-----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, HXpgi795wRJ9go0hMbzWsYqEPyf8IJUk+jJZd+LLTcYglEwn01HjOalfeC+Uj1uY Ff/cvI+KnobexQ6FywnudQ== 0000890925-97-000007.txt : 19970401 0000890925-97-000007.hdr.sgml : 19970401 ACCESSION NUMBER: 0000890925-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTICARE COMPANIES INC CENTRAL INDEX KEY: 0000890925 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 223152527 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22090 FILM NUMBER: 97568228 BUSINESS ADDRESS: STREET 1: 411 HACKENSACK AVE CITY: HACKENSACK STATE: NJ ZIP: 07601 BUSINESS PHONE: 2014888818 MAIL ADDRESS: STREET 1: 411 HACKENSACK AVENUE CITY: HACKENSACK STATE: NJ ZIP: 07601 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission File Number 34-22090 THE MULTICARE COMPANIES, INC. (Exact name of registrant as specified in its charter) Delaware 22-3152527 (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification no.) 411 Hackensack Avenue 07601 Hackensack, New Jersey (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (201) 488-8818 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $.01 share Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by non-affiliates of the Registrant: At March 27, 1997 (based on the closing price of such stock as reported by The New York Stock Exchange): $338,222,553. Class Outstanding at March 27, 1997 Common Stock $.01 Par Value 30,781,459 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held May 14, 1997 are incorporated by reference into Part III of this report and portions of the Registrant's 1996 Annual Report to stockholders are incorporated by reference into Part II of this report. 1 Part I Special Note Regarding Forward-Looking Statements Certain statements in this Form 10-K, including information set forth under "Item 1. Business", "Item 3. Legal Proceedings", and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", constitute "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Multicare Companies, Inc. ("Multicare" or the "Company") desires to take advantage of certain "safe harbor" provisions of the Reform Act and is including this special note to enable the Company to do so. Forward-looking statements included in this Form 10-K, or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties, and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) achievements expressed or implied by such forward-looking statement. The Company believes the following important factors could cause such a material difference to occur: (1) The Company's ability to grow through the acquisition and development of long-term care facilities or the acquisition of ancillary businesses. (2) The Company's ability to identify suitable acquisition candidates, to consummate or complete construction projects, or to profitably operate or successfully integrate enterprises into the Company's other operations. (3) The occurrence of changes in the mix of payment sources utilized by the Company's patients to pay for the Company's services. (4) The adoption of cost containment measures by private pay sources such as commercial insurers and managed care organizations, as well as efforts by governmental reimbursement sources to impose cost containment measures. (5) Changes in the United States healthcare system, including changes in reimbursement levels under Medicaid and Medicare, and other changes in applicable government regulations that might affect the profitability of the Company. (6) The Company's continued ability to operate in a heavily regulated environment and to satisfy regulatory authorities, thereby avoiding a number of potentially adverse consequences, such as the imposition of fines, temporary suspension of admission of patients, restrictions on the ability to acquire new facilities, suspension or decertification from Medicaid or Medicare programs, and, in extreme cases, revocation of a facility's license or the closure of a facility, including as a result of unauthorized activities by employees. (7) The Company's ability to secure the capital and the related cost of such capital necessary to fund its future growth through acquisition and development, as well as internal growth. (8) Changes in certificate of need laws that might increase competition in the Company's industry, including, particularly, in the states in which the Company currently operates or anticipates operating in the future. (9) The Company's ability to staff its facilities appropriately with qualified healthcare personnel, including in times of shortages of such personnel and to maintain a satisfactory relationship with labor unions. (10) The continued active involvement of the Company's key management personnel, including particularly, Moshael J. Straus and Daniel E. Straus, co- chief executive officers of the Company. (11) The level of competition in the Company's industry, including without limitation, increased competition from acute care hospitals, providers of assisted and independent living and providers of home health care and changes 2 in the regulatory system in the state in which the Company operates that facilitate such competition. (12) The continued availability of insurance for the inherent risks of liability in the healthcare industry. (13) Price increases in pharmaceuticals, durable medical equipment and other items. (14) The Company's reputation for delivering high-quality care and its ability to attract and retain patients, including private pay patients and patients with relatively high acuity levels. (15) Changes in general economic conditions, including changes that pressure governmental reimbursement sources to reduce the amount and scope of healthcare coverage. Item 1. Business GENERAL INTRODUCTION Multicare is a leading provider of high quality long-term care, specialty medical services and assisted living residences in selected geographic regions. The Company's long-term care services include skilled nursing care, Alzheimer's care and related support activities traditionally provided in long-term care facilities. Multicare's specialty medical services consist of (i) rehabilitation therapies such as occupational, physical and speech therapy and stroke and orthopedic rehabilitation, (ii) subacute care such as ventilator care, intravenous therapy, and various forms of coma, pain and wound management, and (iii) institutional pharmacy services through which the Company provides prescription drugs, infusion therapies and certain medical supplies to the Company's patients and to patients at unaffiliated long-term care facilities. The Company was organized as a Delaware corporation in March 1992. As of December 31, 1996, the Company operated 151 long-term care facilities (including 11 assisted living facilities) and two outpatient rehabilitation centers (82 owned, 28 leased and 43 managed) in Connecticut, Illinois, New Jersey, Ohio, Massachusetts, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and Wisconsin with 15,673 beds. In addition, the Company provided consulting services to an additional 14 facilities with 1,688 beds. The Company's institutional pharmacies serve over 24,000 beds at March 31, 1997. Multicare has established a strong competitive position in the markets it serves by providing high quality long-term care and specialty medical services. As a result, the Company has achieved high occupancy rates, a favorable payor mix and sustained growth in revenue and operating profits. Multicare's overall occupancy rate was 91% for the year ended December 31, 1996. The Company achieved a quality mix (defined as revenues derived from non-Medicaid patient sources) of 65% of net patient revenues for the year ended December 31, 1996, as compared to 66% for the year ended December 31, 1995. Multicare has maintained its strong operating performance through effective managerial and financial control systems and geographic market concentration of its facilities in selected markets. These factors permit the Company to achieve operating efficiencies through economies of scale and reduced corporate overhead. The Company's margins before interest, taxes, depreciation, amortization and rent (EBITDAR) were 20% in 1996, 1995, and 1994. SIGNIFICANT TRANSACTIONS In December 1996, the Company acquired The A.D.S Group (A.D.S), an affiliated group of long-term care companies operating 22 long-term care facilities with 2,930 beds, 20 hospital based subacute units with 514 beds and eight assisted living facilities with 821 beds, all but one of which are located in Massachusetts. A.D.S also provides consulting services to an additional 14 facilities with 1,668 beds and operates several ancillary businesses. In 3 December 1996, the Company completed the acquisition of the assets and operations of three long-term care facilities in Rhode Island with 373 beds which the Company had been managing since December 1995 when the Company acquired the assets and operations of two related long-term care facilities with 356 beds in Connecticut. In February 1996, the Company acquired the outstanding capital stock of Concord Health Group, Inc., which operates 11 long term care facilities with approximately 1,600 beds, including assisted living facilities, and several ancillary businesses in Pennsylvania. In December 1995, the Company acquired the outstanding capital stock of Glenmark Associates, Inc., a long-term care provider that operates 21 facilities and several ancillary businesses with approximately 1,700 beds located principally in West Virginia. In 1996, the Company completed the construction of two new skilled nursing facilities which are currently managed by the Company. Three additional facilities under construction are scheduled to open in 1997. In addition, the Company opened its first newly constructed assisted living facility during the fourth quarter of 1996 and has two assisted living facilities under construction. INDUSTRY BACKGROUND The long-term care industry encompasses a broad range of healthcare services provided to the elderly and to other patients with medically complex needs who can be cared for outside of the acute care hospital environment. Long- term care facilities offer skilled nursing care, routine rehabilitation therapy and other support services, primarily to elderly patients. In addition, long-term care facilities may provide a broad range of specialty medical services. The Company believes that demand for the services provided by long-term care facilities will increase substantially during the next decade due primarily to demographic trends, advances in medical technology and emphasis on healthcare cost containment. At the same time, government restrictions and high construction and start-up costs are expected to limit the supply of long-term care facilities. In addition, a trend toward consolidation in the industry is expected to provide the Company with opportunities for future growth. COMPANY STRATEGY Multicare has implemented an operating strategy and growth strategy designed to sustain and enhance the Company's competitive position and to foster its expansion into targeted geographic areas. The Company's operating strategy focuses on providing high quality long-term care and specialty medical services on a cost-effective basis. The Company seeks to maximize revenue and operating profit by seeking to position itself as a premier provider in its markets thereby achieving high occupancy rates and a favorable payor mix. The Company employs rigorous managerial and financial controls which seek to contain costs without compromising the quality of care provided. The Company also attempts to acquire or develop facilities that are concentrated in selected geographic regions to enable it to achieve operating efficiencies through economies of scale and reduced corporate overhead. The Company's growth strategy emphasizes (i) the expansion and diversification of its operations by selectively acquiring and developing long-term care facilities, assisted-living residences, pharmacies and specialty medical service providers in targeted geographic areas and (ii) further development of post-acute or non-acute services in selected geographic areas to create a continuum of services through the expansion of assisted living, home health care, hospital-based subacute care and other related care. The Company has grown substantially through acquisitions and through its ability to integrate newly acquired operations into its existing operations and to increase their profitability by implementing revenue enhancement and cost control programs. There can be no assurance, however, that future suitable acquisition candidates will be located, that acquisitions can be consummated or that added facilities can be operated profitably or integrated successfully into the Company's operations. As a result of acquisitions recently consummated and the Company's continued expansion of its specialty medical services, the Company is now able to offer directly to many of its patients, rather than relying on third party providers, pharmacy, rehabilitation, therapy, subacute care and other specialized services, which has enabled the Company to better respond to the needs of its patients and to control the costs related to such services. The following summarizes the key elements of the Company's strategy: Provide High Quality Care. In order to provide quality care to its residents, the Company seeks to employ highly qualified administrators and nurses, and to retain the services of qualified medical directors. Regional quality 4 assurance professionals and committees at the facility level (composed of the facility administrator and the facility's senior medical professionals) continually monitor the quality of care provided to ensure compliance with Company and governmental standards. The Company believes that its commitment to providing high quality care and services has enhanced the reputation and the competitive position of its facilities in the markets they serve. Achieve Operating Efficiencies. Multicare has maintained its strong operating performance through effective managerial and financial control systems and geographic concentration. The Company believes that concentrating its long- term care facilities within selected geographic regions enables the Company to achieve operating efficiencies through economies of scale, reduced corporate overhead and more effective management supervision and financial controls. Geographic concentration also allows the Company to establish more effective working relationships with referral sources and regulatory authorities in the states in which it operates. The Company's management philosophy stresses close oversight of facility operations by individuals in three levels of management (facility, divisional and corporate). The Company's centralized, automated financial reporting system enables corporate financial personnel to monitor key operating and financial data and budget variances on a timely basis. Maintain High Occupancy Rates and Quality Mix. An important strategy in expanding the revenues and profitability of the Company's facilities is to maintain high occupancy and achieve a favorable payor mix. The Company seeks to achieve this by: (i) expanding the breadth and quality of services offered, including the addition of pharmacy and other specialty medical services and (ii) maintaining marketing programs designed to increase occupancy, improve quality mix and develop additional referral sources. Expand Specialty Medical Services. Specialty medical services include subacute care for medically complex patients, intensive rehabilitation therapies and in-house pharmacy services. These services are usually provided at higher profit margins than routine services and compete with significantly higher cost hospital care. The Company operates units dedicated to subacute care within certain of its long-term care facilities, in addition to providing subacute services throughout the majority of its facilities. The Company also operates two outpatient rehabilitation centers. The Company provides therapies including physical, occupational and speech services at all its skilled nursing facilities and respiratory services at selected facilities. Multicare currently owns and operates institutional pharmacies that service in excess of 24,000 patients. Acquire Additional Facilities. In its existing regions, the Company seeks to strengthen its operations base through acquiring or constructing individual facilities. The Company believes that expansion into new geographic regions can be achieved most economically through the acquisition of multi-facility operations. In identifying and selecting acquisition candidates, the Company takes into consideration opportunities for revenue expansion, either through quality improvements or changes in the mix of services offered, and cost control, as well as community demographics, historical occupancy rates, existing payor mix, reputation, regulatory compliance history, state reimbursement policies and the physical condition and appearance. The Company believes it has been successful to date in improving the operating performance of acquired facilities through increased occupancy rates, expansion of the scope of specialty medical services offered, improved payor mix, modernization and renovation and introduction of its buying power and management and financial control systems. Construct and Expand Facilities. The Company maintains a construction division that is responsible for the supervision of new construction, renovation and additions. The Company's construction capabilities enable it to capitalize on new development opportunities in its markets and to effectively expand and renovate its existing facilities when permitted by law. The Company completed and is currently managing two newly constructed skilled nursing facilities during 1996 and has three additional facilities under construction scheduled to open in 1997. In addition, the Company opened its first newly constructed assisted living facility during the fourth quarter of 1996 and has two assisted living facilities under construction. The Company does not act as a general contractor, but has in-house architects and has developed a facility prototype for use at its new facilities. In selecting development sites, the Company takes into account community demographics, historical occupancy rates of facilities in the same area, state reimbursement policies and site conditions. 5 PATIENT SERVICES Basic Patient Services Basic patient services are those traditionally provided to elderly patients in long-term care facilities and assisted-living residences with respect to daily living activities and general medical needs. The Company provides 24- hour skilled nursing care by registered nurses, licensed practical nurses and certified nursing aides in all of its skilled nursing facilities. Each long- term care facility is managed by an on-site licensed administrator who is responsible for the overall operations of the facility, including quality of care. The medical needs of patients are supervised by a medical director who is a licensed physician. While treatment of patients is the responsibility of patients' attending physicians who are not employed by the Company, the medical director monitors all aspects of patient treatment. The Company also provides a broad range of support services including dietary services, therapeutic recreational activities, social services, housekeeping and laundry services, pharmaceutical and medical supplies, and routine rehabilitation therapy. Each long-term care facility offers a number of activities designed to enhance the quality of life for patients. These activities include entertainment events, musical productions, arts and crafts and programs encouraging community interaction with patients and visits to the facility. The Company provides housing, personal care and support services as well as certain routine nursing services in its assisted-living residences. The Company currently provides specialized care for Alzheimer's patients under the supervision of specially trained skilled nursing, therapeutic recreation and social services personnel. The Company's Alzheimer's programs include music therapy, gross and fine motor activity, reality orientation and cognitive stimulation designed to counter the hyperactivity, memory loss, confusion and reduced learning ability experienced by Alzheimer's patients. Specialty Medical Services Specialty medical services are provided to patients with medically complex needs who generally require more intensive treatment and a higher level of skilled nursing care. These services typically generate higher profit margins than basic patient services because the higher complexity of the patients' medical conditions results in a need for increased levels of care and ancillary services. Institutional Pharmacy Services. The Company operates seven institutional pharmacies which currently serve a total of approximately 24,000 patients. The pharmacies provide long-term healthcare facilities and other institutions a variety of products and services including prescription drugs, pharmacy consulting, and enteral, urological and intravenous therapies. The Company's concentration of facilities in certain targeted geographic regions enables it to provide these services to its facilities in those regions as well as to facilities not operated by the Company. Subacute Care. Subacute care includes services provided to patients with medically complex conditions who require ongoing nursing and medical supervision and access to specialized equipment and services, but do not require many of the other services provided by an acute care hospital. Services in this category include ventilator care, intravenous therapy, wound care management, traumatic brain injury care, post-stroke CVA (cardiovascular accident) care, CAPD (continuous ambulatory peritoneal dialysis), pain management, hospice care, and tracheotomy and other ostomy care. The Company provides a range of subacute care services to patients at its facilities. The Company plans to continue to expand its subacute care capabilities by supplementing and expanding currently available services and by developing expertise in additional services. Rehabilitation Therapies. The Company provides rehabilitation therapy programs at substantially all of its facilities. To complement the routine rehabilitation therapy services provided to its long-term care patients, the Company has developed specialized rehabilitation therapy programs to serve patients with complex care needs, such as motor vehicle and other accident victims, persons suffering from job-related injuries and disabilities, and joint-replacement patients. The Company employs full time physical, occupational, and speech therapists at a majority of its facilities. The Company also offers respiratory services at selected facilities. In addition, the Company operates two outpatient rehabilitation facilities in New Jersey and Illinois. 6 OPERATIONS General. The day-to-day operations of each long-term care facility are managed by an on-site state licensed administrator who is responsible for the overall operation of the facility, including quality of care, marketing, and financial performance. The administrator is assisted by an array of professional and non-professional personnel (some of whom may be independent providers), including a medical director, nurses and nursing assistants, social workers, therapists, dietary personnel, therapeutic recreation staff, and housekeeping, laundry and maintenance personnel. The business office staff at each facility manage the day-to-day administrative functions, including data processing, accounts payable, accounts receivable, billing and payroll. The facilities operated by the Company are currently divided into five divisions, each of which is supervised by a team including a divisional director, a divisional controller, a marketing director, an operations performance director, and a clinical services director. The divisional and facility personnel are supported by a corporate staff based at the Company's New Jersey headquarters. Corporate personnel are responsible for the establishment of policies and procedures, training, goals, and strategies; quality assessment and assurance oversight; reimbursement, accounting, information technology, cash management, and treasury functions; the development of monitoring systems and operational procedures; construction and development programs; human resources management; and the development and implementation of new programs. Management and Financial Controls. Consistent with its strategy of maintaining strict control over costs, the Company has developed an integrated structure of management and financial systems and controls intended to maximize operating efficiency. The Company stresses frequent communication among facility, divisional and corporate personnel and active involvement by management in the day-to-day operations of the facilities. The Company's integrated management and financial information systems enable management to monitor key operations and financial data on a timely basis. Key operating data, such as payables and billing data, cash collections and admissions/discharge data, are entered into the system daily from workstations located at each facility. This information forms the basis for a variety of management and financial reports, including monthly financial statements. Quality Assurance. The Company has developed a comprehensive quality assurance program involving personnel at all levels and designed to maintain standards of care at each of the Company's facilities. Each facility maintains a quality assurance committee comprised of facility management and senior medical professionals. The committee is responsible for monitoring and evaluating all aspects of the facility's operations, including patient care, physical environment, staff appearance, patient rights, patient activities, and dietary regimen. Facility administrators and divisional directors are encouraged to play an active role in quality assurance by maintaining a high- profile presence and closely monitoring all aspects of operations. The Company believes its quality assurance process is unique in that the scored internal assessment tools that measure quality and quantify standards are used by both facility staff and corporate evaluators. The tools incorporate federal guidelines, standards of practice, and corporate policies and procedures. State guidelines are included as applicable during the evaluation process. All medical and other consulting personnel are required to prepare and submit reports at the end of each scheduled visit identifying any patient care or other quality related issues. Patient satisfaction surveys are conducted periodically and provide a confidential method for patients and their families to comment on the Company's patient care services. Discharge interviews allow the Company to assess patient satisfaction and to isolate potential patient care issues. Marketing. The Company engages in local and divisional marketing efforts to promote and maintain occupancy rates, to improve its quality mix and to enter into and maintain arrangements with managed care providers. The Company's marketing activities are overseen by a corporate vice president of marketing who oversees the marketing efforts of the Company's marketing directors and facility admissions directors and administrators, who together seek to establish relationships with referring physicians, hospital discharge planners, managed care companies, social workers, community organizations, local attorneys, bank trust officers, and senior citizens', Alzheimer's and other support groups. The Company believes that many of the services and programs provided by its facilities supplement formal marketing efforts by promoting a facility's reputation in the community as the provider of choice in the local markets. For example, the availability of specialty medical services can be a key factor in the selection of a long-term care facility. In addition, each facility offers a variety of community programs and activities which are designed primarily as a service to the community and as a means to enhance the quality of patient life. The Company believes these 7 programs also contribute to increased occupancy by making the facility a more attractive choice to prospective residents. SOURCES OF REVENUES The Company derives its revenues principally by providing skilled nursing services and specialty medical services which include institutional pharmacy services, rehabilitation therapies, subacute care, sales of medical supplies, home health care and other specialized services. The sources of the Company's revenues are a combination of private payment sources, state Medicaid programs for indigent patients and the Federal Medicare program for certain elderly and disabled patients. The Company's skilled nursing revenues are determined by a number of factors, including the licensed bed capacity of its facilities; the occupancy rates at its facilities; the mix of patients and the rates of reimbursement among payor categories (private, Medicaid and Medicare); and the extent to which certain ancillary services the Company provides to patients in its facilities are utilized by the patients and paid for by the respective payment sources. The Company employs reimbursement specialists to monitor applicable cost ceilings and other regulatory developments, to comply with all reporting requirements and to assist the Company in recovering reimbursement payments. While the Company believes that it has been successful in meeting applicable cost ceilings and in obtaining reimbursement, there can be no assurance that reimbursement rates will remain at present levels. In particular, cost containment proposals at both the Federal and state levels may have an adverse effect on the Company's ability to recover its costs of providing services to Medicaid and Medicare patients. See "--Governmental Regulation." The following table identifies the Company's net revenues attributable to each of its revenue sources for the periods indicated below.
