-----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, SZOTutOxjntstjuspzVX1wxiunX0EMQq0zpA9w8oepp3yjagMqOp7GitueyxG9Zf btbnX7kh5uUEac0w/s7RLQ== 0000890925-98-000003.txt : 19980518 0000890925-98-000003.hdr.sgml : 19980518 ACCESSION NUMBER: 0000890925-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22090 FILM NUMBER: 98622737 BUSINESS ADDRESS: STREET 1: 433 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 __________ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ Commission File No. 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 #) 433 Hackensack Avenue Hackensack, New Jersey 07601 Address of principal executive offices Zip Code Registrant's telephone number, including area code (201) 488-8818 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 13,1998 Common Stock ($.01 Par Value) 100 THE MULTICARE COMPANIES, INC. Index Page Cautionary statement regarding forward looking statements 1 Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 1997 and March 31, 1998 2 Consolidated Statements of Operations Three and six months ended March 31, 1998 and 1997 3 Consolidated Statements of Cash Flows Six months ended March 31, 1998 and 1997 4 Notes to Consolidated Financial Statements 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 Part II. Other Information 15 Signatures 16 THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS Certain oral statements made by management from time to time and certain statements contained herein, including certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" such as statements concerning the Medicaid and Medicare program and the Company's ability to meet its liquidity needs and control costs and expected future capital expenditure requirements and other statements contained herein regarding matters that are not historical facts are forward looking statements within the meaning of the Securities Act of 1933. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed herein and in the Company's other periodic reports filed with the Securities and Exchange Commission, including the following: the occurrence of changes in the mix of payment sources utilized by the Company's customers to pay for the Company's services; 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; 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 Company's profitability; 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; the Company's ability to staff its facilities appropriately with qualified healthcare personnel and to maintain a satisfactory relationship with labor unions; 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 in the regulatory system, such as changes in certificate of need laws in the states in which the Company operates or anticipates operating in the future that facilitate such competition; the continued availability of insurance for the inherent risks of liability in the healthcare industry; the Company's reputation for delivering high-quality care and its ability to attract and retain patients; and the Company's ability to secure capital and the related cost of such capital. PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
September 30, March 31, 1997 1998 (Predecessor Company) Assets Current Assets: Cash and cash equivalents $ 2,118 2,617 Accounts receivable, net 119,522 123,943 Prepaid expenses and other current assets 21,808 12,597 Deferred taxes 2,806 22,118 Total current assets 146,254 161,275 Property, plant and equipment, net 460,800 723,744 Goodwill, net 171,324 765,249 Other assets 44,755 57,948 823,133 1,708,216 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable 28,863 31,466 Accrued liabilities 64,944 79,462 Current portion of long-term debt 625 28,677 Total current liabilities 94,432 139,605 Long-term debt 423,421 732,587 Deferred taxes 42,106 85,452 Other --- 2,847 Stockholders' Equity: Preferred stock, par value $.01, at September 30, 1997, 7,000,000 shares authorized, none issued --- --- Common stock, par value $.01, 70,000,000 and 100 shares authorized at September 30, 1997 and March 31, 1998 respectively; 31,731,963 and 100 issued and outstanding at September 30, 1997 and March 31, 1998, respectively 317 --- Additional paid-in-capital 170,858 745,000 Retained earnings 91,999 2,725 Total stockholders' equity 263,174 747,725 823,133 1,708,216
See accompanying notes to consolidated financial statements. THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES Consolidated Statement of Operations (Unaudited) (In Thousands)
Three months ended Six months ended March 31, March 31, 1997 1998 1997 1998 (Predecessor (Predecessor Company) Company) Net revenues $168,792 170,164 314,132 355,942 Expenses: Operating expense 127,702 127,777 237,105 269,120 Corporate, general and administrative 8,190 --- 14,971 --- Management fee --- 10,210 --- 21,855 Depreciation and amortization expense 6,870 11,090 13,166 22,874 Lease expense 4,151 3,246 7,387 6,689 Interest expense, net 7,184 14,994 13,401 29,712 Debenture conversion expense 785 --- 785 --- Total expenses 154,882 167,317 286,815 350,250 Earnings before income taxes and extraordinary item 13,910 2,847 27,317 5,692 Income Taxes 5,150 1,480 10,215 2,967 Earnings before extraordinary item 8,760 1,367 17,102 2,725 Extraordinary item - loss on extinguishment of debt, net of tax benefit 873 --- 2,219 --- Net income 7,887 1,367 14,883 2,725
See accompanying notes to consolidated financial statements. THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six months ended March 31, (Predecessor Company) 1997 1998 Cash flows from operating activities: Net cash provided by operating activities $ 43,819 3,856 Cash flows from investing activities: Assets and operations acquired (73,017) --- Capital expenditures (30,145) (18,683) Other assets (5,817) (18,154) Proceeds from repayment of construction advances 13,100 --- Net cash used in investing activities (95,879) (36,837) Cash flows from financing activities: Proceeds from the issuance of common stock 51,942 --- Proceeds from exercise of stock options and stock purchase plan 477 --- Equity contribution --- 745,000 Proceeds from sale of pharmacy business --- 50,000 Proceeds from sale of therapy business --- 24,000 Purchase of shares in tender offer --- (921,326) Proceeds from long-term debt 398,381 1,698,832 Repayments of long-term debt (395,181) (984,370) Debt and other financing obligation repayments in connection with merger --- (452,223) Severance, option payouts and transaction fees in connection with merger --- (104,851) Debt issuance costs (1,054) (21,582) Net cash provided by financing activities 54,565 33,480 Increase in cash and cash equivalents 2,505 499 Cash and cash equivalents at beginning of period 1,893 2,118 Cash and cash equivalents at end of period 4,398 2,617
See accompanying notes to consolidated financial statements. THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31,1998 (Unaudited) (In thousands, except share and per share data) (1) Organization and Basis of Presentation 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 and other ancillary healthcare businesses. The financial information as of March 31, 1998 and for the three and six months ended March 31, 1998 and 1997, is unaudited and has been prepared in conformity with the accounting principles and practices as reflected in the Company's audited annual financial statements. The unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of March 31, 1998 and the operating results for the three and six months ended March 31, 1998 and 1997 and the cash flows for the six months ended March 31, 1998 and 1997. Results for interim periods are not necessarily indicative of those to be expected for the year. 