the Board of Directors otherwise determines, directors shall not be entitled to any compensation for their services as directors; provided that directors who are not also employees of the Corporation shall be reimbursed by the Corporation for all out-of-pocket expenses actually incurred by such directors in attending meetings of the Board of Directors or any committees thereof. Any director may serve the Corporation in other capacities and be entitled to such compensation therefor as is determined by the Board of Directors. Section 102.8. Annual Meeting of Directors. An annual meeting of the Board of Directors shall be held each year immediately following the annual meeting of the shareholders and at such other times as the Board shall from time to time designate or as may be designated in any notice from the Secretary calling the meeting. Section 102.9. Meetings of the Directors. Meetings of the Board of Directors may be called by the Chairman or any three members of the Board of Directors. Any one member of the Board of Directors may request that the Chairman of the Board of Directors call a meeting of the Board of Directors. Upon the request of the Chairman or such three directors, it shall be the duty of the Secretary of the Corporation to fix the date of such meeting to be held at such time, not less than three (3) business days after the receipt of such request as the Secretary may determine and to give due notice thereof for any such meeting to be held at the principal office of the Corporation or at any other place designated in the notice of the meeting; or, in the alternative, not less than twenty-four (24) hours after the receipt of such request as the Secretary may determine and to give due notice thereof for any such meeting where any director may participate by using a conference telephone or similar communications equipment, by means of which all such persons participating in the meeting can hear each other. Section 102.10. Notice of Directors' Meetings. Whenever notice of a meeting of the Board of Directors is required, it shall be in writing and shall be made to each director to his or her address appearing on the books of the Corporation by hand delivery, first class or express mail (postage prepaid), courier service (charges prepaid) or by facsimile transmission. Unless otherwise required by law or these Bylaws, neither the business to be transacted at, nor the purpose of, any regular meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 102.11. Reports and Records. The reports of officers and committees and the records of the proceedings of all committees shall be filed with the Secretary of the Corporation and presented to the Board of Directors, if practicable, at its next regular meeting. The Board of Directors shall keep complete records of its proceedings in a minute book kept for that purpose. When a director shall request it, the vote of each director upon a particular question shall be recorded in the minutes. Section 102.12. Committees. The following committees of the Board of Directors shall be established by the Board of Directors in addition to any other committee the Board of Directors may in its discretion establish: (a) Executive Committee; (b) Audit and Compliance Committee; and (c) Compensation Committee. Section 102.13. Executive Committee. The Executive Committee shall consist of at least three (3) directors. Meetings of the Committee may be called whenever two or more members of the Committee so request in writing. The Executive Committee shall have and exercise the authority of the Board of Directors in the management of the business of the Corporation between the dates of regular meetings of the Board. -3- Section 102.14. Audit and Compliance Committee. The Audit and Compliance Committee shall consist of at least three (3) directors, a majority of which shall be independent. Meetings of the Audit and Compliance Committee Committee may be called at any time by the Chairman or Secretary of the Audit and Compliance Committee, and shall be called whenever two or more members of the Committee so request in writing. The Audit and Compliance Committee shall have the following authority, powers and responsibilities: (a) To recommend each year to the Board the independent accountants to audit the annual financial statements of the Corporation and its consolidated subsidiaries and to review the fees charged for such audits or for special engagements given to such accountants; (b) To meet with the independent accountants, Chief Executive Officer, Chief Financial Officer and any other Corporation executives as the Audit and Compliance Committee deems appropriate at such times as the Audit and Compliance Committee shall determine to review: (i) the scope of the audit plan; (ii) the Corporation's financial statements; (iii) the results of external and internal audits; (iv) the effectiveness of the Corporation's system of internal controls; (v) any limitations imposed by Corporation personnel on the independent public accountants; and (vi) such other matters as the Audit and Compliance Committee shall deem appropriate; (c) To report to the entire Board at such time as the Audit and Compliance Committee shall determine; (d) To take such other action as the Audit and Compliance Committee shall deem necessary or appropriate to assure that the interests of the Company are adequately protected. Section 102.15. Compensation Committee. The Compensation Committee shall consist of at least two (2) directors. Meetings of the Committee may be called at any time by the Chairman or Secretary of the Committee, and shall be called whenever two or more members of the Committee so request in writing. The Committee shall review compensation of executive officers and make recommendations to the Board of Directors regarding executive compensation and shall have such other duties as the Board of Directors prescribes. Section 102.16. Appointment of Committee Members. The Board of Directors shall appoint or shall establish a method of appointing the members of the Executive, Audit and Compensation Committees and of any other committees established by the Board of Directors, and the Chairman of each such committee, to serve until the next annual meeting of shareholders. Section 102.17. Organization and Proceedings. Each committee of the Board of Directors shall effect its own organization by the appointment of a Secretary and such other officers, except the Chairman, as it may deem necessary. The Secretary of the Executive Committee shall be the Secretary of the Corporation, but the Secretary of the Audit and Compensation Committees and of any other committee need not be the Secretary of the Corporation. A record of the proceedings of all committees shall be kept by the Secretary of such committee and filed and presented as provided in Section 102.12 of these Bylaws. -4- Section 102.18. Committees. In the absence or disqualification of any member of any committee established by the Board Directors, the members thereof who are present at any meeting such committee and are