Net Revenues Year ended December 31, 1994 1995 1996 Private and other 39% 41% 40% Medicaid 38% 34% 35% Medicare 23% 25% 25% Total 100% 100% 100%
Private Pay and Other. Private pay revenues include payments from individuals who pay directly for services without governmental assistance and include payments from commercial insurers, Blue Cross organizations, health maintenance organizations, preferred provider organizations, workers' compensation programs and other similar payment sources. The Company's rates for private pay patients are typically higher than rates for patients eligible for assistance under state-administered reimbursement programs. The private pay rates charged by the Company are influenced primarily by the rates charged by other providers in the local market and by Medicaid and Medicare reimbursement rates. Competitor analyses are undertaken periodically to discern local market pricing. Specialty medical services are usually reimbursed under casualty and health insurance coverages. The acuity levels for these insurance patients are generally higher and require additional staff and increased utilization of facility resources, resulting in higher payment rates. Individual cases are either negotiated on a case by case basis with the insurer or the rates are prescribed through managed care contract provisions. Also included are revenues derived from pharmacy services, management fees, and certain other ancillary businesses. Medicaid. Substantially all of the facilities operated by the Company participate in the Medicaid program. Under the Federal Medicaid statute and related regulations, state Medicaid programs must provide facility rates that are reasonable and adequate to cover the costs of efficiently and economically operated facilities providing services in conformity with state and Federal standards. Furthermore, payments must be sufficient to enlist enough providers so that service under the state's Medicaid plan are available to recipients at least to the extent that those services are available to the general population. The Medicaid programs in the states within which the Company operates pay a per diem rate for providing services to Medicaid patients based upon historical costs adjusted for inflation and subject to restrictive limitations. The reimbursement methodologies upon which reimbursement is based may be either prospective or retrospective in nature. Reimbursement rates are determined by the state, while the Federal government retains the right to approve or disapprove individual state plans. Medicaid programs in certain states in which the Company operates currently 8 include incentive allowances for providers whose costs are less than certain ceilings and who meet other requirements. See "--Governmental Regulation." Medicare. Substantially all of the Company's facilities are certified Medicare providers. Medicare is a federally funded and administered health insurance program primarily designed for individuals who are age 65 or over and are entitled to receive Social Security benefits. The Medicare program consists of two parts. The first part (Part A) covers inpatient hospital services and services furnished by other institutional healthcare providers, such as long-term care facilities. The second part (Part B) covers the services of doctors, suppliers of medical items and services, and various types of outpatient services. Part B services include physical, speech and occupational therapy, medical supplies, certain intensive rehabilitation and psychiatric services, ancillary diagnostic services, and other services of the type provided by long-term care or acute care facilities. Part A coverage is limited to a specified term (generally 100 days in a long-term care facility) and requires beneficiaries to share some of the cost of covered services through the payment of a deductible and a co-insurance payment. There are no limits on duration of coverage for Part B services, but there is an annual deductible and a co-insurance requirement for most services covered by Part B. The Medicare program is a retrospective program. An interim rate based upon historical cost factors is paid by Medicare during the cost reporting period and a cost settlement is made based on actual costs for the period. Final settlements are subject to an audit of the filed cost report whereby adjustments may result in additional payments being made to the Company or in recoupments from the Company. Under the Medicare program, the Company is reimbursed for its direct costs plus an allocation of indirect costs up to a regional limit. As the Company expands its specialty medical services, the costs of care for these patients are expected to exceed the regional reimbursement limits. As a result, the Company has submitted and will be required to submit further exception requests to recover the excess costs from Medicare. There is no assurance the Company will be able to recover such excess costs under pending or any future requests. The failure to recover these excess costs in the future would adversely affect the Company's financial position and results of operations. To date, adjustments from Medicare and Medicaid audits have not had a material adverse effect on the Company. There can be no assurance that future adjustments will not have a material adverse effect on the Company. COMPETITION The Company competes with other long-term care and assisted-living providers on the basis of the breadth and quality of services, the quality, appearance and reputation of its facilities and price. The Company also competes in the recruitment of qualified healthcare personnel and the acquisition and development of additional facilities or residences. The Company's current and potential competitors include national, regional and local long-term care and assisted-living providers as well as acute care hospitals and rehabilitation hospitals, some of whom have significantly greater financial and other resources than the Company. The Company also faces competition from other local pharmaceutical distributors and providers of home healthcare. In addition, certain competitors are operated by not-for-profit organizations and similar businesses which can finance capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to the Company. There can be no assurance that the Company will not encounter increased competition in the future which could adversely affect the Company's operating results, particularly if existing restrictive policies relating to the issuance of Certificates of Need are relaxed. The Company expects competition for the acquisition and development of long- term care facilities to increase in the future as the demand for long-term care increases. Construction of new (or the expansion of existing) long-term care facilities near the Company's facilities could adversely affect the Company's business. State regulations generally require a Certificate of Need before a new long-term care facility can be constructed or additional licensed beds can be added to existing facilities. Certificate of Need legislation is currently in place in all states in which the Company operates except in Pennsylvania where the existing certificate of need legislation expired on December 18, 1996. A bill has been introduced in the Pennsylvania legislature to re-establish Certificate of Need requirements; however, the Company has been advised that there is little likelihood such bill will be passed. In Ohio, the current Certificate of Need legislation for the long- 9 term care industry has a "sunset provision" which will result in the legislation expiring as of July 1, 1997. A bill which would extend the Certificate of Need legislation for two years until June 30, 1999 has been passed by the Ohio House of Representatives and, as of the date of this filing, is still under discussion in the Ohio Senate. The Company believes that Certificate of Need regulations reduce the possibility of overbuilding and promote higher utilization of existing facilities. However, a relaxation, expiration or elimination of Certificate of Need requirements could lead to an increase in competition. In addition, as cost containment measures have reduced occupancy rates at acute care hospitals, a number of these hospitals have converted portions of their facilities into subacute units. Competition from acute care hospitals could adversely affect the Company and certain states in which the Company operates have considered or are considering action that could facilitate such competition. GOVERNMENTAL REGULATION The Federal government and all states in which the Company operates regulate various aspects of the Company's business. In addition to the regulation of rates by governmental payor sources, the development and operation of long- term care facilities and the provision of long-term care services are subject to Federal, state and local licensure and certification laws which regulate with respect to a facility, among other matters, the number of beds, the services provided, the distribution of pharmaceuticals, equipment, staffing requirements, operating policies and procedures, fire prevention measures, and compliance with building and safety codes and environmental laws. There can be no assurance that Federal, state or local governments will not impose additional restrictions which might adversely affect the Company's ability to provide its services and receive reimbursement of its expenses. All of the facilities operated by the Company are licensed under applicable state laws and have the required Certificates of Need from responsible state authorities. Substantially all of the Company's facilities are certified or approved as providers under the Medicaid and Medicare programs. Further, the Company has no reason to believe that any individual providers of healthcare services at the Company's facilities do not meet applicable licensing requirements. Both initial and continuing qualification of a long-term care facility to participate in such programs depend upon many factors, including accommodations, equipment, services, non-discrimination policies against indigent patients, patient care, quality of life, residents' rights, safety, personnel, physical environment, and adequacy of policies, procedures and controls. Licensing, certification and other applicable standards vary from jurisdiction to jurisdiction and are revised periodically. State and/or Federal agencies survey or inspect all long-term care facilities on a regular basis to determine whether such facilities are in compliance with the requirements for participation in government sponsored third party payor programs. Failure to comply with these standards could result in the denial of reimbursement, the imposition of fines, temporary suspension of admission of new patients, the issuance of a provisional license for a facility, suspension or decertification from the Medicaid or Medicare program, restrictions on the ability to acquire new facilities or expand existing facilities and, in extreme cases, the imposition of limitations on a facility's license, the appointment of third-party temporary management for a facility, revocation of the facility's license or closure of a facility. There can be no assurance that the facilities owned, leased or managed by the Company, or the provision of services and supplies by the Company, will initially meet or continue to meet the requirements for participation in the Medicaid or Medicare programs or state licensing authorities. Changes in the Federal survey regulations which became effective July 1, 1995 allow for the exercise of broad discretion by the Federal and state governments in the survey process. The Company believes that its facilities are in substantial compliance with all statutes, regulations, standards and requirements applicable to its business. However, the compliance history of a prior operator may be used by state or Federal regulators in determining possible actions against a successor operator, and in the ordinary course of business, the Company's facilities receive notices of deficiencies following surveys for failure to comply with various regulatory requirements. In most cases, the Company and the reviewing agency will agree upon corrective measures to be taken to bring the facility into compliance. From time to time, survey deficiencies have resulted in various penalties against certain facilities and the Company. These penalties have included monetary fines, temporary bans on the admission of new patients and the placement of restrictions on the Company's ability to obtain or transfer certificates of need in certain states. To date, no survey deficiencies or any resulting penalties have had any material adverse affect on the Company's operations, however, there can be no assurance that future surveys will not result in penalties or sanctions which could have a material adverse affect on the Company. 10 The Company is also subject to Federal and state laws which govern financial and referral arrangements between healthcare providers. Federal laws, as well as the law of certain states, prohibit direct or indirect payments, or fee- splitting arrangements between healthcare providers, that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products or services or the purchase, sale, or lease of any service or product for which payment may be made under the Medicare or Medicaid programs. These laws include the Federal "anti-kickback law" which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for the referral of Medicare and Medicaid patients. A wide array of relationships and arrangements, including ownership interests in a company by persons who are in a position to refer patients and personal service agreements have, under certain circumstances, been alleged to violate these provisions. Certain discount arrangements may also violate the law. A violation of the Federal anti- kickback law could result in the loss of eligibility to participate in Medicare or Medicaid, or in criminal and civil penalties. In addition, the Federal government and some states restrict certain business relationships between physicians and other providers of healthcare services. Effective January 1, 1995, the Stark law prohibits any physician with a financial relationship (defined as a direct or indirect ownership or investment interest or compensation arrangement) with an entity from making a referral for a "designated health service" to that entity, and prohibits that entity from billing for such services. "Designated health services" do not include skilled nursing services, but do include many services which nursing facilities provide to their patients including clinical laboratory services, therapy and enteral and parenteral nutrition. All but one of the states in which the Company operates have adopted Certificate of Need or similar laws which generally require that a state agency approve certain acquisitions and changes in ownership and determine that a need exists prior to the addition or reduction of beds or services, the implementation of other changes, the incurrence of certain capital expenditures or, in certain states, the closure of a facility. State approvals are generally issued for a specified maximum expenditure and require implementation of the proposal within a specified period of time. Failure to obtain the necessary state approval can result in the inability of the facility to provide the service, operate the facility, or complete the acquisition, addition or other change, and may also result in the imposition of sanctions or other adverse action on the facility's license and reimbursement. See "_Competition" for a discussion of the status of Certificate of Need legislation in certain states in which the Company operates. On August 21, 1996, President Clinton signed the Health Insurance Portability and Accountability Act ("HR 3103"). HR 3103 contains a variety of significant healthcare fraud and abuse provisions, including creation of a coordinated federal healthcare fraud and abuse program; establishment of a Medicare integrity program; expansion of current healthcare fraud and abuse sanctions; creation of a healthcare fraud criminal sanction; creation of a criminal penalty for fraudulent disposition of assets in order to obtain Medicaid benefits; and expansion of the authority to impose, and increasing the amount of, civil monetary penalties. There are numerous legislative and executive initiatives at the Federal and state levels for healthcare reform with a view toward, among other things, slowing the overall rate of growth in healthcare expenditures. The Company is unable to predict the impact of healthcare reforms on the Company; however it is possible that such proposals could have a material adverse effect on the Company. The Company is also subject to a wide variety of Federal, state and local environmental and occupational health and safety laws and regulations. Among the types of regulatory requirements faced by health care providers are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos, polychlorinated biphenyls, and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials and wastes; and certain other requirements. In its role as owner and/or operator of properties or facilities, the Company may be subject to liability for investigating and remedying any hazardous substances that have come to be located on the property, including such substances that may have migrated off, or emitted, discharged, leaked, escaped or been transported from, the property. Ancillary to the Company's operations are, in various combinations, the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. Such activities may result in damage to individuals, property 11 or the environment; may interrupt operations and/or increase their costs; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, penalties or other governmental agency actions; and may not be covered by insurance. There can be no assurance that the Company will not encounter such risks in the future, and such risks may have a material adverse effect on the operations or financial condition of the Company. EMPLOYEES As of December 31, 1996, the Company employed approximately 14,800 persons. Approximately 2,100 employees at 28 of the Company's facilities are covered by collective bargaining agreements. The Company believes that it has had good relationships with its employees and with the unions that represent its employees, but it cannot predict the effect of continued union representation or organizational activities on its future operations. The healthcare industry has at times experienced a shortage of qualified healthcare personnel. While the Company has been able to retain the services of an adequate number of qualified personnel to staff its facilities appropriately and maintain its standards of quality care, there can be no assurance that continued shortages will not in the future affect the ability of the Company to attract and maintain an adequate staff of qualified healthcare personnel. A lack of qualified personnel at a facility could result in significant increases in labor costs at such facility or otherwise adversely affect operations at such facility. Any of these developments could adversely affect the Company's operating results or expansion plans. The Company competes with other healthcare providers and with non-healthcare providers for both professional and non-professional employees. INSURANCE The provision of healthcare services entails an inherent risk of liability. The Company maintains liability insurance providing coverage which it believes to be adequate. In addition, the Company maintains property, business interruption, and workers' compensation insurance covering all facilities in amounts deemed adequate by the Company. There can be no assurance that any future claims will not exceed applicable insurance coverage or that the Company will be able to continue its present insurance coverage on satisfactory terms, if at all. EXECUTIVE OFFICERS The executive officers of the Company are as follows: Name Age Position Moshael J. Straus 44 Chairman of the Board of Directors, Co-Chief Executive Officer Daniel E. Straus 40 President, Co-Chief Executive Officer and Director Stephen R. Baker 41 Executive Vice President, Chief Operating Officer and Director Susan S. Bailis 51 Senior Vice President, A.D.S /Multicare Bradford C. Burkett 36 Senior Vice President, General Counsel and Secretary Thomas P. Foy 46 Senior Vice President, Government Relations and Business Development Andrew Horowitz 35 Senior Vice President, Ancillary Services Joel Jaffe 50 Senior Vice President, Treasurer Mark R. Nesselroad 41 Senior Vice President, Acquisitions, Construction and Development Robert S. Anderson 35 Vice President, Finance Kevin P. Breslin 30 Vice President, Acquisitions Ronald G. Clarendon 53 Vice President, Employee Relations Janice M. Greer 57 Vice President, Professional Services Keith F. Helmer 41 Vice President, Operations Kent R. Hugill 44 Vice President, Marketing Barbara A. Marte 57 Vice President, Product Development and Enhancement 12 Certain additional information concerning the above persons is set forth below: Moshael J. Straus, the brother of Daniel E. Straus, was a co-founder of the Company in 1984 and since 1978, was involved in the business of the Company's predecessors. Mr. Straus has been co-principal owner of the Company since its establishment. He assumed the positions of Chairman of the Board of Directors and Co-Chief Executive Officer of the Company in September 1992. Mr. Straus has been a member of the Board of Directors since 1992. Daniel E. Straus, the brother of Moshael J. Straus, was a co-founder of the Company in 1984 and since 1978, was involved in the business of the Company's predecessors. Mr. Straus has been co-principal owner of the Company since its establishment. He assumed the positions of President and Co-Chief Executive Officer of Multicare in September 1992. Mr. Straus has served on the Board of Directors since 1992. Stephen R. Baker has served as Executive Vice President responsible for finance and operations of the Company since August 1994, and served as its Senior Vice President and Chief Financial Officer of the Company since December 1992. Prior to joining Multicare, he was a partner at the public accounting firm of KPMG Peat Marwick LLP where he was employed for 16 years. Mr. Baker is a Certified Public Accountant. Mr. Baker has been a member of the Board of Directors since May 1994. Susan S. Bailis has served as Senior Vice President, A.D.S/Multicare and as President of the Company's subsidiaries that operate or manage the Company's business in Massachusetts, Rhode Island, Vermont and Connecticut since December 1996. Prior to joining Multicare, Ms. Bailis was since 1986 the President of The A.D.S Group, a privately held long-term care company headquartered in Newton, Massachusetts which was acquired by the Company in December 1996. Bradford C. Burkett was named a Senior Vice President in 1996, has served as Vice President, General Counsel and Secretary of the Company since May 1995 and joined the Company as its Vice President and Deputy General Counsel in June 1994. Mr. Burkett became Secretary of the Company in August 1994. Prior to June 1994, Mr. Burkett was engaged in the private practice of law with the New York City firm of Kaye Scholer Fierman Hays & Handler since 1985. Thomas P. Foy joined the Company in July 1994 as Senior Vice President, Government Relations and Business Development. Prior to such time, Mr. Foy served as Senior Vice President at Hill International, a construction consulting company since January 1990. Mr. Foy served as a New Jersey State Senator from 1990 to 1992 and a New Jersey Assemblyman from 1984 to 1990. Andrew Horowitz has served as Senior Vice President, Ancillary Services of the Company since February 1997 and joined the Company as its Director of Pharmacy Operations in January 1995. Prior to joining Multicare, Mr. Horowitz was since 1988 the Executive Vice President and a principal owner of Scotchwood Pharmacy, a New Jersey based institutional pharmacy business which was acquired by the Company in January 1995. Joel Jaffe has served as Senior Vice President, Treasurer of the Company since May 1995. Prior to joining Multicare, he was a partner at the public accounting firm of KPMG Peat Marwick LLP where he was employed for 27 years. He is a Certified Public Accountant. Mark R. Nesselroad has served as Senior Vice President, Acquisitions, Construction and Development of the Company since February 1997 and as chief executive officer of the Company's subsidiary that operates the Company's business in West Virginia since joining the Company in December 1995. Prior to joining Multicare, Mr. Nesselroad was a co-founder and since 1984 had been the chief executive officer of Glenmark Associates, Inc., a privately held long-term care operator in West Virginia which was acquired by the Company in December 1995. 13 Robert S. Anderson served as Vice President, Finance of a predecessor of the Company since October 1988 and assumed the same position of Vice President, Finance of the Company in September 1992. He joined Multicare Management in October 1986 as Corporate Controller. He is a Certified Public Accountant. Kevin P. Breslin has served as Vice President, Acquisitions of the Company since May 1995 and joined the Company as its Director of Financial Accounting in April 1993. Prior to joining the Company, he was employed at KPMG Peat Marwick LLP for 4 years. He is a Certified Public Accountant. Ronald G. Clarendon served as Vice President, Employee Relations of a predecessor of the Company since August 1991 and assumed the same position with Multicare in September 1992. Prior to 1991, Mr. Clarendon specialized in all facets of labor relations with Western Union Corporation. Janice M. Greer has served as Vice President, Professional Services of the Company since February 1997 and joined the Company as its Director of Professional Services in September 1994. Prior to joining Multicare she was the Corporate Director of Quality Assurance for Aaron Enterprises, a long- term care assisted living and retirement living company in North Carolina, from February 1993 through 1994. Previously she was employed at Beverly Enterprises from 1982 until 1993 where she served in a variety of positions relating to quality assurance. Keith F. Helmer joined the Company in January 1997 as its Vice President, Operations. Prior to joining Multicare, Mr. Helmer was employed at Arbor Health Care Company where he served as Vice President of Operations from September 1995 until December 1996, and as Regional Vice President of Operations from September 1994 through September 1995. Previously, he was the Vice President of Operations at Connecticut Subacute Corporation, a subacute, rehabilitation and extended care management corporation, from January 1993 until April 1994. Kent R. Hugill has served as Vice President, Marketing of the Company since February 1997 and joined the Company as its Corporate Director of Marketing in December 1995. Prior to joining Multicare, Mr. Hugill was since 1995 the Vice President, Sales and Marketing, at Assurqual, Inc., a Baltimore-based information, technology and consulting company. From 1988 until 1995 he was employed at Health Care and Retirement Corporation in Toledo, Ohio where he served in a variety of positions including Director of Marketing and Regional Operations Manager. Barbara A. Marte has served as Vice President, Product Development and Enhancement of the Company since January 1995. Prior to such time, she served as Director of Subacute Services of the Company since January 1994. Ms. Marte was previously a Director of Subacute Development for Beverly Enterprises, Inc. from 1991 through 1993. Prior to 1991, for more than five years, Ms. Marte served in various corporate and marketing positions with Genesis Health Ventures, Inc. ITEM 2. PROPERTIES As of December 31, 1996, the Company operated 151 long-term care facilities and two outpatient rehabilitation centers (82 owned, 28 leased and 43 managed). The Company has sought to retain ownership of a significant portion of its real estate and it believes this provides the Company with substantial financing flexibility. The Company has granted security interests in substantially all of its assets to secure its credit facilities. Twenty-five of the Company's facilities are leased by the respective operating entities from third parties. One of the Company's Connecticut facilities and one of the Company's New Jersey facilities are leased from related parties owned by the principal stockholders of the Company and one of the Company's New Jersey facilities is leased from a related party 50% owned by certain principal stockholders of the Company. The inability of the Company to make rental payments under these leases could result in loss of the leased property through eviction or other proceedings. Certain facility leases do not provide for non-disturbance from the mortgagee of the fee interest in the property and consequently each such lease is subject to termination in the event that the mortgage is foreclosed following a default by the owner. 14 The Company considers its properties to be in good operating condition and suitable for the purposes for which they are being used. The following table summarizes by state certain information regarding the Company's facilities and outpatient rehabilitation centers at December 31, 1996 (excluding 14 facilities with 1,668 beds at which the Company provides quality assurance consulting services):
Owned (1) Leased Managed Total Facilities Beds Facilities Beds Facilities Beds Facilities Beds Massachusetts 6 876 5 742 38 2,557 49 4,175 New Jersey 13 1,425 8 1,294 --- --- 21 2,719 Pennsylvania 13 1,520 --- --- 3 654 16 2,174 West Virginia 16 1,464 4 331 1 62 21 1,857 Ohio 10 896 4 250 --- --- 14 1,146 Connecticut 5 766 2 250 1 90 8 1,106 Illinois 10 857 1 92 --- --- 11 949 Wisconsin 5 710 2 231 --- --- 7 941 Rhode Island 3 373 --- --- --- --- 3 373 Virginia --- --- 2 175 --- --- 2 175 Vermont 1 58 --- --- --- --- 1 58 82 8,945 28 3,365 43 3,363 153 15,673
(1) Includes 7 facilities with 889 beds which are not wholly owned. ITEM 3. LEGAL PROCEEDINGS The Company is a party to claims and legal actions arising in the ordinary course of business. Management does not believe that any litigation to which the Company is currently a party will have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEMS 5 THROUGH 8. Information required by Items 5 through 8 of Form 10-K is included in the Company's 1996 Annual Report to stockholders and is incorporated herein by reference as indicated below: Item No. Page 5 Market for Registrant's Common Equity and Related Stockholder Matters 29, 31 6 Selected Financial Data 13 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 8 Financial Statements and Supplementary Data 18-30 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOUSRE None. PART III ITEMS 10 THROUGH 13. Information required by Items 10 through 13 of Form 10-K, is included in the definitive Proxy Statement to be filed on or before April 30, 1997, for the Company's 1997 Annual Meeting of Stockholders and is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Page (a) 1.Financial Statements All financial statements as set forth under Item 8 are incorporated by reference from the 1996 Annual Report to stockholders. 2.Financial Statement Schedule Independent Auditors' Report on Financial Statement Schedule F-1 Schedule II - Valuation and Qualifying Accounts F-2 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, omitted. 3.Exhibits Exhibit No. Description (1) 2 Reorganization and Subscription Agreement, dated as of August 21, 1992, among The Multicare Companies, Inc., Daniel E. Straus, Moshael J. Straus, Adina S. Rubin and Bethia S. Quintas (2) 3.1 Restated Certificate of Incorporation of The Multicare Companies, Inc. 3.2 Certificate of Amendment of Restated Certificate of Incorporation of The Multicare Companies, Inc. (2) 3.3 By-laws of The Multicare Companies, Inc. (1) 4.1 Indenture for Senior Subordinated Notes (5) 4.2 Fiscal Agency Agreement for Subordinated Convertible Debentures (1) 10.1 Lease, dated July 29, 1986, between Jackson Health Care Associates and Health Resources of Jackson, Inc. (2) 10.2 Amended and Restated Amendment of Lease, dated as of November 18, 1992 between Straus Associates and Health Resources of Colchester, Inc. (2) 10.3 Amended and Restated 1993 Stock Option Plan (3) 10.4 Amendments dated March 15 and April 4, 1994 to the Amended and Restated 1993 Stock Option Plan (3) 10.5 Non-Employee Directors' Stock Option Plan (4) 10.6 First Amendment Agreement dated as of October 19, 1995 among The Multicare Companies, Inc., Subsidiary Co- Borrowers, Subsidiary Guarantors, and The Chase Manhattan Bank, N.A. (5) 10.7 The Multicare Companies, Inc. Employee Stock Purchase Plan (5) 10.8 The Multicare Companies, Inc. Directors Retainer and Meeting Fee Plan 16 (5) 10.9 The Multicare Companies, Inc. Key Employee Incentive Compensation Plan (5) 10.10 Amended and Restated Credit Agreement dated as of March 31, 1995 among The Multicare Companies, Inc., Subsidiary Co-Borrowers, Subsidiary Guarantors and The Chase Manhattan Bank, N.A. (5) 10.11 Loan Agreement dated October 13, 1992 between Meditrust Mortgage Investments, Inc. and various Glenmark entities (5) 10.12 First Amendment to Loan Agreement dated as of November 30, 1995 (5) 10.13 Intercreditor Agreement dated December 1, 1995 between The Chase Manhattan Bank, N.A. , Meditrust Mortgage Investments, Inc. and Meditrust of West Virginia, Inc. (5) 10.14 Second Amendment to Loan Agreement entered into effective as of November 30, 1995 (5) 10.15 Agreement and Plan of Merger Among HRWV, Inc., Glenmark Associates, Inc., Glenmark Holding Company Limited Partnership, Mark R. Nesselroad and Glenn T. Adrian (5) 10.16 Facility Lease Agreement dated as November 30, 1995 between Meditrust of West Virginia, Inc. and Glenmark Limited Liability Company (5) 10.17 Second Amendment Agreement dated as of February 22, 1996 among The Multicare Companies, Inc. Subsidiary Co- Borrowers, Subsidiary Guarantors, The Banks Signatory hereto, and The Chase Manhattan Bank, N.A., as Agent (6) 10.18 Agreement and Plan of Merger, dated as of January 15, 1996, among The Multicare Companies, Inc., CHG Acquisition Corp., and Concord Health Group, Inc. (7) 10.19 Second Amended and Restated Credit Agreement, dated as of May 22, 1996,among The Multicare Companies, Inc., the Subsidiary Co-Borrowers, the Subsidiary Guarantors, the Banks Signatory thereto and The Chase Manhattan Bank, N.A., as Agent (7) 10.20 Acquisition Agreement, dated as of June 17, 1996, by and among A.D.S/Multicare, Inc. and Alan D. Solomont, David Solomont, Ahron M. Solomont, Jay H. Solomont, David Solomont, Susan S. Bailis and the Seller Entities signatory thereto (the "A.D.S Acquisition Agreement") (7) 10.21 Amendment No. 1, dated August 12, 1996, to the A.D.S Acquisition Agreement. (8) 10.22 Amendment No. 2, dated as of September 25, 1996 to the A.D.S Acquisition Agreement. (8) 10.23 Amendment No. 3, dated as of October 29, 1996 to the A.D.S Acquisition Agreement. (8) 10.24 Amendment No. 4, dated as of December 11, 1996 to the A.D.S Acquisition Agreement. (8) 10.25 Third Amended and Restated Credit Agreement dated as of December 11, 1996 among The Multicare Companies, Inc. and certain of its Subsidiaries, and Nationsbank, N.A. as Administrative Agent. (8) 10.26 Master Lease, Open End Mortgage and Purchase Option dated as of December 11, 1996 among Academy Nursing Home, Inc., Nursing and Retirement Center of the Andovers, Inc., Prescott Nursing Home, Inc., Willow Manor Nursing Home, Inc., and A.D.S/Multicare, Inc. (8) 10.27 Appendix A to Participation Agreement, Master Lease, Supplements, LoanAgreement, and Lease Facility Mortgages. (8) 10.28 Participation Agreement, dated as of December 11, 1996 among The Multicare Companies, Inc., as Guarantor, Various Subsidiaries of The Multicare Companies, Inc. as Lessees, Selco Service Corporation, as Lessor, Various Financial Institutions as Tranche B Lenders, Nationsbank, N.A., as Lease Agent for the Lenders, and Nationsbank, N.A., as Collateral Agent for the Secured Parties. 10.29 The Multicare Companies, Inc. Non-qualified Stock Purchase Plan. 17 10.30 Employment Agreement, dated as of January 1, 1995, between The Multicare Companies, Inc. and Daniel E. Straus. 10.31 Employment Agreement, dated as of January 1, 1995, between The Multicare Companies, Inc. and Moshael J. Straus. 10.32 Employment Agreement, dated as of January 1, 1995, between The Multicare Companies, Inc. and Stephen R. Baker. 10.33 Employment Agreement, dated as of January 1, 1995, between The Multicare Companies, Inc. and Paul J. Klausner. 10.34 Employment Agreement, dated as of January 1995, between Care 4, L.P., and Andrew Horowitz. 10.35 Employment Agreement, dated as of December 1995, between Glenmark Associates, Inc. and Mark R. Nesselroad. 10.36 Amendment, dated July 19, 1996, to Agreement and Plan of Merger among HRWV, Inc., Glenmark Associates, Inc., Glenmark Holding Company Limited Partnership, Mark R. Nesselroad and Glenn T. Adrian. 11 Computation of Earnings Per Share 13 1996 Annual Report to stockholders 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants 27 Financial Data Schedule (1) Incorporated by reference from Registration Statement No. 33-51176 on Form S-1 effective November 18, 1992. (2) Incorporated by reference from Registration Statement No. 33-65444 on Form S-1 effective August 18, 1993. (3) Incorporated by reference from Registration Statement No. 33-79298 effective June 22, 1994. (4) Incorporated by reference from Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995. (5) Incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1995. (6) Incorporated by reference from the Tender Offer Statement on Schedule 14D- 1 of CHG Acquisition Corp., and The Multicare Companies, Inc., dated January 22, 1996. (7) Incorporated by Reference from Registration Statement No. 333-12819 on Form S-3 effective October 24, 1996. (8) Incorporated by reference from Current Report on Form 8-K, dated December 26, 1996. (b) Reports on Form 8-K. On October 22, 1996 the Company filed a current report on Form 8-K reporting the Company announced in a press release its 1996 third quarter earnings. On December 26, 1996, the Company filed a current report on Form 8-K reporting that the Company (i) announced in a press release the Company had completed the acquisition of The A.D.S Group; (ii) completed the acquisition of three facilities in Rhode Island; and (iii)amended and restructured its $350 credit facility and entered into a new lease facility with Nationsbank, N.A., as agent. 18 Independent Auditors' Report The Board of Directors The Multicare Companies, Inc.: Under date of February 4, 1997, we reported on the consolidated balance sheets of The Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Short Hills, New Jersey February 4, 1997 SCHEDULE II THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES . Valuation and Qualifying Accounts Years ended December 31, 1994, 1995, 1996 (In thousands)