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the nine month transition period ended September 30, 1997. All purchase accounting entries have been pushed down from Genesis ElderCare Corp. and recorded on the consolidated financial statements of Multicare. The operations of Multicare before the Merger (as defined below) are referred to as Predecessor Company. (2) Tender Offer and Merger and Recent Acquisitions On October 9, 1997 Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a wholly-owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formed by Genesis Health Ventures, Inc. ("Genesis"), The Cypress Group L.L.C (together with its affiliates, "Cypress"), TPG Partners II, L.P., (together with its affiliates, "TPG") and Nazem, Inc. (together with its affiliates "Nazem"), acquired 99.65% of the shares of common stock of Multicare, pursuant to a tender offer commenced on June 20, 1997 (the "Tender Offer"). On October 10, 1997, Genesis ElderCare Corp. completed the merger (the "Merger") of Acquisition Corp. with and into Multicare in accordance with the Agreement and Plan of Merger (the "Merger Agreement") dated as of June 16, 1997 by and among Genesis ElderCare Corp., Acquisition Corp., Genesis and Multicare. Upon consummation of the Merger, Multicare became a wholly-owned subsidiary of Genesis ElderCare Corp. In connection with the Merger, Multicare and Genesis entered into a management agreement (the "Management Agreement") pursuant to which Genesis manages Multicare's operations. The Management Agreement has a term of five years with automatic renewals for two years unless either party terminates the Management Agreement. Genesis is paid a fee of six percent of Multicare's net revenues for its services under the Management Agreement provided that payment of such fee in respect of any month in excess of the greater of (i) $1,992 and (ii) four percent of Multicare's consolidated net revenues for such month, shall be subordinate to the satisfaction of Multicare's senior and subordinate debt covenants; and provided, further, that payment of such fee shall be no less than $23,900 in any given year. Under the Management Agreement, Genesis is responsible for Multicare's non-extraordinary sales, general and administrative expenses (other than certain specified third-party expenses), and all other expenses of Multicare are paid by Multicare. Genesis also entered into an asset purchase agreement (the "Therapy Sale Agreement") with Multicare and certain of its subsidiaries pursuant to which Genesis acquired all of the assets used in Multicare's outpatient and inpatient rehabilitation therapy business for $24,000 subject to adjustment (the "Therapy Sale") and a stock purchase agreement (the "Pharmacy Sale Agreement") with Multicare and certain subsidiaries pursuant to which Genesis acquired all of the outstanding capital stock and limited partnership interests of certain subsidiaries of Multicare that are engaged in the business of providing institutional pharmacy services to third parties for $50,000 subject to adjustment (the "Pharmacy Sale"). The Company completed the Pharmacy Sale effective January 1, 1998. Genesis Eldercare Corp. (the "Multicare Parent") paid approximately $1,492,000 to (i) purchase the shares pursuant to the Tender Offer and the Merger, (ii) pay fees and expenses to be incurred in connection with the completion of the Tender Offer, Merger and the financing transactions in connection therewith, (iii) refinance certain indebtedness of Multicare and (iv) make certain cash payments to employees. Of the funds required to finance the foregoing, approximately $745,000 were furnished to Acquisition Corp. as capital contributions by the Multicare Parent from the sale by Genesis ElderCare Corp. of its Common Stock ("Genesis ElderCare Corp. Common Stock") to Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased shares of Genesis ElderCare Corp. Common Stock for a purchase price of $210,000, $199,500 and $10,500, respectively, and Genesis purchased shares of Genesis ElderCare Corp. Common Stock for a purchase price of $325,000 in consideration for approximately 44% of the Common Stock of the Multicare Parent. The balance of the funds necessary to finance the foregoing came from (i) the proceeds of loans from a syndicate of lenders in the aggregate amount of $525,000 and (ii) $250,000 from the sale of 9% Senior Subordinated Notes due 2007 (the "9% Notes") sold by Acquisition Corp. on August 11, 1997. In connection with the Merger, Genesis, Cypress, TPG and Nazem entered into an agreement (the "Put/Call Agreement") pursuant to which, among other things, Genesis will have the option, on the terms and conditions set forth in the Put/Call Agreement to purchase (the "Call") Genesis ElderCare Corp. Common Stock held by Cypress, TPG and Nazem commencing on October 9, 2001 and for a period of 270 days thereafter, at a price determined pursuant to the terms of the Put/Call Agreement. Cypress, TPG and Nazem will have the option, on the terms and conditions set forth in the Put/Call Agreement, to require Genesis to purchase (the "Put") such Genesis ElderCare Corp. Common Stock commencing on October 9, 2002 and for a period of one year thereafter, at a price determined pursuant to the Put/Call Agreement. The prices determined for the Put and Call are based on a formula that calculates the equity value attributable to Cypress', TPG's and Nazem's Genesis ElderCare Corp. Common Stock, plus a portion of the Genesis pharmacy business (the "Calculated Equity Value"). The Calculated Equity Value will be determined based upon a multiple of Genesis ElderCare Corp.'s earnings before interest, taxes, depreciation, amortization and rental expenses, as adjusted ("EBITDAR") after deduction of certain liabilities, plus a portion of the EBITDAR related to the Genesis pharmacy business. The multiple to be applied to EBITDAR will depend on whether the Put or the Call is being exercised. Any payment to Cypress, TPG or Nazem under the Call or the Put may be in the form of cash or Genesis common stock at Genesis' option. Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum their original investment plus a 25% compound annual return thereon regardless of the Calculated Equity Value. Any additional Calculated Equity Value attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. Common Stock will be determined on the basis set forth in the Put/Call Agreement which provides generally for additional Calculated Equity Value of Genesis ElderCare Corp. to be divided based upon the proportionate share of the capital contributions of the stockholders to Genesis ElderCare Corp. Upon exercise of the Put by Cypress, TPG or Nazem, there will be no minimum return to Cypress, or TPG or Nazem; any payment to Cypress, TPG or Nazem will be limited to Cypress', TPG's, or Nazem's share of the Calculated Equity Value based upon a formula set forth in the terms of the Put/Call Agreement which provides generally for the preferential return of the stockholders' capital contributions (subject to certain priorities), a 25% compound annual return on Cypress', TPG's and Nazem's capital contributions and the remaining Calculated Equity Value to be divided based upon the proportionate share of the capital contributions of the stockholders to Genesis ElderCare Corp. Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated upon an event of bankruptcy of Genesis, a change of control of Genesis or an extraordinary dividend or distribution or the occurrence of the leverage recapitalization of Genesis. Upon an event of acceleration or the failure by Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and Nazem will have the right to terminate the Stockholders' Agreement and Management Agreement and to control the sale or liquidation of Genesis ElderCare Corp. In the event of such sale, the proceeds from such sale will be distributed among the parties as contemplated by the formula for the Put option exercise price and Cypress, TPG and Nazem will retain a claim against Genesis for the difference, if any, between the proceeds of such sale and the put option exercise price. In December 1996, the Company completed the acquisition of The ADS Group (ADS). 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 ADS. Total goodwill approximated $30,700. The following 1997 pro forma financial information has been prepared as if the ADS acquisition, the Merger, the Therapy Sale and the Pharmacy Sale had been consummated on October 1, 1996. The following 1998 pro forma financial information has been prepared as if the Pharmacy Sale had been completed on October 1, 1997. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the transactions occurred at the beginning of the respective periods presented and is based upon preliminary allocations of the purchase prices to property, plant and equipment and goodwill that are subject to change.