not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at such meeting in the place of such absent or disqualified member. Section 103. Absentee Participation in Meetings. A director or shareholder (as the case may be) may participate in a meeting of the Board of Directors, a meeting of a committee established by the Board of Directors, or a meeting of the shareholders, by use of a conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear each other. ARTICLE II. OFFICERS Section 201. Officers. The Corporation shall have a Chairman, a President, a Secretary and a Treasurer, and may have one or more Vice Chairmen, one or more Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers and other officers and assistant officers as the Board of Directors may from time to time deem advisable. Section 202. Election and Term of Officers. The Chairman and Chief Executive Officer, President and Chief Operating Officer, Secretary, and Treasurer of the Corporation shall be elected annually by the Board of Directors at the annual meetings of the Board of Directors. All other officers and assistant officers shall be elected by the Board of Directors at the time, in the manner, and for such term as the Board of Directors from time to time determines. Each officer and assistant officer shall serve until his successor is duly elected and qualifies, or until he resigns or is removed from office. Section 203. Compensation. Unless otherwise provided by the Board of Directors, the compensation of officers and assistant officers shall be fixed by the Chairman. Section 204. Chairman and Chief Executive Officer. The Chairman shall be the chief executive officer of the Corporation, and, subject to the direction and control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. Unless a designation to the contrary is made at a meeting, the Chairman, when present, shall preside at all meetings of the shareholders and of the Board of Directors. As authorized by the Board of Directors, the Chairman may execute and seal, or cause to be sealed, all instruments requiring such execution. Upon request of the Board of Directors, the Chairman shall report to it all matters which the interests of the Corporation may require to be brought to the attention of the Board of Directors. Section 205. President and Chief Operating Officer. The president shall be the chief operating officer of the Corporation. As authorized by the Board of Directors, the President may execute and seal, or cause to be sealed, all instruments requiring such execution, except to the extent that signing and execution thereof is expressly delegated by the Board of Directors to some other officer or agent of the Corporation. In the absence or disability of the Chairman, the President, unless otherwise determined by the Board of Directors, shall perform the duties and exercise the powers of the Chairman. -5- Section 206. Vice President, Secretary, Treasurer, and Assistant Officers. In the absence or disability of the President, the Vice President or Vice Presidents, in the order of their seniority, unless otherwise determined by the Board of Directors or the Chairman shall perform the duties and exercise the powers of the President. The Vice President or Vice Presidents, the Secretary, the Treasurer, the Assistant Secretary or Secretaries, and the Assistant Treasurer or Treasurers, shall act under the direction of the Chairman and shall perform all duties which are prescribed by the Chairman or the Board of Directors. ARTICLE III. PERSONAL LIABILITY AND INDEMNIFICATION Section 301.1.1. Personal Liability of Directors. (a) A director of this Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless: (1) the director has breached or failed to perform the duties of his office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation of 1988 (which, as amended from time to time, is hereafter called the "Business Corporation Law"); and (2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. (b) This Section 301.1.1 shall not limit a director's liability for monetary damages to the extent prohibited by the Business Corporation Law. Section 301.1.2. Mandatory Indemnification. The Corporation shall, to the fullest extent permitted by applicable law, indemnify its directors and officers who were or are a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not such action, suit or proceeding arises or arose by or in the right of the Corporation or other entity) by reason of the fact that such director or officer is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, general partner, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), against expenses (including, but not limited to, attorneys' fees and costs), judgments, fines (including excise taxes assessed on a person with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with such action, suit or proceeding, except as otherwise provided in Section 301.1.4 hereof. Persons who were members, directors or officers of the Corporation prior to the date this Section is approved by shareholders of the Corporation, but who do not hold such office on or after such date, shall not be covered by this Section 301.1. A director or officer of the Corporation entitled to indemnification under this Section 301.1.2 is hereafter called a "person covered by Section 301.1.2 hereof". Section 301.1.3. Expenses. Expenses incurred by a person covered by Section 301.1.2 hereof in defending a threatened, pending or completed civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation, except as otherwise provided in Section 301.1.4. -6- Section 301.1.4. Exceptions. No indemnification under Section 301.1.2 or advancement or reimbursement of expenses under Section 301.1.3 shall be provided to a person covered by Section 301.1.2 hereof (a) with respect to expenses or the payment of profits arising from the purchase or sale of securities of the Corporation in violation of Section 16(b) of the Securities Exchange Act of 1934; (b) if a final unappealable judgment or award establishes that such director or officer engaged in self-dealing, willful misconduct or recklessness; (c) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, and amounts paid in settlement) which have been paid directly to such person by an insurance carrier under a policy of officers' and directors' liability insurance whose premiums are paid for by the Corporation or by an individual or entity other than such director or officer; and (d) for amounts paid in settlement of any threatened, pending or completed action, suit or proceeding without the written consent of the Corporation, which written consent shall not be unreasonably withheld. The Board of Directors of the Corporation is hereby authorized, at any time by resolution, to add to the above list of exceptions from the right of indemnification under Section 301.1.2 or advancement or reimbursement of expenses under Section 301.1.3, but any such additional exception shall not apply with respect to any event, act or omission which has occurred prior to the date that the Board of Directors in fact adopts such