Classifications Balance Charged Charged Balance at to costs to other at end beginning of and accounts Deductions at period expenses (1) (2) Period Year ended December 31, 1996: Allowance or doubtful accounts $ 5,241 4,760 2,502 97 11,531 Year ended December 31, 1995: Allowance for doubtful accounts $ 2,726 3,483 --- 968 5,241 Year ended December 31, 1994: Allowance for doubtful accounts $ 1,642 1,712 --- 628 2,726
(1) Represents amounts related to acquisitions (2) Represents amounts written-off as uncollectible. F-2 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Multicare Companies, Inc. By: /S/ DANIEL E. STRAUS Daniel E. Straus President and Co-Chief Executive Officer March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date MOSHAEL J. STRAUS Chairman of the Board, March 27, 1997 Moshael J. Straus Co-Chief Executive Officer and Director (Principal Executive Officer) DANIEL E. STRAUS President, Co-Chief Executive March 27, 1997 Daniel E. Straus Officer and Director (Principal Executive Officer) STEPHEN R. BAKER Executive Vice President, March 27, 1997 Stephen R. Baker Chief Financial Officer and Director (Principal Accounting Officer) PAUL J. KLAUSNER Director March 27, 1997 Paul J. Klausner STUART H. ALTMAN Director March 27, 1997 Stuart H. Altman CONSTANCE B. GIRARD-DICARLO Director March 27, 1997 Constance B. Girard-diCarlo MENACHEM ROSENBERG Director March 27, 1997 Menachem Rosenberg GEORGE R. ZOFFINGER Director March 27, 1997 George R. Zoffinger EX-3 2 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF THE MULTICARE COMPANIES, INC. (a Delaware Corporation) It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is The Multicare Companies, Inc. 2. The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Article IV thereof by substituting in lieu of said Article the following new Article IV: "The total number of shares which the Corporation shall have authority to issue is Seventy-seven Million (77,000,000) shares, consisting of Seven Million (7,000,000) shares of Preferred Stock, of the par value of One Cent ($.01) per share (hereinafter called "Preferred Stock"), and Seventy Million (70,000,000) shares of Common Stock, of the par value of One Cent ($.01) per share (hereinafter called "Common Stock")." 3. The amendment of the Restated Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed on May 8, 1996. By: /S/ DANIEL E. STRAUS ________________________________________ Daniel E. Straus President and Co-Chief Executive Officer ATTEST: By: /S/ BRADFORD C. BURKETT _______________________________________________ Bradford C. Burkett Vice President, General Counsel and Secretary EX-10 3 EXHIBIT 10.29 THE MULTICARE COMPANIES, INC. NONQUALIFIED STOCK PURCHASE PLAN Table of Contents Page SECTION 1 - PURPOSE 1 SECTION 2 - DEFINITIONS 1 2.1 "Board of Directors" 1 2.2 "Code" 1 2.3 "Committee" 1 2.4 "Common Stock" 1 2.5 "Common Stock Account" 1 2.6 "Company" 1 2.7 "Custodian" 1 2.8 "Eligible Compensation" 1 2.9 "Eligible Employee" 1 2.10 "Employer" 2 2.11 "Entry Date" 2 2.12 "Fair Market Value" 2 2.13 "Participant" 2 2.14 "Payroll Deduction Account" 2 2.15 "Plan" 2 2.16 "Plan Year" 2 2.17 "Purchase Period" 2 SECTION 3 - ELIGIBILITY 2 3.1 General Rule 2 3.2 Leave of Absence 2 3.3 Common Stock Account 2 SECTION 4 - PARTICIPATION AND PAYROLL DEDUCTIONS 3 4.1 Enrollment 3 4.2 Amount of Deduction Accounts 3 4.3 Subsequent Plan Years 3 4.4 Changes in Participation 3 SECTION 5 - OFFERINGS 3 5.1 Maximum Number of Shares 4 5.2 Exercise of Options 4 5.3 Oversubscription of Shares 5 5.4 Limitations on Grant and Exercise of Options 5 SECTION 6 - DISTRIBUTIONS OF COMMON STOCK ACCOUNTS 5 5.1 Termination of Employment 5 5.2 In-Service Withdrawals 5 SECTION 7 - DIVIDENDS ON SHARES 5 SECTION 8 - RIGHTS AS A STOCKHOLDER 6 SECTION 9 - OPTIONS NOT TRANSFERABLE 6 SECTION 10 - COMMON STOCK 6 10.1 Reserved Shares 6 10.2 Restrictions on Exercise 6 10.3 Restrictions on Sale 6 10.4 Additional Restrictions of Rule 16b-3 7 SECTION 11 - ADJUSTMENT UPON CHANGES IN CAPITALIZATION 7 SECTION 12 - ADMINISTRATION 7 12.1 Appointment 7 12.2 Authority 7 12.3 Committee Procedures 7 12.4 Duties of Committee 8 12.5 Plan Expenses 8 12.6 Indemnification 8 SECTION 13 - AMENDMENT AN TERMINATION 8 13.1 Amendment 8 13.2 Termination 8 SECTION 14 - EFFECTIVE DATE 9 SECTION 15 - GOVERNMENTAL AND OTHER REGULATIONS 9 SECTION 16 - NO EMPLOYMENT RIGHTS 9 SECTION 17 - WITHHOLDING 9 SECTION 18 - OFFSETS 10 SECTION 19 - NOTICES, ETC. 10 SECTION 20 - CAPTIONS, ETC. 10 SECTION 21 - EFFECT OF PLAN 10 SECTION 22 - GOVERNING LAW 11 SECTION 23 - TRANSFERABILITY 11 SECTION 1 PURPOSE The purpose of the Plan is to secure for the Company and its stockholders the benefits of the incentive inherent in the ownership of Common Stock by current and future Eligible Employees. SECTION 2 DEFINITIONS When used herein, the following terms shall have the following meanings: 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. 2.3 "Committee" means the committee appointed by the Board of Directors to administer the Plan pursuant to Section 12. 2.4 "Common Stock" means common stock, par value $0.01 per share, of the Company. 2.5 "Common Stock Account" means the account established with, and maintained by, the Custodian, for the purpose of holding Common Stock purchased pursuant to this Plan. 2.6 "Company" means The Multicare Companies, Inc., a Delaware corporation, and its successors and assigns. 2.7 "Custodian" means the agent selected by the Company to hold Common Stock purchased under the Plan. 2.8 "Eligible Compensation" means the sum of: (i) the total compensation paid to an Eligible Employee by the Employer which is subject to tax under Code section 3402, or any successor provision thereto (or which would be subject to tax thereunder if the employee were fully subject to Federal income tax with respect to such compensation), plus (ii) amounts deferred under a plan of the Employer intended to qualify under Code section 401(k) (a "401(k) Plan") by such Eligible Employee, plus (iii) amounts deferred under a plan of the Employer intended to qualify under Code section 125. 1 2.9 "Eligible Employee" means each employee of the Employer who has completed at least six months of employment. 2.10 "Employer" means any non-corporate entity that, directly or indirectly, controls or is controlled by, or is under common control with, the Company, and that has been designated by the Board of Directors as a participating employer under the Plan. 2.11 "Entry Date" means the first day of each Purchase Period. 2.12 "Fair Market Value" means the mean of the high and low sales prices of a share of Common Stock as reported on the New York Stock Exchange or such other exchange on which the shares of Common Stock are principally traded on the date in question or, if the Common Stock shall not have been traded on such date, the mean of the high and low sales prices on the first day prior thereto on which the Common Stock was so traded, or, if the Common Stock was not so traded, such other amount as may be determined by Committee in its sole discretion. 2.13 "Participant" means an Eligible Employee who has met the requirements of Section 3 and has elected to participate in the Plan pursuant to Section 4.1. 2.14 "Payroll Deduction Account" means the bookkeeping entry established by the Employer for each Participant pursuant to Section 4.3. 2.15 "Plan" means The Multicare Companies, Inc. Nonqualified Stock Purchase Plan as set forth herein and as amended from time to time. 2.16 "Plan Year" means the 1996 calendar year and each calendar year thereafter. 2.17 "Purchase Period" means each calendar quarter commencing on and after the effective date of the Plan. Each such Purchase Period shall begin on the first day of the calendar quarter and end on the last day of that calendar quarter. SECTION 3 ELIGIBILITY 3.1 General Rule. Subject to Section 3.3, an Eligible Employee shall be eligible to become a Participant in the Plan beginning on the Entry Date coincident with or next following the date he becomes an Eligible Employee. 3.2 Leave of Absence. Unless the Committee otherwise determines, a Participant on a paid leave of absence shall continue to be a Participant in the Plan so long as Participant is on such paid leave of absence. Unless otherwise determined by the Committee, a Participant on an unpaid leave of absence shall not be entitled to participate in any offering commencing after such unpaid leave has begun but shall not be deemed to have terminated 2 employment for purposes of the Plan. A Participant who, upon failing to return to work following a leave of absence, is deemed not to be an employee, shall not be entitled to participate in any offering commencing after such termination of employment and such Participants Payroll Deduction Account shall be paid out in accordance with Section 6.1 3.3 Common Stock Account. As a condition to participation in this Plan, each Eligible Employee shall be required to hold shares purchased hereunder in a Common Stock Account and such employees decision to participate in the Plan shall constitute the appointment of the Custodian as custodial agent for the purpose of holding such shares. Such Common Stock Account will be governed by, and subject to, the terms and conditions of a written agreement with the Custodian. SECTION 4 PARTICIPATION AND PAYROLL DEDUCTIONS 4.1 Enrollment. Each Eligible Employee may elect to participate in the Plan for a Plan Year by completing an enrollment form prescribed by the Committee and returning it to the Employer on or before the date specified by the Committee. 4.2 Amount of Deduction. The enrollment form shall specify an amount (in whole dollars) or percentage (in whole numbers) of Eligible Compensation which shall be withheld from the Participants regular paychecks, including bonus paychecks, if any, for the Plan Year. No amount shall be withheld in excess of the amount described in Section 5.4. The Committee, in its sole discretion, may authorize payment in respect of any option exercised hereunder by personal check. 4.3 Payroll Deduction Accounts. Each Participants payroll deduction shall be credited, as soon as practicable following the relevant pay date, to a Payroll Deduction Account, pending the purchase of Common Stock in accordance with the provisions of the Plan. All such amounts shall be assets of the Employer and may be used by the Employer for any purpose. The Employer shall not be obligated to segregate the payroll deductions in any way. No interest shall accrue or be paid on amounts credited to a Payroll Deduction Account. 4.4 Subsequent Plan Years. Unless otherwise specified prior to the beginning of any Plan Year on an enrollment form prescribed by the Committee, a Participant shall be deemed to have elected to participate in each subsequent Plan Year for which he is eligible to the same extent and in the same manner as at the end of the prior Plan Year. 4.5 Changes in Participation. (a) At any time during a Plan Year, a Participant may cease participation in the Plan by completing and filing the form prescribed by the Committee with the Employer. Such cessation will become effective as soon as 3 practicable following receipt of such form by the Employer, whereupon no further payroll deductions will be made and the Employer shall pay to such Participant an amount equal to the balance in the Participants Payroll Deduction Account as soon as practicable thereafter. To the extent then eligible, any Participant who ceases to participate may elect to participate again on any subsequent Entry Date in any calendar quarter after the quarter in which such Participant ceased to participate. (b) At any time during the Plan Year (but not more than once in any calendar quarter), a Participant may increase or decrease the percentage of Eligible Compensation subject to payroll deductions within the limits provided in Section 4.2 by filing the form prescribed by the Committee with the Employer. Such increase or decrease shall become effective with the first pay period following receipt of such form to which it may be practicably applied. (c) Any Participant who receives a distribution under a 401(k) Plan on account of hardship, as determined under such plan, shall be suspended from participation in the Plan for the same period as such Participants participation in the 401(k) Plan shall be suspended. SECTION 5 OFFERINGS 5.1 Maximum Number of Shares. The Plan will be implemented by making offerings of Common Stock during each Purchase Period until the maximum number of shares of Common Stock available under the Plan have been issued pursuant to the exercise of options. 5.2 Exercise of Options. (a) Subject to Section 5.3, on the first day of each Purchase Period, each Participant shall be deemed, subject to Section 5.4, to have been granted an option to purchase on the last day of the Purchase Period, without any further action, the number of whole shares of Common Stock determined by dividing the amounts credited to the Participants Payroll Deduction Account on the last day of the Purchase Period by the Purchase Price (as determined in paragraph (b) below). All such shares shall be credited to the Participants Common Stock Account. The balance of any amount credited to the Participants Payroll Deduction Account which is not sufficient to purchase a whole share of Common Stock shall remain in the Payroll Deduction Account and shall be applied to the next offering under this Plan. (b) The Purchase Price for each share of Common Stock shall be equal to the lesser of (i) eighty-five percent (85%) of the Fair Market Value of each share on the first day of the Purchase Period or (ii) eighty-five percent 4 (85%) of the Fair Market Value of each share on the last day of such Purchase Period. 5.3 Oversubscription of Shares. the total number of shares of which options are exercised on the last day of any Purchase Period exceeds the maximum number of shares available for the applicable offering, the Company shall make an allocation of the shares available for delivery and distribution among the Participants in as nearly a uniform manner as shall be practicable, and the balance of all amounts credited to Participants Payroll Deduction Accounts shall be applied to the next offering. 5.4 Limitations on Grant and Exercise of Options. No option granted under this Plan shall permit a Participant to purchase stock under all employee stock purchase plans of the Employer at a rate which, in the aggregate, exceeds $25,000 of the Fair Market Value (payroll deductions not in excess of $21,250) of such stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time. SECTION 6 DISTRIBUTIONS OF COMMON STOCK ACCOUNT 6.1 Termination of Employment If a Participants employment with the Employer terminates for any reason during a Plan Year, all shares credited to the Participants Common Stock Account shall be distributed, and any amount credited to the Participants Payroll Deduction Account shall be refunded, to the Participant or, in the event of the Participant=s death, to the Participants estate, as soon as practicable. 6.2 In-Service Withdrawals. Prior to Participants termination of employment with the Employer, the Participant may withdraw some or all of the whole shares credited to the Participants Common Stock Account, as long as such shares have been held in the Participants Common Stock Account for a period of at least six (6) months. SECTION 7 DIVIDENDS ON SHARES All cash dividends paid with respect to shares of Common Stock held in a Participants Common Stock Account shall be invested automatically in whole shares of Common Stock purchased at 100% of Fair Market Value on the last day of the next Purchase Period. Notwithstanding the foregoing, the amount of any cash dividend which is not sufficient to purchase a whole share of Common Stock also shall be credited to the Participants Payroll Deduction Account as soon as practicable after the payment date of each dividend. All non-cash distributions paid on Common Stock held in a Participants Common Stock 5 Account shall be paid to the Participant as soon as practicable. SECTION 8 RIGHTS AS A STOCKHOLDER When the Participant purchases Common Stock pursuant to the Plan or when Common Stock is credited to the Participants Common Stock Account, the Participant shall have all of the rights and privileges of a stockholder of the Company with respect to the shares so purchased or credited, whether or not certificates representing full shares have been issued. SECTION 9 OPTIONS NOT TRANSFERABLE Options granted under the Plan are not transferable by the Participant other than by will or the laws of descent and distribution and are exercisable during the Participants lifetime only by the Participant. SECTION 10 COMMON STOCK 10.1 Reserved Shares. There shall be reserved for issuance and purchase under the Plan and The Multicare Companies, Inc. Employee Stock Purchase Plan previously adopted by the Company an aggregate of 1,200,000 shares of Common Stock, subject to adjustment as provided in Section 11. Shares subject to the Plan may be shares now or hereafter authorized but unissued, treasury shares, or both. 10.2 Restrictions on Exercise. In its sole discretion, the Board of Directors may require as conditions to the exercise of any option that shares of Common Stock reserved for issuance upon the exercise of an option shall have been duly listed on any recognized national securities exchange, and that either a registration statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective, or the Participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is the Participants intention to purchase the shares for investment only and not for resale or distribution. 10.3 Restriction on Sale Notwithstanding any other provision of the Plan to the contrary, shares of Common Stock purchased hereunder shall not be transferable by a Participant for a period of six (6) months immediately following the last day of the Purchase Period in which the shares were purchased. 6 10.4 Additional Restrictions of Rule 16b-3 The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Securities Exchange Act of 1934 shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Securities Exchange Act of 1934 with respect to Plan transactions. SECTION 11 ADJUSTMENT UPON CHANGES IN CAPITALIZATION In the event of a subdivision or consolidation of the outstanding shares of Common Stock, or the payment of a stock dividend thereon, the number of shares reserved or authorized to be reserved under this Plan shall be increased or decreased, as the case may be, proportionately, and such other adjustments shall be made as may be deemed necessary or equitable by the Board of Directors. In the event of any other change affecting the Common Stock, such adjustments shall be made as may be deemed equitable by the Board of Directors, in its sole discretion, to give proper effect to such event, subject to the limitations of Code section 424. SECTION 12 ADMINISTRATION 12.1 Appointment The Plan shall be administered by the Committee. The Committee shall consist of two or more members who shall serve at the pleasure of the Board of Directors. The Board of Directors may from time to time appoint members of the Committee in substitution for, or in addition to, members previously appointed and may fill vacancies, however caused, in the Committee. 12.2 Authority Subject to the express provisions of the Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable in administering the Plan, all of which determinations shall be final and binding upon all persons. If and to the extent required by Rule 16b-3 or any successor exemption which the Committee believes it is appropriate for the Plan to qualify, the Committee may restrict a Participants ability to participate in the Plan or sell any Common Stock received under the Plan for such period as the Committee deems appropriate or may impose such other conditions in connection with participation or distribution under the Plan as the Committee deems appropriate. 12.3 Committee Procedures. The Committee may select one of its members 7 as it Chairman and shall hold its meetings at such times and places as it shall deem advisable and may hold telephonic meetings. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may request advice or assistance or employ such other persons as are necessary for the proper administration of the Plan. 12.4 Duties of Committee The Committee shall establish and maintain records of the Plan and of each Payroll Deduction Account and Common Stock Account established for any Participant hereunder. 12.5 Plan Expenses The Company shall pay the fees and expenses of accountants, counsel, agents and other personnel and other costs and administration of the Plans. 12.6 Indemnification To the maximum extent permitted by law, no member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on such members behalf in such members capacity as a member of the Committee or for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless, directly from its own assets (including the proceeds of any insurance policy the premiums of which are paid from the Companys own assets), each member of the Committee and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan or to the management or control of the assets of the Plan may be delegated or allocated, against any cost or expense (including fees, disbursements and other charges of legal counsel) or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such persons own fraud, willful misconduct or bad faith. The foregoing shall not be deemed to limit the Companys obligation to indemnify any member of the Committee under the Companys Certificate of Incorporation or By-laws, or any other agreement between the Company and such member. SECTION 13 AMENDMENT AND TERMINATION 13.1 Amendment The Board of Directors may amend the Plan in any respect; provided, however, that the Plan may not be amended in any manner that will retroactively impair or otherwise adversely affect the rights of any person to benefits under the Plan which have accrued prior to the date of such action. 13.2 Termination The Plan will terminate on the date that Participants become entitled to purchase a number of shares greater than the number of 8 reserved shares available for purchase. In addition, the Plan may be terminated at any time, in the sole discretion of the Board of Directors. SECTION 14 EFFECTIVE DATE The Plan shall become effective on January 1, 1996, subject to approval by the Board of Directors. SECTION 15 GOVERNMENTAL AND OTHER REGULATIONS The Plan and the grant and exercise of options to purchase shares hereunder, and the Companys obligation to sell and deliver shares upon the exercise of options to purchase shares, shall be subject to all applicable Federal, state and foreign laws, rules and regulations, and to such approvals by any regulatory or governmental agency as, in the opinion of counsel to the Company, may be required. SECTION 16 NO EMPLOYMENT RIGHTS The Plan does not create, directly or indirectly, any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Employer and it shall not be deemed to interfere in any way with the Employers right to terminate, or otherwise modify, an employees employment at any time. SECTION 17 WITHHOLDING As a condition to receiving shares hereunder, the Company may require the Participant to make a cash payment to the Employer of, or the Employer may withhold from any shares distributable under the Plan, an amount necessary to satisfy all Federal, state, city or other taxes as may be required to be withheld in respect of such payments pursuant to any law or governmental regulation or ruling. 9 SECTION 18 OFFSETS To the extent permitted by law, the Company shall have the absolute right to withhold any amounts payable to any Participant under the terms of the Plan to the extent of any amount owed for any reason by such Participant to the Employer and to set off and apply the amounts so withheld to payment of any such amount owed to the Employer, whether or not such amount shall then be immediately due and payable and in such order or priority as among such amounts owed as the Committee, in its sole discretion, shall determine. SECTION 19 NOTICES, ETC. All elections, designations, requests, notices, instructions and other communications from a Participant to the Committee, the Company of the Employer required or permitted under the Plan shall be in such form as is prescribed from time to time by the Committee, shall be mailed by first-class mail or delivered to such location as shall be specified by the Committee, and shall be deemed to have been given and delivered only upon actual receipt thereof at such location. SECTION 20 CAPTIONS, ETC. The captions of the sections and paragraphs of this Plan have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision of the Plan. References to sections herein are to the specified sections of this Plan unless another reference is specifically stated. Wherever used herein, a singular number shall be deemed to include the plural unless a different meaning is required by the context. SECTION 21 EFFECT OF PLAN The provisions of the Plan shall be binding upon, and inure to the benefit of, all successors of the Company and each Participant, including, without limitation, such Participants estate and the executors, administrators or trustees thereof, heirs, and legatees, and any receiver trustee in bankruptcy or representative of creditors of such Participant. 10 SECTION 22 GOVERNING LAW The law of the State of Delaware shall govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States. SECTION 23 TRANSFERABILITY Neither payroll deductions credited to a Participants Payroll Deduction Account nor any rights with regard to the exercise of an option or to receive shares under the plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will or the laws of descent and distribution) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Committee may treat such act as an election to withdraw funds in accordance with Section 4.5. 11 EX-10 4 EXHIBIT 10.30 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1995, between The Multicare Companies, Inc., a Delaware corporation (the "Company"), and Daniel E. Straus (the "Executive"). The Company desires to employ the Executive, and the Executive desires to accept such employment, on the term and conditions of this Agreement. Certain terms used herein are defined in Section 11.1. NOW, THEREFORE, in consideration of the agreements and obligations herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT, DUTIES AND ACCEPTANCE. 1.1 Employment by the Company. The Company agrees to employ the Executive for the Term (as defined in Section 2), to render full-time services to the Company as its President and Co-Chief Executive Officer and to perform such duties commensurate with such office as the Board of Directors of the Company (the "Board of Directors") shall reasonably direct. 1.2 Acceptance of Employment by the Executive. The Executive hereby accepts such employment and agrees to render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as a director of the Company and as an officer or director of any subsidiary of the Company, without any compensation therefor other than as specified in this Agreement, if elected to any such position. 1 The Company will use its best efforts to cause the Executive to be elected as a member of the Board of Directors and shall include him, during the Term, in the management slate for election as a director at every stockholders meeting at which his term as a director would otherwise expire. 2. TERM OF EMPLOYMENT. 2.1 The term of the Executive's employment under this Agreement (the "Term") shall commence on the date hereof and shall end on December 31, 1999, unless earlier terminated pursuant to Section 4 hereof; provided, that the Term shall automatically be extended for successive one- year periods on each January 1, commencing January 1, 2000 unless timely written notice of termination of the Term is provided in accordance with Section 2.2. Each one-year period commencing each January 1 during the Term is referred to herein as an "Employment Year". 2.2 The Company or the Executive may choose not to extend or renew the Term of Executive's employment hereunder without cause or reason, upon written notice to the other at least one hundred eighty (180) days prior to any January 1 occurring after January 1, 1998. 3. COMPENSATION AND OTHER BENEFITS. 3.1 Salary. As compensation for services to be rendered pursuant to this Agreement, the Company agrees to pay the Executive, for each Employment Year during the Term, an annual direct salary of $600,000 per year (the "Annual Direct Salary"). The Annual Direct Salary shall be reviewed by the Board of Directors on each anniversary of this Agreement and 2 shall be adjusted upwards as of each such anniversary. In no event shall the Annual Direct Salary be decreased from the Annual Direct Salary payable for the immediately preceding year without the express written consent of the Executive. 3.2 Incentive Compensation. The Executive shall prepare a business plan establishing the financial and business goals of the Company prior to the start of each fiscal year during the Term (the "Business Plan"). The Business Plan prepared by the Executive shall be reviewed promptly by the Board of Directors, which may negotiate goals and performance expectations with the Executive prior to adoption. Upon adoption of the Business Plan, the Board of Directors shall establish an incentive compensation opportunity for the Executive under the Company's Key Employee Incentive Compensation Plan (the "KEICP"). The Executive's KEICP opportunity shall provide an incentive pay opportunity consistent with the practices of similar organizations in rewarding their senior executives and shall be consistent with past practice. For 1995, the Executive's incentive for achieving Expected Performance under the KEICP shall be 100% of the Executive's Annual Direct Salary in effect on January 1, 1995; Threshold Performance shall be 70% of such Annual Direct Salary; and Outstanding Performance shall be 150% of such Annual Direct Salary. Any incentive award earned by the Executive pursuant to the KEICP shall be paid to the Executive during the month of December in the applicable fiscal year. 3.3 Employee Benefit Plans. The Executive shall be entitled to participate in or receive benefits under all Company employment benefit plans including, but not limited to, any pension, profit-sharing plan, stock option or other equity award or participation plans, savings plan, supplemental retirement income, medical or health-and-accident plan or 3 arrangement made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall also provide the Executive with the following minimum benefits: (i) Life Insurance: the Company shall acquire and maintain for the Executive a supplemental term life insurance policy with a death benefit equal to at least five (5) times the Executive's then current Annual Direct Salary to a maximum death benefit of $5,000,000. The Executive, or a valid trust established by the Executive, shall own such policy and the Executive shall be liable for any income taxes due annually on the reported income resulting from the Company's payment of annual premiums during the Term. In addition, the Company shall acquire and maintain for Executive a term life insurance policy with a death benefit equal to $50 million to fund Executive's obligations under the Buy-Sell Agreement between the Executive and Moshael J. Straus. Both of these policies shall be, and shall provide that they are, assumable by Executive at the termination or expiration of the Term. The Executive is permitted to be, and has the right to name, the beneficiary under any of the foregoing policies. The Company shall indemnify and hold the Executive harmless from and against any federal, state or local income tax imposed on the Executive as a result of the provision by the Company of the policies set forth in this Section. For the purpose of determining the amount of any payment under the preceding sentence, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made, and state 4 and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes. (ii) Disability Insurance: In the event that the Company's group long-term disability insurance policy benefit limit, if any, does not permit the Executive to receive the 66.67% of income replacement at the time of disability, or the Company does not at any time during the Term maintain a group long-term disability insurance policy, the Company shall make available a long-term disability insurance policy for the Executive, which policy shall provide that in the event the Executive is unable to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall be entitled to receive benefits from all sources (Social Security, group long-term disability and supplemental long- term disability) equal to 66.67% of his then current Annual Direct Salary until the Executive reaches the age of 65 or dies. The Company shall continue to pay to the Executive his Annual Direct Salary during any applicable elimination or waiting period not in excess of one hundred eighty (180) days. (iii) 401(k) Wrap Plan/Deferred Compensation Plan Participation: The Executive shall have the option to participate in a 401(k) Wrap Plan to be established by the Company to enable the Executive to defer portions of current income from income tax liability until a later time, provided such election to defer income is made in compliance with the Code. 3.4 Vacation. During the Term, the Executive shall be 5 entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than six (6) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers and all holidays observed in the Jewish religion. 3.5 Reimbursement of Expenses. During the Term, the Company shall reimburse the Executive promptly for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Board of Directors for the Company's senior executive officers) in performing services hereunder. 3.6 Automobile Allowance. During the Term, the Executive shall be entitled to use for business and personal reasons an automobile of his choice leased by the Company. The Company shall pay all amounts in respect of premiums for liability insurance (in amounts determined by the Executive) and will reimburse the Executive for all operating, maintenance and repair expenses. 3.7 Agreement Signing Incentive. The Executive shall receive as of the date hereof a special one-time grant pursuant to the Company's Stock Option Plan of 37,500 nonqualified options to purchase shares of the Company's common stock (the "Options"). The Options shall have an exercise price equal to the closing bid price of the Company's common stock on the date of hereof as reported by The NASDAQ Stock Market and shall vest ratably over five years. 3.8 Other Benefits. The Executive shall be entitled to receive such other requisites, e.g. club memberships and fringe benefits as the Board of Directors deems appropriate. 6 4. TERMINATION. 4.1 Termination Upon Death. If the Executive dies during the Term, this Agreement shall terminate as of the date of death, and the Executive's legal representatives, successors, heirs or assigns shall be entitled to receive the amounts set forth in Section 6.1. 