Six months ended March 31 1997 1998 Net revenues 295,935 338,898 Earnings (loss) before extraordinary item (9,011) 1,891 Net income (loss) (11,230) 1,891
(3) Commitments and Contingencies Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or after July 1, 1998, Medicare reimbursement for skilled nursing facilities will be on a prospective payment system ("PPS"). Skilled nursing facilities will be paid a per diem rate for all covered Part A skilled nursing facility services as well as many services for which payment may be made under Part B during a period when a beneficiary is provided covered skilled nursing facility care. The per diem rate is adjusted based upon the resource utilization group of a resident. This payment will cover rehabilitation and non-rehabilitation ancillary services; however the per diem rate will not cover physician, nursing, physician assistant and certain related services. For the first three cost reporting periods beginning on or after July 1, 1998, the per diem will be based on a blend of a facility specific rate and a federal per diem rate. In subsequent periods, and for facilities first receiving payments for Medicare services on or after October 1, 1995, the federal per diem rate will be used without any facility specific blending. The Act also required consolidated billing for skilled nursing facilities. The skilled nursing facility must submit all Medicare claims for Part A and Part B services received by its residents with the exception of physician, nursing, physician assistant and certain related services. Medicare will pay the skilled nursing facilities directly for all services on the consolidated bill and outside suppliers of services to residents of the skilled nursing facilities must collect payment from the skilled nursing facility. The Act also repealed the Boren Amendment which required Medicaid payments to nursing facilities to be "reasonable and adequate" to cover the costs of efficiently and economically operated facilities. Under the Act, states must now use a public notice and comment process for determining Medicaid rates and give interested parties a reasonable opportunity to comment on proposed rates, rate methodology and justifications. It is unclear what impact the Balanced Budget Act of 1997 will have on the Company. 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. (4) Financing Obligations In February 1998 ElderTrust ("ETT"), a Maryland real estate investment trust sponsored by Genesis, made term loans totaling $12,881, to subsidiaries of the Company with respect to the lease-up of two assisted living facilities. The loans have a fixed annual rate of interest of 10.5% and mature three years from the date of the loans, subject to the right of the Company to extend the term for up to three one-year extension periods in the event the facility has not reached "stabilized occupancy" (as defined) as of the third anniversary of the loan (or at the end of any extension period, if applicable). In February 1998 ETT also made one construction loan in the amount of $3,000 to a subsidiary of the Company to fund construction of an assisted living facility being developed by the Company. The note bears interest at a fixed annual rate of 10.5%, and will mature on the third anniversary of the loan, subject to the right of the Company to extend the term for up to three one-year extension periods in the event the facility has not reached "stabilized occupancy" as of such third anniversary (or at the end of any extension period, if applicable). ETT is obligated to purchase and leaseback the three facilities that secure the term and construction loans being made to the Company upon the earlier of the facility reaching stabilized occupancy or the maturity of the loan secured by the facility provided, however, that the Company will not be obligated to sell any facility if the purchase price for the facility would be less than the applicable loan amount. The purchase agreements provide for a cash purchase price in an amount which will result in an annual yield of 10.5% to ETT. If acquired by ETT, these facilities would be leased to the Company under minimum rent leases. The initial term of any minimum rent lease will be ten years, and the Company will have the option to extend the term for up to two five-year extension periods upon 12 months notice to ETT. Minimum rent for the first lease year under any minimum rent lease will be established by multiplying the purchase price for the applicable facility times 10.5%, and the increase each year by an amount equal to the lesser of (i) 5% of the increase in the gross revenues for such facility (excluding any revenues derived from ancillary healthcare services provided by Genesis or its affiliates to residents of the applicable facility) during the immediately preceding year or (ii) one-half of the increase in the Consumer Price Index during the immediately preceding year. (4) Financing Obligations, Continued. During the last four years of the term (as extended, if applicable), the Company is required to make minimum capital expenditures equal to $3 per residential unit in each assisted living facility covered by a minimum rent lease. The Company enters into interest rate swap agreements to manage interest costs and risks associated with changing interest rates. In November 1997 the Company entered into swap agreements with notional principal amounts totaling $100,000. These agreements effectively convert underlying variable-rate debt based on LIBOR into fixed-rate debt whereby the Company makes quarterly payments at a weighted average fixed rate of 5.64% and receives quarterly payments at a floating rate based on three month LIBOR (approximately 5.72% at May 7, 1998). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Prior to the Merger, Multicare had experienced significant growth, primarily through acquisitions of long-term care facilities and ancillary businesses and increased utilization of specialty medical services. It had been Multicare's strategy to expand through construction and development of new facilities and selective acquisitions with geographically concentrated operations. In December 1996, the Company acquired The ADS Group, which owns, operates or manages over 50 long-term care and assisted-living facilities with over 4,200 licensed beds, principally in Massachusetts. Under Genesis' management, the Company's strategy is to integrate the talents of physicians with case management, comprehensive discharge planning and, where necessary, home support services, to provide cost effective care management to achieve superior outcomes and return the Company's customers to the community. Genesis' management believes that achieving improved customer outcomes will result in increased utilization of specialty medical services and a broader base of repeat customers in the Company's network. Moreover, the Company believes that this strategy will lead to continued high levels of occupancy of available beds, high quality payor mix and same store growth in net revenues and EBITDAR. Genesis' management will also focus on the revenue and cost opportunities presented through the further integration of the Company's recent acquisitions. The Tender Offer and Merger On June 16, 1997, Multicare entered into an Agreement and Plan of Merger (the "Merger Agreement") with Genesis ElderCare Corp. (the "Parent"), and Genesis ElderCare Acquisition Corp., a wholly owned subsidiary of Parent (the "Acquisition Corp.") pursuant to which Acquisition Corp. offered to acquire all outstanding shares of common stock (the "Shares"), of Multicare at a purchase price of $28.00 per Share, net to the seller in cash (the "Tender Offer"). The Tender Offer expired on Wednesday, October 8, 1997 and Acquisition Corp. accepted for purchase the Shares that had been validly tendered and not withdrawn. The Shares accepted pursuant to the Tender Offer constituted approximately 99.65% of Multicare's issued and outstanding Shares. On October 10, 1997, pursuant to the Merger Agreement, Acquisition Corp. was merged with and into Multicare (the "Surviving Corporation") and the remaining Shares not previously purchased in the Tender Offer were canceled, extinguished and converted into the right to receive $28.00 in cash. As a result of the Merger, Parent is the record and beneficial owner of all Shares of the Surviving Corporation. Parent is owned by Genesis Health Ventures, Inc., a Pennsylvania corporation ("Genesis"), The Cypress Group L.L.C. (together with its affiliates, "Cypress"), TPG Partners II, L.P. (together with its affiliates, "TPG") and Nazem, Inc. (together with its affiliates, "Nazem") and their affiliates. On October 9, 1997, Multicare, Genesis and Genesis ElderCare Network Services, Inc., a wholly-owned subsidiary of Genesis, entered into a management agreement (the "Management