resolution. Any such additional exception may, at any time after its adoption, be amended, supplemented, waived or terminated by further resolution of the Board of Directors of the Corporation. Section 301.1.5. Continuation of Rights. The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Section 301.1 shall continue as to a person who has ceased to be a director or officer of the Corporation, and shall inure to the benefit of the heirs, executors and administrators of such person. Section 301.1.6. General Provisions. (a) The term "to the fullest extent permitted by applicable law", as used in this Section 301.1, shall mean the maximum extent permitted by public policy, common law or statute. Any person covered by Section 301.1.2 hereof may, to the fullest extent permitted by applicable law, elect to have the right to indemnification or to advancement or reimbursement of expenses, interpreted, at such person's option, (i) on the basis of the applicable law on the date this Section was approved by the shareholders, or (ii) on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the action, suit or proceeding, or (iii) on the basis of the applicable law in effect at the time indemnification is sought. (b) The right of a person covered by Section 301.1.2 hereof to be indemnified or to receive an advancement or reimbursement of expenses pursuant to Section 301.1.3 (i) may also be enforced as a contract right pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the Corporation and such person, (ii) to the fullest extent permitted by applicable law, is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification (as determined by such person) of this Section with respect to events, acts or omissions occurring before such rescission or restrictive modification is adopted. -7- (c) If a request for indemnification or for the advancement or reimbursement of expenses pursuant hereto is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation together with all supporting information reasonably requested by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim (plus interest at the prime rate announced from time to time by the Corporation's primary banker) and, if successful in whole or in part, the claimant shall be entitled also to be paid the expenses (including, but not limited to, attorneys' fees and costs) of prosecuting such claim. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or the advancement or reimbursement of expenses to the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. (d) The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Section 301.1 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement or reimbursement of expenses may be entitled under any bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in such director or officer's official capacity and as to action in another capacity while holding that office. (e) Nothing contained in this Section 301.1 shall be construed to limit the rights and powers the Corporation possesses under the Business Corporation Law, or otherwise, including, but not limited to, the powers to purchase and maintain insurance, create funds to secure or insure its indemnification obligations, and any other rights or powers the Corporation may otherwise have under applicable law. (f) The provisions of this Section 301.1 may, at any time (and whether before or after there is any basis for a claim for indemnification or for the advancement or reimbursement of expenses pursuant hereto), be amended, supplemented, waived, or terminated, in whole or in part, with respect to any person covered by Section 301.1.2 hereof by a written agreement signed by the Corporation and such person. (g) The Corporation shall have the right to appoint the attorney for a person covered by Section 301.1.2 hereof, provided such appointment is not unreasonable under the circumstances. Section 301.1.7. Optional Indemnification. The Corporation may, to the fullest extent permitted by applicable law, indemnify, and advance or reimburse expenses for, persons in all situations other than that covered by this Section 301.1. -8- ARTICLE IV. SHARES OF CAPITAL STOCK Section 401. Authority to Sign Share Certificate. Every share certificate of the Corporation shall be signed by the Chairman and Chief Executive Officer and by the Secretary or one of the Assistant Secretaries. If the certificate is signed by a transfer agent or registrar, the signature of any officer of the Corporation on the certificate may be facsimile, engraved or printed. Section 402. Lost or Destroyed Certificates. Any person claiming a share certificate to be lost, destroyed or wrongfully taken shall receive a replacement certificate if such shareholder: (a) requests such replacement certificate before the Corporation has notice that the shares have been acquired by a bona fide purchaser; (b) files with the Corporation an indemnity bond deemed sufficient by the Board of Directors; and (c) satisfies any other reasonable requirements fixed by the Board of Directors. ARTICLE V. GENERAL Section 501. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 502. Record Date. The Board of Directors may fix any time prior to the date of any meeting of shareholders as a record date for the determination of shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than ninety (90) days prior to the date of the meeting of shareholders. The Board of Directors may fix any time whatsoever (whether or not the same is more than ninety (90) days) prior to the date for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or will go into effect, as a record date for the determination of the shareholders entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. Section 503. Emergency Bylaws. In the event of any emergency resulting from an attack on the United States, a nuclear disaster or another catastrophe as a result of which a quorum cannot be readily assembled and during the continuance of such emergency, the following Bylaw provisions shall be in effect, notwithstanding any other provisions of these Bylaws. (a) A meeting of the Board of Directors or of any committee thereof may be called by any officer or director upon one hour's notice to all persons entitled to notice whom, in the sole judgment of the notifier, it is feasible to notify; (b) The director or directors in attendance at the meeting of the Board of Directors or of any committee thereof shall constitute a quorum; and (c) These Bylaws may be amended or repealed, in whole or in part, by a majority vote of the directors attending any meeting of the Board of Directors, provided such amendment or repeal shall only be effective for the duration of such emergency. -9- Section 504. Severability. If any provision of these Bylaws is illegal or unenforceable as such, such illegality or unenforceability shall not affect any other provision of these Bylaws and such other provisions shall continue in full force and effect. ARTICLE VI. AMENDMENTS Section 601. Amendment or Repeal by the Board of Directors. Except as provided by applicable law, these Bylaws may be amended or