4.2 Termination Upon Disability. If during the Term, the Executive becomes subject to a Disability (as defined in the following sentence), the Company may at any time thereafter, by notice to the Executive, terminate the Term of Executive's employment hereunder, except that the Executive shall be entitled to receive the amounts specified in Section 6.1. For purposes of this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of one hundred eighty (180) consecutive days or (ii) for shorter periods aggregating two hundred seventy (270) days in any three hundred sixty-five (365) day period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the request, and at the expense, of the Company. Nothing in this Section 4.2 shall be deemed to extend the Term. 4.3 Termination for Cause. During the Term, the Company shall have the right to terminate the Term of Executive's employment with the Company for Cause. For purpose hereof, a termination by the Corporation for "Cause" shall mean termination by action of at least a majority of the members of the Board of Directors of the Corporation (excluding Executive) at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to 7 constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors, following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties, and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally or not in good faith and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 5. TERMINATION BY THE EXECUTIVE. The Executive may terminate the Term on written notice to the Company upon the continuation of any of the following events for more than ten (10) days after Executive delivers notice to the Company thereof (other than with respect to paragraph (vi), which shall be governed by Section 7 8 hereof) and the occurrence of any one or more of the following (each "Good Reason"): (i) Executive shall fail to be re-elected as the Company's Chairman of the Board and Co-Chief Executive Officer or shall be removed from such position at any time during the Term; (ii) Executive shall fail to be vested with the powers and authority of Chairman of the Board and Co-Chief Executive Officer of the Company; or the powers and authority of such position or the Executive's authority and responsibilities hereunder shall be diminished in any material respect; (iii)Executive's principal place of employment is changed without Executive's prior written consent; (iv) any material failure by the Company to comply with any of the provisions of this Agreement including, without limitation, failure to make any payment required to be made by the Company pursuant to this Agreement within five (5) business days after the date such payment is required to be made; (v) any purported termination by the Company of Executive's employment otherwise than as expressly permitted by this Agreement; (vi) upon a Change of Control (as defined in Section 7); or (vii)the commencement of a proceeding or case, with or without the application or consent of the Company or any of its 9 subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. 6. PAYMENTS UPON TERMINATION. 6.1 Termination Due to Death or Disability. Upon the death or Disability of the Executive (A) the Company shall pay to the Executive or his estate (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability (subject to the last sentence of Section 3.3(ii)), (ii) all deferred amounts earned under the KEICP or similar bonus plan, and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (B) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. 6.2 Termination for Cause. Upon termination of the Term by the Company for Cause, the Company's obligations to the Executive under this Agreement shall be limited to the payment of unpaid Annual Direct Salary and benefits accrued up to the effective date of termination specified in the Company's notice of termination. 10 6.3 Termination by Executive for Good Reason or by the Company other than for Certain Reasons. a) In the event (i) the Company terminates the Term for a reason other than for (A) Cause or (B) due to death or Disability or (C) upon a Change of Control or (D) gives notice of non-renewal pursuant to Section 2 or (ii) the Executive terminates the Term for Good Reason, then: (1) the Company shall pay the Executive (A) (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's employment, (ii) all deferred amounts earned under the KEICP or similar bonus plan and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Term is terminated, such bonus(es) prorated up to the last day of the month of such termination and (B) a lump sum cash payment within thirty (30) days following the date of termination (except for termination by notice of non-renewal, in which case such payment shall be made within thirty (30) days following the expiration of the Term) equal to the greater of (x) all remaining Annual Direct Salary payable during the Term and (y) an amount equal to two times the Annual Direct Salary for the then current Employment Year and (2) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. (b) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the Term 11 otherwise remaining or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6.5 Termination Due to a Change of Control. Upon the termination of the Term due to a Change of Control, the Company shall pay the amounts to and provide the benefits for the Executive as set forth in Section 7.1 and 7.4 hereof. 7. CHANGE OF CONTROL. 7.1 (a) Upon a Change of Control, the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control or (ii) at any time, in the event that within twenty-four (24) months following the date of a Change 12 of Control, the continuation of any event constituting Good Reason hereunder for more than ten (10) days after the Executive delivers notice thereof to the Company (other than as contemplated by Section 5(vi)) occurs. In the event that the Executive terminates the Term pursuant to this Section 7.1, the Company shall make a lump-sum payment to the Executive equal to three times the sum of (i) his then current Annual Direct Salary and (iii) an amount equal to the highest annual bonus (KEICP and other amounts being aggregated) award received within the three (3) years immediately preceding the Employment Year in which such termination occurs; provided, that in no event shall such amount be less than the bonus payable at an Expected Level of performance under the KEICP for 1995. The Company shall also maintain the benefit coverages for the Executive specified in Section 6.3 above for a period of twenty-four (24) months following the date of termination of the term by the Executive. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change in Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. In the event the Executive does 13 not exercise any such accelerated restricted stock, stock options or awards in the transaction resulting in a Change of Control, the Executive will have a six month period from the date of a Change of Control in which to exercise such restricted stock, stock options and awards. In the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) Upon the termination of the Term upon a Change of Control, the Company shall provide to the Executive outplacement and career counseling services as may be requested by the Executive; such service costs not to exceed 15% of the Executive's then-current Annual Direct Salary. 7.2 For purposes of this Agreement, the term "Change of Control" shall mean: (a) the acquisition (after the date hereof) of the beneficial ownership of a majority of the Company's voting securities and/or substantially all of the assets of the Company by a single person or entity or a group of affiliated persons or entities, or (b) the merger, consolidation or combination or similar transaction of the Company with an unaffiliated corporation in which the Board of Directors immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity. 7.3 For purposes of this Agreement the term a "date of a 14 Change of Control" shall mean: (a) the first date (after the date hereof) on which a single person and/or entity, or group of affiliated persons and/or entities, acquire the beneficial ownership of majority of the Company's voting securities; or (b) the date of the transfer of all or substantially all of the Company's voting securities; or (c) the date on which a merger, consolidation or combination of the type specified in Section 7.2(b) is consummated. 7.4 Certain Taxes. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Code, on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is not reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the 15 purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 7.5 Severance Letter of Credit. The Company shall, at all times during the Term and any extensions and renewals thereof and for thirty (30) days thereafter, at such time the Executive may direct, and cause to be maintained in effect a letter of credit for the benefit of the Executive, from a bank reasonably satisfactory to the Executive in a face amount that is equal to or greater than the amounts payable to the Executive at such time under Section 7.1 and 7.4. Not later than thirty (30) days prior to the expiration of any letter of credit furnished pursuant to this Section 7.5, the Company shall furnish to the Executive a replacement or substitute letter of credit effective from and after such expiration and expiring not earlier than one hundred eighty (180) days thereafter or such shorter period as a letter of credit is required to be maintained under the immediately preceding sentence. 8. RESTRICTIVE COVENANTS. 8.1 Confidentiality. During the Term and for two (2) years thereafter, the Executive shall not, without the written consent of the Board of Directors or a person authorized thereby, knowingly disclose to any person, other than an employee of the Company or a person to whom disclosure 16 is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company, any material confidential information obtained by him while in the employ of the Company with respect to any of the Company's services, products, improvements, processes, customers, methods of distribution or any business practices the disclosure of which he knows will be materially damaging to the Company; provided, however, that confidential information shall not include any information publicly available at the time of the alleged disclosure (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company. Upon termination of the Term upon the request of the Company, the Executive shall promptly deliver to the Corporation all correspondence, manuals, letters, notes, notebooks, reports and any other documents or tangible items containing or constituting confidential information about the business of the Company. 8.2 Injunctive Relief. The Executive agrees that any breach of the restrictions set forth in this Section 8 will result in irreparable injury to the Company for which it shall have no meaningful remedy in law and the Company shall be entitled to injunctive relief in order to enforce the provisions thereof. In the event that any provision of this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable in part by reason of it being too great a period of time or covering too great a geographical area, it shall be in full force and effect as to that period of time or geographical area determined to be reasonable by the court. 17 9. INDEMNIFICATION. (a) The Executive shall be provided with directors' and officers' insurance in connection with his employment hereunder and service as a director as contemplated hereby with such coverage (including with respect to unpaid wages and taxes not remitted when due) and in such amounts as shall be reasonably satisfactory to the Executive, and the Company shall maintain such insurance in effect for the period of the Executive's employment hereunder and for not less than five years thereafter; provided, however, than in the event that the Company shall not obtain such insurance, it shall provide or cause the Executive to be provided with indemnity (or a combination of indemnity and directors' and officers' insurance) in connection with his employment hereunder with such coverage, in such amounts and from such person or persons as shall be reasonably satisfactory to the Executive, and the Company shall maintain such indemnity (or combination of indemnity and directors' and officers' insurance) or cause such indemnity (or such combination) to be maintained for the period of the Executive's employment hereunder and not less than five (5) years thereafter. (b) To the fullest extent permitted or required by the laws of the State of Delaware, the Company shall indemnify and provide reasonable advances for expenses to the Executive, in accordance with the terms of such laws, if the Executive is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was an officer or director of the Company or any subsidiary or the Company, in which capacity the Executive is or was serving at the Company's request and in furtherance of the Company's 18 best interests, against expenses (including reasonable attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. 10. NO DUTY TO MITIGATE. The Executive shall have no duty to mitigate any severance amount or any other amounts payable to him hereunder and such amounts shall not be subject to reduction for any compensation received by the Executive from employment in any capacity or other source following the termination of the Executive's employment with the Company and its subsidiaries. 11. OTHER PROVISIONS. 11.1 Certain Definitions. As used herein, the following terms shall be defined as follows: "affiliate" of any person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purpose of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term "controlling" and "controlled" have meanings correlative to the foregoing. "Code" shall mean the Internal Revenue Code of 1986, as amended. "person" means individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a governmental entity or any department or agency thereof. 11.2 Notices. Any notice or other communication required or 19 permitted hereunder shall be in writing and shall be delivered personally, telecopied or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by express mail, or if sent by certified or registered mail, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: General Counsel telephone: (201)488-8818 Telecopy: (201)525-5952 with a copy to: Paul Weiss Rifkind Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Carl L. Reisner, Esq. Telephone: (212)373-3000 Telecopy: (212)373-2038 (ii) if to the Executive, to him at his address then reflected in the personnel records of the Company. Either party may change its or his address for notice hereunder by notice to the other party in accordance with this Section 11.2. 11.3 Waivers and Amendments. This Agreement may be amended, modified, superseded or cancelled, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right or remedy hereunder shall operate as a waiver 20 thereof, nor shall any waiver on the part of any party of any such right or remedy, nor any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. 11.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey applicable to agreements made and to be performed entirely within such State. 11.5 Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void and without effect. 11.6 Enforcement of Separate Provisions. Should any provision or provisions of this Agreement be determined to be unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 11.7 Arbitration. In the event that any disagreement or dispute shall arise between the parties concerning this Agreement, the issue(s) will be submitted to JAMS/Endispute, Inc. for binding arbitration. Any award entered shall be final and binding upon the parties hereto and judgment upon the award may be entered in any court having jurisdiction 21 thereof. All fees of attorneys, accountants, advisors or other experts or witnesses, together with all administrative costs incurred in connection with such actions, shall be paid by the Company. 11.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed or caused the execution of this Agreement as of the date first above written. THE MULTICARE COMPANIES, INC. By: /S/ MOSHAEL J. STRAUS _____________________________ Name: MOSHAEL J. STRAUS Title: CHAIRMAN OF THE BOARD OF DIRECTORS AND CO-CHIEF EXECUTIVE OFFICER /S/ DANIEL E. STRAUS _____________________________ Daniel E. Straus 22 EX-10 5 EXHIBIT 10.31 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1995, between The Multicare Companies, Inc., a Delaware corporation (the "Company"), and Moshael J. Straus (the "Executive"). The Company desires to employ the Executive, and the Executive desires to accept such employm ent, on the term and conditions of this Agreement. Certain terms used herein are defined in Section 11.1. NOW, THEREFORE, in consideration of the agreements and obligations herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT, DUTIES AND ACCEPTANCE. 1.1 Employment by the Company. The Company agrees to employ the Executive for the Term (as defined in Section 2), to render full-time services to the Company as its Chairman of the Board and Co-Chief Executive Officer and to perform such duties commensurate with such office as the Board of Directors of the Company (the "Board of Directors") shall reasonably direct. 1.2 Acceptance of Employment by the Executive. The Executive hereby accepts such employment and agrees to render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as a director of the Company and as an officer or director of any subsidiary of the Company, without any compensation therefor other than as specified in this Agreement, if elected to any such position. 1 The Company will use its best efforts to cause the Executive to be elected as a member of the Board of Directors and shall include him, during the Term, in the management slate for election as a director at every stockholders meeting at which his term as a director would otherwise expire. 2. TERM OF EMPLOYMENT. 2.1 The term of the Executive's employment under this Agreement (the "Term") shall commence on the date hereof and shall end on December 31, 1999, unless earlier terminated pursuant to Section 4 hereof; provided, that the Term shall automatically be extended for successive one- year periods on each January 1, commencing January 1, 2000 unless timely written notice of termination of the Term is provided in accordance with Section 2.2. Each one-year period commencing each January 1 during the Term is referred to herein as an "Employment Year". 2.2 The Company or the Executive may choose not to extend or renew the Term of Executive's employment hereunder without cause or reason, upon written notice to the other at least one hundred eighty (180) days prior to any January 1 occurring after January 1, 1998. 3. COMPENSATION AND OTHER BENEFITS. 3.1 Salary. As compensation for services to be rendered pursuant to this Agreement, the Company agrees to pay the Executive, for each Employment Year during the Term, an annual direct salary of $600,000 per year (the "Annual Direct Salary"). The Annual Direct Salary shall be reviewed by the Board of Directors on each anniversary of this Agreement and 2 shall be adjusted upwards as of each such anniversary. In no event shall the Annual Direct Salary be decreased from the Annual Direct Salary payable for the immediately preceding year without the express written consent of the Executive. 3.2 Incentive Compensation. The Executive shall prepare a business plan establishing the financial and business goals of the Company prior to the start of each fiscal year during the Term (the "Business Plan"). The Business Plan prepared by the Executive shall be reviewed promptly by the Board of Directors, which may negotiate goals and performance expectations with the Executive prior to adoption. Upon adoption of the Business Plan, the Board of Directors shall establish an incentive compensation opportunity for the Executive under the Company's Key Employee Incentive Compensation Plan (the "KEICP"). The Executive's KEICP opportunity shall provide an incentive pay opportunity consistent with the practices of similar organizations in rewarding their senior executives and shall be consistent with past practice. For 1995, the Executive's incentive for achieving Expected Performance under the KEICP shall be 100% of the Executive's Annual Direct Salary in effect on January 1, 1995; Threshold Performance shall be 70% of such Annual Direct Salary; and Outstanding Performance shall be 150% of such Annual Direct Salary. Any incentive award earned by the Executive pursuant to the KEICP shall be paid to the Executive during the month of December in the applicable fiscal year. 3.3 Employee Benefit Plans. The Executive shall be entitled to participate in or receive benefits under all Company employment benefit plans including, but not limited to, any pension, profit-sharing plan, stock option or other equity award or participation plans, savings plan, supplemental retirement income, medical or health-and-accident plan or 3 arrangement made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall also provide the Executive with the following minimum benefits: (i) Life Insurance: the Company shall acquire and maintain for the Executive a supplemental term life insurance policy with a death benefit equal to at least five (5) times the Executive's then current Annual Direct Salary to a maximum death benefit of $5,000,000. The Executive, or a valid trust established by the Executive, shall own such policy and the Executive shall be liable for any income taxes due annually on the reported income resulting from the Company's payment of annual premiums during the Term. In addition, the Company shall acquire and maintain for Executive a term life insurance policy with a death benefit equal to $50 million to fund Executive's obligations under the Buy-Sell Agreement between the Executive and Daniel E. Straus. Both of these policies shall be, and shall provide that they are, assumable by Executive at the termination or expiration of the Term. The Executive is permitted to be, and has the right to name, the beneficiary under any of the foregoing policies. The Company shall indemnify and hold the Executive harmless from and against any federal, state or local income tax imposed on the Executive as a result of the provision by the Company of the policies set forth in this Section. For the purpose of determining the amount of any payment under the preceding sentence, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made, and state 4 and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes. (ii) Disability Insurance: In the event that the Company's group long-term disability insurance policy benefit limit, if any, does not permit the Executive to receive the 66.67% of income replacement at the time of disability, or the Company does not at any time during the Term maintain a group long-term disability insurance policy, the Company shall make available a long-term disability insurance policy for the Executive, which policy shall provide that in the event the Executive is unable to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall be entitled to receive benefits from all sources (Social Security, group long-term disability and supplemental long- term disability) equal to 66.67% of his then current Annual Direct Salary until the Executive reaches the age of 65 or dies. The Company shall continue to pay to the Executive his Annual Direct Salary during any applicable elimination or waiting period not in excess of one hundred eighty (180) days. (iii) 401(k) Wrap Plan/Deferred Compensation Plan Participation: The Executive shall have the option to participate in a 401(k) Wrap Plan to be established by the Company to enable the Executive to defer portions of current income from income tax liability until a later time, provided such election to defer income is made in compliance with the Code. 3.4 Vacation. During the Term, the Executive shall be 5 entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than six (6) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers and all holidays observed in the Jewish religion. 3.5 Reimbursement of Expenses. During the Term, the Company shall reimburse the Executive promptly for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Board of Directors for the Company's senior executive officers) in performing services hereunder. 3.6 Automobile Allowance. During the Term, the Executive shall be entitled to use for business and personal reasons an automobile of his choice leased by the Company. The Company shall pay all amounts in respect of premiums for liability insurance (in amounts determined by the Executive) and will reimburse the Executive for all operating, maintenance and repair expenses. 3.7 Agreement Signing Incentive. The Executive shall receive as of the date hereof a special one-time grant pursuant to the Company's Stock Option Plan of 37,500 nonqualified options to purchase shares of the Company's common stock (the "Options"). The Options shall have an exercise price equal to the closing bid price of the Company's common stock on the date of hereof as reported by The NASDAQ Stock Market and shall vest ratably over five years. 3.8 Other Benefits. The Executive shall be entitled to receive such other requisites, e.g. club memberships and fringe benefits as the Board of Directors deems appropriate. 6 4. TERMINATION. 4.1 Termination Upon Death. If the Executive dies during the Term, this Agreement shall terminate as of the date of death, and the Executive's legal representatives, successors, heirs or assigns shall be entitled to receive the amounts set forth in Section 6.1. 4.2 Termination Upon Disability. If during the Term, the Executive becomes subject to a Disability (as defined in the following sentence), the Company may at any time thereafter, by notice to the Executive, terminate the Term of Executive's employment hereunder, except that the Executive shall be entitled to receive the amounts specified in Section 6.1. For purposes of this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of one hundred eighty (180) consecutive days or (ii) for shorter periods aggregating two hundred seventy (270) days in any three hundred sixty-five (365) day period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the request, and at the expense, of the Company. Nothing in this Section 4.2 shall be deemed to extend the Term. 4.3 Termination for Cause. During the Term, the Company shall have the right to terminate the Term of Executive's employment with the Company for Cause. For purpose hereof, a termination by the Corporation for "Cause" shall mean termination by action of at least a majority of the members of the Board of Directors of the Corporation (excluding Executive) at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to 7 constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors, following thirty days' prior written notice to Executive of his refusal to perform, or failure to attempt to perform such duties, and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally or not in good faith and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 5. TERMINATION BY THE EXECUTIVE. The Executive may terminate the Term on written notice to the Company upon the continuation of any of the following events for more than ten (10) days after Executive delivers notice to the Company thereof (other than with respect to paragraph (vi), which shall be governed by Section 7 8 hereof) and the occurrence of any one or more of the following (each "Good Reason"): (i) Executive shall fail to be re-elected as the Company's Chairman of the Board and Co-Chief Executive Officer or shall be removed from such position at any time during the Term; (ii) Executive shall fail to be vested with the powers and authority of Chairman of the Board and Co-Chief Executive Officer of the Company; or the powers and authority of such position or the Executive's authority and responsibilities hereunder shall be diminished in any material respect; (iii)Executive's principal place of employment is changed without Executive's prior written consent; (iv) any material failure by the Company to comply with any of the provisions of this Agreement including, without limitation, failure to make any payment required to be made by the Company pursuant to this Agreement within five (5) business days after the date such payment is required to be made; (v) any purported termination by the Company of Executive's employment otherwise than as expressly permitted by this Agreement; (vi) upon a Change of Control (as defined in Section 7); or (vii)the commencement of a proceeding or case, with or without the application or consent of the Company or any of its 9 subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. 6. PAYMENTS UPON TERMINATION. 6.1 Termination Due to Death or Disability. Upon the death or Disability of the Executive (A) the Company shall pay to the Executive or his estate (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability (subject to the last sentence of Section 3.3(ii)), (ii) all deferred amounts earned under the KEICP or similar bonus plan, and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (B) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. 6.2 Termination for Cause. Upon termination of the Term by the Company for Cause, the Company's obligations to the Executive under this Agreement shall be limited to the payment of unpaid Annual Direct Salary and benefits accrued up to the effective date of termination specified in the Company's notice of termination. 10 6.3 Termination by Executive for Good Reason or by the Company other than for Certain Reasons. a) In the event (i) the Company terminates the Term for a reason other than for (A) Cause or (B) due to death or Disability or (C) upon a Change of Control or (D) gives notice of non-renewal pursuant to Section 2 or (ii) the Executive terminates the Term for Good Reason, then: (1) the Company shall pay the Executive (A) (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's employment, (ii) all deferred amounts earned under the KEICP or similar bonus plan and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Term is terminated, such bonus(es) prorated up to the last day of the month of such termination and (B) a lump sum cash payment within thirty (30) days following the date of termination (except for termination by notice of non-renewal, in which case such payment shall be made within thirty (30) days following the expiration of the Term) equal to the greater of (x) all remaining Annual Direct Salary payable during the Term and (y) an amount equal to two times the Annual Direct Salary for the then current Employment Year and (2) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. (b) Following termination of the Term for any reason, other than for Cause or upon the death of the Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the Term 11 otherwise remaining or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if the Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on the Executive's behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which the Executive was entitled prior to the date of termination. 6.5 Termination Due to a Change of Control. Upon the termination of the Term due to a Change of Control, the Company shall pay the amounts to and provide the benefits for the Executive as set forth in Section 7.1 and 7.4 hereof. 7. CHANGE OF CONTROL. 7.1 (a) Upon a Change of Control, the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control or (ii) at any time, in the event that within twenty-four (24) months following the date of a Change 12 of Control, the continuation of any event constituting Good Reason hereunder for more than ten (10) days after the Executive delivers notice thereof to the Company (other than as contemplated by Section 5(vi)) occurs. In the event that the Executive terminates the Term pursuant to this Section 7.1, the Company shall make a lump-sum payment to the Executive equal to three times the sum of (i) his then current Annual Direct Salary and (iii) an amount equal to the highest annual bonus (KEICP and other amounts being aggregated) award received within the three (3) years immediately preceding the Employment Year in which such termination occurs; provided, that in no event shall such amount be less than the bonus payable at an Expected Level of performance under the KEICP for 1995. The Company shall also maintain the benefit coverages for the Executive specified in Section 6.3 above for a period of twenty-four (24) months following the date of termination of the term by the Executive. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change in Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. In the event the Executive does 13 not exercise any such accelerated restricted stock, stock options or awards in the transaction resulting in a Change of Control, the Executive will have a six month period from the date of a Change of Control in which to exercise such restricted stock, stock options and awards. In the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) Upon the termination of the Term upon a Change of Control, the Company shall provide to the Executive outplacement and career counseling services as may be requested by the Executive; such service costs not to exceed 15% of the Executive's then-current Annual Direct Salary. 7.2 For purposes of this Agreement, the term "Change of Control" shall mean: (a) the acquisition (after the date hereof) of the beneficial ownership of a majority of the Company's voting securities and/or substantially all of the assets of the Company by a single person or entity or a group of affiliated persons or entities, or (b) the merger, consolidation or combination or similar transaction of the Company with an unaffiliated corporation in which the Board of Directors immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity. 7.3 For purposes of this Agreement the term a "date of a 14 Change of Control" shall mean: (a) the first date (after the date hereof) on which a single person and/or entity, or group of affiliated persons and/or entities, acquire the beneficial ownership of majority of the Company's voting securities; or (b) the date of the transfer of all or substantially all of the Company's voting securities; or (c) the date on which a merger, consolidation or combination of the type specified in Section 7.2(b) is consummated. 7.4 Certain Taxes. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Code, on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is not reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the 15 purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 7.5 Severance Letter of Credit. The Company shall, at all times during the Term and any extensions and renewals thereof and for thirty (30) days thereafter, at such time the Executive may direct, and cause to be maintained in effect a letter of credit for the benefit of the Executive, from a bank reasonably satisfactory to the Executive in a face amount that is equal to or greater than the amounts payable to the Executive at such time under Section 7.1 and 7.4. Not later than thirty (30) days prior to the expiration of any letter of credit furnished pursuant to this Section 7.5, the Company shall furnish to the Executive a replacement or substitute letter of credit effective from and after such expiration and expiring not earlier than one hundred eighty (180) days thereafter or such shorter period as a letter of credit is required to be maintained under the immediately preceding sentence. 8. RESTRICTIVE COVENANTS. 8.1 Confidentiality. During the Term and for two (2) years thereafter, the Executive shall not, without the written consent of the Board of Directors or a person authorized thereby, knowingly disclose to any person, other than an employee of the Company or a person to whom disclosure 16 is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company, any material confidential information obtained by him while in the employ of the Company with respect to any of the Company's services, products, improvements, processes, customers, methods of distribution or any business practices the disclosure of which he knows will be materially damaging to the Company; provided, however, that confidential information shall not include any information publicly available at the time of the alleged disclosure (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company. Upon termination of the Term upon the request of the Company, the Executive shall promptly deliver to the Corporation all correspondence, manuals, letters, notes, notebooks, reports and any other documents or tangible items containing or constituting confidential information about the business of the Company. 8.2 Injunctive Relief. The Executive agrees that any breach of the restrictions set forth in this Section 8 will result in irreparable injury to the Company for which it shall have no meaningful remedy in law and the Company shall be entitled to injunctive relief in order to enforce the provisions thereof. In the event that any provision of this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable in part by reason of it being too great a period of time or covering too great a geographical area, it shall be in full force and effect as to that period of time or geographical area determined to be reasonable by the court. 