Agreement") pursuant to which Genesis manages Multicare's operations. The Management Agreement has a term of five years with automatic renewals for two years unless either party terminates the Management Agreement. Genesis will be paid a fee of six percent of Multicare's net revenues for its services under the Management Agreement provided that payment of such fee in respect of any month in excess of the greater of (i) $1.9 million and (ii) four percent of Multicare's consolidated net revenues for such month, shall be subordinate to the satisfaction of Multicare's senior and subordinate debt covenants; and provided, further, that payment of such fee shall be no less than $23.9 million in any given year. Under the Management Agreement, Genesis is responsible for Multicare's non-extraordinary sales, general and administrative expenses (other than certain specified third-party expenses), and all other expenses of Multicare are paid by Multicare. On October 10, 1997, Genesis entered into an asset purchase agreement with Multicare and certain of its subsidiaries pursuant to which Genesis acquired all of the assets used in Multicare's outpatient and inpatient rehabilitation therapy business for $24 million, subject to adjustment (the "Therapy Sale"). On October 10, 1997, Genesis entered into a stock purchase agreement with Multicare and certain of its subsidiaries pursuant to which Genesis acquired all of the outstanding capital stock and limited partnership interests of certain subsidiaries of Multicare that are engaged in the business of providing institutional pharmacy services to third parties for $50 million, subject to adjustment (the "Pharmacy Sale"). The Company completed the Pharmacy Sale effective January 1, 1998. Results of Operations Net Revenues. Net revenues for the three months ended March 31, 1998 increased $1.4 million from the same period last year to $170.2 million. Net revenues for the six months ended March 31, 1998 increased 13% or $41.8 million from the same period last year to $355.9 million. The increase in revenues in the second quarter of fiscal 1998 is comprised of approximately $22.1 million relating to internal growth, offset by a decrease of approximately $20.7 million relating to the exclusion of results for the pharmacy and therapy businesses due to the Pharmacy Sale and the Therapy Sale. The increase in revenues for the six months ended March 31, 1998 consisted of approximately $45.6 million of internal growth and $12.9 million for results of recent acquisitions, offset by a $16.7 million decrease relating to the exclusion of results for the pharmacy and therapy businesses due to the Pharmacy Sale and the Therapy Sale. The internal growth of revenues resulted mainly from increases in payor rates and changes in census mix, and development and opening of additional beds. The Company's quality mix of private, Medicare and insurance revenues was 62% and 65% of net revenues for the three and six months ended March 31, 1998 compared to 67% in the similar periods of last year. Occupancy rates were 91% and 92% for the three and six months ended March 31, 1998 compared to 90% in the similar periods of last year. Operating Expense. Operating expenses for the three months ended March 31, 1998 were $127.8 million compared to $127.7 million last year. This increase is comprised of approximately $17.5 million resulting primarily from higher salaries, wages and benefits and expanded nursing staffing levels to support higher acuity patients, offset by a decrease of $17.4 million relating to the exclusion of results for the pharmacy and therapy businesses due to the Pharmacy Sale and the Therapy Sale. Operating expenses for the six months ended March 31, 1998 increased 14% from the comparable period last year to $269.1 million. The increase includes approximately $6.8 million relating to results of recent acquisitions, offset by a decrease of $13.2 million relating to the exclusion of results for the pharmacy and therapy businesses due to the Pharmacy Sale and the Therapy Sale. The remainder of the increase resulted primarily from higher salaries, wages and benefits and expanded nursing staffing levels to support higher patient acuities and more complex product lines such as subacute and Alzheimers care. Management Fee and Corporate, General and Administrative Expense. In connection with the Management Agreement, Genesis manages Multicare's operations for a fee of approximately six percent of Multicare's revenues and is responsible for Multicare's general and administrative expenses. The 1997 corporate, general and administrative expenses include resources devoted to operations, finance, legal, risk management, and information systems. Lease Expense. Lease expense for the three months ended March 31, 1998 decreased 22% to $3.2 million. Lease expense for the six months ended March 31, 1998 decreased 9% to $6.7 million. In connection with the Merger, the Company paid off its synthetic lease facility with proceeds from the Senior Facilities. Depreciation and Amortization Expense. Depreciation and amortization expense for the three and six months ended March 31, 1998 increased 61% and 74% from the same periods last year to $11.1 million and $22.9 million, respectively. The increase is due to depreciation on the allocation of the purchase price to property, plant and equipment and to amortization of goodwill relating to the Merger. Interest Expense, net. Net interest expense for the three and six months ended March 31, 1998 increased $7.8 million and $16.3 million from the same periods in fiscal 1997 to $15.0 million and $29.7 million, respectively. This is a result of incremental borrowings under the Company's Senior Facilities and 9% Notes incurred to finance the Merger. Income Tax Expense. The provision for income taxes increased to 52% of pre-tax income in the six months ended March 31, 1998 from 37% of pre-tax income from the similar period last year. The increase relates to higher non-deductible goodwill amortization resulting from the Merger. Liquidity and Capital Resources The Company maintains adequate working capital from operating cash flows and lines of credit for continuing operations, debt service, and anticipated capital expenditures. At March 31, 1998, the Company had working capital of $21.7 million, compared to $51.8 million at September 30, 1997 due primarily to an increase in current portion of long term debt incurred to finance the merger. Cash flow from operations was $3.9 million for the six months ended March 31, 1998 compared to cash flow from operations of $43.8 million in the comparable period of 1997. The decrease in operating cash flows results primarily from the decline in earnings which is attributable to increased interest expense and the Genesis management fee and the timing of payments, offset by the elimination of corporate, general and administrative expenses. Net accounts receivable were $123.9 million at March 31, 1998 compared to $119.5 million at September 30, 1997. The increase in net accounts receivable is attributable to the timing of third-party interim and settlement payments and the utilization of specialty medical services for higher acuity level patients, offset by a decrease relating to the Pharmacy Sale and the Therapy Sale. 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. In connection with the Merger, Multicare entered into three term loans and a revolving credit facility of up to $525 million, in the aggregate (collectively, the "Senior Facilities"), provided by a syndicate of banks and other financial institutions (collectively, the "Lenders") led by Mellon Bank, N.A., as administrative agent (the "Administrative Agent"), pursuant to a certain credit agreement (the "Long Term Credit Agreement") dated as of October 14, 1997. The Senior Facilities are being used for the purpose of (i) refinancing certain short term facilities in the aggregate principal amount of $431.6 million which were funded on October 9, 1997 to acquire the Shares in the Tender Offer, refinance certain indebtedness of Multicare and pay fees and expenses related to the transactions, (ii) funding interest and principal payments on such facilities and on certain remaining indebtedness and (iii) funding working capital and general corporate purposes. The Senior Facilities consist of: (1) a $200 million six year term loan (the "Tranche A Term Facility"); (2) a $150 million seven year term loan (the "Tranche B Term Facility"); (3) a $50 million term loan maturing on June 1, 2005 (the "Tranche C Term Facility"); (4) a $125 million six year revolving credit facility (the "Revolving Credit Facility"); and (5) one or more Swing Loans (collectively, the "Swing Loan Facility") in integral principal multiples of $500,000 up to an aggregate unpaid principal amount of $10 million. The Tranche A Term Facility, Tranche B Term