repealed, in whole or in part, by a majority vote of the members of the Board of Directors present and voting at any duly convened regular or special meeting of the Board. Section 602. Amendment or Repeal by Shareholders. These Bylaws may be amended or repealed, in whole or in part, by shareholders as follows: (i) in the case of an amendment or repeal that has previously received the approval of the Board of Directors, by a majority of the votes cast by shareholders at any duly convened annual or special meeting of the shareholders; and (ii) in the case of an amendment or repeal that has not previously received the approval of the Board of Directors, by a vote of shareholders entitled to cast at least 75 percent of the votes which all shareholders are entitled to cast thereon at any annual or special meeting of the shareholders. This Section 602 may be amended or repealed, in whole or in part, only by a vote of shareholders entitled to cast at least 75 percent of the votes which all shareholders are entitled to cast thereon at any duly convened annual or special meeting of shareholders. Section 602. Recording Amendments. The text of all amendments to these Bylaws shall be attached hereto, and a notation of the date of its adoption and a notation of whether it was adopted by the directors or the shareholders shall be made in Section 702 hereof. ARTICLE VII. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS THERETO Section 701. Adoption and Effective Date. These Bylaws have been adopted as the Bylaws of the Corporation this 2nd day of October, 2001, and shall be effective as of said date. Section 702. Amendments to Bylaws. December 31, 2001 - Article I, Section 101.5 -10- ARTICLE I SHAREHOLDERS AND DIRECTORS Section 101.5 Quorum. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter to be acted upon at a meeting of the shareholders shall constitute a quorum for the purpose of consideration and action on the matter. To the extent that a quorum is present with respect to consideration of and action on a particular matter or matters but a quorum is not present as to another matter or matters, consideration of and action on the matter or matters for which a quorum is present may occur and, after such consideration and action, the meeting may be adjourned for purposes of the consideration of and action on the matter or matters for which a quorum is not present. -11- EX-99 4 ex99-1.txt EXHIBIT 99-1 Exhibit 99.1 AMENDMENT NO. 1 (this "Amendment"), dated as of December 31, 2001, to the Credit, Security, Guaranty and Pledge Agreement dated as of October 2, 2001 (the "Credit Agreement"), among (i) GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation (the "Borrower"); (ii) the Guarantors referred to therein; (iii) the Lenders referred to therein; (iv) GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger and Syndication Agent; (v) FIRST UNION NATIONAL BANK, as Administrative Agent and Collateral Agent; (vi) FIRST UNION SECURITIES, INC., as Co-Lead Arranger; (vii) GENERAL ELECTRIC CAPITAL CORPORATION, as Collateral Monitoring Agent and Co-Documentation Agent; and (viii) CITICORP USA, INC., as Co-Documentation Agent. INTRODUCTORY STATEMENT All capitalized terms not otherwise defined in this Amendment are as defined in the Credit Agreement. The Borrower and the Lenders have agreed to make certain changes to the provisions of the Credit Agreement. Accordingly, the parties hereto hereby agree as follows: SECTION 1. Amendments to Credit Agreement. As of the Effective Date (subject to the terms and conditions set forth in Section 2 hereof), the Credit Agreement is hereby amended as follows: (A) The definition of "APS Acquisition" and all references thereto are hereby deleted from the Credit Agreement. (B) Article 1 of the Credit Agreement is hereby amended to insert the following definition in its proper alphabetical location: 'Bradford Bonds' shall mean 9 1/4% Senior Secured First Mortgage Bonds, Series A, issued in 1992 by the Borrower and secured by seven (7) skilled nursing facilities with a principal balance, as of the Effective Date, of $19,337,000 and a maturity date of September 1, 2007." (C) Section 2.3(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) The Delayed Draw Term Loans shall be used solely, (i) to pay the outstanding balance owed to ElderTrust or its Affiliates on certain loans secured by mortgages on certain properties owned by the Borrower and its Consolidated Subsidiaries, (ii) in connection with the exercise of the Facility Purchase Options and the purchase of the facilities that are the subject thereof and any fees and expenses incurred in connection therewith, (iii) to make Specified Payments, (iv) to repay the Bradford Bonds and (v) to pay down the outstanding balance owing by certain Credit Parties to Cardinal in connection with the Cardinal Lien." (C) Section 4.3(d) of the Credit Agreement is hereby amended in its entirety to read as follows: "(d) No Event of Default. On the date of the Borrowing of the Delayed Draw Term Loans, after giving effect to the payment of the outstanding balance due to ElderTrust and/or the exercise of one or more of the Facility Purchase Options (and the purchase of the Facilities that are the subject thereof) and/or the repayment of the Bradford Bonds and/or payments to reduce the amounts owing to Cardinal, as applicable, on a Pro Forma Basis, no Default or Event of Default shall have occurred and be continuing unless waived by the prior written consent of the Required Lenders; and" (D) Section 4.3(e) of the Credit Agreement is hereby amended in its entirety to read as follows: "(e) Documentation for and Making of Payments with Respect to Facility Purchase Options/Specified Payments/ElderTrust Payments/Bradford Bonds/Cardinal Lien. All (i) documentation relating to (a) the exercise of one or more of the Facility Purchase Options (and the purchase of the Facilities that are the subject thereof), (b) the Specified Payments, (c) the payments to be made to ElderTrust, (d) the repayment of the Bradford Bonds and (e) payments to reduce the amounts owing to Cardinal and (ii) the manner and making of all payments relating to the transactions referred to in the preceding clause (i) shall be in form and substance reasonably satisfactory to the Administrative Agent." (E) Section 5.14 of the Credit Agreement is hereby amended by deleting "January 30, 2002" from the first line thereof and replacing it with "June 30, 2002." (F) Section 5.15 of the Credit Agreement is hereby amended in its entirety to read as follows: 2 "SECTION 5.15 After-Acquired Real Estate Assets. If, after the Closing Date, any Credit Party purchases, leases or otherwise acquires any Real Property Asset including, without limitation, the properties that are the subject of the Facility Purchase Options or obtains a release of any mortgage on any Real Property Asset owned by any Credit Party including, without limitation, making payment in full to ElderTrust, making Specified Payments or repaying the Bradford Bonds in full, (a) promptly, but in any event within thirty (30) days, after such purchase, lease, other acquisition or release, provide written notice thereof to the Administrative Agent and the Collateral Agent, setting forth with specificity a description of such Real Property Asset acquired, a title commitment, a survey (if available) and such Credit Party's good faith estimate of the current fair market value of such Real Property Asset and (b) if either such Agent so requests, the applicable Credit Party shall promptly execute and deliver to the Collateral Agent, a Mortgage and such other documents or instruments as such Agent shall reasonably request with respect to such Real Property Asset." SECTION 2. Conditions to Effectiveness. This Amendment is subject to the satisfaction in full of the following conditions (the first date on which all such conditions have been satisfied being herein called the "Effective Date"): (A) the Administrative Agent shall have received counterparts of this Amendment which, when taken together, bear the signatures of all parties hereto; (B) the Administrative Agent shall have received such other documents as the Administrative Agent, the Collateral Agent or Morgan, Lewis & Bockius, LLP, counsel for the Administrative Agent, may reasonably request; and (C) all legal matters in connection with this Amendment shall be satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Administrative Agent. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants that: (A) the representations and warranties by the Borrower contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as if such representations and warranties had been made on and as of the date hereof; and (B) the Borrower is in compliance with all the terms and provisions set forth in the Credit Agreement and, after giving effect hereto, no event or condition has occurred and is continuing which constitutes an Event of Default or which (with the passage of time, or the giving of notice, or both) would constitute an Event of Default. 3 SECTION 4. Full Force and Effect. Except as expressly amended hereby, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Credit Agreement, the terms "Agreement", "this Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar import, shall, unless the context otherwise requires, mean the Credit Agreement as amended by this Amendment. SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 6. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. SECTION 7. Expenses. The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, but not limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius LLP, counsel for the Administrative Agent. SECTION 8. Headings. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of or be taken into consideration in interpreting this Amendment. [SIGNATURE PAGES TO FOLLOW] 4 IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 1 to be duly executed as of the date first written above. BORROWER: GENESIS HEALTH VENTURES, INC. By:______________________________ Name: Title: GUARANTORS: ACADEMY NURSING HOME, INC. ACCUMED, INC. ADS APPLE VALLEY, INC. ADS CONSULTING, INC. ADS DANVERS ALF, INC. ADS DARTMOUTH ALF, INC. ADS HINGHAM ALF, INC. ADS HINGHAM NURSING FACILITY, INC. ADS HOME HEALTH, INC. ADS MANAGEMENT, INC. ADS PALM CHELMSFORD, INC. ADS RECUPERATIVE CENTER, INC. ADS RESERVOIR WALTHAM, INC. ADS SENIOR HOUSING, INC. ADS VILLAGE MANOR, INC. ADS/MULTICARE, INC. ANR, INC. APPLEWOOD HEALTH RESOURCES, INC. ASCO HEALTHCARE OF NEW ENGLAND, INC. ASCO HEALTHCARE, INC. ASL, INC. AUTOMATED PROFESSIONAL ACCOUNTS, INC. BERKS NURSING HOMES, INC. BETHEL HEALTH RESOURCES, INC. BREYUT CONVALESCENT CENTER, INC. BRIGHTWOOD PROPERTY, INC. BRINTON MANOR, INC. BURLINGTON WOODS CONVALESCENT CENTER, INC. CARECARD, INC. CAREFLEET, INC. CENTURY CARE CONSTRUCTION, INC. CENTURY CARE MANAGEMENT, INC. CHATEAU VILLAGE HEALTH RESOURCES, INC. CHELTENHAM LTC MANAGEMENT, INC. CHG INVESTMENT CORP., INC CHNR-I, INC. COLONIAL HALL HEALTH RESOURCES, INC. COLONIAL HOUSE HEALTH RESOURCES, INC. COMPASS HEALTH SERVICES, INC. CONCORD COMPANION CARE, INC. CONCORD HEALTH GROUP, INC. CONCORD HEALTHCARE CORPORATION CONCORD HEALTHCARE SERVICES, INC. CONCORD HOME HEALTH, INC. CONCORD PHARMACY SERVICES, INC. CONCORD REHAB, INC. CONCORD SERVICE CORPORATION CRESTVIEW CONVALESCENT HOME, INC. CRESTVIEW NORTH, INC. CRYSTAL CITY NURSING CENTER, INC. CVNR, INC. DAWN VIEW MANOR, INC. DELCO APOTHECARY, INC. DELM NURSING, INC. DENTON HEALTHCARE CORPORATION DERBY NURSING CENTER CORPORATION DIANE MORGAN AND ASSOCIATES, INC. EASTERN MEDICAL SUPPLIES, INC. EASTERN REHAB SERVICES, INC. EIDOS, INC. ELDERCARE RESOURCES CORP. ELMWOOD HEALTH RESOURCES, INC. ENCARE OF MASSACHUSETTS, INC. ENCARE OF MENDHAM, INC. ENCARE OF PENNYPACK, INC. ENCARE OF QUAKERTOWN, INC. ENCARE OF WYNCOTE, INC. ENR, INC. GENESIS ELDERCARE ADULT DAY HEALTH SERVICES, INC. GENESIS ELDERCARE CENTERS I, INC. GENESIS ELDERCARE CENTERS II, INC. GENESIS ELDERCARE CENTERS III, INC. GENESIS ELDERCARE CORP. GENESIS ELDERCARE DIAGNOSTIC SERVICES, INC. GENESIS ELDERCARE HOME CARE SERVICES, INC. GENESIS ELDERCARE HOME HEALTH SERVICES - SOUTHERN, INC. GENESIS ELDERCARE HOSPITALITY SERVICES, INC. GENESIS ELDERCARE LIVING FACILITIES, INC. GENESIS ELDERCARE MANAGEMENT SERVICES, INC. GENESIS ELDERCARE NATIONAL CENTERS, INC. GENESIS ELDERCARE NETWORK SERVICES OF MASSACHUSETTS, INC. GENESIS ELDERCARE NETWORK SERVICES, INC. GENESIS ELDERCARE PARTNERSHIP CENTERS, INC. GENESIS ELDERCARE PHYSICIAN SERVICES, INC. GENESIS ELDERCARE PROPERTIES, INC. GENESIS ELDERCARE REHABILITATION MANAGEMENT SERVICES, INC. GENESIS ELDERCARE REHABILITATION SERVICES, INC. GENESIS ELDERCARE STAFFING SERVICES, INC. GENESIS ELDERCARE TRANSPORTATION SERVICES, INC. GENESIS HEALTH SERVICES CORPORATION GENESIS HEALTH VENTURES OF ARLINGTON, INC. GENESIS HEALTH VENTURES OF BLOOMFIELD, INC. GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC. GENESIS HEALTH VENTURES OF INDIANA, INC. GENESIS HEALTH VENTURES OF LANHAM, INC. GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC. GENESIS HEALTH VENTURES OF NAUGATUCK, INC. GENESIS HEALTH VENTURES OF NEW GARDEN, INC. GENESIS HEALTH VENTURES OF POINT PLEASANT, INC. GENESIS HEALTH VENTURES OF SALISBURY, INC. GENESIS HEALTH VENTURES OF WAYNE, INC. GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC. GENESIS HEALTH VENTURES OF WILKES- BARRE, INC. GENESIS HEALTH VENTURES OF WINDSOR, INC. GENESIS HEALTHCARE CENTERS HOLDINGS, INC. GENESIS HOLDINGS, INC. GENESIS IMMEDIATE MED CENTER, INC. GENESIS PROPERTIES OF DELAWARE CORPORATION GENESIS SELECTCARE CORP. GENESIS/VNA PARTNERSHIP HOLDING COMPANY, INC. GENESIS - CROZER PARTNERSHP HOLDING COMPANY, INC. GERIATRIC & MEDICAL COMPANIES, INC. GERIATRIC AND MEDICAL SERVICES, INC. GERIATRIC AND MEDICAL INVESTMENTS CORPORATION GERIMED CORP. GHV at SALISBURY CENTER, INC. GLENMARK ASSOCIATES - DAWN VIEW MANOR, INC. GLENMARK ASSOCIATES, INC. GLENMARK PROPERTIES, INC. GMA - BRIGHTWOOD, INC. GMA - CONSTRUCTION, INC. GMA - MADISON, INC. GMA - UNIONTOWN, INC. GMA PARTNERSHIP HOLDING COMPANY, INC. GMC LEASING CORPORATION GMC MEDICAL CONSULTING SERVICES, INC. GMC - LTC MANAGEMENT, INC. GMS