17 9. INDEMNIFICATION. (a) The Executive shall be provided with directors' and officers' insurance in connection with his employment hereunder and service as a director as contemplated hereby with such coverage (including with respect to unpaid wages and taxes not remitted when due) and in such amounts as shall be reasonably satisfactory to the Executive, and the Company shall maintain such insurance in effect for the period of the Executive's employment hereunder and for not less than five years thereafter; provided, however, than in the event that the Company shall not obtain such insurance, it shall provide or cause the Executive to be provided with indemnity (or a combination of indemnity and directors' and officers' insurance) in connection with his employment hereunder with such coverage, in such amounts and from such person or persons as shall be reasonably satisfactory to the Executive, and the Company shall maintain such indemnity (or combination of indemnity and directors' and officers' insurance) or cause such indemnity (or such combination) to be maintained for the period of the Executive's employment hereunder and not less than five (5) years thereafter. (b) To the fullest extent permitted or required by the laws of the State of Delaware, the Company shall indemnify and provide reasonable advances for expenses to the Executive, in accordance with the terms of such laws, if the Executive is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was an officer or director of the Company or any subsidiary or the Company, in which capacity the Executive is or was serving at the Company's request and in furtherance of the Company's 18 best interests, against expenses (including reasonable attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. 10. NO DUTY TO MITIGATE. The Executive shall have no duty to mitigate any severance amount or any other amounts payable to him hereunder and such amounts shall not be subject to reduction for any compensation received by the Executive from employment in any capacity or other source following the termination of the Executive's employment with the Company and its subsidiaries. 11. OTHER PROVISIONS. 11.1 Certain Definitions. As used herein, the following terms shall be defined as follows: "affiliate" of any person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purpose of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term "controlling" and "controlled" have meanings correlative to the foregoing. "Code" shall mean the Internal Revenue Code of 1986, as amended. "person" means individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a governmental entity or any department or agency thereof. 11.2 Notices. Any notice or other communication required or 19 permitted hereunder shall be in writing and shall be delivered personally, telecopied or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by express mail, or if sent by certified or registered mail, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: General Counsel telephone: (201)488-8818 Telecopy: (201)525-5952 with a copy to: Paul Weiss Rifkind Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Carl L. Reisner, Esq. Telephone: (212)373-3000 Telecopy: (212)373-2038 (ii) if to the Executive, to him at his address then reflected in the personnel records of the Company. Either party may change its or his address for notice hereunder by notice to the other party in accordance with this Section 11.2. 11.3 Waivers and Amendments. This Agreement may be amended, modified, superseded or cancelled, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right or remedy hereunder shall operate as a waiver 20 thereof, nor shall any waiver on the part of any party of any such right or remedy, nor any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. 11.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey applicable to agreements made and to be performed entirely within such State. 11.5 Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void and without effect. 11.6 Enforcement of Separate Provisions. Should any provision or provisions of this Agreement be determined to be unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 11.7 Arbitration. In the event that any disagreement or dispute shall arise between the parties concerning this Agreement, the issue(s) will be submitted to JAMS/Endispute, Inc. for binding arbitration. Any award entered shall be final and binding upon the parties hereto and judgment upon the award may be entered in any court having jurisdiction 21 thereof. All fees of attorneys, accountants, advisors or other experts or witnesses, together with all administrative costs incurred in connection with such actions, shall be paid by the Company. 11.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed or caused the execution of this Agreement as of the date first above written. THE MULTICARE COMPANIES, INC. By: /S/ DANIEL E. STRAUS _____________________________ Name: DANIEL E. STRAUS Title: PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER /S/ MOSHAEL J. STRAUS _____________________________ Moshael J. Straus 22 EX-10 6 EXHIBIT 10.32 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1995, between The Multicare Companies, Inc., a Delaware corporation (the "Company"), and Stephen R. Baker (the "Executive"). The Company desires to employ the Executive, and the Executive desires to accept such employment, on the term and conditions of this Agreement. Certain terms used herein are defined in Section 11.1. NOW, THEREFORE, in consideration of the agreements and obligations herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT, DUTIES AND ACCEPTANCE. 1.1 Employment by the Company. The Company agrees to employ the Executive for the Term (as defined in Section 2), to render full-time services to the Company as its Executive Vice President and Chief Operating Officer to perform such duties commensurate with such office as the Board of Directors of the Company (the "Board of Directors") and/or the Co-Chief Executive Officers of the Company shall reasonably direct. The Executive shall report directly to the Co-Chief Executive Officers of the Company. The Executive shall devote his full business time to the business of the Company during the term. 1.2 Acceptance of Employment by the Executive. The Executive hereby accepts such employment and agrees to render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as a director of the Company and as an officer or 1 director of any subsidiary of the Company, without any compensation therefor other than as specified in this Agreement, if elected to any such position. 2. TERM OF EMPLOYMENT. 2.1 The term of the Executive's employment under this Agreement (the "Term") shall commence on the date hereof and shall end on December 31, 1997, unless earlier terminated pursuant to Section 4 hereof; provided, that the Term shall automatically be extended for successive one- year periods on each January 1, commencing January 1, 1998 unless timely written notice of termination of the Term is provided in accordance with Section 2.2. Each one-year period commencing each January 1 during the Term is referred to herein as an "Employment Year". 2.2 The Company or the Executive may choose not to extend or renew the Term of Executive's employment hereunder without cause or reason, upon written notice to the other at least one hundred eighty (180) days prior to any January 1 occurring after January 1, 1997. 3. COMPENSATION AND OTHER BENEFITS. 3.1 Salary. As compensation for services to be rendered pursuant to this Agreement, the Company agrees to pay the Executive, for each Employment Year during the Term, an annual direct salary of $250,000 per year (the "Annual Direct Salary"). The Annual Direct Salary shall be reviewed by the Board of Directors on each anniversary of this Agreement and may be adjusted upwards as of each such anniversary. In no event shall the Annual Direct Salary be decreased from the Annual Direct Salary payable for the immediately preceding year without the express written consent of the Executive. 2 3.2 Incentive Compensation. The Co-Chief Executive Officers shall prepare a business plan establishing the financial and business goals of the Company prior to the start of each fiscal year during the Term (the "Business Plan"). The Business Plan shall set forth the goals of, and performance expectations for, the Executive for such year. The Board of Directors shall establish an incentive compensation opportunity for the Executive under the Company's Key Employee Incentive Compensation Plan (the "KEICP") based on such Business Plan. For 1995, the Executive's incentive for achieving Expected Performance under the KEICP shall be 50% of the Executive's Annual Direct Salary in effect on January 1, 1995; Threshold Performance shall be 30% of such Annual Direct Salary; and Outstanding Performance shall be 75% of such Annual Direct Salary. 3.3 Employee Benefit Plans. The Executive shall be entitled to participate in or receive benefits under all Company employment benefit plans including, but not limited to, any pension, profit-sharing plan, stock option or other equity award or participation plans, savings plan, supplemental retirement income, medical or health-and-accident plan or arrangement made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall also provide the Executive with the following minimum benefits: (i) Life Insurance: the Company shall acquire, promptly following the execution of this Agreement, and maintain for the Executive a supplemental term life insurance policy with a death benefit equal to at least four (4) times the Executive's then current Annual Direct Salary to a maximum death benefit of $2,000,000, provided, that such policy is obtainable on standard underwriting terms. The Executive agrees to 3 cooperate with the Company in obtaining such policy, including undertaking such physical examinations and completing such applications as may be required. The Executive, or a valid trust established by the Executive, shall own such policy and the Executive shall be liable for any income taxes due annually on the reported income resulting from the Company's payment of annual premiums during the Term. This policy shall be, and shall provide that it is, assumable by the Executive at the termination or expiration of the Term. (ii) Disability Insurance: In the event that the Company's group long-term disability insurance policy benefit limit, if any, does not provide for the Executive to receive the 66.67% of income replacement at the time of disability, or the Company does not at any time during the Term maintain a group long-term disability insurance policy, the Company shall make available a long-term disability insurance policy for the Executive, which policy shall provide that in the event the Executive is unable to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall be entitled to receive benefits from all sources (Social Security, group long-term disability and supplemental long- term disability) equal to 66.67% of his then current Annual Direct Salary until the Executive reaches the age of 65 or dies. The Company shall continue to pay to the Executive his Annual Direct Salary during any applicable elimination or waiting period not in excess of one hundred eighty (180) days. (iii) 401(k) Wrap Plan/Deferred Compensation Plan Participation: The Executive shall have the option to participate in a 401(k) Wrap Plan to be established by the Company to enable the Executive to defer portions of current income from income tax liability until a later time, provided such election to defer income is made in compliance with the 4 Code and such plan has been established to benefit other key officers of the Company. (iv) Health and Medical Insurance: The Company shall pay all premiums otherwise due from the Executive for family coverage in the medical and dental insurance programs offered by the Company to its executives from time to time. 3.4 Vacation. During the Term, the Executive shall be entitled to four (4) weeks of paid vacation in each calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. 3.5 Reimbursement of Expenses. During the Term, the Company shall reimburse the Executive promptly for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Co- Chief Executive Officers or the Board of Directors for the Company's senior executive officers) in performing services hereunder. 3.6 Automobile Allowance. During the Term, the Executive shall be entitled to use for business and personal reasons an automobile of his choice leased by the Company, subject to the approval of the Co-Chief Executive Officers, in an amount up to $600 per month. The Company shall pay all amounts in respect of premiums for collision and liability insurance (in amounts determined by the Executive) and will reimburse the Executive for all operating, maintenance and repair expenses. 3.7 Agreement Signing Incentive. The Executive shall receive as of the date hereof a special one-time grant pursuant to the Company's Stock Option Plan of 9,000 nonqualified options to purchase shares of the Company's common stock (the "Options"). The Options shall have an exercise 5 price equal to the closing bid price of the Company's common stock on the date hereof as reported by The NASDAQ Stock Market and shall vest ratably over three years. 3.8 Other Benefits. The Executive shall be entitled to receive such other requisites, e.g. club memberships and fringe benefits as the Co-Chief Executive Officers or the Board of Directors deems appropriate. 4. TERMINATION. 4.1 Termination Upon Death. If the Executive dies during the Term, this Agreement shall terminate as of the date of death, and the Executive's legal representatives, successors, heirs or assigns shall be entitled to receive the amounts set forth in Section 6.1. 4.2 Termination Upon Disability. If during the Term, the Executive becomes subject to a Disability (as defined in the following sentence), the Company may at any time thereafter, by notice to the Executive, terminate the Term of Executive's employment hereunder, except that the Executive shall be entitled to receive the amounts specified in Section 6.1. For purposes of this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of one hundred eighty (180) consecutive days or (ii) for shorter periods aggregating two hundred seventy (270) days in any three hundred sixty-five (365) day period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the request, and at the expense, of the Company. Nothing in this Section 4.2 shall be deemed to extend the Term. 4.3 Termination for Cause. During the Term, the Company 6 shall have the right to terminate the Term of Executive's employment with the Company for Cause. For purpose hereof, a termination by the Corporation for "Cause" shall mean termination because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of either of the Co-Chief Executive Officers or the Board of Directors. 5. TERMINATION BY THE EXECUTIVE. The Executive may terminate this Agreement, if any one or more of the following shall occur (any such event "Good Reason"): (a) a material breach of the terms of this Agreement by the Company and such breach continues for 30 days after the Executive gives the Company written notice of such breach; (b) the Company shall make a general assignment for benefit of creditors; or any proceeding shall be instituted by the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property or the Company shall take any corporate action to authorize any of the actions set forth above in this 7 Section 5(b); (c) an involuntary petition shall be filed or an action or proceeding otherwise commenced against the Company seeking reorganization, arrangement or readjustment of the Company's debts or for any other relief under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state or federal, now or hereafter existing and remain undismissed or unstayed for a period of 30 days; or (d) a receiver, assignee, liquidator, trustee or similar officer for the Company or for all or any part of its property shall be appointed involuntarily. 6. PAYMENTS UPON TERMINATION. 6.1 Termination Due to Death or Disability. Upon the death or Disability of the Executive the Company shall pay to the Executive or his estate (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability (subject to the last sentence of 3.3(ii)), (ii) all deferred amounts earned under the KEICP or similar bonus plan and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability. 6.2 Termination for Cause. Upon termination of the Term by the Company for Cause, the Company's obligations to the Executive under this Agreement shall be limited to the payment of unpaid Annual Direct Salary and benefits accrued up to the effective date of termination specified in the Company's notice of termination. 6.3 Termination by Executive for Good Reason or by the Company other than for Certain Reasons. 8 In the event (i) the Company terminates the Term for a reason other than for Cause or due to death or Disability or (ii) the Executive terminates the Term for Good Reason, then: (1) the Company shall pay the Executive (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's employment, (ii) all deferred amounts earned under the KEICP or similar bonus plan, and (iii) a lump sum cash payment within thirty (30) days following the date of termination equal to the greater of (x) all remaining Annual Direct Salary payable during the Term and (y) an amount equal to the Annual Direct Salary for the then current Employment Year and (2) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights, and (3) the Company shall continue to provide all employee benefit plans and programs to which the Executive was entitled prior to the date of termination, subject to COBRA, at the Company's expense for one year. 6.4 Termination Due to a Change of Control. Upon the termination of the Term due to a Change of Control, the Company shall pay the amounts to and provide the benefits for the Executive as set forth in Section 7.1 and 7.4 hereof. 9 7. CHANGE OF CONTROL. 7.1 (a) Upon a Change of Control, the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control. In the event that the Executive terminates the Term pursuant to this Section 7.1, the Company shall make a lump-sum payment to the Executive equal to three times the sum of (i) his then current Annual Direct Salary and (ii) an amount equal to the highest annual bonus (KEICP and other amounts being aggregated) award received within the three (3) years immediately preceding the Employment Year in which such termination occurs; provided, that in no event shall such amount be less than the bonus payable at an Expected Level of performance under the KEICP for 1995. The Company shall also maintain all employee benefit plans and programs to which the Executive have entitled on or prior to the date of a Change of Control for a period of twenty-four (24) months following such date of a Change of Control. (b) Immediately prior to the consummation of any transaction which, if consummated, could result in a Change in Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. In the event the Executive does not exercise any such accelerated restricted stock, stock options or awards in the transaction resulting in a Change of Control, the Executive will have a six month period from the date of a Change of Control in which to exercise such restricted stock, stock options and 10 awards. In the event the subject transaction is not consummated and no Change of Control occurs, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of such acceleration. 7.2 For purposes of this Agreement, the term "Change of Control" shall mean: (a) the acquisition (after the date hereof) of the beneficial ownership of a majority of the Company's voting securities and/or substantially all of the assets of the Company by a single person or entity or a group of affiliated persons or entities (other than any such person involving or including either or both of the Company's Co-Chief Executive Officers); or (b) the merger, consolidation or combination or similar transaction of the Company with an unaffiliated corporation in which the Board of Directors immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity. 7.3 For purposes of this Agreement the term a "date of a Change of Control" shall mean: (a) the first date (after the date hereof) on which a single person and/or entity, or group of affiliated persons and/or entities (other than either or both of the Co-Chief Executive Officers or their Affiliates), acquire the beneficial ownership of majority of the Company's voting securities; or (b) the date of the transfer of all or substantially all of the Company's voting securities other than to either or 11 both of the Co-Chief Executive Officers or their Affiliates; or (c) the date on which a merger, consolidation or combination of the type specified in Section 7.2(b) is consummated. 7.4 Certain Taxes. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Code, on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is not reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall pay the costs and expenses of such contest as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 12 8. RESTRICTIVE COVENANTS. 8.1 Noncompetition Agreement. In the event that (i) the Term is terminated by the Company for Cause, (ii) the Term is terminated by the Executive for other than Good Reason or (iii) the Executive does not accept the Company's offer to extend or renew the Term, the Executive shall not directly or indirectly enter into or engage generally in direct or indirect competition with the Company in the business of nursing care in any state in which the Company is then doing business either as an individual on his own or as a partner or joint venturer, or as a director, officer, shareholder (except as an incidental shareholder), employee or agent for any person, for a period of one year after the date of such termination of the Term. 8.2 Confidentiality. During the Term and for two (2) years thereafter, the Executive shall not, without the written consent of the Board of Directors or a person authorized thereby, knowingly disclose to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company, any material confidential information obtained by him while in the employ of the Company with respect to any of the Company's services, products, improvements, processes, customers, methods of distribution or any business practices the disclosure of which he knows will be materially damaging to the Company; provided, however, that confidential information shall not include any information publicly available at the time of the alleged disclosure (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the 13 Company. Upon termination of the Term upon the request of the Company, the Executive shall promptly deliver to the Corporation all correspondence, manuals, letters, notes, notebooks, reports and any other documents or tangible items containing or constituting confidential information about the business of the Company. 8.3 Nonsolicitation of Employees. The Executive agrees not to entice or solicit, directly or indirectly, any employee of the Company to leave the employ of the Company to work with the Executive or the entity with which the Executive was affiliated for a period of two years following the Executive's termination of employment with the Company. 8.4 Injunctive Relief. The Executive agrees that any breach of the restrictions set forth in this Section 8 will result in irreparable injury to the Company for which it shall have no meaningful remedy in law and the Company shall be entitled to injunctive relief in order to enforce the provisions thereof. In the event that any provision of this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable in part by reason of it being too great a period of time or covering too great a geographical area, it shall be in full force and effect as to that period of time or geographical area determined to be reasonable by the court. 9. INDEMNIFICATION. (a) The Executive shall be provided with directors' and officers' insurance in connection with his employment hereunder and service as a director as contemplated hereby with such coverage and in amounts determined by the Board from time to time to be reasonable. (b) To the fullest extent permitted or required by the laws of the State of Delaware, the Company shall indemnify and provide reasonable advances for expenses to the Executive, in accordance with the terms of such 14 laws, if the Executive is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was an officer or director of the Company or any subsidiary or the Company, in which capacity the Executive is or was serving at the Company's request and in furtherance of the Company's best interests, against expenses (including reasonable attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. 10. NO DUTY TO MITIGATE. The Executive shall have no duty to mitigate any severance amount or any other amounts payable to him hereunder and such amounts shall not be subject to reduction for any compensation received by the Executive from employment in any capacity or other source following the termination of the Executive's employment with the Company and its subsidiaries. 11. OTHER PROVISIONS. 11.1 Certain Definitions. As used herein, the following terms shall be defined as follows: "affiliate" of any person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purpose of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term "controlling" and "controlled" have meanings correlative to the foregoing. "Code" shall mean the Internal Revenue Code of 1986, as amended. 15 "person" means individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a governmental entity or any department or agency thereof. 11.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telecopied or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by express mail, or if sent by certified or registered mail, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: General Counsel telephone: (201)488-8818 Telecopy: (201)525-5952 with a copy to: Paul Weiss Rifkind Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Carl L. Reisner, Esq. Telephone: (212)373-3000 Telecopy: (212)373-2038 (ii) if to the Executive, to him at his address then reflected in the personnel records of the Company. Either party may change its or his address for notice hereunder by notice to the other party in accordance with this Section 11.2. 11.3 Waivers and Amendments. This Agreement may be amended, 16 modified, superseded or cancelled, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right or remedy, nor any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. 11.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey applicable to agreements made and to be performed entirely within such State. 11.5 Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void and without effect. 11.6 Enforcement of Separate Provisions. Should any provision or provisions of this Agreement be determined to be unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 11.7 Arbitration. In the event that any disagreement or 17 dispute shall arise between the parties concerning this Agreement, the issue(s) will be submitted to JAMS/Endispute, Inc. for binding arbitration. Any award entered shall be final and binding upon the parties hereto and judgment upon the award may be entered in any court having jurisdiction thereof. All fees of attorneys, accountants, advisors or other experts or witnesses, together with all administrative costs incurred in connection with such actions, shall be paid by the Company. 11.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed or caused the execution of this Agreement as of the date first above written. THE MULTICARE COMPANIES, INC. /S/ DANIEL E. STRAUS By: ___________________________ Name: DANIEL E. STAUS Title: PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER /S/ STEPHEN R. BAKER ____________________________ Stephen R. Baker 18 EX-10 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1995, between The Multicare Companies, Inc., a Delaware corporation (the "Company"), and Paul J. Klausner (the "Executive"). The Company desires to employ the Executive, and the Executive desires to accept such employment, on the term and conditions of this Agreement. Certain terms used herein are defined in Section 11.1. NOW, THEREFORE, in consideration of the agreements and obligations herein contained, the Company and the Executive hereby agree as follows: 1.. EMPLOYMENT, DUTIES AND ACCEPTANCE. 1.1 Employment by the Company. The Company agrees to employ the Executive for the Term (as defined in Section 2), to render full-time services to the Company as its Executive Vice President to perform such duties commensurate with such office as the Board of Directors of the Company (the "Board of Directors") and/or the Co-Chief Executive Officers of the Company shall reasonably direct. The Executive shall report directly to the Co-Chief Executive Officers of the Company. The Executive shall devote his full business time to the business of the Company during the term. 1.2 Acceptance of Employment by the Executive. The Executive hereby accepts such employment and agrees to render the services described above. The Executive further agrees to accept election and to serve during all or any part of the Term as a director of the Company and as an officer or director of any subsidiary of the Company, without any compensation therefor other than as specified in this Agreement, if elected to any such position. 2.TERM OF EMPLOYMENT. 2.1 The term of the Executive's employment under this Agreement (the "Term") shall commence on the date hereof and shall end on December 31, 1997, unless earlier terminated pursuant to Section 4 hereof; provided, that the Term shall automatically be extended for successive one-year periods on each January 1, commencing January 1, 1998 unless timely written notice of termination of the Term is provided in accordance with Section 2.2. Each one- year period commencing each January 1 during the Term is referred to herein as an "Employment Year". 2.2 The Company or the Executive may choose not to extend or renew the Term of Executive's employment hereunder without cause or reason, upon written notice to the other at least one hundred eighty (180) days prior to any January 1 occurring after January 1, 1997. 3.COMPENSATION AND OTHER BENEFITS. 3.1 Salary. As compensation for services to be rendered pursuant to this Agreement, the Company agrees to pay the Executive, for each Employment Year during the Term, an annual direct salary of $250,000 per year (the "Annual Direct Salary"). The Annual Direct Salary shall be reviewed by the Board of Directors on each anniversary of this Agreement and shall be adjusted upwards as of each such anniversary. In no event shall the Annual Direct Salary be decreased from the Annual Direct Salary payable for the immediately preceding year without the express written consent of the Executive. 3.2 Incentive Compensation. The Co-Chief Executive Officers shall prepare a business plan establishing the financial and business goals of the Company prior to the start of each fiscal year during the Term (the "Business Plan"). The Business Plan shall set forth the goals of, and performance expectations for, the Executive for such year. The Board of Directors shall establish an incentive compensation opportunity for the Executive under the Company's Key Employee Incentive Compensation Plan (the "KEICP") based on such Business Plan. The Executive's KEICP opportunity shall provide an incentive pay opportunity consistent with the practices of similar organiza tions in rewarding their senior executives and shall be consistent with past practice. For 1995, the Executive's incentive for achieving Expected Performance under the KEICP shall be 50% of the Executive's Annual Direct Salary in effect on January 1, 1995; Threshold Performance shall be 30% of such Annual Direct Salary; and Outstanding Performance shall be 75% of such Annual Direct Salary. Any incentive award earned by the Executive pursuant to the KEICP shall be paid to the Executive during the month of December in the applicable fiscal year. 3.3 Employee Benefit Plans. The Executive shall be entitled to participate in or receive benefits under all Company employment benefit plans including, but not limited to, any pension, profit-sharing plan, stock option or other equity award or participation plans, savings plan, supplemental retirement income, medical or health-and-accident plan or arrangement made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall also provide the Executive with the following minimum benefits: (i) Life Insurance: the Company shall acquire and maintain for the Executive a supplemental term life insurance policy with a death benefit equal to at least four (4) times the Executive's then current Annual Direct Salary to a maximum death benefit of $2,000,000. The Executive, or a valid trust established by the Executive, shall own such policy and the Executive shall be liable for any income taxes due annually on the reported income resulting from the Company's payment of annual premiums during the Term. This policy shall be, and shall provide that it is, assumable by the Executive at the termination or expiration of the Term. (ii) Disability Insurance: In the event that the Company's group long-term disability insurance policy benefit limit, if any, does not provide for the Executive to receive the 66.67% of income replacement at the time of disability, or the Company does not at any time during the Term maintain a group long-term disability insurance policy, the Company shall make available a long-term disability insurance policy for the Executive, which policy shall provide that in the event the Executive is unable to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall be entitled to receive benefits from all sources (Social Security, group long-term disability and supplemental long-term disability) equal to 66.67% of his then current Annual Direct Salary until the Executive reaches the age of 65 or dies. The Company shall continue to pay to the Executive his Annual Direct Salary during any applicable elimination or waiting period not in excess of one hundred eighty (180) days. (iii) 401(k) Wrap Plan/Deferred Compensation Plan Participation: The Executive shall have the option to participate in a 401(k) Wrap Plan to be established by the Company to enable the Executive to defer portions of current income from income tax liability until a later time, provided such election to defer income is made in compliance with the Code. (iv) Health and Medical Insurance: The Company shall pay all premiums otherwise due from the Executive for family coverage in the medical and dental insurance programs offered by the Company to its executives from time to time. 3.4 Vacation. During the Term, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than four (4) weeks in any calendar year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. 3.5 Reimbursement of Expenses. During the Term, the Company shall reimburse the Executive promptly for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Board of Directors for the Company's senior executive officers) in performing services hereunder. 3.6 Automobile Allowance. During the Term, the Executive shall be entitled to use for business and personal reasons an automobile of his choice leased by the Company, subject to the approval of the Co-Chief Executive Officers, in an amount up to $600 per month. The Company shall pay all amounts in respect of premiums for collision and liability insurance (in amounts determined by the Executive) and will reimburse the Executive for all operating, maintenance and repair expenses. 3.7 Agreement Signing Incentive. The Executive shall receive as of the date hereof a special one-time grant pursuant to the Company's Stock Option Plan of 9,000 nonqualified options to purchase shares of the Company's common stock (the "Options"). The Options shall have an exercise price equal to the closing bid price of the Company's common stock on the date hereof as reported by The NASDAQ Stock Market and shall vest ratably over three years. 3.8 Other Benefits. The Executive shall be entitled to receive such other requisites, e.g. club memberships and fringe benefits as the Board of Directors deems appropriate. 4.TERMINATION. 4.1 Termination Upon Death. If the Executive dies during the Term, this Agreement shall terminate as of the date of death, and the Executive's legal representatives, successors, heirs or assigns shall be entitled to receive the amounts set forth in Section 6.1. 