Facility and Tranche C Term Facility are subject to amortization in quarterly installments, commencing at the end of the first calendar quarter after the date of the consummation of the Merger (the "Closing Date"). The Revolving Credit Facility will mature six years after the Closing Date. All net proceeds received by Multicare from (i) the sale of assets of Multicare or its subsidiaries other than sales in the ordinary course of business (and other than the sales of Multicare's rehabilitation therapy business and pharmacy business to the extent that there are amounts outstanding under the Revolving Credit Facility) and (ii) any sale of common stock or debt securities (other than the 9% Notes and the Equity Contributions) of Multicare in respect of common stock will be applied as a mandatory prepayment. Fifty percent of Excess Cash Flow must be applied to the Senior Facilities and shall be payable annually. The Senior Facilities are secured by a first priority security interest in all of the (i) stock of Multicare, (ii) stock, partnership interests and other equity of all of Multicare's present and future direct and indirect subsidiaries and (iii) intercompany notes among Parent and any subsidiaries or among any subsidiaries. Loans under the Senior Facilities bear, at Multicare's option, interest at the per annum Prime Rate as announced by the Administrative Agent, or the applicable Adjusted LIBO Rate. Loans under the Tranche A Term Facility bear interest at a rate equal to LIBO Rate plus a margin up to 2.5%; loans under the Tranche B Term Facility bear interest at a rate equal to LIBO Rate plus a margin up to 2.75%; loans under the Tranche C Term Facility bear interest at a rate equal to LIBO Rate plus a margin up to 3.0%; loans under the Revolving Credit Facility bear interest at a rate equal to LIBO Rate plus a margin up to 2.5%; and loans under the Swing Loan Facility bear interest at the Prime Rate unless otherwise agreed to by the parties. Subject to meeting certain financial covenants, the above-referenced interest rates may be reduced. The Long Term Credit Agreement contains a number of covenants that, among other things, restrict the ability of Multicare and its subsidiaries to dispose of assets, incur additional indebtedness, make loans and investments, pay dividends, engage in mergers or consolidations, engage in certain transactions with affiliates and change control of capital stock, prepay debt, make material changes in accounting and reporting practices, create liens on assets, give a negative pledge on assets, make acquisitions and amend or modify documents. In addition, the Long Term Credit Agreement requires that Multicare and its affiliates maintain the Management Agreement as well as comply with certain financial covenants. On August 11, 1997, Acquisition Corp. sold to Morgan Stanley & Co. Incorporated, Montgomery Securities, L.P. and First Union Capital Markets Corp. (collectively, the "Placement Agents") $250 million principal amount of its 9% Senior Subordinated Notes due 2007 (the "9% Notes") which were issued pursuant to an Indenture, dated as of August 7, 1997 (the "Indenture") by and between Acquisition Corp., as issuer, and PNC Bank, National Association, as trustee. The 9% Notes bear interest at 9% per annum from August 11, 1997, payable semiannually on February 1 and August 1 of each year, commencing on February 1, 1998. The 9% Notes are unsecured, general obligations of the issuer, subordinated in right of payment to all existing and future Senior Indebtedness, as defined in the Indenture, of the issuer, including indebtedness under the Senior Facilities. The 9% Notes rank pari passu in right of payment with any future senior subordinated indebtedness of the issuer and are senior in right of payment to all future subordinated indebtedness of the issuer. The 9% Notes are redeemable at the option of the issuer, in whole or in part, at any time on or after August 1, 2002, initially at 104.5% of their principal amount, plus accrued interest, declining ratably to 100% of their principal amount, plus accrued interest, on or after August 1, 2004. The 9% Notes are subject to mandatory redemption at 101%. Upon a Change in Control, as defined in the Indenture, the issuer is required to make an offer to purchase the 9% Notes at a purchase price equal to 101% of their principal amount, plus accrued interest. The Indenture contains a number of covenants that, among other things, restrict the ability of the issuer of the 9% Notes to incur additional indebtedness, pay dividends, redeem capital stock, make certain investments, issue the capital stock of its subsidiaries, engage in mergers or consolidations or asset sales, engage in certain transactions with affiliates, and create dividend and other restrictions affecting its subsidiaries. Upon the consummation of the Merger, Multicare assumed all obligations of Acquisition Corp. with respect to and under the 9% Notes and the related Indenture. At May 11, 1998, there is approximately $454.8 million outstanding under the Senior Facilities and approximately $55.4 million available under the Senior Facilities after giving effect to approximately $1.7 million outstanding letters of credit. In February 1998 ElderTrust ("ETT"), a Maryland real estate investment trust sponsored by Genesis, made term loans to subsidiaries of the Company with respect to the lease-up of two assisted living facilities. The loans have a fixed annual rate of interest of 10.5% and mature three years from the date of the loans, subject to the right of the Company to extend the term for up to three one-year extension periods in the event the facility has not reached "stabilized occupancy" (as defined) as of the third anniversary of the loan (or at the end of any extension period, if applicable). In February 1998 ETT also made one construction loan to a subsidiary of the Company to fund construction of an assisted living facility being developed by the Company. The note bears interest at a fixed annual rate of 10.5%, and will mature on the third anniversary of the loan, subject to the right of the Company to extend the term for up to three one-year extension periods in the event the facility has not reached "stabilized occupancy" as of such third anniversary (or at the end of any extension period, if applicable). ETT is obligated to purchase and leaseback the three facilities that secure the term and construction loans being made to the Company upon the earlier of the facility reaching stabilized occupancy or the maturity of the loan secured by the facility provided, however, that the Company will not be obligated to sell any facility if the purchase price for the facility would be less than the applicable loan amount. The purchase agreements provide for a cash purchase price in an amount which will result in an annual yield of 10.5% to ETT. If acquired by ETT, these facilities would be leased to the Company under minimum rent leases. The initial term of any minimum rent lease will be ten years, and the Company will have the option to extend the term for up to two five-year extension periods upon 12 months notice to ETT. Minimum rent for the first lease year under any minimum rent lease will be established by multiplying the purchase price for the applicable facility times 10.5%, and the increase each year by an amount equal to the lesser of (i) 5% of the increase in the gross revenues for such facility (excluding any revenues derived from ancillary healthcare services provided by Genesis or its affiliates to residents of the applicable facility) during the immediately preceding year or (ii) one-half of the increase in the Consumer Price Index during the immediately preceding year. During the last four years of the term (as extended, if applicable), the Company is required to make minimum capital expenditures equal to $3,000 per residential unit in each assisted living facility covered by a minimum rent lease. The Company anticipates its capital requirements for the construction of new facilities and the expansion and renovation of existing facilities to approximate $10 million over the next twelve months based on existing construction commitments and plans. Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or after July 1, 1998, Medicare reimbursement for skilled nursing facilities will be on a prospective payment system ("PPS"). Skilled nursing facilities will be paid a per diem rate for all covered Part A skilled nursing facility services as well as many services for which payment may be made under Part B during a period when a beneficiary is provided covered skilled nursing facility care. The per diem rate is adjusted based upon the resource utilization group of a resident. This payment will cover rehabilitation and non-rehabilitation ancillary services; however the per diem rate will not cover physician, nursing, physician assistant and certain related services. For the first three cost reporting periods beginning on or after July 1, 1998, the per diem will be based on a blend of a facility specific rate and a federal per diem rate. In subsequent periods, and for facilities first receiving payments for Medicare services on or after October 1, 1995, the federal per diem rate will be used without any facility specific blending. The Act also required consolidated billing for skilled nursing facilities. The skilled nursing facility must submit all Medicare claims for Part A and Part B services received by its residents with the exception of physician, nursing, physician assistant and certain related services. Medicare will pay the skilled nursing facilities directly for all services on the consolidated bill and outside suppliers of services to residents of the skilled nursing facilities must collect payment from the skilled nursing facility. The Act also repealed the Boren Amendment which required Medicaid payments to nursing facilities to be "reasonable and adequate" to cover the costs of efficiently and economically operated facilities. Under the Act, states must now use a public notice and comment process for determining Medicaid rates and give interested parties a reasonable opportunity to comment on proposed rates, rate methodology and justifications. It is unclear what impact the Balanced Budget Act of 1997 will have on the Company. Year 2000 Issues The Company is aware of issues associated with the programming code in many existing computer systems (the "Year 2000" issue) as the millennium approaches. The Company has conducted a review of its computer systems to identify hardware and software affected by the Year 2000 issue. This issue affects computers systems having date sensitive programs that may not properly recognize the Year 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail resulting in business interruption. With respect to its existing computer systems, the Company is upgrading, generally, in order to meet the demands of its expanding business. In the process, the Company is taking steps to identify, correct, or reprogram and test its existing systems for Year 2000 compliance. It is anticipated that all new system upgrades or reprogramming efforts will be completed by mid calendar year 1999, allowing adequate time for testing. The Company presently believes that with modification to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, given the complexity of the Year 2000 issues, there can be assurances that the Company will be able to address the problem without costs and uncertainties that might affect future financial results or cause reported financial information not to be necessarily indicative of future operating results or future financial condition. The Company has incurred, and expects to incur additional, internal costs as well as other expenses to address the necessary software upgrades, training, data conversion, testing and implementation related to the Year 2000 issue. Such costs are being expensed as incurred. The Company does not expect the amounts required to be expensed to have a material effect on its financial position or results of operations. The Year 2000 issue is expected to affect the systems of various entities with which the Company interacts including payors, suppliers and vendors. There can be no assurance that data produced by systems of other entities on which the Company's systems rely will be converted on a timely basis or that a failure by another entity's system to be Year 2000 compliant will not have a material adverse effect on the Company. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130"). This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement is effective for fiscal years beginning after December 15, 1997. The Company plans to adopt this accounting standard as required. The adoption of this standard will have no impact on the Company's earnings, financial condition or liquidity, but will require the Company to classify items of other comprehensive income in a financial statement and display the accumulated balance of other comprehensive income separately in the equity section of the balance sheet. In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131"). Statement 131 supersedes Statement of Financial Standards No. 14, Financial Reporting for Segments of a Business Enterprise, and establishes new standards for reporting information about operation segments in annual financial statements and requires selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective for periods beginning after December 15, 1997. This Statement will have no impact on the Company's financial statements, results of operations, financial condition or liquidity. Part II-Other Information Item 1. Legal Proceedings. Not Applicable. Item 2. Changes in Securities and Use of Proceeds. Not Applicable. Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits Exhibit No. Description 10.7 Second Amended and Restated Stock Purchase Agreement dated October 10, 1997 among Genesis Health Ventures, Inc., The Multicare Companies, Inc., Concord Health Group, Inc., Horizon Associates, Inc., Horizon Medical Equipment and Supply, Inc., Institutional Health Care Services, Inc., Care4, L.P., Concord Pharmacy Services, Inc., Compass Health Services, Inc. and Encare of Massachusetts, Inc. 27 Financial Data Schedule b) Reports on Form 8-K. Not Applicable. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Multicare Companies, Inc. /S/ GEORGE V. HAGER, JR. By: George V. Hager, Jr. Senior Vice President and Chief Financial Officer May 13, 1998 EX-10 2 SECOND AMENDED AND RESTATED STOCK PURCHASE AGREEMENT This Agreement is made as of this 10th day of October, 1997, by and among Genesis Health Ventures, Inc., a Pennsylvania corporation, and/or its designee pursuant to Section 9.2 hereof (the "Buyer"), The Multicare Companies, Inc., a Delaware corporation, Concord Health Group, Inc., a Delaware corporation, and Horizon Associates, Inc., a West Virginia corporation (collectively, the "Sellers"), and Horizon Medical Equipment and Supply, Inc., a West Virginia corporation, Institutional Health Care Services, Inc., a New Jersey corporation, Care4, L.P., a Delaware limited partnership, Concord Pharmacy Services, Inc., a Pennsylvania corporation, Compass Health Services, Inc., a West Virginia corporation, and Encare of Massachusetts, Inc., a Delaware corporation (each a "Company" and collectively, the "Companies"). BACKGROUND WHEREAS, the Sellers and each of the Companies have agreed to sell and Buyer has agreed to purchase, all of the issued and outstanding capital stock and limited partnership interests, whichever is applicable, of each of the Companies on the terms and conditions provided for in this Agreement. AGREEMENT NOW, THEREFORE, in order to consummate such transactions and in consideration of the mutual agreements set forth herein, the parties hereto, intending to be legally bound, agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Definitions. As used in this Agreement, unless otherwise defined herein or unless the context otherwise requires, the following terms shall have the following meanings: "Agreement" means this Stock Purchase Agreement, all schedules hereto and all amendments, modifications, and supplements hereto. "Buyer" is defined in the preamble hereto. "Closing" has the meaning specified in Section 2.2 hereof. "Closing Date" has the meaning specified in Section 2.2 hereof. "Company" or "Companies" is defined in the preamble hereto. "Encumbrance" means any mortgage, claim, lien, pledge, option, charge, security interest or other similar interest, easement, judgment or imperfection of title of any nature whatsoever. "Material Adverse Effect" means any change or effect that would or would reasonably be expected to materially and adversely affect the financial condition, results of operations, assets or business of each of the Companies, the each of the Sellers, or Buyer and its subsidiaries taken as a whole, as the case may be. "Merger Agreement" means the Merger Agreement, dated as of June 16, 1997, by and among Genesis ElderCare Corp. (formerly known as Waltz Corp.), a Delaware corporation, Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.), a Delaware corporation, and The Multicare Companies, Inc. pursuant to which Genesis ElderCare Acquisition Corp. shall merge with and into The Multicare Companies, Inc. "Purchase Price" means Fifty Million Dollars ($50,000,000) to be paid by Buyer for the Shares in accordance with an allocation to be mutually determined by the parties. "Sellers" is defined in the preamble hereto. "Shares" means all of the outstanding capital stock and limited partnership interests, whichever is applicable, of each of the Companies. ARTICLE 2. SALE OF SHARES AND PURCHASE PRICE