INSURANCE SERVICES, INC. GMS MANAGEMENT, INC. GMS MANAGEMENT-TUCKER, INC. GOVERNOR'S HOUSE NURSING HOME, INC. H.O. SUBSIDIARY, INC. HEALTH CONCEPTS AND SERVICES, INC. HEALTH RESOURCES OF ACADEMY MANOR, INC. HEALTH RESOURCES OF ARCADIA, INC. HEALTH RESOURCES OF BOARDMAN, INC. HEALTH RESOURCES OF BRIDGETON, INC. HEALTH RESOURCES OF BROOKLYN, INC. HEALTH RESOURCES OF CEDAR GROVE, INC. HEALTH RESOURCES OF CINNAMINSON, INC. HEALTH RESOURCES OF COLCHESTER, INC. HEALTH RESOURCES OF COLUMBUS, INC. HEALTH RESOURCES OF CUMBERLAND, INC. HEALTH RESOURCES OF EATONTOWN, INC. HEALTH RESOURCES OF ENGLEWOOD, INC. HEALTH RESOURCES OF EWING, INC. HEALTH RESOURCES OF FARMINGTON, INC. HEALTH RESOURCES OF GARDNER, INC. HEALTH RESOURCES OF GLASTONBURY, INC. HEALTH RESOURCES OF GROTON, INC. HEALTH RESOURCES OF JACKSON, INC. HEALTH RESOURCES OF KARAMENTA AND MADISON, INC. HEALTH RESOURCES OF LAKEVIEW, INC. HEALTH RESOURCES OF LEMONT, INC. HEALTH RESOURCES OF LYNN, INC. HEALTH RESOURCES OF MARCELLA, INC. HEALTH RESOURCES OF MIDDLETOWN (RI), INC. HEALTH RESOURCES OF MONTCLAIR, INC. HEALTH RESOURCES OF MORRISTOWN, INC. HEALTH RESOURCES OF NORFOLK, INC. HEALTH RESOURCES OF NORTH ANDOVER, INC. HEALTH RESOURCES OF NORWALK, INC. HEALTH RESOURCES OF PENNINGTON, INC. HEALTH RESOURCES OF RIDGEWOOD, INC. HEALTH RESOURCES OF ROCKVILLE, INC. HEALTH RESOURCES OF SOLOMONT/ BROOKLINE, INC. HEALTH RESOURCES OF SOUTH BRUNSWICK, INC. HEALTH RESOURCES OF TROY HILLS, INC. HEALTH RESOURCES OF VOORHEES, INC. HEALTH RESOURCES OF WALLINGFORD, INC. HEALTH RESOURCES OF WARWICK, INC. HEALTH RESOURCES OF WESTWOOD, INC. HEALTHCARE REHAB SYSTEMS, INC. HEALTHCARE RESOURCES CORP. HEALTHOBJECTS CORPORATION HELSTAT, INC. HILLTOP HEALTH CARE CENTER, INC. HMNH REALTY, INC. HNCA, INC. HORIZON ASSOCIATES, INC. HORIZON MEDICAL EQUIPMENT AND SUPPLY, INC. HORIZON MOBILE, INC. HORIZON REHABILITATION, INC. HR OF CHARLESTON, INC. HRWV HUNTINGTON, INC. INNOVATIVE HEALTH CARE MARKETING, INC. INNOVATIVE PHARMACY SERVICES, INC. INSTITUTIONAL HEALTH CARE SERVICES, INC. KEYSTONE NURSING HOME, INC. KNOLLWOOD MANOR, INC. KNOLLWOOD NURSING HOME, INC. LAKE MANOR, INC. LAKEWOOD HEALTH RESOURCES, INC. LAUREL HEALTH RESOURCES, INC. LEHIGH NURSING HOMES, INC. LIFE SUPPORT MEDICAL EQUIPMENT, INC. LIFE SUPPORT MEDICAL, INC. LINCOLN NURSING HOME, INC. LRC HOLDING COMPANY LWNR, INC. MABRI CONVALESCENT CENTER, INC. MADISON AVENUE ASSISTED LIVING, INC. MANOR MANAGEMENT CORPORATION OF GEORGIAN MANOR, INC. MARLINTON PARTNERSHIP HOLDING COMPANY, INC. MARLINTON ASSOCIATES, INC. MARSHFIELD HEALTH RESOURCES, INC. MCKERLEY HEALTH CARE CENTER - CONCORD INC. MCKERLEY HEALTH CARE CENTERS, INC. MEDICAL SERVICES GROUP, INC. MERIDIAN HEALTH, INC. MERIDIAN HEALTHCARE INVESTMENTS, INC. MERIDIAN HEALTHCARE, INC. METRO PHARMACEUTICALS, INC. MHNR, INC. MNR, INC. MONTGOMERY NURSING HOMES, INC. MULTICARE ACQUISITION CORP. MULTICARE AMC, INC. MULTICARE HOME HEALTH OF ILLINOIS, INC. MULTICARE MEMBER HOLDING CORP. MULTICARE PAYROLL CORP. NATIONAL PHARMACY SERVICE, INC. NEIGHBORCARE OF INDIANA, INC. NEIGHBORCARE INFUSION SERVICES, INC. NEIGHBORCARE OF NORTHERN CALIFORNIA, INC. NEIGHBORCARE OF OKLAHOMA, INC. NEIGHBORCARE OF VIRGINIA, INC. NEIGHBORCARE OF WISCONSIN, INC. NEIGHBORCARE PHARMACY SERVICES, INC. NEIGHBORCARE PHARMACIES, INC. NEIGHBORCARE-MEDISCO, INC. NEIGHBORCARE-ORCA, INC. NEIGHBORCARE-TCI, INC. NETWORK AMBULANCE SERVICES, INC. NORTH MADISON, INC. NORTHWESTERN MANAGEMENT SERVICES, INC. NURSING AND RETIREMENT CENTER OF THE ANDOVERS, INC. PHARMACY EQUITIES, INC. PHC OPERATING CORP. PHILADELPHIA AVENUE CORPORATION POCAHONTAS CONTINUOUS CARE CENTER, INC. POMPTON CARE, INC. PRESCOTT NURSING HOME, INC. PROFESSIONAL PHARMACY SERVICES, INC. PROGRESSIVE REHABILITATION CENTERS, INC. PROSPECT PARK LTC MANAGEMENT, INC. PROVIDENCE FUNDING CORPORATION PROVIDENCE HEALTH CARE, INC. PROVIDENCE MEDICAL, INC. QUAKERTOWN MANOR CONVALESCENT AND REHABILITATION, INC. REST HAVEN NURSING HOME, INC. RIDGELAND HEALTH RESOURCES, INC. RIVER PINES HEALTH RESOURCES, INC. RIVERSHORES HEALTH RESOURCES, INC. RLNR, INC. ROEPHEL CONVALESCENT CENTER, INC. ROSE HEALTHCARE, INC. ROSE VIEW MANOR, INC. ROXBOROUGH NURSING HOME, INC. RSNR, INC. RVNR, INC. S.T.B. INVESTORS, LTD SCHUYLKILL NURSING HOMES, INC. SCHUYLKILL PARTNERSHIP ACQUISITION CORP. SCOTCHWOOD INSTITUTIONAL SERVICES, INC. SCOTCHWOOD MASSACHUSETTS HOLDING CO., INC. SENIOR LIVING VENTURES, INC. SENIOR SOURCE, INC. SNOW VALLEY HEALTH RESOURCES, INC. SOLOMONT FAMILY MEDFORD VENTURE, INC. STAFFORD CONVALESCENT CENTER, INC. STATE STREET ASSOCIATES, INC. SUBURBAN MEDICAL SERVICES, INC. SVNR, INC. THE ADS GROUP, INC. THE APPLE VALLEY PARTNERSHIP HOLDING COMPANY, INC. THE ASSISTED LIVING ASSOCIATES OF BERKSHIRE, INC. THE ASSISTED LIVING ASSOCIATES OF LEHIGH, INC. THE ASSISTED LIVING ASSOCIATES OF SANATOGA, INC. THE ASSISTED LIVING ASSOCIATES OF WALL, INC. THE HOUSE OF CAMPBELL, INC. THE MULTICARE COMPANIES, INC. THERAPY CARE, INC. THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC. TMC ACQUISITION CORP. TRANSPORT SERVICES, INC. TRI STATE MOBILE MEDICAL SERVICES, INC. UNITED HEALTH CARE SERVICES, INC. VALLEY MEDICAL SERVICES, INC. VALLEY TRANSPORT AMBULANCE SERVICE, INC. VERSALINK, INC. VILLAS REALTY & INVESTMENTS, INC. WALNUT LTC MANAGEMENT, INC. WAYSIDE NURSING HOME, INC. WEISENFLUH AMBULANCE SERVICE, INC. WEST PHILA. LTC MANAGEMENT, INC. WESTFORD NURSING AND RETIREMENT CENTER, INC. WILLOW MANOR NURSING HOME, INC. WYNCOTE HEALTHCARE CORP. YORK LTC MANAGEMENT, INC. By: _____________________________________ Name: On behalf of each of the foregoing entities as an Authorized Signatory of such entities ADS APPLE VALLEY LIMITED PARTNERSHIP, by ADS Apple Valley, Inc., its General Partner ADS DARTMOUTH GENERAL PARTNERSHIP, by ADS Senior Housing, Inc. and ADS Dartmouth ALF, Inc., its General Partners ADS HINGHAM LIMITED PARTNERSHIP, by ADS Hingham Nursing Facility, Inc., its General Partner ADS RECUPERATIVE CENTER LIMITED PARTNERSHIP, by ADS Recuperative Center, Inc., its General Partner ARCADIA ASSOCIATES, by ADS/Multicare, Inc. and Health Resources of Arcadia, Inc., its General Partners ASCO HEALTHCARE OF NEW ENGLAND, LIMITED PARTNERSHIP, by ASCO Healthcare of New England, Inc., its General Partner BREVARD MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner CARE HAVEN ASSOCIATES LIMITED PARTNERSHIP, by Glenmark Associates, Inc. and GMA Partnership Holding Company, Inc., its General Partners CARE4, L.P., by Institutional Health Care Services, Inc., its General Partner CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc. and Meridian Healthcare, Inc., its General Partners CUMBERLAND ASSOCIATES OF RHODE ISLAND, L.P., by Health Resources of Cumberland, Inc., its General Partner EASTON MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc. and Meridian Healthcare, Inc., its General Partners EDELLA STREET ASSOCIATES, by Genesis Health Ventures of Clarks Summit, Inc., its General Partner GENESIS ELDERCARE CENTERS I, L.P., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS ELDERCARE CENTERS II, L.P., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS ELDERCARE