4.2 Termination Upon Disability. If during the Term, the Executive becomes subject to a Disability (as defined in the following sentence), the Company may at any time thereafter, by notice to the Executive, terminate the Term of Executive's employment hereunder, except that the Executive shall be entitled to receive the amounts specified in Section 6.1. For purposes of this Agreement, the term "Disability" shall mean incapacity due to physical or mental illness which has caused the Executive to be unable to substantially perform his duties with the Company on a full time basis for (i) a period of one hundred eighty (180) consecutive days or (ii) for shorter periods aggregating two hundred seventy (270) days in any three hundred sixty- five (365) day period. During any period of Disability, the Executive agrees to submit to reasonable medical examinations upon the request, and at the expense, of the Company. Nothing in this Section 4.2 shall be deemed to extend the Term. 4.3 Termination for Cause. During the Term, the Company shall have the right to terminate the Term of Executive's employment with the Company for Cause. For purpose hereof, a termination by the Corporation for "Cause" shall mean termination by action of at least a majority of the members of the Board of Directors of the Corporation (excluding Executive) at a meeting duly called and held upon at least 15 days' prior written notice to Executive specifying the particulars of the action or inaction alleged to constitute "Cause" (and at which meeting Executive and his counsel were entitled to be present and given reasonable opportunity to be heard) because of (i) Executive's conviction of any felony (whether or not involving the Company or any of its subsidiaries) involving moral turpitude which subjects, or if generally known, would subject, the Company or any of its subsidiaries to public ridicule or embarrassment, (ii) fraud or other willful misconduct by Executive in respect of his obligations under this Agreement, or (iii) willful refusal or continuing failure to attempt, without proper cause and, other than by reason of illness, to follow the lawful directions of the Board of Directors, following thirty days' prior written notice to Executive of his refusal to perform or failure to attempt to perform such duties, and which during such thirty day period such refusal or failure to attempt is not cured by the Executive. "Cause" shall not include a bona fide disagreement over a corporate policy, so long as Executive does not willfully violate on a continuing basis specific written directions from the Board of Directors, which directions are consistent with the provisions of this Agreement. Action or inaction by Executive shall not be considered "willful" unless done or omitted by him intentionally or not in good faith and without his reasonable belief that his action or inaction was in the best interests of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. 5.TERMINATION BY THE EXECUTIVE. The Executive may terminate the Term on written notice to the Company upon the continuation of any of the following events for more than ten (10) days after Executive delivers notice to the Company thereof (other than with respect to paragraph (vi), which shall be governed by Section 7 hereof) and the occurrence of any one or more of the following (each "Good Reason"): (i) Executive shall fail to be re-elected as the Company's Executive Vice President or shall be removed from such position at any time during the Term; (ii) Executive shall fail to be vested with the powers and authority of Executive Vice President of the Company; or the powers and authority of such position or the Executive's authority and responsibilities hereunder shall be diminished in any material respect; (iii) Executive's principal place of employment is moved more than 20 miles without Executive's prior written consent; (iv) any material failure by the Company to comply with any of the provisions of this Agreement including, without limitation, failure to make any payment required to be made by the Company pursuant to this Agreement within five (5) business days after the date such payment is required to be made; (v) any purported termination by the Company of Executive's employment otherwise than as expressly permitted by this Agreement; (vi) upon a Change of Control (as defined in Section 7); or (vii) the commencement of a proceeding or case, with or without the application or consent of the Company or any of its subsidiaries, in any court or competent jurisdiction, seeking (A) the liquidation, reorganization, dissolution or winding-up of the Company or its subsidiaries, or the composition or readjustment of the debts of the Company or its subsidiaries, (B) the appointment of a trustee, receiver, custodian, liquidator or the like for the Company or its subsidiaries or of all or any substantial part of their respective assets, or (C) any similar relief in respect of the Company or its subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts. 6.PAYMENTS UPON TERMINATION. 6.1 Termination Due to Death or Disability. Upon the death or Disability of the Executive (A) the Company shall pay to the Executive or his estate (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's death or Disability (subject to the last sentence of 3.3(ii)), (ii) all deferred amounts earned under the KEICP or similar bonus plan, and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Executive's death or Disability occurs, such bonus(es) prorated up to the last day of the month of the Executive's death or Disability and (B) all restricted stock, stock option and performance share awards made to the Executive shall automatically become fully vested as of the date of death or Disability. 6.2 Termination for Cause. Upon termination of the Term by the Company for Cause, the Company's obligations to the Executive under this Agreement shall be limited to the payment of unpaid Annual Direct Salary and benefits accrued up to the effective date of termination specified in the Company's notice of termination. 6.3 Termination by Executive for Good Reason or by the Company other than for Certain Reasons. (a) In the event (i) the Company terminates the Term for a reason other than for (A) Cause or (B) due to death or Disability or (ii) the Executive terminates the Term for Good Reason, then: (1) the Company shall pay the Executive (A) (i) the Annual Direct Salary and other accrued benefits earned up to the last day of the month of the Executive's employment, (ii) all deferred amounts earned under the KEICP or similar bonus plan and (iii) if any bonus, under the KEICP or otherwise, shall be payable in respect of the year in which the Term is terminated, such bonus(es) prorated up to the last day of the month of such termination and (B) a lump sum cash payment within thirty (30) days following the date of termination equal to the greater of (x) all remaining Annual Direct Salary payable during the Term and (y) an amount equal to two times the Annual Direct Salary for the then current Employment Year and (2) all stock options, stock awards and similar equity rights, if any, shall vest and become exercisable immediately prior to the termination of the Term and remain exercisable through their original terms with all rights. (b) Following termination of the Term for any reason, other than for Cause or upon the death of Executive, the Company shall also maintain in full force and effect, for the continued benefit of the Executive for a period equal to the greater of (x) the period of the Term otherwise remaining or (y) two (2) years without giving effect to such termination, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination (including, without limitation, the benefit plans and programs provided for herein) if the Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred by the terms thereof, the Company shall pay to the Executive an amount equal to the annual contribution, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred except that if Executive's participation in any health, medical, life insurance or disability plan or program is barred, the Company shall obtain and pay for, on Executive's behalf, individual insurance plans, policies or programs which provide to Executive health, medical, life and disability insurance coverage which is equivalent to the insurance coverage to which Executive was entitled prior to the date of termination. 6.4 Termination Due to a Change of Control. Upon the termination of the Term due to a Change of Control, the Company shall pay the amounts to and provide the benefits for the Executive as set forth in Section 7.1 and 7.4 hereof. 7.CHANGE OF CONTROL. 7.1 (a) Upon a Change of Control, the Executive may terminate the Term upon notice to the Company, effective as set forth in such notice (i) for any reason or for no reason during the initial ninety (90) day period following the date of such Change of Control or (ii) at any time, in the event that within twenty-four (24) months following the date of a Change of Control, the continuation of any event constituting Good Reason hereunder for more than ten (10) days after the Executive delivers notice thereof to the Company (other than as contemplated by Section 5(vi)) occurs. In the event that the Executive terminates the Term pursuant to this Section 7.1, the Company shall make a lump-sum payment to the Executive equal to three times the sum of (i) his then current Annual Direct Salary and (ii) an amount equal to the highest annual bonus (KEICP and other amounts being aggregated) award received within the three (3) years immediately preceding the Employment Year in which such termination occurs; provided, that in no event shall such amount be less than the bonus payable at an Expected Level of performance under the KEICP for 1995. The Company shall also maintain the benefit coverages for the Executive specified in Section 6.3 above for a period of twenty-four (24) months. (b) Upon (i) the execution of a definitive agreement (including, without limitation, any "lock-up" agreement with any of the Company's principal stockholders) which contemplates a transaction, or (ii) the commencement of any tender or exchange offer or similar transaction for or involving the Company's securities, which, in the case of any transaction of the type described by clause (i) or (ii), if consummated, could result in a Change in Control, all restricted stock, stock option and performance share awards made to the Executive shall become automatically fully vested in order to provide the Executive with a reasonable time period to enable the Executive to obtain the economic benefit of the contemplated transaction with respect to all restricted stock, stock option and performance share awards then held by him. In the event the Executive does not exercise any such accelerated restricted stock, stock options or awards in the transaction resulting in a Change of Control, the Executive will have a six month period from the date of a Change of Control in which to exercise such restricted stock, stock options and awards. In the event the transaction contemplated by the definitive agreement referred to above is not consummated and such definitive agreement is terminated, all accelerated restricted stock, stock options and awards shall be deemed restored to the vesting schedules in effect at the time of execution of such definitive agreement. (c) Upon the termination of the Term upon a Change of Control, the Company shall provide to the Executive outplacement and career counseling services as may be requested by the Executive; such service costs not to exceed 15% of the Executive's then-current Annual Direct Salary. 0.1 For purposes of this Agreement, the term "Change of Control" shall mean: (a) the acquisition (after the date hereof) of the beneficial ownership of a majority of the Company's voting securities and/or substantially all of the assets of the Company by a single person or entity or a group of affiliated persons or entities, or (b) the merger, consolidation or combination or similar transaction of the Company with an unaffiliated corporation in which the Board of Directors immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity. 7.3 For purposes of this Agreement the term a "date of a Change of Control" shall mean: (a) the first date (after the date hereof) on which a single person and/or entity, or group of affiliated persons and/or entities, acquire the beneficial ownership of majority of the Company's voting securities; or (b) the date of the transfer of all or substantially all of the Company's voting securities; or (c) the date on which a merger, consolidation or combination of the type specified in Section 7.2(b) is consummated. 7.4 Certain Taxes. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Code, on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is not reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 8.RESTRICTIVE COVENANTS. 8.1 Noncompetition Agreement. In the event that (i) the Term is terminated by the Company for Cause, (ii) the Term is terminated by the Executive for other than Good Reason, or (iii) the Executive does not accept the Company's offer to extend or renew the Term. The Executive shall not directly or indirectly enter into or engage generally in direct or indirect competition with the Company in the business of nursing care, in any state in which the Company is then doing business, either as an individual on his own or as a partner or joint venturer, or as a director, officer, shareholder (except as an incidental shareholder), employee or agent for any person, for a period of one year after the date of such termination of the Term. 8.2 Confidentiality. During the Term and for two (2) years thereafter, the Executive shall not, without the written consent of the Board of Directors or a person authorized thereby, knowingly disclose to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company, any material confidential information obtained by him while in the employ of the Company with respect to any of the Company's services, products, improvements, processes, customers, methods of distribution or any business practices the disclosure of which he knows will be materially damaging to the Company; provided, however, that confidential information shall not include any information publicly available at the time of the alleged disclosure (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company. Upon termination of the Term upon the request of the Company, the Executive shall promptly deliver to the Corporation all correspondence, manuals, letters, notes, notebooks, reports and any other documents or tangible items containing or constituting confidential information about the business of the Company. 8.3 Nonsolicitation of Employees. The Executive agrees not to entice or solicit, directly or indirectly, any employee of the Company to leave the employ of the Company to work with the Executive or the entity with which the Executive was affiliated for a period of one year following the Executive's termination of employment with the Company. 8.4 Injunctive Relief. The Executive agrees that any breach of the restrictions set forth in this Section 8 will result in irreparable injury to the Company for which it shall have no meaningful remedy in law and the Company shall be entitled to injunctive relief in order to enforce the provisions thereof. In the event that any provision of this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable in part by reason of it being too great a period of time or covering too great a geographical area, it shall be in full force and effect as to that period of time or geographical area determined to be reasonable by the court. 9.INDEMNIFICATION. (a) The Executive shall be provided with directors' and officers' insurance in connection with his employment hereunder and service as a director as contemplated hereby with such coverage (including with respect to unpaid wages and taxes not remitted when due) and in such amounts as shall be reasonably satisfactory to the Executive, and the Company shall maintain such insurance in effect for the period of the Executive's employment hereunder and for not less than five years thereafter; provided, however, than in the event that the Company shall not obtain such insurance, it shall provide or cause the Executive to be provided with indemnity (or a combination of indemnity and directors' and officers' insurance) in connection with his employment hereunder with such coverage, in such amounts and from such person or persons as shall be reasonably satisfactory to the Executive, and the Company shall maintain such indemnity (or combination of indemnity and directors' and officers' insurance) or cause such indemnity (or such combination) to be maintained for the period of the Executive's employment hereunder and not less than five (5) years thereafter. (b) To the fullest extent permitted or required by the laws of the State of Delaware, the Company shall indemnify and provide reasonable advances for expenses to the Executive, in accordance with the terms of such laws, if the Executive is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was an officer or director of the Company or any subsidiary or the Company, in which capacity the Executive is or was serving at the Company's request and in furtherance of the Company's best interests, against expenses (including reasonable attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. 10. NO DUTY TO MITIGATE. The Executive shall have no duty to mitigate any severance amount or any other amounts payable to him hereunder and such amounts shall not be subject to reduction for any compensation received by the Executive from employment in any capacity or other source following the termination of the Executive's employment with the Company and its subsidiaries. 11. OTHER PROVISIONS. 11.1 Certain Definitions. As used herein, the following terms shall be defined as follows: "affiliate" of any person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purpose of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term "controlling" and "controlled" have meanings correlative to the foregoing. "Code" shall mean the Internal Revenue Code of 1986, as amended. "person" means individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a governmental entity or any department or agency thereof. 11.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telecopied or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telecopied or sent by express mail, or if sent by certified or registered mail, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: General Counsel telephone: (201)488-8818 Telecopy: (201)525-5952 with a copy to: Paul Weiss Rifkind Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Carl L. Reisner, Esq. Telephone: (212)373-3000 Telecopy: (212)373-2038 (ii) if to the Executive, to him at his address then reflected in the personnel records of the Company. Either party may change its or his address for notice hereunder by notice to the other party in accordance with this Section 11.2. 11.3 Waivers and Amendments. This Agreement may be amended, modified, superseded or cancelled, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right or remedy, nor any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. 11.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey applicable to agreements made and to be performed entirely within such State. 11.5 Assignability and Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void and without effect. 11.6 Enforcement of Separate Provisions. Should any provision or provisions of this Agreement be determined to be unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 11.7 Arbitration. In the event that any disagreement or dispute shall arise between the parties concerning this Agreement, the issue(s) will be submitted to JAMS/Endispute, Inc. for binding arbitration. Any award entered shall be final and binding upon the parties hereto and judgment upon the award may be entered in any court having jurisdiction thereof. All fees of attorneys, accountants, advisors or other experts or witnesses, together with all administrative costs incurred in connection with such actions, shall be paid by the Company. 11.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed or caused the execution of this Agreement as of the date first above written. THE MULTICARE COMPANIES, INC. By: /S/ DANIEL E. STRAUS Name: Daniel E. Straus Title: President and Co Chief Executive Officer /s/ PAUL J. KLAUSNER Paul J. Klausner EX-10 8 EXHIBIT 10.34 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of January 1, 1995 between Care4, L.P., a Delaware limited partnership (the "Company"), and Andrew Horowitz (the "Executive"). The parties acknowledge that they are entering into this Agreement as an inducement to the Company and Executive to consummate the transactions contemplated by the Asset Purchase Agreement, dated as of November 23, 1994, among the Company, Executive, Robert Horowitz, Scotchwood Pharmacy, a New Jersey corporation, Shared Pharmacy Limited Partnership, a New Jersey limited partnership, and Driving, Incorporated, a New Jersey corporation (the "Purchase Agreement") and that the execution and delivery of this Agreement by the Company and Executive is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement. 1. Employment, Duties and Acceptance. 1.1 The Company hereby employs Executive, for the Term (as hereinafter defined), to render full-time services to the Company, and to perform such duties consistent with Executive's title and position as he shall reasonably be directed by the Co-Chief Executive Officers of Institutional Health Care Services, Inc., the general partner of the Company, in connection with managing and developing the Company's institutional pharmacy business, including the business being acquired by the Company pursuant to the Purchase Agreement, and establishing additional institutional pharmacy operations. Executive's title shall be designated by such Co-Chief Executive Officers and initially shall be Director of Pharmacy Operations. Executive shall be primarily responsible for managing the day- to-day affairs and operations of the Company's business, inclusive of all sales, marketing, purchasing and personnel decisions, and shall have authority, within monthly budgetary constraints approved by the Co-Chief Executive Officers, to make any single expenditure (or aggregate related expenditures) not in excess of $5,000 without the prior approval of the Co- Chief Executive Officers. 1.2 Executive shall devote his full business time to the business of the Company during the Term and shall not, during the Term, be engaged in any other business activity, whether or not such business activity 1 is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Company, except for activities or investments not requiring Executive's services. 1.3 Executive hereby accepts such employment and agrees to render the services described above. Executive further agrees to serve during all or any part of the Term as an officer or director of any affiliate of the Company or The Multicare Companies, Inc. ("Multicare"), without additional compensation therefor, if elected or appointed to any such position by the Board of Directors or Co-Chief Executive Officers of the Company or Multicare or of any affiliate, as the case may be. In such event, Executive shall be entitled to coverage under such directors' and officers' insurance or other insurance, and such indemnifications from Multicare and its affiliates, as are generally available to officers and directors of Multicare. 1.4 The duties to be performed by Executive hereunder shall be performed primarily at the offices of the Company in Edison, New Jersey, subject to reasonable travel requirements on behalf of the Company. 1.5 Executive shall be entitled to a paid vacation period or periods of twenty (20) business days during each year of the Term. 2. Term of Employment. The term of Executive's employment under this Agreement (the "Term") shall commence on the Closing Date (as defined in the Purchase Agreement) and shall end on the third anniversary of the Closing Date, unless sooner terminated pursuant to Article 4 of this Agreement. 3. Compensation. 3.1 As full compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay Executive, during the Term, a base salary at an initial rate of $175,000 per annum during the first twelve-month period following the Closing Date (each twelve-month period, a "Salary Period"), payable in equal semi-monthly installments, less such deductions or amounts to be withheld as shall be required by applicable law and regulations. In no event shall Executive's base salary for any Salary Period be less than $175,000. 3.2 Executive shall be eligible to participate in Multicare's Key Employee Incentive Plan (the "Bonus Plan") under which Executive may earn a maximum annual bonus equal to 30% of Executive's annual base salary provided for under Section 3.1. Such bonus shall be comuputed and paid in accordance with the terms of the Bonus Plan, a copy of which has been furnished to Executive. 2 3.3 Executive shall be eligible to participate in the annual grant program under Multicare's Amended and Restated 1993 Stock Option Plan (the "Option Plan"). In addition, concurrent herewith, Executive and Multicare are entering into a stock option agreement (the "Option Agreement") pursuant to which Executive has been granted options to purchase 15,000 shares of common stock of Multicare (the "Options"). The Options shall vest ratably over five years and shall be exercisable at a price equal to the closing price of Multicare common stock as reported by NASDAQ NMS on the Closing Date. 3.4 The Company shall pay or reimburse Executive for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require in accordance with the Company's policies in effect from time to time. 3.5 The Company shall provide to Executive medical benefits and medical and life insurance and disability benefits and disability insurance comparable to the medical benefits and medical and life insurance and disability benefits and disability insurance provided generally to senior executives of Multicare. Copies of all such policies and benefits have been furnished to Executive. 4. Termination. 4.1 If Executive shall die during the Term, the Term shall terminate as of the date of Executive's death, and Executive's legal representative shall be entitled to receive Executive's full salary and benefits under Section 3, including a pro rata amount of the bonus for which Executive is eligible under Section 3.2 (which bonus, if any, shall be paid at such time and in the manner provided under the Bonus Plan) for the period through and including the last day of the month in which Executive's death occurs. 4.2 If during the Term, Executive shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of 90 consecutive days, or (ii) for shorter periods aggregating 120 days during any twelve-month period, the Company may at any time after the last day of the 90 consecutive days of disability or the day on which the shorter periods of disability shall have called an aggregate of 120 days, by written notice to Executive, terminate the Term of Executive's employment hereunder as of the date of such notice. Notwithstanding such disability, Executive shall be entitled to receive his full salary and benefits under Section 3, including a pro rata amount of the bonus for which Executive is eligible under Section 3.2 (which bonus, if any, shall be paid at such time and in the manner provided under the Bonus Plan) for the period through and including the date of such termination. 3 4.3 If Executive acts, or fails to act, in a manner that provides Cause for termination, the Company may by written notice to Executive, terminate the Term of Executive's employment hereunder any time as of the date of any such notice. For purposes of this Agreement, the term "Cause" means (i) the failure by Executive to perform, or gross negligence or willful misconduct in connection with the performance of, any of his material duties hereunder, unless such failure, gross negligence or willful misconduct is cured within 30 days after the Company has provided Executive written notice thereof (if such failure, gross negligence or willful misconduct is subject to being cured), (ii) the conviction of Executive of any felony, (iii) any acts of fraud or embezzlement by or involving Executive involving the Company or any of its affiliates or their respective businesses or assets, (iv) Executive's failure to comply in any material respect with the policies of the Company after delivery to Executive of such written policies, unless such failure is cured (to the extent such failure is curable) within 30 days after the Company has provided Executive with written notice thereof or (v) a material breach of the terms of this Agreement by the Executive, unless such breach is cured (if such breach is curable) within 30 days after the Company has provided Executive written notice thereof. Executive shall be entitled to no compensation under this Agreement from and after the date of termination for Cause. 4.4 Upon any termination of Executive's employment hereunder for a reason other than (i) Cause, (ii) Executive's death or disability or (iii) Executive's voluntary termination of his employment hereunder, Executive shall be entitled to continue to receive his then current base salary hereunder through the end of the Term, as and when otherwise due and payable; provided, however, that if Executive shall accept other employment at any time during the Term, the Company's obligation to continue such payment under this Section 4.4 shall terminate as of the date of Executive's acceptance. 5. Covenants. Executive acknowledges that, during the course of performing his services hereunder, the Company and its affiliates shall be disclosing to Executive and Executive shall become aware of or learn Confidential Information (as defined below). Executive acknowledges that the business of the Company and its affiliates is extremely competitive, dependent in part upon the maintenance of secrecy, and that any disclosure of the Confidential Information would result in serious harm to the Company and its affiliates. Accordingly, Executive agrees as follows: 5.1 Executive shall keep confidential and shall not, during the Term or at any time thereafter, directly or indirectly, publish or disclose to any person, firm or corporation or other entity, whether or not a competitor of the Company, any affairs of the Company or its affiliates, including, without limitation, business plans, budgets and projections, other proprietary information, any trade secrets, sources of supply, costs, pricing 4 practices, customer lists, financial data, employee information, or information as to organizational structure (collectively, "Confidential Information"). In no event shall Confidential Information include information publicly available or otherwise in the public domain. Executive shall use Confidential Information solely in connection with his activities hereunder as an Executive of the Company, and shall not (except as may be required by court order, subpoena or other governmental process and confirmed by a written opinion of legal counsel to Executive after prompt notice to the Company) use any Confidential Information in any way that may be detrimental to the Company or its affiliates. Upon the expiration or termination of the term of his employment, or at any time the Company may request, Executive shall surrender to the Company all documents and copies of documents in his possession comprising Confidential Information including, but not limited to, internal and external business forms, manuals, correspondence, notes, customer lists and computer programs, and Executive shall not make or retain any copy or extract of any of the foregoing. 5.2 During the Term of his employment and for two years thereafter, or if later, for two years after the date Executive stops receiving compensation under this Agreement, Executive shall not in the United States or in any country in which the Company shall then be doing business, directly or indirectly, engage in or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business which is competitive with the business being conducted by the Company at any time during the Term, including, without limitation, any line of business or economic endeavor, whether for profit or otherwise, which activities shall include, but not be limited to, the sale or furnishing, or the offering for sale or furnishing, of prescription and/or over-the-counter medications, controlled substances, dangerous drugs, biologicals, durable medical equipment, medical supplies, comfort care supplies, therapy supplies and/or services, pharmaceutical management and recordkeeping services, and the sale or furnishing, or the offering for sale foregoing types of activities, to any person or entity, including but not limited to a pharmacy, physician or physician practice, hospital, nursing home or other health care provider. The provisions of this Section 5.2 shall not apply to Executive's ownership of up to 1.0% of the outstanding securities of a competitive business whose shares are listed for trading on any national securities exchange or through NASDAQ NMS. The Company and Executive acknowledge and agree that the provisions of this Section 5.2 shall have no force and effect if (a) Executive's employment hereunder is terminated for a reason other than (i) Cause, (ii) Executive's death or disability, or (iii) Executive's voluntary termination of his employment hereunder or (b) the Company fails to offer to employ Executive following the expiration of the Term on terms not less favorable than those existing upon expiration of the Term. 5.3 During the Term of his employment and for two years thereafter, of if later, for two years after the date Executive stops receiving compensation under this Agreement, Executive shall not, directly or indirectly, solicit any employee of the Company or any affiliate of the Company or any person who was employed by the Company or any affiliate of the Company within 5 three years prior to the time of such solicitation, to leave his employment or join the employ of another, then or at a later time, or solicit the employment of, or permit any business of which Executive or any affiliate of Executive is an owner, partner, executive or holder of more than 5% of the shares, to solicit the employment of any person who was employed by the Company or any affiliate of the Company within three years prior to the time of such solicitation, or canvass or solicit orders for any pharmaceutical products from or otherwise do business with any person, company or firm which is at the time of such solicitation or has been at any time within three years prior to such time a customer of the Company or any affiliate of the Company. 5.4 Executive acknowledges that the provisions of this Section 5 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, Executive agrees that, in addition to any other relief to which the Company may be entitled in the form of actual or punitive damages, the Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purposes of restraining Executive from any actual or threatened breach of such covenants. Notwithstanding the foregoing, if any one or more of the provisions of this Section 5 shall be found by a court of competent jurisdiction to be unreasonably restrictive under the circumstances, then such provisions shall be modified by such court so as to apply such provisions to the maximum extent allowed by law, and any such modification shall not affect the validity of any other provision contained in this Agreement. 5.5 In the event Executive commits or threatens to commit a breach of any of the provisions of Sections 5.1, 5.2 or 5.3 hereof, the Company shall have the following rights and remedies: 5.5.1 The right and remedy to have the provisions of this Agreement specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any such breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and 5.5.2 The right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively "Benefits") derived or received by Executive as the result of any transactions constituting a breach or threatened breach of any of the provisions of Sections 5.1, 5.2 or 5.3 and Executive hereby agrees to account for and pay over such Benefits to the Company. 5.5.3 Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. 6 5.6 The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in Section 5.1, 5.2 and 5.3 upon the courts of the State of New Jersey and any other state in the United States in which a substantial breach of such covenants occurs. In the event that any courts having jurisdiction over an action or event constituting a breach of Section 5.1, 5.2 or 5.3 shall hold such covenants are not wholly enforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdiction, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants. 5.7 In the event that any action, suit or other proceeding in law or in equity is brought to enforce the covenants contained in Sections 5.1, 5.2 and 5.3 or to obtain money damages for the breach thereof, and such action results in the award of a judgment for money damages or in the granting of any preliminary injunction following a hearing in favor of the Company, all court costs and reasonable attorneys' fees of the Company in such action, suit or other proceeding shall (on demand of the Company) be paid by Executive. If such action does not result in the award of a judgment for money damages or in the granting of any preliminary injunction following a hearing in favor of the Company, all court costs and reasonable attorneys' fees of Executive in such action, suit or other proceeding shall (on demand of Executive) be paid by Company. 6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) when transmitted by telecopy (receipt confirmed) provided that a copy is sent concurrently by the means prescribed by clause (a) or (c) of this Section 6, (c) on the fifth business day following mailing by registered or certified mail (return receipt requested), or (d) on the next business day following deposit with an overnight delivery service of national reputation, to the parties at the following addresses and telecopy numbers (or at such other address or telecopy number for a party as may be specified by like notice): If to the Company at: Care4, L.P. c/o The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: Daniel E. Straus Telephone: 201-488-8818 Telecopier: 201-488-4348 7 With a copy to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: General Counsel Telephone: 201-525-5942 Telecopier:201-525-5952 If to Executive at: Andrew Horowitz 302 Wychwood Road Westfield, New Jersey 07090 Telephone: 908-654-1083 With a copy to: Wolff & Samson 5 Becker Farm Road Roseland, New Jersey 07068-1776 Attention: Joel Wolff, Esq. Telephone: (201) 533-6500 Telecopier: (201) 740-1407 7. General. 