Section 2.1 Sale of Shares. On the terms and subject to the conditions set forth in this Agreement, the Sellers shall cause the sale, transfer and delivery to Buyer, and Buyer shall purchase, on the Closing Date, all right, title and interest in and to all of the Shares. Section 2.2 Closing. The closing of the purchase and sale of the Shares (the "Closing") shall take place as soon as practicable after the closing under the Merger Agreement at the offices of Blank Rome Comisky & McCauley, One Logan Square, Philadelphia, Pennsylvania 19103, or at such other place as shall be mutually agreeable to the parties hereto (which time and place are designated as the "Closing Date"), subject to the satisfaction or waiver of the conditions specified in Article 6; provided, however, that if acceptable to the parties, the Closing may be effected by facsimile transmission of executed copies of the documents (including without limitation, this Agreement) delivered at the Closing and payment of the purchase price specified in Section 2.3 and by sending original copies of the documents (including without limitation, this Agreement) delivered at the Closing by reputable overnight delivery service, postage or delivery charges prepaid, for delivery to the parties at their respective addresses set forth in Section 9.1 herein by the third business day following the Closing. Section 2.3 Purchase Price. On the Closing Date, Buyer shall pay the Purchase Price for the Shares. Buyer shall pay the Purchase Price, against delivery of the certificates and the amended limited partnership agreement, whichever is applicable, for the Shares required by Section 2.4, by wire transfer of immediately available funds to such accounts as the Sellers shall designate. The parties agree to allocate the Purchase Price among the Shares in a manner to be mutually determined by the parties. Section 2.4 Delivery of Certificates, Amended Limited Partnership Agreement. (i) On the Closing Date, the Sellers and the Companies shall cause to be delivered to Buyer certificates (with respect to only those Companies that are corporations) evidencing all of the Shares, duly endorsed in blank (or in such name as may be designated by Buyer), and accompanied by stock powers duly executed in blank (or in such name as may be designated by Buyer), in proper form to transfer all right, title and interest in and to all Shares to Buyer. Buyer shall have no obligation to purchase any of the Shares unless the Sellers and the Companies deliver certificates for all of the Shares. (ii) On the Closing Date, the Sellers and the Companies shall cause to be delivered to Buyer an amended limited partnership agreement (with respect to only those Companies that are limited partnerships) stating, among other things, that Buyer is the sole limited partner for the Company that is a partnership on and as of the Closing Date. Buyer shall have no obligation to purchase any of the Shares unless the Sellers and the Companies deliver such amended limited partnership agreement. ARTICLE 3. CERTAIN UNDERSTANDINGS AND AGREEMENTS Section 3.1 Conduct of Business. From the date of this Agreement to the Closing Date, the Companies shall, and the Sellers shall cause the Companies to, conduct their operations according to their ordinary and usual course of business, to preserve their business organization intact, keep available the services of their officers and employees and maintain satisfactory relationships with suppliers, customers and others having business relationships with them. Section 3.2 Pre-Closing Access to Properties and Records; Confidentiality. Between the date hereof and the Closing Date, the Companies shall, and the Sellers shall cause the Companies to, give authorized representatives of Buyer, reasonable access to the premises, properties, contracts, books, records and affairs of the Companies (including reasonable access to the properties of the Companies for the purposes of conducting a Phase 1 environmental assessment of such properties) and will cause the Companies' officers to furnish such financial, technical and operating data and other information pertaining to the Companies' businesses as Buyer shall from time to time reasonably request. Section 3.3 Reasonable Efforts. Subject to the terms and conditions of this Agreement, each party shall use all commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the transactions contemplated by this Agreement. The parties shall cooperate with one another (a) in determining whether any action by or in respect of, or filing with, any governmental authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any contracts and (b) subject to the terms and conditions of this Agreement, in taking such actions or making any such filings, furnishing information required in connection therewith and seeking to obtain in a timely fashion any such actions, consents approvals or waivers. Section 3.4 Notice of Certain Events. The Companies and, to the extent known by it, the Sellers shall give notice to Buyer promptly of: (a) any notice of breach or default received subsequent to the date of this Agreement, or any instrument or agreement to which the Companies or any of the Sellers is a party or by which it is bound; or (b) any suit, action, proceeding or investigation instituted or, to the Companies' and the Sellers' knowledge, threatened against or affecting any of the Sellers or Companies subsequent to the date of this Agreement and prior to the Closing. Section 3.5 Section 338(h)(10) Election. With respect to the Buyer's acquisition of the Shares pursuant to this Agreement, Buyer and the Sellers shall jointly make a timely election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code") (and any corresponding elections under any state or local tax laws) (such elections being hereinafter collectively referred to as the "338(h)(10) Election"). The Sellers shall cooperate with Buyer and take such action as may be necessary to cause each of the Companies to cooperate with Buyer and take any and all action reasonably necessary or appropriate (including filing such forms, returns, elections, schedules and other documents as may reasonably be required) to effect and preserve a timely 338(h)(10) Election in accordance with Code Section 338 and the applicable regulations thereunder. The allocation of values to the assets of the Companies shall be in accordance with the allocation set forth in Schedule D attached hereto. Thereafter, Buyer and the Sellers shall report the sale of the stock and other equity interests of the Companies pursuant to this Agreement in a manner which is consistent with the 338(h)(10) Election and shall take no position contrary thereto or inconsistent therewith in any tax returns in any discussion with or proceeding before any taxing authority or otherwise. The Sellers will pay any tax attributable to the making of the Section 338(h)(10) Election and arising out of a deemed sale of assets as of the Closing. Section 3.6 Adjustment of Assets. It is the intention of the parties that the Companies comprise the institutional pharmacy services companies of Multicare which have generated year to date annualized revenues of $82.3 million and EBITDAR of $13.4 million. To the extent that (i) any of the Companies are not included in the institutional pharmacy services companies which generated such annualized revenues and EBITDAR or (ii) other entities owned by Seller are included in such annualized revenues or EBITDAR but are not sold to Buyer hereunder, the parties agree to make appropriate adjustment of the assets sold hereunder. Section 3.7 Tax Adjustment. To the extent that any taxes are imposed upon Seller as a result of the sale of the Companies hereunder, Buyer will pay to Seller the amount of such taxes when Seller is required to pay such taxes. To the extent that the sale of Companies hereunder generates tax losses to Seller, Seller will pay to Buyer the tax savings realized from such tax losses when Seller receives the benefit from such tax losses. ARTICLE 4. CONDITIONS TO OBLIGATIONS OF EACH PARTY The obligations of each party to consummate the transactions contemplated hereby shall be subject to the fulfillment, at or prior to the Closing Date, of the following conditions, each of which may be waived by the parties in writing: Section 4.1 No Action or Proceeding. No claim, action, suit or other proceeding shall be pending or threatened by any public authority or person before any court, agency or administrative body which creates a substantial likelihood that the consummation of this Agreement or the transactions contemplated hereby will be restrained, enjoined or otherwise prevented or that any material damages will be recovered or other material relief obtained as a result of the transactions contemplated hereby or as a result of any agreement entered into