CENTERS III, L.P., by Genesis Eldercare Partnership Centers, Inc., its General Partner GENESIS HEALTH VENTURES OF WEST VIRGINIA, LIMITED PARTNERSHIP, by Genesis Eldercare Network Services, Inc. and Genesis Eldercare Rehabilitation Services, Inc., its General Partners GENESIS PROPERTIES LIMITED PARTNERSHIP, by Genesis Health Ventures of Arlington, Inc., its General Partner GENESIS PROPERTIES OF DELAWARE LTD. PARTNERSHIP, L.P., by Genesis Properties of Delaware Corporation, its General Partner GLENMARK PROPERTIES I, LIMITED PARTNERSHIP, by Glenmark Associates, Inc. and GMA Partnership Holding Company, Inc., its General Partners GREENSPRING MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner GROTON ASSOCIATES OF CONNECTICUT, L.P., by Health Resources of Groton, Inc., its General Partner HALLMARK HEALTHCARE LIMITED PARTNERSHIP, by Pharmacy Equities, Inc., its General Partner HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc. and Meridian Health, Inc., its General Partners HOLLY MANOR ASSOCIATES OF NEW JERSEY, L.P., by Encare of Mendham, L.L.C., its General Partner LAKE WASHINGTON, LTD., by Lake Manor, its General Partner MCKERLEY HEALTH FACILITIES, by Meridian Health, Inc., and Meridian Healthcare, Inc., its General Partners MERCERVILLE ASSOCIATES OF NEW JERSEY, L.P., by Breyut Convalescent Center, L.L.C., its General Partner MERIDIAN EDGEWOOD LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN PERRING LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN VALLEY LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN VALLEY VIEW LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner MERIDIAN/CONSTELLATION LIMITED PARTNERSHIP, by Meridian Healthcare, Inc. and Meridian Health Inc., its General Partners MIDDLETOWN (RI) ASSOCIATES OF RHODE ISLAND, L.P., by Health Resources of Middletown (R.I.), Inc., its General Partner MILLVILLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Healthcare, Inc., its General Partner NORRISTOWN NURSING AND REHABILITATION CENTER ASSOCIATES, L.P., by GMC-LTC Management, Inc., its General Partner PHILADELPHIA AVENUE ASSOCIATES, by Philadelphia Avenue Corporation, its General Partner POINT PLEASANT HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner POMPTON ASSOCIATES L.P., by Pompton Care L.L.C., its General Partner RALEIGH MANOR LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner RIVER STREET ASSOCIATES, by Genesis Health Ventures of Wilkes-Barre, Inc., its General Partner ROMNEY HEALTH CARE CENTER LTD., LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner SEMINOLE MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc., its General Partner SISTERVILLE HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner STATE STREET ASSOCIATES, L.P., by State Street Associates, Inc., its General Partner TEAYS VALLEY HAVEN LIMITED PARTNERSHIP, by Glenmark Associates, Inc., its General Partner THE STRAUSS GROUP - HOPKINS HOUSE, L.P., by Encare of Wyncote, Inc., its General Partner THE STRAUS GROUP - OLD BRIDGE, L.P., by Health Resources of Emery, L.L.C., its General Partner THE STRAUS GROUP - QUAKERTOWN MANOR, L.P., by Encare of Quakertown, Inc., its General Partner THE STRAUS GROUP - RIDGEWOOD, L.P., by Health Resources of Ridgewood, L.L.C., its General Partner WALLINGFORD ASSOCIATES OF CONNECTICUT, L.P., by Health Resources of Wallingford, Inc., its General Partner THERAPY CARE SYSTEMS, L.P., Genesis ElderCare Rehabilition Services, Inc., its General Partner VOLUSIA MERIDIAN LIMITED PARTNERSHIP, by Meridian Health, Inc., its General Partner WARWICK ASSOCIATES OF RHODE ISLAND, L.P., by Health Resources of Warwick, Inc., its General Partner By:______________________________________ Name: On behalf of each of the foregoing entities as an Authorized Signatory of each respective authorized General Partner AUTOMATED HOMECARE SYSTEMS, LLC, by Health Objects Corporation, its authorized Member BREYUT CONVALESCENT CENTER, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members ENCARE OF MENDHAM, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members GENESIS ELDERCARE EMPLOYMENT SERVICES, LLC, by Genesis ElderCare Management Services, Inc., its authorized Member GENESIS-GEORGETOWN SNF/JV, L.L.C., by Genesis Health Ventures, Inc., its authorized Member GLENMARK LIMITED LIABILITY COMPANY I, by Glenmark Associates, Inc. and Horizon Associates, Inc., its authorized Members HEALTH RESOURCES OF BRIDGETON, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF CINNAMINSON, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF CRANBURY, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF EMERY, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF ENGLEWOOD, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF EWING, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF FAIRLAWN, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF JACKSON, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF LAKEVIEW, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF RIDGEWOOD, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members HEALTH RESOURCES OF WEST ORANGE, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members MAIN STREET PHARMACY, L.L.C., by Professional Pharmacy Services, Inc. and NeighborCare Pharmacies, Inc., its authorized Members POMPTON CARE L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members RESPIRATORY HEALTH SERVICES, L.L.C., by Genesis Health Ventures, Inc, its authorized Member ROEPHEL CONVALESCENT CENTER, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members TOTAL REHABILITATION CENTER, L.L.C., by The Multicare Companies, Inc. and Stafford Convalescent Center, Inc., its authorized Members By: ____________________________________ Name: On behalf of each of the foregoing entities as an Authorized Signatory of each respective authorized Member AGENTS AND ARRANGERS: FIRST UNION NATIONAL BANK, as Administrative Agent, Collateral Agent and Lender By:______________________________________ Name: Title: FIRST UNION SECURITIES, INC., as Co-Lead Arranger By:______________________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Syndication Agent and Lender By:______________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, as Collateral Monitoring Agent, Co-Documentation Agent and Lender By:______________________________________ Name: Its Duly Authorized Signatory CITICORP USA, INC., as Co-Documentation Agent and Lender By:______________________________________ Name: Its Duly Authorized Signatory PAMCO CAYMAN LTD., as Lender By:______________________________________ Name: Title: PAM CAPITAL FUNDING LP, as Lender By:______________________________________ Name: Title: HIGHLAND LEGACY LIMITED, as Lender By:______________________________________ Name: Title: HIGHLAND V, as Lender By:______________________________________ Name: Title: KZH PAMCO LLC, as Lender By:______________________________________ Name: Title: KZH HIGHLAND-2 LLC, as Lender By:______________________________________ Name: Title: SRV-HIGHLAND, INC. , as Lender By:______________________________________ Name: Title: GLENEAGLES TRADING LLC, as