7.1 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed entirely in New Jersey. 7.2 Headings. The article and section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 7.3 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation, promise or inducement prior to the date hereof has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement prior to the date hereof not so set forth. 8 7.4 Assignment. This Agreement, and Executive's rights other than the right to receive payments hereunder and obligations hereunder, may not be assigned by Executive. The Company may assign its rights, together with its obligations, hereunder to any affiliate (provided that, at the time of the assignment, such affiliate has a net worth equal to or greater than the Company's net worth) or in connection with any sale, transfer or other disposition of all or substantially all of its business or assets; in any event the obligations of the Company hereunder shall be binding on its successors or assigns, whether by assignment, merger, consolidation or acquisition of all or substantially all of its business or assets. 7.5 Validity. The invalidity or unenforceability of any provision of this Agreement in any respect shall not affect the validity or enforceability of such provision in any other respect or of any other provision of this Agreement, all of which shall remain in full force and effect. 7.6 Amendments. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at the time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 7.7 Affiliates. As used herein the term "affiliate" shall mean and include any person or business entity controlling, controlled by or under common control with the corporation in question. The term "controlled", "controlling", "controlled by" and "under common control with", as used with respect to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Very truly yours, CARE4, L.P. By: Institutional Health Care Services, Inc., its general partner By: /S/ PAUL J. KLAUSNER ____________________________ Name: PAUL J. KLAUSNER Title: VICE-PRESIDENT 9 /S/ ANDREW HOROWITZ ________________________________ Andrew Horowitz EX-10 9 EXHIBIT 10.35 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of December 1, 1995 between Glenmark Associates, Inc., a West Virginia corporation (the "Company"), and Mark R. Nesselroad ("Executive"). The parties acknowledge that they are entering into this Agreement as an inducement to the Company and Executive to consummate the transactions contemplated by the Agreement and Plan of Merger, dated as of October 18, 1995, among HRWV, Inc., an affiliate of The Multicare Companies, Inc., ("Multicare") the Company, Glenmark Holding Company Limited Partnership, Executive and Glenn T. Adrian (the "Merger Agreement") and that the execution and delivery of this Agreement by the Company and Executive is a condition precedent to the consummation of the transactions contemplated by the Merger Agreement. 1. Employment, Duties and Acceptance. 1.1 The Company hereby employs Executive, for the Term (as hereinafter defined), to render full-time services to the Company, and to perform such duties consistent with Executive's title and position as he shall reasonably be directed by the Co-Chief Executive Officers of the Company, in connection with managing the day-to-day affairs and operations of the facilities owned by the Company. Executive shall also develop and assist in the development of the Company's business and the business of Multicare in the southeastern United States. 1.2 Executive shall devote his full business time to the business of the Company and its affiliates during the Term and shall not, during the Term, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Company, except for activities or investments not requiring Executive's services. 1.3 Executive hereby accepts such employment and agrees to render the services described above. Executive further agrees to serve during all or any part of the Term as an officer or director of any affiliate of the Company or Multicare, without additional compensation therefor, if elected or appointed to any such position by the Board of Directors or Co- Chief Executive Officers of the Company or Multicare or of any affiliate, as the case may be. Executive shall be provided with directors and officers insurance in connection with his employment hereunder commensurate with that insurance being provided from time to time to senior management of Multicare and copies of Multicare's current policies have been delivered to Executive. 1 In addition, Executive shall be indemnified by the Company pursuant to the Company's bylaws, a copy of which has been provided to Executive. 1.4 The duties to be performed by Executive hereunder shall be performed primarily at the offices of the Company in Morgantown, West Virginia, subject to reasonable travel requirements on behalf of the Company. 1.5 Executive shall be entitled to a paid vacation period or periods of twenty (20) business days during each year of the Term and shall be entitled to observe all holidays observed by the Company. 2. Term of Employment. The term of Executive's employment under this Agreement (the "Term") shall commence on the Closing Date (as defined in the Merger Agreement) and shall end on the third anniversary of the Closing Date, unless sooner terminated pursuant to Article 4 of this Agreement. 3. Compensation. 3.1 As full compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay Executive, during the Term, a base salary at an initial rate of $150,000 per annum during each twelve-month period following the Closing Date, payable in equal semi-monthly installments, less such deductions or amounts to be withheld as shall be required by applicable law and regulations. 3.2 Executive shall be eligible to participate in Multicare's Key Employee Incentive Compensation Plan (the "Bonus Plan") under which Executive may earn a maximum annual bonus equal to 30% of Executive's annual base salary. Such bonus shall be computed and paid in accordance with the terms of the Bonus Plan. 3.3 Executive shall be eligible to participate in the annual grant program under Multicare's Amended and Restated 1993 Stock Option Plan. In addition, concurrently herewith, Executive and Multicare are entering into a stock option agreement pursuant to which Executive has been granted options to purchase 15,000 shares of common stock of Multicare (the "Options"). The Options shall be exercisable at a price equal to the closing price of Multicare common stock as reported by The New York Stock Exchange on the Closing Date and shall vest ratably over the three year period following the date hereof, commencing on the first anniversary of the date hereof (e.g. 33 1/3 shall vest on each such anniversary). 3.4 The Company shall pay or reimburse Executive for all 2 reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require in accordance with the Company's policies in effect from time to time. 3.5 The Company shall provide to Executive medical benefits and medical and life insurance and disability benefits and disability insurance comparable to the medical benefits and medical and life insurance and disability benefits and disability insurance provided generally to its executives. 3.6 Executive shall be entitled to receive an automobile allowance in an amount up to $750.00 per month. 4. Termination. 4.1 If Executive shall die during the Term, the Term shall terminate as of the date of Executive's death, and Executive's legal representative shall be entitled to receive Executive's salary and benefits under Section 3, for the period through and including the last day of the month in which Executive's death occurs. 4.2 If during the Term, Executive shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of 60 consecutive days, or (ii) for shorter periods aggregating 90 days during any twelve-month period, the Company may at any time after the last day of the 60 consecutive days of disability or the day on which the shorter periods of disability shall have called an aggregate of 90 days, by written notice to Executive, terminate the Term of Executive's employment hereunder as of the date of such notice. Executive shall be entitled to receive Executive's salary and benefits under Section 3 for the period through and including the date of termination of Executive's employment due to disability. 4.3 If Executive acts, or fails to act, in a manner that provides Cause for termination, the Company may by written notice to Executive, terminate the Term of Executive's employment hereunder at any time as of the date of any such notice. For purposes of this Agreement, the term "Cause" shall mean (i) the failure by Executive to perform, or gross negligence or willful misconduct in connection with the performance of, any of his material duties hereunder, (ii) the charging of Executive in connection with the commission of any felony, (iii) any acts of fraud or embezzlement by or involving Executive involving the Company or any of its affiliates or their respective businesses or assets, (iv) Executive's failure to comply in any material respect with the policies of the Company or (v) a material breach of the terms of this Agreement by the Executive. Executive shall be entitled to no compensation under this Agreement from and after the date of termination for Cause. 3 5. Covenants. Executive acknowledges that, during the course of performing his services hereunder, the Company and its affiliates shall be disclosing to Executive and Executive shall become aware of or learn Confidential Information (as defined below). Executive acknowledges that the business of the Company and its affiliates is extremely competitive, dependent in part upon the maintenance of secrecy, and that any disclosure of the Confidential Information would result in serious harm to the Company and its affiliates. Accordingly, Executive agrees as follows: 5.1 Executive shall keep confidential and shall not, during the Term or at any time thereafter, directly or indirectly, publish or disclose to any person, firm or corporation or other entity, whether or not a competitor of the Company, any affairs of the Company or its affiliates, including, without limitation, business plans, budgets and projections, other proprietary information, any trade secrets, sources of supply, costs, pricing practices, customer lists, financial data, employee information, or information as to organizational structure (collectively, "Confidential Information"). Executive shall use Confidential Information solely in connection with his activities hereunder as an Executive of the Company, and shall not use any Confidential Information in any way that may be detrimental to the Company or its affiliates. Upon the expiration or termination of the term of his employment, or at any time the Company may request, Executive shall surrender to the Company all documents and copies of documents in his possession comprising Confidential Information including, but not limited to, internal and external business forms, manuals, correspondence, notes, customer lists and computer programs, and Executive shall not make or retain any copy or extract of any of the foregoing. 5.2 During the Term of his employment and for three years thereafter, or if later, for three years after the date Executive stops receiving compensation under this Agreement, Executive shall not in any state in which the Company or any of its affiliates shall then be doing business, directly or indirectly, engage in or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business which is competitive with the business being conducted by the Company or any of its affiliates at any time during the Term. The provisions of this Section 5.2 shall not apply to Executive's ownership of up to 1.0% of the outstanding securities of a competitive business whose shares are listed for trading on any national securities exchange or through The NASDAQ Stock Market. 5.3 During the Term of his employment and for three years thereafter, of if later, for three years after the date Executive stops receiving compensation under this Agreement, Executive shall not, directly or indirectly, solicit any employee of the Company (other than Fred Bierer) or any affiliate of the Company or any person who was employed by the Company or 4 any affiliate of the Company within three years prior to the time of such solicitation to leave his employment or join the employ of another, then or at a later time, or solicit the employment of, or permit any business of which Executive or any affiliate of Executive is an owner, partner, executive or holder of more than 5% of the shares, to solicit the employment of any person who was employed by the Company or any affiliate of the Company within three years prior to the time of such solicitation, or canvass or solicit orders for any products from or otherwise do business with any person, company or firm which is at the time of such solicitation or has been at any time within three years prior to such time a customer of the Company or any affiliate of the Company. 5.4 Executive acknowledges that the provisions of this Section 5 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced and that money damages will not provide an adequate remedy to the Company. Accordingly, Executive agrees that, in addition to any other relief to which the Company may be entitled in the form of actual or punitive damages, the Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purposes of restraining Executive from any actual or threatened breach of such covenants. Notwithstanding the foregoing, if any one or more of the provisions of this Section 5 shall be found by a court of competent jurisdiction to be unreasonably restrictive under the circumstances, then such provisions shall be modified by such court so as to apply such provisions to the maximum extent allowed by law, and any such modification shall not affect the validity of any other provision contained in this Agreement. 5.5 In the event Executive commits or threatens to commit a breach of any of the provisions of Sections 5.1, 5.2 or 5.3 hereof, the Company shall have the right and remedy to have the provisions of this Agreement specifically enforced by any court having jurisdiction or to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively "Benefits") derived or received by Executive as the result of any transactions constituting a breach or threatened breach of any of the provisions of Sections 5.1, 5.2 or 5.3 and Executive hereby agrees to account for and pay over such Benefits to the Company. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. 5.6 The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in Section 5.1, 5.2 and 5.3 upon the courts of the State of New Jersey and any other state in the United States in which a substantial breach of such covenants occurs. In the event that any courts having jurisdiction over an action or event constituting a breach of Section 5.1, 5.2 or 5.3 shall hold such covenants are not wholly 5 enforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdiction, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants. 5.7 In the event that any action, suit or other proceeding in law or in equity is brought to enforce the covenants contained in Sections 5.1, 5.2 and 5.3 or to obtain money damages for the breach thereof, and such action results in the award of a judgment for money damages or in the granting of any preliminary injunction following a hearing in favor of the Company, all court costs and reasonable attorneys' fees of the Company in such action, suit or other proceeding shall be paid by Executive. 6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) when transmitted by telecopy (receipt confirmed) provided that a copy is sent concurrently by the means prescribed by clause (a) or (c) of this Section 6, (c) on the fifth business day following mailing by registered or certified mail (return receipt requested), or (d) on the next business day following deposit with an overnight delivery service of national reputation, to the parties at the following addresses and telecopy numbers (or at such other address or telecopy number for a party as may be specified by like notice): If to the Company at: Glenmark Associates, Inc. c/o The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07601 Attention: Daniel E. Straus and General Counsel Telephone: (201) 488-8818 Telecopier: (201) 525-5959 If to Executive at: Route 8 Box 63A Morgantown, West Virginia 26505 Telephone: (304) 599-8311 6 With a copy to: Houston Harbaugh Two Chatham Center, 12th Floor Pittsburgh, PA 15219 Attention: Michael Dempster, Esq. Telephone: (412) 288-1841 Telecopy: (412) 281-4499 7. General. 7.1 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed entirely in New Jersey. 7.2 Headings. The article and section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 7.3 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. 7.4 Validity. The invalidity or unenforceability of any provision of this Agreement in any respect shall not affect the validity or enforceability of such provision in any other respect or of any other provi sion of this Agreement, all of which shall remain in full force and effect. 7.5 Amendments. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at the time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 7.6 Affiliates. As used herein the term "affiliate" shall mean and include any person or business entity controlling, controlled by or under common control with the corporation in question. The term "controlled", "controlling", "controlled by" and "under common control with", as used with respect to any person, means the possession, directly or 7 indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. 7.7 Multicare Covenant. Multicate hereby covenants and agrees that in the event the assets of the Business (as defined in the Merger Agreement) are transferred from the Company to another wholly-owned subsidiary of Multicare, the transferee thereunder shall assume all of the obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. GLENMARK ASSOCIATES, INC. /S/ MARK R. NESSELROAD By:____________________________________ Name: MARK R. NESSELROAD Title: CHAIRMAN /S/ MARK R. NESSELROAD _______________________________________ Mark R. Nesselroad SOLELY FOR THE PURPOSES OF SECTION 7.7 HEREOF: THE MULTICARE COMPANIES, INC. /S/ BRADFORD C. BURKETT By:____________________________________ Name: BRADFORD C. BURKETT Title: VICE-PRESIDENT 8 EX-10 10 EXHIBIT 10.36 July 19, 1996 Mr. Mark R. Nesselroad Mr. Glenn T. Adrian Glenmark Associates, Inc. Glenmark Holding Company Limited Partnership 1369 Stewartstown Road Morgantown, West Virginia 26505 Gentleman: Reference is made to the Agreement and Plan of Merger among HRWV, Inc., Glenmark Associates, Inc., Glenmark Holding Company Limited Partnership, Mark R. Nesselroad and Glenn T. Adrian, dated October 18, 1995, as amended on December 1, 1995 (the "Agreement"). Pursuant to the Agreement, HRWV, Inc., a wholly-owned subsidiary of The Multicare Companies, Inc. ("Multicare") merged with and into Glenmark Associates, Inc. ("Glenmark") with surviving the merger. Accordingly, Glenmark is now a wholly-owned subsidiary of Multicare. All capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Agreement. Section 2.4 of the Agreement is hereby amended as follows: Section 2.4.1 is hereby deleted. Section 2.4.2 remains as set forth in the Agreement. Section 2.4.3 is hereby amended to read as follows: "The Earnout/Indemnification Escrow Payment shall be disbursed as follows: (i) an amount equal to $500,000 of the Earnout/Indemnification Escrow Payment shall be paid to Glenmark Holding upon its execution of this letter; (ii) an amount equal to one-half of the monies then remaining in the Earnout/Indemnification Escrow Payment shall be disbursed to Glenmark Holding on December 1, 1997; and (iii) all remaining monies shall be disbursed on December 1, 1998, subject in each case to the indemnification obligations of Glenmark Holding, MN and/or GA pursuant to Section 10.2 of the Agreement as specified in Sections 2.4.2 and 2.4.5." Section 2.4.4 is hereby deleted. Section 2.4.5 is hereby amended to read as follows: "Notwithstanding any other provision of this Section 2.4, in the event that Health Resources shall have made a good faith claim for indemnification pursuant to Section 10 which is pending on the date that any payments would otherwise be disbursed out of the Earnout/Indemnification Escrow Payment in accordance with Section 2.4.3 hereof, the amount of such claim shall be subtracted from the payment and such amounts shall be disbursed to Glenmark Holding upon the resolution of such claim. If the foregoing accurately sets forth our agreement, please sign a copy of this letter below where indicated and return it to the undersigned. Very truly yours, /S/ BRADFORD C. BURKETT Bradford C. Burkett BCB/jt AGREED & ACCEPTED AS OF THIS 19TH DAY OF JULY, 1996: GLENMARK HOLDING COMPANY LIMITED PARTNERSHIP /S/ MARK R. NESSELROAD By: _______________________________________ Mark R. Nesselroad, General Partner /S/ GLENN T. ADRIAN By: _______________________________________ Glenn T. Adrian, General Partner EX-11 11 EXHIBIT 11 The Multicare Companies, Inc. Computation of earnings per share (Unaudited) (In thousands, except per share data)
Year ended December 31, 1996 Income per common and common equivalent share: Income before extraordinary item $ 28,737 Net Income 25,910 Weighted average number of common and common equivalent shares outstanding 28,062 Income before extraordinary item per common and common equivalent share $ 1.02 Net income per common and common equivalent share $ .92 Income per common and common equivalent share assuming full dilution: Income before extraordinary item $ 28,737 Net income $ 25,910 Adjustments to income: Interest expense and amortization of debt issuance costs relating to convertible debt, net of tax $ 4,022 Adjusted net income $ 29,932 Weighted average number of common and common equivalent shares outstanding 28,196 Convertible debt shares 4,976 Adjusted shares 33,172 Income before extraordinary item per common share assuming full dilution $ .99 Net income per common share assuming full dilution $ .90
EX-13 12 EXHIBIT 13 The Multicare Companies, Inc. and Subsidiaries SELECTED FINANCIAL DATA
Years ended December 31 1992 1993 1994 1995 1996 (In thousands, except per share data) STATEMENT OF OPERATIONS DATA: Net revenues $ 126,007 162,384 262,416 353,048 532,230 Expenses: Operating expenses 93,649 124,681 201,250 270,224 413,007 Corporate, general and administrative 14,044 6,338 11,446 17,643 25,408 Depreciation and amortization 5,734 6,292 9,358 13,171 22,344 Total expenses 113,427 137,311 222,054 301,038 460,759 Income from operations 12,580 25,073 40,362 52,010 71,471 Other income (expense): Investment income 480 1,861 296 2,713 425 Interest expense (9,890) (15,090) (13,162) (18,778) (25,589) Total other income (expense) (9,410) (13,229) (12,866) (16,065) (25,164) Income before income taxes and extraordinary item 3,170 11,844 27,496 35,945 46,307 Income tax expense 1,420 4,727 10,454 13,798 17,570 Income before extraordinary item 1,750 7,117 17,042 22,147 28,737 Extraordinary item, net of tax benefit,(1) - 3,863 1,620 3,722 2,827 Net income $ 1,750 3,254 15,422 18,425 25,910 Income per common share assuming full dilution: Income before extraordinary item per share $ .12 .42 .71 .84 .99 Net income per share $ .12 .19 .64 .69 .90 Weighted average number of shares outstanding 14,646 16,962 23,967 26,513 33,172 OTHER DATA: Capital expenditures $ 2,838 18,730 31,785 39,917 64,215 Average number of licensed beds 3,271 4,241 6,006 6,861 11,620 Percentage of net revenues: Quality Mix (2) 55.5% 56.0% 62.5% 66.3% 64.5% Medicaid 44.5% 44.0% 37.5% 33.7% 35.5% BALANCE SHEET DATA: Total assets $ 155,485 162,255 308,755 470,958 761,667 Long-term debt, including current portion 146,906 106,137 156,878 283,082 429,168 Stockholders' equity $ (11,276) 32,591 100,105 113,895 207,935
(1) The Company incurred extraordinary charges relating to early extinguishment of debt. (2) Quality mix is defined as non-Medicaid patient revenues. The Multicare Companies, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Multicare has experienced revenue growth in excess of 43 % per year in the five-year period ended December 31, 1996, primarily through acquisitions of long-term care facilities, and increased utilization of specialty medical services. It is the Company's strategy to expand through selective acquisitions, development of new facilities with geographically concentrated operations, and growth of specialty medical services. ACQUISITIONS AND DEVELOPMENT The Company has grown through acquisition, construction, lease and management agreements. Summarized below are the recent acquisitions and development projects: In 1994, the Company acquired the outstanding capital stock of Providence Health Care, Inc., an Ohio-based provider of long-term nursing care and specialized healthcare services through 15 facilities with over 1,200 beds, located principally in Ohio. In January 1995, the Company acquired the assets and operations of an institutional pharmacy business located in New Jersey. In December 1995, the Company acquired the outstanding capital stock of Glenmark Associates, Inc., a long-term care provider through 21 facilities and several ancillary businesses with approximately 1,700 beds, located principally in West Virginia. In February 1996, the Company acquired the outstanding capital stock of the Concord Health Group, Inc., a provider of long-term care, assisted-living, and specialty medical services through 11 facilities with over 1,600 licensed beds and several ancillary businesses in Pennsylvania. In December 1996, the Company acquired The A.D.S Group, which owns, operates or manages over 50 long-term care and assisted-living facilities with over 4,200 licensed beds, principally in Massachusetts. Between 1994 and 1996, the Company further expanded its regional bases by adding over 2,500 licensed beds through smaller acquisitions, construction of new facilities, expansion of existing facilities, leasing arrangements, and management agreements. The Company is continually evaluating acquisition and development opportunities. SPECIALTY MEDICAL SERVICES Specialty medical services include subacute care to medically complex patients, intensive rehabilitation therapies, pharmaceuticals, medical supplies, and home healthcare. These services are usually provided at higher profit margins than routine services and compete with significantly higher cost hospital care. The Company operates dedicated subacute units within certain of its long-term care facilities and offers certain subacute services throughout the majority of its facilities. Therapies, which include physical, occupational, speech and respiratory services, are provided to patients at all long-term care facilities, as well as at the outpatient rehabilitation centers. In addition, Multicare owns and operates an institutional pharmacy that serves over 23,000 beds. Specialty medical service revenues accounted for 39% of net revenues in 1996, increasing to $208 million from $142 million or 40% of revenues in 1995. RESULTS OF OPERATIONS Net Revenues. Net revenues increased 51% or $179.2 million to $532.2 million in 1996 and 35% or $90.6 million to $353.0 million in 1995. Of the 1996 revenues increase, 37% is primarily attributable to the inclusion of results for the recent acquisitions described previously. The internal growth rate of revenues amounted to 14% in 1996, resulting mainly from increases in payor rates and changes in census mix, development and opening of additional beds, and growth in specialty medical service revenues. The revenue increase in 1995 was predominantly due to results from recent acquisitions of 20% and internal growth of 15%. The Company's quality mix of non-Medicaid patient revenues was 65%, 66% and 63%, respectively, in 1996, 1995, and 1994. The 1996 percentages reflect the impact of certain of the Company's recent acquisitions which historically have generated lower revenues in these areas. Occupancy rates were 91%, 92%, and 92%, respectively, for 1996, 1995, and 1994. Operating Expenses and Margins. Operating expenses increased 53% or $142.8 million to $413.0 million in 1996 and 34% or $68.9 million to $270.2 million in 1995. Operating margins were 13% in 1996 and 15% in 1994 and 1995. The decrease in operating margin in 1996 is due primarily to an increase in rent expense of $7.5 million relating to new operating leases. Margins before interest, taxes, depreciation, amortization and rent (EBITDAR) were 20% in 1996, 1995, and 1994. The increases in operating expenses in 1996 and 1995 reflect the inclusion of results for the recent acquisitions of $100.2 million and $37.6 million, respectively. The remaining increases resulted primarily from higher salaries, wages, and benefits ($23.4 million in 1996 and $17.7 million in 1995) for cost of living increases and the expanded utilization of salaried therapists and staffing levels to support higher patient acuities and more complex product lines. Corporate, General and Administrative Expenses. Corporate, general and administrative expenses remained consistent at 5% of net revenues in 1996 and 1995. The expenses include resources devoted to operations, finance, legal, risk management, and information systems to support the Company's operations. Depreciation and Amortization. Depreciation and amortization increased by $9.2 million in 1996 and $3.8 million in 1995. The increases related primarily to inclusion of depreciation and amortization for the recently acquired entities and to a lesser extent, amortization of debt issuance costs and other assets. Other Income (expense). Net other expense increased 57% or $9.1 million in 1996 to $25.2 million, primarily as a result of interest expense from increased borrowings under the Company's various credit agreements in connection with the financing of recent acquisitions. 1995 net other expense increased 25% or $3.2 million as a result of interest expense from higher borrowing levels on the Company's credit agreements and interest associated with the Company's Convertible Debentures. Extraordinary item. The Company incurred extraordinary charges of $2.8 million, $3.7 million, and $1.6 million in 1996, 1995 and 1994, respectively, relating to the restructuring of its bank credit facilities and the purchase of the Company's Senior Subordinated Notes. INFLATION The healthcare industry is labor intensive. Wages and other labor related costs are especially sensitive to inflation. In addition, suppliers pass along rising costs to the Company in the form of higher prices. When faced with increases in operating costs, the Company has increased its charges for services. The Company's operations could be adversely affected if it is unable to recover future cost increases or experiences significant delays in increasing rates of reimbursement of its labor and other costs from Medicaid and Medicare revenue sources. LIQUIDITY AND CAPITAL RESOURCES The Company maintains working capital from operating cash flows and lines of credit that are adequate for continuing operations, debt payments, and anticipated capital expenditures. At December 31, 1996, the Company had working capital of $39.3 million, compared to $55.5 million at December 31, 1995. In October 1996, the Company completed a public offering of 3 million shares of its common stock, resulting in net proceeds of $52 million. The proceeds of the offering were used to repay a portion of outstanding bank indebtedness under the Company's credit agreement. In December 1996, the Company entered into a new $350 million credit facility and a $60 million lease facility with NationsBank N.A., as agent. At December 31, 1996, the amount available under the line of credit was $73.6 million. In March 1995, the Company completed an offshore offering and a concurrent private placement in the United States of $86.3 million of its 7% Convertible Debentures, resulting in net proceeds of $83.3 million. The proceeds were used to repay amounts outstanding on the Company's credit agreement as well as for general corporate purposes. In January 1997, $11 million of Convertible Debentures were converted into common stock. Since 1994, the Company purchased or retired an aggregate of approximately $38.2 million of its 12.5% Senior Subordinated Notes (Notes), resulting in a substantial interest savings based on the Company's incremental borrowing rate under its existing credit lines. In January 1997, the Company purchased an additional $6.5 million of Notes. The Company will make payments on its debt of $.8 million, $1.3 million, $.8 million, $277.1 million, and $.8 million, in each of the five years subsequent to 1996, respectively. Cash flow from operations was $50 million in 1996 compared to $11 million in 1995. The increase is due, in part, to improved collection of receivables. Net accounts receivable were $102.2 million at December 31, 1996 compared to $86.2 million at December 31, 1995. This increase is primarily attributable to the recent acquisitions, the utilization of specialty medical services for higher acuity level patients, and the timing of third-party interim and settlement payments. The allowance for doubtful accounts represents approximately 10% and 6% of gross accounts receivable at December 31, 1996, and 1995, respectively. Legislative and regulatory action and government budgetary constraints could change the timing of payments and reimbursement rates of the Medicare and Medicaid programs in the future. These changes could have a material adverse effect on the Company's future operating results and cash flows. There are numerous legislative and executive initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. The Company is unable to predict the impact of healthcare reform proposals on the Company; however, it is possible that such proposals could have a material adverse effect on the Company. Any changes in reimbursement levels under Medicaid and Medicare and any changes in applicable government regulations could significantly affect the profitability of the Company. Various cost containment measures adopted by governmental pay sources have begun to limit the scope and amount of reimbursable healthcare expenses. Additional measures, including measures that have already been proposed in states in which the Company operates, may be adopted in the future as federal and state governments attempt to control escalating healthcare costs. There can be no assurance that currently proposed or future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs will not have a material adverse effect on the Company. In particular, changes to the Medicare reimbursement program that have been proposed could materially adversely affect the Company's revenues derived from ancillary services. During 1996, the Company expended $257 million through acquisitions, new construction, existing facility expansion, further development of specialty medical services and capital improvements. Capital expenditures were $64 million in 1996, including $41 million for new facility construction and $23 million for routine capital improvements. The Company anticipates its capital requirements for routine capital improvements including expansion of existing facilities and construction of new facilities to be approximately $65 million for 1997. The Company plans to continue its growth oriented strategy for the foreseeable future. The Company anticipates using operating cash flows, bank credit facilities, leasing arrangements, and the sale of additional debt or equity securities to finance its growth. The Multicare Companies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31
(In thousands, except share data) 1995 1996 ASSETS Current assets: Cash and cash equivalents $ 3,921 $ 1,150 Accounts receivable, net of allowance for doubtful accounts of $5,241 and $11,531 in 1995 and 1996, respectively 86,168 102,234 Prepaid expenses and other current assets 8,181 14,586 Deferred taxes 3,353 3,833 Total current assets 101,623 121,803 Property, plant and equipment: Land, buildings and improvements 260,952 386,870 Equipment, furniture and fixtures 39,048 58,963 Construction in progress 24,979 43,373 324,979 489,206 Less accumulated depreciation and amortization 38,212 46,187 286,767 443,019 Goodwill, net 59,610 157,298 Debt issuance costs, net 4,738 4,017 Other assets 18,220 35,530 $ 470,958 $ 761,667 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 13,619 $ 26,948 Accrued liabilities 30,850 54,707 Current portion of long-term debt 1,612 821 Total current liabilities 46,081 82,476 Long-term debt 281,470 428,347 Deferred taxes 24,200 42,909 Contingent stock purchase commitment 5,312 - Stockholders' equity: Preferred stock, par value $.01, 7,000,000 shares authorized, none issued Common stock, par value $.01, 70,000,000 shares authorized, 17,680,932 and 30,133,535 issued and outstanding in 1995 and 1996, respectively 177 301 Additional paid-in-capital 75,419 143,513 Retained earnings 38,299 64,121 Total stockholders' equity 113,895 207,935 $ 470,958 $ 761,667
See accompanying notes to consolidated financial statements. The Multicare Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31