in connection with, or as a condition precedent to, the consummation of the transactions contemplated hereby. Section 4.2 Compliance with Law. No provision of any applicable law and no judgment, injunction, order or decree shall prohibit the Closing. There shall have been obtained any and all permits, approvals and consents of any governmental body or agency which Buyer or the Sellers may reasonably deem necessary so that consummation of the transactions contemplated by this Agreement will be in compliance in all material respects with the applicable laws. Section 4.3 Hart-Scott-Rodino Requirements. The waiting periods (as such may be extended by the governmental agencies involved) applicable to the consummation of the transactions contemplated hereby under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules thereunder shall have expired or have been terminated by the appropriate governmental agency. Section 4.4. Regulatory Approvals. Any material approval, permit, authorization, consent or waiting period of any governmental authority applicable to (i) the purchase of all of the outstanding shares of common stock, par value $.01 per share, of Multicare at a purchase price of $28.00 per share (the "Equity Tender Offer"), (ii) the merger of Genesis ElderCare Acquisition Corp. with and into Multicare (the "Merger") pursuant to the terms and conditions of the Merger Agreement or (iii) the ownership or operation by Multicare, Genesis ElderCare Corp. or Genesis Health Ventures, Inc. of all or a material portion of the business or assets of Multicare shall have been obtained or satisfied on terms satisfactory to Genesis ElderCare Corp. in its reasonable discretion. ARTICLE 5. TERMINATION This Agreement may be terminated at any time prior to the Closing Date as follows: (a) by mutual consent in writing of the parties hereto; (b) at any time on or prior to the Closing Date, by either the Buyer, on the one hand, or the Companies and Sellers, on the other hand, as the case may be, if the other party(ies) has, in any material respect, breached any covenant or undertaking contained herein and such breach has not been cured within thirty days. ARTICLE 6. MISCELLANEOUS Section 6.1 Notices. All notices, requests, demands and other communications hereunder shall be in writing (including telecopy or similar writing) and shall be given: If to Buyer: Genesis Health Ventures, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telephone: (610) 444-6350 Facsimile: (610) 444-7438 with a copy to: Blank Rome Comisky & McCauley One Logan Square Philadelphia, Pennsylvania 19103 Attention: Stephen E. Luongo, Esq. Telephone: (215) 569-5500 Facsimile: (215) 569-5555 If to the Sellers or Companies: Genesis ElderCare Corp. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telephone: (610) 444-6350 Facsimile: (610) 444-7438 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017-3954 Attention: William E. Curbow, Esquire Telephone: (212) 455-2000 Facsimile: (212) 455-2502 or to such other address or telecopy number and with such other copies as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request, demand or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (b) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section. Section 6.2 Assignability; Parties in Interest. This Agreement shall not be assignable by any of the parties hereto, except that this Agreement shall be assignable in whole or in part by Buyer to any subsidiary or subsidiaries of Buyer, provided that no such assignment shall relieve the assignor of its obligations hereunder. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Except as specifically referred to herein, this Agreement is for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns and nothing in this Agreement is intended to confer, expressly or by implication, upon any other person any legal or equitable rights, remedies or claims under or by reason of this Agreement. Section 6.3 Governing Law; Jurisdiction. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to conflicts of laws. In any action between or among any of the parties, whether arising out of this Agreement or otherwise, (a) each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in the Commonwealth of Pennsylvania; (b) each of the parties irrevocably waives the right to trial by jury; (c) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 11.1. Section 6.4 Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party shall have received a counterpart signed by the other party. Section 6.5 Publicity. The Sellers, the Companies and Buyer agree that press releases and other announcements with respect to the transactions contemplated hereby shall be subject to mutual agreement; provided, however, that Buyer may make such announcements as in the opinion of its counsel, such party is required to make pursuant to comply with law or the requirements of any stock exchange or other applicable self-regulatory organization, but in such event Buyer shall, to the extent practicable, give the Sellers and the Companies reasonable prior notice and an opportunity to comment on the proposed announcement. Section 6.6 Complete Agreement. This Agreement, the exhibits hereto and the schedules and documents delivered pursuant hereto or referred to herein contain the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersede all previous negotiations, commitments and writings. Section 6.7 Amendments and Waivers. The parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any or documents delivered pursuant hereto, (c) waive compliance with any of the covenants or agreements contained in this Agreement or (d) amend this Agreement, if and only, in the case of an extension or amendment, if such action is set forth in a written agreement signed by both parties, or, in the case of a waiver, if such waiver is signed by the party against whom the waiver is to be effective. Section 6.8 Expenses. Except as specifically provided in this Agreement, each party shall bear the expenses incurred by it in connection with the transactions contemplated by this Agreement. Section 6.9 Consents. Notwithstanding anything herein to the contrary, this Agreement shall not constitute an agreement to assign any contract, license, lease, commitment or other arrangement if an attempted assignment would constitute a breach thereof. Whenever such consent is required, the Sellers will use commercially reasonable efforts to cause such consents to be obtained and Buyer agrees to cooperate with the Sellers and to enter into any reasonable arrangement designed to provide for Buyer the benefits under such contracts and agreements. Section 6.10 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 6.11 Severability. Any portion or provision of the Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining portions or provisions hereof in such jurisdiction or, to the extent permitted by law, rendering that or any other portion or provision of the Agreement invalid, illegal or unenforceable in any other jurisdiction. Section 6.12 Further Assurances. Each party hereto agrees to execute any and all documents and to perform such other acts as may be necessary or expedient to further the purposes of this Agreement and the transactions contemplated hereby. Section 6.13. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. GENESIS HEALTH VENTURES, INC., THE MULTICARE COMPANIES, INC. or its designee By:/s/ Michael R. Walker By:/s/ Michael R. Walker Name: Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer Title: Chairman and Chief Executive Officer CONCORD HEALTH GROUP, INC. HORIZON ASSOCIATES, INC. By:/s/ Michael R. Walker By:/s/ Michael R. Walker Name: Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer Title: Chairman and Chief Executive Officer INSTITUTIONAL HEALTH CARE CARE4, L.P. SERVICES, INC. Inc., By: Institutional Health Care Services, General Partner of Care4, L.P. By:/s/ Michael R. Walker By:/s/ Michael R. Walker Name: Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer Title: Chairman and Chief Executive Officer CONCORD PHARMACY SERVICES, INC. COMPASS HEALTH SERVICES, INC. By:/s/ Michael R. Walker By:/s/ Michael R. Walker Name: Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer Title: Chairman and Chief Executive Officer ENCARE OF MASSACHUSETTS, INC. HORIZON MEDICAL EQUIPMENT AND SUPPLY, INC. By:/s/ Michael R. Walker By:/s/ Michael R. Walker Name: Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer Title: Chairman and Chief Executive Officer EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MULTICARE COMPANIES, INC. FORM 10-Q QUARTERLY REPORT FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1998 MAR-31-1998 2,617 0 123,943 0 0 161,275 723,744 0 1,708,216 139,605 761,264 0 0 0 747,725 1,708,216 0 355,942 0 269,120 22,874 0 29,712 5,692 2,967 2,725 0 0 0 2,725 0 0
-----END PRIVACY-ENHANCED MESSAGE-----