Lender By:______________________________________ Name: Title: ELF FUNDING TRUST 1, as Lender By:______________________________________ Name: Title: BLUE SQUARE FUNDING LIMITED SERIES 3, as Lender By:______________________________________ Name: Title: EMERALD ORCHARD LIMITED, as Lender By:______________________________________ Name: Title: PROSPECT STREET HIGH INCOME PORTFOLIO INC., as Lender By:______________________________________ Name: Title: HIGHLAND OFFSHORE PARTNERS, L.P., as Lender By:______________________________________ Name: Title: CITIBANK, as Lender By:______________________________________ Name: Title: UBS AG, STAMFORD BRANCH, as Lender By:______________________________________ Name: Title: LEHMAN COMMERCIAL PAPER, INC., as Lender By:______________________________________ Name: Title: FOOTHILL INCOME TRUST, L.P., as Lender By: FIT GP, LLC., its General Partner By:______________________________________ Name: Title: FOOTHILL INCOME TRUST II, as Lender By: FIT II GP, LLC, its General Partner By:______________________________________ Name: Title: OAK HILL SECURITIES FUND, L.P., as Lender By:______________________________________ Name: Title: OAK HILL SECURITIES FUND II, L.P., as Lender By:______________________________________ Name: Title: OAK HILL CREDIT PARTNERS I, LIMITED, as Lender By:______________________________________ Name: Title: FIRST UNION PAR TRADING, as Lender By:______________________________________ Name: Title: BLACK DIAMOND INTERNATIONAL FUNDING, as Lender By:______________________________________ Name: Title: LONG LANE MASTER TRUST IV, as Lender By:______________________________________ Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST, as Lender By:______________________________________ Name: Title: VAN KAMPEN SENIOR INCOME TRUST, as Lender By:______________________________________ Name: Title: VAN KAMPEN SENIOR FLOATING RATE FUND, as Lender By:______________________________________ Name: Title: VAN KAMPEN CLO I, LIMITED, as Lender By:______________________________________ Name: Title: MORGAN STANLEY PRIME INCOME TRUST, as Lender By:______________________________________ Name: Title: KZH STERLING LLC, as Lender By:______________________________________ Name: Title: KZH CYPRESSTREE, as Lender By:______________________________________ Name: Title: CENTURION CDO II, LTD., as Lender By:______________________________________ Name: Title: SEQUILS-CENTURION V, LTD., as Lender By:______________________________________ Name: Title: FRANKLIN FLOATING RATE TRUST, as Lender By:______________________________________ Name: Title: FRANKLIN FLOATING RATE MASTER SERIES, as Lender By:______________________________________ Name: Title: FRANKLIN FLOATING RATE DAILY ACCESS FUND, as Lender By:______________________________________ Name: Title: ARCHIMEDES FUNDING III, LTD., as Lender By:______________________________________ Name: Title: ARCHIMEDES FUNDING IV (CAYMAN), LTD., as Lender By:______________________________________ Name: Title: NEMEAN CLO, LTD., as Lender By:______________________________________ Name: Title: ORYX CLO LTD., as Lender By:______________________________________ Name: Title: SEQUILS-ING 1 (HBDGM), LTD., as Lender By:______________________________________ Name: Title: THE ING CAPITAL SENIOR SECURED HIGH INCOME HOLDINGS FUND, LTD., as Lender By:______________________________________ Name: Title: SWISS LIFE US RAINBOW LIMITED, as Lender By:______________________________________ Name: Title: MAPLEWOOD (CAYMAN) LIMITED, as Lender By:______________________________________ Name: Title: BILL & MELINDA GATES FOUNDATION, as Lender By:______________________________________ Name: Title: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, as Lender By:______________________________________ Name: Title: SIMSBURY CLO, LIMITED, as Lender By:______________________________________ Name: Title: PRESEUS CDO I, LIMITED, as Lender By:______________________________________ Name: Title: SOMERS CDO, LIMITED, as Lender By:______________________________________ Name: Title: PILGRIM CLO 1999 - 1, as Lender By:______________________________________ Name: Title: SEQUILS - PILGRIM I, as Lender By:______________________________________ Name: Title: PILGRIM AMERICA HIGH INCOME INVESTMENTS, as Lender By:______________________________________ Name: Title: PILGRIM SENIOR INCOME FUND, as Lender By:______________________________________ Name: Title: PILGRIM PRIME RATE TRUST, as Lender By:______________________________________ Name: Title: CERES II FINANCE, as Lender By:______________________________________ Name: Title: AIM FLOATING RATE, as Lender By:______________________________________ Name: Title: AVALON CAPITAL LTD, as Lender By:______________________________________ Name: Title: AERIES FINANCE-II LTD, as Lender By:______________________________________ Name: Title: OASIS COLLATERALIZED HIGH INCOME PORTFOLIO-1, as Lender By:______________________________________ Name: Title: AVALON CAPITAL LTD - 2, as Lender By:______________________________________ Name: Title: CHARTER VIEW PORTFOLIO, as Lender By:______________________________________ Name: Title: DIVERSIFIED CREDIT PORTFOLIO LTD, as Lender By:______________________________________ Name: Title: AMARA II FINANCE, LTD, as Lender By:______________________________________ Name: Title: STEIN ROE, as Lender By:______________________________________ Name: Title: NORTHWOODS CAPITAL III, LIMITED, as Lender By:______________________________________ Name: Title: GALAXY CLO 1999-1, as Lender By:______________________________________ Name: Title: KZH SOLEIL LLC, as Lender By:______________________________________ Name: Title: KZH SOLEIL-2 LLC, AS LENDER, as Lender By:______________________________________ Name: Title: ANCHOR NATIONAL LIFE INSURANCE COMPANY, as Lender By:______________________________________ Name: Title: ARES III CLO LTD, as Lender By:______________________________________ Name: Title: ARES IV CLO LTD, as Lender By:______________________________________ Name: Title: PINEHURST TRADING, INC. , as Lender By:______________________________________ Name: Title: ALLSTATE LIFE INSURANCE CO. , as Lender By:______________________________________ Name: Title: STANWICH LOAN FUNDING LLC, as Lender By:______________________________________ Name: Title: CSAM FUNDING I, as Lender By:______________________________________ Name: Title: FIRST DOMINION FUNDING II, as Lender By:______________________________________ Name: Title: CARLYLE HIGH YIELD PARTNERS, LP, as Lender By:______________________________________ Name: Title: FIDELITY ADVISOR SERIES II: FIDELITY ADVISOR FLOATING RATE HIGH, as Lender By:______________________________________ Name: Title: FLAGSHIP CLO 2001-1, as Lender By:______________________________________ Name: Title: TRYON CLO LIMITED 2000-1, as Lender By:______________________________________ Name: Title: CONTINENTAL CASUALTY COMPANY, as Lender By:______________________________________ Name: Title: OPPENHEIMER SENIOR FLOATING RATE FUND, as Lender By:______________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----