1994 1995 1996 (In thousands, except per share data) Net revenues $ 262,416 $ 353,048 $ 532,230 Expenses: Operating expenses: Salaries, wages and benefits 127,407 171,471 258,404 Other operating expenses 73,843 98,753 154,603 Corporate, general and administrative 11,446 17,643 25,408 Depreciation and amortization 9,358 13,171 22,344 Total expenses 222,054 301,038 460,759 Income from operations 40,362 52,010 71,471 Other income (expense): Investment income 296 2,713 425 Interest expense (13,162) (18,778) (25,589) Total other income (expense) (12,866) (16,065) (25,164) Income before income taxes and extraordinary item 27,496 35,945 46,307 Income tax expense 10,454 13,798 17,570 Income before extraordinary item 17,042 22,147 28,737 Extraordinary item-loss on extinguishment of debt, net of tax benefit of $1,057, $2,379 and $1,884 in 1994, 1995, and 1996, respectively 1,620 3,722 2,827 Net income $ 15,422 $ 18,425 $ 25,910 Income per common and common equivalent share data: Income before extraordinary item $ .71 $ .84 $ 1.02 Net income $ .64 $ .69 $ .92 Weighted average number of common and common equivalent shares outstanding 23,967 26,513 28,062 Income per common share assuming full dilution: Income before extraordinary item $ .71 $ .84 $ .99 Net income $ .64 $ .69 $ .90 Weighted average number of common shares outstanding assuming full dilution 23,967 26,513 33,172
See accompanying notes to consolidated financial statements. The Multicare Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31
Total Additional stock- Common Stock paid-in Retained holders' Shares Amount Capital earnings equity Balances, December 31, 1993 14,230 $ 142 $ 27,997 $ 4,452 $ 32,591 Issuance of common stock in connection with public offering 3,450 35 52,000 52,035 Effect of restricted stock (18) 57 57 Net income 15,422 15,422 Balances, December 31, 1994 17,662 177 80,054 19,874 100,105 Exercise of stock options (including tax benefit) 19 304 304 Proceeds from issuance of put options 373 373 Contingent stock purchase commitment (5,312) (5,312) Net income 18,425 18,425 Balances, December 31, 1995 17,681 177 75,419 38,299 113,895 Exercise of stock options (including tax benefit) 21 347 347 Shares issued under stock purchase plan 30 442 442 Contingent stock purchase commitment 5,312 5,312 Stock split 8,847 88 (88) --- Issuance of common stock in connection with public offering 3,000 30 51,982 52,012 Issuance of stock in acquisition 555 6 10,011 10,017 Net income 25,910 25,910 Balances, December 31, 1996 30,134 $ 301 $ 143,513 $ 64,121 $ 207,935
See accompanying notes to consolidated financial statements. The Multicare Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31
1994 1995 1996 (In thousands) Cash flows from operating activities: Net income $ 15,422 $ 18,425 $ 25,910 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item 2,677 6,101 4,711 Depreciation and amortization 9,583 13,204 22,029 Provision for doubtful accounts 1,712 3,483 4,760 Changes in assets and liabilities: Deferred taxes 1,162 (445) (1,208) Accounts receivable (28,479) (25,104) (13,967) Prepaid expenses and other current assets (8,270) (1,479) (2,528) Accounts payable and accrued liabilities 8,419 (3,174) 10,566 Net cash provided by operating activities 2,226 11,011 50,273 Cash flows from investing activities: Net marketable securities (acquired) sold 5,195 (200) 202 Assets and operations acquired (40,435) (63,415) (193,067) Capital expenditures (31,785) (39,917) (64,215) Proceeds from sale-leaseback ___ 12,522 ___ Proceeds from repayment of construction advances --- 11,000 --- Other assets (2,351) (1,072) (5,531) Net cash used in investing activities (69,376) (81,082) (262,611) Cash flows from financing activities: Proceeds from issuance of common stock 52,035 --- 52,012 Proceeds from exercise of stock options and stock purchase plan --- 245 717 Proceeds from issuance of put options --- 373 --- Proceeds from long-term debt 221,465 278,154 562,981 Payments of long-term debt (203,574) (208,358) (402,848) Debt issuance costs (1,750) (4,431) (3,295) Net cash provided by financing activities 68,176 65,983 209,567 Increase (decrease) in cash and cash equivalents 1,026 (4,088) (2,771) Cash and cash equivalents at beginning of year 6,983 8,009 3,921 Cash and cash equivalents at end of year $ 8,009 $ 3,921 $ 1,150 Supplemental disclosure of non-cash investing and financing activities: Fair value of assets and operations acquired $ 90,560 $ 134,323 $ 213,873 Debt and liabilities assumed in connection with assets and operations acquired 50,125 70,908 10,789 Stock issued in connection with assets and operations acquired --- --- 10,017 $ 40,435 $ 63,415 $ 193,067
See accompanying notes to consolidated financial statements. The Multicare Companies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1995 and 1996 (In thousands, except share and per share data) The Multicare Companies, Inc. and Subsidiaries (Multicare or the Company) own, operate and manage skilled nursing facilities which provide long-term care and specialty medical services in selected geographic regions within the eastern and Midwestern United States. In addition, the Company operates assisted-living facilities, institutional pharmacies, medical supply companies, outpatient rehabilitation centers and other ancillary healthcare businesses. NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION The Multicare Companies, Inc. was organized in March 1992. The consolidated financial statements include the accounts of the Company and its majority owned and controlled subsidiaries. Investments in affiliates that are not majority owned are reported using the equity method. All significant intercompany transactions and accounts of the Company have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Cash Equivalents Cash equivalents consist of highly liquid instruments with original maturities of three months or less. (b) Financial Instruments The carrying amounts of cash, marketable securities, and other current assets and current liabilities approximate fair value due to the short term maturity of these instruments. The fair value of the Company's long term debt is estimated based on quoted market prices or current rates offered to the Company for similar instruments with the same remaining maturities. (c) Debt Issuance Costs Debt issuance costs are amortized on a straight-line basis over periods of four to ten years. (d) Goodwill Goodwill resulting from acquisitions accounted for as purchases is amortized on a straight-line basis over periods of fifteen to forty years. At December 31, 1995 and 1996, accumulated amortization of goodwill was $1,832 and $4,636, respectively. (e) Other Assets At December 31, 1995 and 1996, other assets include $1,300 and $1,331, representing amounts due from stockholders. Direct costs incurred to develop and implement new specialty medical services at certain facilities are deferred during the start-up period and amortized on a straight-line basis over five years. At December 31, 1995 and 1996, investments in non-consolidated affiliates included in other assets amounted to $5,054 and $19,913, respectively. Results of operations relating to the non-consolidated affiliates were insignificant to the Company's financial statements in 1995 and 1996. (f) Net Revenues Net revenues primarily consist of services paid for by patients and amounts for services provided that are reimbursable by certain third-party payors. Medicare and Medicaid revenues are determined by various rate setting formulas and regulations. Final determinations of amounts paid by Medicaid and Medicare are subject to review or audit. In the opinion of management, adequate provision has been made for any adjustment that may result from these reviews or audits. To the extent that final determination may result in amounts which vary from management estimates, future earnings will be charged or credited. (g) Property, Plant and Equipment Land, buildings and improvements, equipment, furniture and fixtures are stated at cost. Depreciation of buildings and improvements is calculated using the straight-line method over their estimated useful lives that range from twenty to forty years. Depreciation of equipment and furniture and fixtures is calculated using the straight-line method over their estimated useful lives that range from five to ten years. Depreciation expense for the years ended December 31, 1994, 1995, and 1996 was $8,146, $10,875, and $17,724, respectively. (h) Income Taxes The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. (i) Net Income Per Share The computation of primary earnings per share is based on the weighted average number of outstanding shares during the period and includes, when their effect is dilutive, common stock equivalents consisting of certain shares subject to stock options. Fully diluted earnings per share additionally assumes the conversion of the Company's Convertible Subordinated Debentures. Net income used in the computation of fully diluted earnings per share was determined on the assumption that the convertible debentures were converted and net income was adjusted for the amounts representing interest and amortization of debt issuance costs, net of tax effect. (j) Stock Split In May 1996, the Company effected a three-for-two stock split in the form of a 50% stock dividend. In 1996, stockholders' equity has been adjusted to give recognition to the stock split by reclassifying from retained earnings to common stock the par value of the additional shares arising from the stock split. All references to average number of shares outstanding, stock options, and per share amounts have been restated to reflect the stock split. (k) SFAS 121 The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on January 1, 1996. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Adoption of this Statement did not have any impact on the Company's financial position, results of operations, or liquidity. NOTE 3 - ACQUISITIONS In March 1994, the Company acquired the outstanding capital stock of Providence Health Care, Inc. (Providence), an Ohio-based provider of long- term nursing care through 15 long-term care facilities for a cash purchase price of approximately $29,000 and the assumption and refinancing of approximately $27,000 of indebtedness. Total goodwill approximated $16,900. In January 1995, the Company acquired the assets and operations of an institutional pharmacy business for a purchase price of approximately $12,000. Total goodwill approximated $11,000. In December 1995, the Company completed the acquisition of Glenmark Associates, Inc. (Glenmark). The Company acquired the outstanding capital stock of Glenmark for approximately $32,000 including transaction costs, repaid approximately $24,200 of debt, and assumed historical debt of approximately $24,700. Total goodwill approximated $30,000. In February 1996, the Company completed the acquisition of Concord Health Group, Inc. (Concord). The Company acquired the outstanding capital stock and warrants of Concord for approximately $75,000 including transaction costs, repaid approximately $41,000 of debt, and assumed historical debt of approximately $4,000. Total goodwill approximated $61,000. In December 1996, the Company completed the acquisition of The A.D.S Group (A.D.S). The Company paid approximately $10,000, repaid or assumed approximately $29,800 in debt, financed $51,000 through a lease facility, and issued 554,973 shares of its common stock for A.D.S. Total goodwill approximated $29,900. All acquisitions have been accounted for using the purchase method of accounting and, accordingly, the consolidated financial statements reflect the results of operations of each facility from the date of acquisition. The following unaudited pro forma financial information has been prepared as if the Glenmark, Concord and A.D.S acquisitions had been consummated on January 1, 1995. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the acquisitions occurred on January 1, 1995:
1995 1996 (Unaudited) Net revenues $ 512,995 $ 599,022 Income before extraordinary item 20,006 29,095 Net income 16,284 26,267 Income per common share assuming full dilution: Income before extraordinary item .74 .98 Net income $ .60 $ .90
NOTE 4 - INCOME TAXES The provision for income taxes, exclusive of income taxes related to the extraordinary items, consists of the following:
1994 1995 1996 Federal Current $ 8,810 $ 11,092 $ 13,554 Deferred (594) (35) 1,275 State Current 2,343 2,876 2,695 Deferred (105) (135) 46 $ 10,454 $ 13,798 $ 17,570
The difference between the Company's effective tax rate and the Federal statutory tax rate of 35% is primarily attributable to state taxes. The tax effects of temporary differences giving rise to deferred tax assets and liabilities at December 31, 1995 and 1996 are as follows:
1995 1996 Deferred tax assets: Accounts receivable $ 1,620 $ 1,642 Employee benefits and compensated absences 1,429 2,191 Other 829 - $ 3,878 $ 3,833 Deferred tax liabilities: Property, plant and equipment $ 24,408 $ 42,033 Other 317 876 $ 24,725 $ 42,909
Cash paid for income taxes was $9,504, $12,910 and $14,555 in 1994, 1995 and 1996, respectively. NOTE 5 - FINANCING OBLIGATIONS Long-term debt at December 31, 1995 and 1996 is as follows:
1995 1996 Bank credit facility, with interest at approximately 6% in 1995 and 7% in 1996 $ 105,629 $ 276,429 Convertible debentures, due 2003, with interest at 7%, convertible at $17.33 per share 86,250 86,250 Senior Subordinated Notes, due 2002, net of unamortized original issue discount of $911 and $682 in 1995 and 1996, respectively, with interest at 12.5% 36,990 29,719 Mortgages and other debt, including unamortized premium of $3,819 and $3,412, in 1995 and 1996, respectively, payable on varying monthly or quarterly installments with interest at rates between 6% and 12%. These loans mature between 1999 and 2033 43,202 26,135 Revenue bonds, rates ranging from 7% to 10%, with maturities between 2004 and 2015, net of unamortized discount of $465 and $431 in 1995 and 1996, respectively 11,011 10,635 $ 283,082 $ 429,168 Less current portion 1,612 821 $ 281,470 $ 428,347
In 1995, the Company restructured its credit agreement with The Chase Manhattan Bank, N.A. to extend the amount of available credit to $200,000. In addition, several terms, including the interest rate were revised. The Company recorded an extraordinary charge of $1,206, net of tax, for the write- off of debt issuance costs and prepayment penalties relating to the restructuring of the credit facility and extinguishment of certain mortgage debt. In March 1995, the Company completed an offshore offering and a concurrent private placement in the United States of $86,250 of its 7% Convertible Subordinated Debentures (Convertible Debentures) due 2003. The Convertible Debentures are convertible at a price of $17.33 per share. The net proceeds approximated $83,300 of which $23,000 was used to repay amounts outstanding under the Company's credit agreement, with the remainder utilized for general corporate purposes. In January 1997, $11,000 of Convertible Debentures were converted into common stock. The Company purchased or retired an aggregate amount of $38,177 of its $100,000 Senior Subordinated Notes (Notes) in 1994, 1995 and 1996, resulting in extraordinary charges after tax of $1,620, $2,516 and $957, respectively, for premiums paid above the recorded values and the write-off of debt issuance costs and original issue discounts. In January 1997, the Company purchased $6,500 principal amount of Notes. In 1996, the Company restructured its credit agreement with The Chase Manhattan Bank, N.A. to extend the amount of credit available from $200,000 to $350,000 and to revise other terms. In December 1996, the Company entered into a new $350,000 credit facility which expires in 2000 and added a $60,000 lease facility with NationsBank, N.A., as agent. The Company recorded extraordinary charges of $1,870, net of tax, for the write-off of unamortized debt issuance costs related to the restructurings. The fair value of the Company's debt, based on quoted market prices or current rates for similar instruments with the same maturities was approximately $288,767 and $432,398 at December 31, 1995 and 1996, respectively. The Company is subject to various financial and restrictive covenants under its credit facility and other indebtedness and is in compliance with such covenants at December 31, 1996. At December 1996, the aggregate maturities of long-term debt for the five years ending December 31, 2001 and thereafter are as follows: 1997 $ 821 1998 1,335 1999 804 2000 277,146 2001 759 Thereafter 146,004 426,869 Discount (1,113) Premium 3,412 $ 429,168
Interest expense of $1,225, $1,605 and $2,773 was capitalized in 1994, 1995 and 1996, respectively, in connection with new construction and facility renovations and expansions. Cash paid for interest was $13,565, $17,704 and $25,762 in 1994, 1995, and 1996, respectively. NOTE 6 - ACCRUED LIABILITIES At December 31, 1995 and 1996, accrued liabilities consist of the following:
1995 1996 Salaries and wages $ 11,428 $ 19,469 Deposits from patients 2,437 3,386 Interest 4,739 4,742 Insurance 2,492 7,079 Other 9,754 20,031 $ 30,850 $ 54,707
NOTE 7 - COMMITMENTS AND CONTINGENCIES The Company has operating leases on certain of its facilities and offices. Three of such leases are with entities that are owned wholly or in part by certain of the stockholders of the Company. In 1996, the Company renegotiated and amended the terms of certain of its capital lease agreements, resulting in their treatment as operating leases which did not have a material impact on the financial statements. Minimum rental commitments under all noncancelable leases at December 31, 1996 are as follows:
Operating 1997 $ 17,145 1998 17,170 1999 16,193 2000 15,870 2001 15,612 Thereafter 65,070 $ 147,060
Rent expense was $3,052, $5,375 and $12,915 for the years ended December 31, 1994, 1995 and 1996, respectively. Letters of credit ensure the Company's performance or payment to third parties in accordance with specified terms and conditions. At December 31, 1996, letters of credit outstanding amounted to $1,709. Included in the accompanying consolidated financial statements are management fees and interest income from related parties of $1,501, $1,689 and $123 for the years ended December 31, 1994, 1995, and 1996, respectively. There are numerous legislative and executive initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. The Company is unable to predict the impact of healthcare reform proposals on the Company; however, it is possible that such proposals could have a material adverse effect on the Company. Any changes in reimbursement levels under Medicaid and Medicare and any changes in applicable government regulations could significantly affect the profitability of the Company. Various cost containment measures adopted by governmental pay sources have begun to limit the scope and amount of reimbursable healthcare expenses. Additional measures, including measures that have already been proposed in states in which the Company operates, may be adopted in the future as federal and state governments attempt to control escalating healthcare costs. There can be no assurance that currently proposed or future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs will not have a material adverse effect on the Company. In particular, changes to the Medicare reimbursement program that have been proposed could materially adversely affect the Company's revenues derived from ancillary services. The healthcare industry is labor intensive. Wages and other labor related costs are especially sensitive to inflation. In addition, suppliers pass along rising costs to the Company in the form of higher prices. When faced with increases in operating costs, the Company has increased its charges for services. The Company's operations could be adversely affected if it is unable to recover future cost increases or experiences significant delays in increasing rates of reimbursement of its labor and other costs from Medicaid and Medicare revenue sources. The Company is from time to time subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of pending legal proceedings will not have a material effect on the Company's consolidated financial statements. NOTE 8 - CAPITAL STOCK AND STOCK PLANS In May 1996, the Company increased the number of authorized shares of preferred and common stock for the purpose of affecting a three for two stock split in the form of a 50% stock dividend. In October 1996, the Company completed a public offering of 3,000,000 shares of its common stock, resulting in net proceeds of $52,000. The proceeds from the offering were used to repay a portion of outstanding bank indebtedness under the Company's credit agreement which was incurred to finance certain of the Company's acquisitions. The Company's 1993 Stock Option Plan and Non-Employee Director Stock Option Plan (Plans) provide for the issuance of options to directors, officers, key employees and consultants of the Company. The aggregate number of shares authorized for issuance under the plans is 3,840,000. Options are issued at market value on the date of the grant, vest ratably over maximum periods of five years, and expire ten years from the date of the grant. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and applies APB Opinion No. 25 in accounting for its plans and, accordingly, has not recognized compensation cost for stock option plans and stock purchase plans in its financial statements. Had the Company determined compensation cost based on the fair value at the grant date consistent with the provisions of SFAS 123, the Company's net income would have been changed to the pro forma amounts indicated below:
1995 1996 Net income-as reported $ 18,425 $ 25,910 Net income-pro forma 17,530 24,181 Net income per share-as reported .69 .90 Net income per share-pro forma .66 .85
The fair value of the stock options granted in 1995 and 1996 is estimated at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1995 and 1996; dividend yield of 0%; expected volatility of 38.4%; a risk-free interest rate of 6.5%; and expected lives of 9.9 years. Presented below is a summary of the stock option plans for the years ended December 31, 1994, 1995 and 1996:
1994 1995 1996 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at beginning of year 395,250 $7.09 1,772,778 $10.74 2,441,364 $11.46 Granted 1,585,893 10.94 750,828 13.10 828,746 17.60 Exercised --- --- (27,969) 8.73 (24,789) 11.05 Forfeited/expired (208,365) 8.33 (54,273) 12.15 (78,084) 13.10 Options outstanding at end of year 1,772,778 $10.74 2,441,364 $11.46 3,167,237 $13.03 Weighted-average grant-date fair value of options granted $7.08 $8.23 $11.06
The following table summarizes information for stock options outstanding at December 31, 1996:
Weighted Avg. Range of Remaining Weighted Avg. Weighted Avg. Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price 6.67-10.83 $311,251 6.8 $8.06 165,749 $7.71 11.17-14.67 2,051,610 7.6 11.97 826,881 11.81 16.00-20.59 804,376 9.5 17.66 22,500 18.67 $3,167,237 8.0 $13.03 1,015,130 $11.29
The Company's Employee Stock Purchase Plan (ESPP) was adopted by the Company's Board of Directors in 1995 and approved by shareholders in 1996. The ESPP permits employees of the Company to purchase the Company's common stock at a price equal to the lesser of 85% of the fair market value of the common stock on the first or last day of each quarter. There are 1,200,000 shares authorized for issuance under the ESPP. In 1996, the Company adopted the Directors Retainer and Meeting Fee Plan (Directors Plan) under which a director who is not an employee of the Company may elect to receive payment of all or any portion of his or her annual cash retainer and meeting fees either in cash or shares of the Company's common stock. The number of shares payable is determined by the fair market value of a share on the date payment is due. The aggregate number of shares authorized for issuance under the Directors Plan is 75,000. In 1995, the Company issued put options on 500,000 shares of its common stock which expired unexercised in 1996. As of December 31, 1995 the balance in Contingent stock purchase commitment is the amount the Company would have been obligated to pay if all of the remaining put options were exercised. At December 31, 1996, the Company has 4,976,000 shares of its common stock reserved for the conversion of its Convertible Debentures. NOTE 9 - SUBSEQUENT EVENTS (UNAUDITED) In February 1997, options to purchase 556,000 shares of common stock were granted at exercise prices representing fair market value as of the date of the grants. NOTE 10 - QUARTERLY RESULTS OF OPERATIONS
Year Ended December 31, 1995 First Second Third Fourth Quarter Quarter Quarter Quarter(1) Net revenues $ 81,700 $ 85,605 $ 90,948 $ 94,795 Income from operations 12,350 12,652 13,443 13,565 Income before extra- ordinary item 5,094 5,264 5,780 6,009 Net Income 5,094 5,264 5,780 2,287 Income per common share assuming full dilution(2): Income before extra- ordinary item .19 .20 .22 .23 Net income $ .19 $ .20 $ .22 $ .09 Price range of stock (2)(3)(4) High $ 15 1/2 $ 15 1/8 $ 15 5/8 $ 16 1/8 Low $ 11 5/8 $ 11 1/4 $ 11 1/4 $ 11 3/4
Year Ended December 31, 1996 First Second Third Fourth Quarter(1) Quarter Quarter Quarter(1) Net revenues $ 120,057 $ 131,889 $ 134,944 $ 145,340 Income from operations 15,478 17,610 18,759 19,624 Income before extra- ordinary item 6,197 6,780 7,418 8,342 Net Income 4,716 6,780 7,418 6,996 Income per common share assuming full dilution(2): Income before extra- ordinary item .23 .24 .26 .27 Net income $ .18 $ .24 $ .26 $ .23 Price range of stock (2)(3)(4) High $ 19 1/4 $ 20 7/8 $ 21 3/4 $ 22 3/8 Low $ 14 7/8 $ 17 1/2 $ 18 $ 17 3/4
(1) The Company incurred extraordinary charges of $3,722, $1,481 and $1,346, net of taxes, in the fourth quarter of 1995, first quarter of 1996, and fourth quarter of 1996, respectively, relating to extinguishment of debt. (2) Income per share and prices have been adjusted for a 50% stock dividend in May 1996. (3) The Company has not paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. (4) Stock prices are from official data released by the NASDAQ stock market and The New York Stock Exchange. As of February 21, 1997, there were approximately 88 record holders of the Company's common stock. The Board of Directors The Multicare Companies, Inc. We have audited the accompanying consolidated balance sheets of The Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP Short Hills, New Jersey February 4, 1997 CORPORATE DATA BOARD OF DIRECTORS MOSHAEL J. STRAUS STUART H. ALTMAN The Multicare Companies, Inc. Brandeis University Hackensack, New Jersey Waltham, Massachusetts DANIEL E. STRAUS CONSTANCE B. GIRARD-DICARLO The Multicare Companies, Inc. ARAMARK Corporation Hackensack, New Jersey Philadelphia, Pennsylvania STEPHEN R. BAKER MENACHEM ROSENBERG The Multicare Companies, Inc. Margolin, Winer and Evens Hackensack, New Jersey Garden City, New York PAUL J. KLAUSNER GEORGE ZOFFINGER The Multicare Companies, Inc. Value Property Trust Hackensack, New Jersey New Brunswick, New Jersey CORPORATE OFFICERS MOSHAEL J. STRAUS ANDREW HOROWITZ Chairman and Co-Chief Executive Officer Senior Vice President, Ancillary Services DANIEL E. STRAUS MARK R. NESSELROAD President and Co-Chief Executive Officer Senior Vice President, Acquistions, Construction and Development STEPHEN R. BAKER Executive Vice President and Chief ROBERT S. ANDERSON Operating Officer Vice President, Finance SUSAN S. BAILIS KEVIN P. BRESLIN Senior Vice President, ADS/Multicare Vice President, Acquisitions BRADFORD C. BURKETT RONALD G. CLARENDON Senior Vice President, General Counsel Vice President, Employee Relations and Secretary JANICE M. GREER THOMAS P. FOY Vice President, Professional Serivces Senior Vice President, Government Relations and Business Development KEITH F. HELMER Vice President, Operations JOEL JAFFE Senior Vice President, Treasurer KENT R. HUGILL Vice President, Marketing BARBARA A. MARTE Vice President, Product Development and Enhancement TRANSFER AGENT ANNUAL MEETING DATE American Stock & Transfer Trust Multicare will hold its Annual Meeting 40 Wall Street of stockholders on Wednesday, May 14, New York, NY 10005 1997 at 10:00 a.m. EST at its corporate headquarters. INDEPENDENT AUDITORS KPMG Peat Marwick, LLP STOCK LISTING Short Hills, NJ Multicare's common stock trades on The New York Stock Exchange under the CORPORATE COUNSEL symbol "MUL". Paul, Weiss, Rifkind, Wharton & Garrison CORPORATE HEADQUARTERS New York, NY 411 Hackensack Avenue Hackensack, NJ 07601 FORM 10-K (201) 488-8818 A stockholder may receive without charge a copy of the Form 10-K Annual Report filed by the Securities and Exchange Commission by written request addressed to Investor Relations at the corporate headquarters address. EX-21 13 EXHIBIT 21 PERCENT JURISDICTION OF SUBSIDIARIES OF THE MULTICARE COMPANIES,INC. OF INCORPORATION OWNERSHIP Academy Nursing Home, Inc. MA 100% ADS Apple Valley, Inc. MA 100% ADS Apple Valley Limited Partnership NJ 100% ADS Consulting, Inc. MA 100% ADS Danvers ALF, Inc. DE 100% ADS Hingham Nursing Facility, Inc. MA 100% ADS Hingham Limited Partnership NJ 100% ADS Home Health, Inc. DE 100% ADS Management, Inc. MA 100% ADS/Multicare, Inc. DE 100% ADS Palm Chelmsford Inc. MA 49% ADS Recuperative Center, Inc. MA 100% ADS Recuperative Center Limited Partnership NJ 100% ADS Reservoir Waltham, Inc. MA 49% ADS Senior Housing, Inc. MA 100% ANR, Inc. DE 100% Applewood Health Resources, Inc. DE 100% Assisted Living Associates of Wall, Inc. NJ 100% Automated Professional Accounts, Inc. WV 100% Berkeley Haven Limited Partnership WV 50% Berks Nursing Homes, Inc. PA 100% Bethel Health Resources, Inc. DE 100% Breyut Convalescent Center NJ 100% Breyut Convalescent Center, L.L.C. NJ 100% Brightwood Property, Inc. WV 100% Canterbury of Sheperdstown Limited Partnership WV 50% Care 4, L.P. NJ 100% Care Haven Associates NJ 100% Care Haven Associated Limited Partnership WV 68.69% Century Care Management, Inc. DE 100% Charlton Nursing Care Center MA 20% Chateau Village Health Resources, Inc. DE 100% CHG Investment Corp., Inc. DE 100% CHNR-I, Inc. DE 100% Colonial Hall Health Resources, Inc. DE 100% Colonial House Health Resources, Inc. DE 100% Compass Health Services, Inc. WV 100% Concord Companion Care, Inc. PA 100% Concord Health Group, Inc. DE 100% Concord Healthcare Services, Inc. PA 100% Concord Home Health, Inc. PA 100% Concord Pharmacy Services, Inc. PA 100% Concord Rehab, Inc. PA 100% Concord Service Corporation PA 100% Courtyard Nursing Care Center Partnerhsip MA 33.33% Cumberland Associates of Rhode Island, L.P. NJ 100% CVNR, Inc. DE 100% Dawn View Manor, Inc. WV 100% Delm Nursing, Inc. PA 100% Elmwood Health Resources, Inc. DE 100% Encare of Massachusetts, Inc. DE 100% Encare of Mendham, Inc. NJ 100% Encare of Mendham, L.L.C. NJ 100% Encare of Pennsylvania, Inc. PA 100% Encare of Pennypack, Inc PA 100% Encare of Quakertown, Inc. PA 100% Encare of Wyncote, Inc. PA 100% ENR, Inc. DE 100% Glenmark Associates, Inc. WV 100% Glenmark Associates - Dawnview Manor, Inc. WV 100% Glenmark Limited Liability Company I NJ 100% Glenmark Properties, Inc. WV 100% Glenmark Properties I, Limited Partnership NJ 100% GMA - Brightwood, Inc. WV 100% GMA - Construction, Inc. WV 100% GMA - Madison, Inc. WV 100% GMA Partnership Holding Company, Inc. WV 100% GMA - Uniontown, Inc. PA 100% Groton Associates of Connecticut, L.P. NJ 100% Health Resources of Broadman, Inc. DE 100% Health Resources of Bridgeton, Inc. NJ 100% Health Resources of Bridgeton, L.L.C. NJ 100% Health Resources of Cedar Grove, Inc. NJ 100% Health Resources of Cinnaminson, Inc. NJ 100% Health Resources of Cinnaminson, L.L.C. NJ 100% Health Resources of Colchester, Inc. CT 100% Health Resources of Columbus, Inc. DE 100% Health Resources of Cranbury, Inc. NJ 100% Health Resources of Cranbury, L.L.C. NJ 100% Health Resources of Cumberland, Inc. DE 100% Health Resources of Eatontown, Inc. NJ 100% Health Resources of Emery, Inc. DE 100% Health Resources of Emery, L.L.C. DE 100% Health Resources of Englewood, Inc. NJ 100% Health Resources of Englewood, L.L.C. NJ 100% Health Resources of Ewing, Inc. NJ 100% Health Resources of Ewing, L.L.C. NJ 100% Health Resources of Fair Lawn, Inc. DE 100% Health Resources of Fair Lawn, L.L.C. DE 100% Health Resources of Farmington, Inc. DE 100% Health Resources of Gardner, Inc. DE 100% Health Resources of Glastonbury, Inc. CT 100% Health Resources of Groton, Inc. DE 100% Health Resources of Jackson, Inc. NJ 100% Health Resources of Jackson, L.L.C. NJ 100% Health Resources of Lakeview, Inc. NJ 100% Health Resources of Lemont, Inc. DE 100% Health Resources of Karmenta and Madison, Inc. DE 100% Health Resources of Marcella, Inc. DE 100% Health Resources of Middletown (RI), Inc. DE 100% Health Resources of Montclair, Inc. NJ 100% Health Resources of Morristown, Inc. NJ 100% Health Resources of Norfolk, Inc. DE 100% Health Resources of Norwalk, Inc. CT 100% Health Resources of Ridgewood, Inc. NJ 100% Health Resources of Rockville, Inc. DE 100% Health Resources of South Brunswick, Inc. NJ 100% Health Resources of Wallingford, Inc. DE 100% Health Resources of Warwick, Inc. DE 100% Health Resources of West Orange, Inc. DE 100% Health Resources of West Orange, L.L.C. DE 100% Health Resources of Westwood, Inc. DE 100% Helstat, Inc. WV 100% Hingham Healthcare Limited Partnership MA 50% HMNH Realty, Inc. DE 100% HNCA, Inc. PA 100% Holly Manor Associates of New Jersey, L.P. NJ 100% Horizon Associates, Inc. WV 100% Horizon Medical Equipment and Supply, Inc. WV 100% Horizon Mobile, Inc. WV 100% Horizon Rehabilitation, Inc. WV 100% HR of Charleston, Inc. WV 100% HRWV Huntington, Inc. WV 100% Institutional Health Care Services, Inc. NJ 100% Lakewood Health Resources, Inc. DE 100% Laurel Health Resources, Inc. DE 100% Lehigh Nursing Homes, Inc. PA 100% LRC Holding Company, Inc. DE 100% LWNR, Inc. DE 100% Mabri Convalescent Center, Inc. CT 100% Markglen, Inc. WV 100% Marlington Associates Limited Partnership WV 44.06% Marshfield Health Resources, Inc. DE 100% Mercerville Associates of New Jersey, L.P. NJ 100% Merry Heart Health Resources, Inc. DE 100% MHNR, Inc. DE 100% Middletown (RI) Associates of Rhode Island, L.P. NJ 100% Montgomery Nursing Homes, Inc. PA 100% Multicare Home Health of Illinois, Inc. DE 100% National Pharmacy Service, Inc. PA 100% Nursing and Retirement Center of the Andovers, Inc. MA 100% PHC Operating Corp. DE 100% Pocahontas Continuous Care Center, Inc. WV 100% Point Pleasant Haven Limited Partnership NJ 100% Pomton Associates, L.P. NJ 100% Pomptom Care, Inc. NJ 100% Pomptom Care, L.L.C. NJ 100% Prescott Nursing Home, Inc. MA 100% Progressive Rehabilitation Centers, Inc. DE 100% Providence Funding Corporation DE 100% Providence Health Care, Inc. DE 100% Providence Medical, Inc. DE 100% Raleigh Manor Limited Partnership NJ 100% Rest Haven Nursing Home, Inc. WV 100% Ridgeland Health Resources, Inc. DE 100% River Pines Health Resources, Inc. DE 100% Rivershores Health Resources, Inc. DE 100% RLNR, Inc. DE 100% Roephel Convalescent Center, Inc. NJ 100% Roephel Convalescent Center, L.L.C. NJ 100% Romney Health Care Center Limited Partnership NJ 100% Rose Healthcare, Inc. NJ 100% Rose View Manor, Inc. PA 100% Roxborough Nursing Homes, Inc. PA 100% RSNR, Inc. DE 100% RVNR, Inc. DE 100% Senior Living Ventures, Inc. PA 100% Schuylkill Nursing Homes, Inc. PA 100% Schuylkill Partnership Acquisition Corp. PA 100% Senior Source, Inc. MA 100% Sisterville Haven Limited Partnership NJ 100% Snow Valley Health Resources, Inc. DE 100% Solomont Family Fall River Venture, Inc. MA 100% Solomont Family Medford Venture, Inc. MA 100% Stafford Convalescent Center, Inc. DE 100% S.T.B. Investors, LTD. NY 100% SVNR, Inc. DE 100% Teays Valley Haven Limited Partnership NJ 100% The ADS Group, Inc. MA 100% The Apple Valley Center Limited Partnership MA 50% The House of Campbell, Inc. WV 100% The Recuperative Center Limited Partnership MA 47.55% The Straus Group - Hopkins House, L.P. NJ 100% The Straus Group - Old Bridge, L.P. NJ 100% The Straus Group - Quakertown Manor, L.P. NJ 100% The Straus Group - Ridgewood, L.P. NJ 100% Total Rehabilitation Center, Inc. DE 100% Total Rehabilitation Center, L.L.C. NJ 100% Tri-State Mobile Medical Services, Inc. WV 100% Wallingford Associates of Connecticut, L.P. NJ 100% Warwick Associates of Rhode Island, L.P. NJ 100% Westford Nurisng and Retirement Center, Inc. MA 100% Westford Nursing and Retirement Center Limited Partnership NJ 100% Willow Manor Nursing Home, Inc. MA 100% EX-23 14 EXHIBIT 23 Independent Auditors' Consent The Board of Directors The Multicare Companies, Inc. We consent to incorporation by reference in the Registration Statements (No's. 33-86764, 33-94516, 33-80977, 333-04545) on Form S-8 and Registration Statement (No. 33-96992) on Form S-3 of The Multicare Companies, Inc. of our reports dated February 4, 1997, relating to the consolidated balance sheets of The Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which reports appear in or are incorporated by reference in the December 31, 1996 annual report on Form 10-K of The Multicare Companies, Inc. KPMG Peat Marwick LLP Short Hills, New Jersey March 27, 1997 EX-27 15
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MULTICARE COMPANIES, INC. ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 1,150 0 102,234 11,531 0 121,803 489,206 46,187 761,667 82,476 429,168 0 0 301 207,634 761,667 0 532,230 0 413,007 22,344 0 25,589 46,307 17,570 28,737 0 2,827 0 25,910 .92 .90
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