-----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, M0g03Yg6sOCXyFn4A5tZEqTtRM3SELNWykWH7XVipZCfsF5tMNMkOUIyMerGkRPP bO9SN8zxnxNwom/j8ohfNQ== 0000950168-97-001603.txt : 19970623 0000950168-97-001603.hdr.sgml : 19970623 ACCESSION NUMBER: 0000950168-97-001603 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19970620 SROS: NONE GROUP MEMBERS: GENESIS ELDERCARE ACQUISITION CORP GROUP MEMBERS: GENESIS ELDERCARE CORP SUBJECT COMPANY: 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: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-43945 FILM NUMBER: 97627783 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS ELDERCARE ACQUISITION CORP CENTRAL INDEX KEY: 0001041356 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 148 WEST STATE ST CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 148 WEST STATE ST CITY: KENNETT SQUARE STATE: PA ZIP: 19348 SC 14D1 1 GENESIS SCH14D-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14D-1 TENDER OFFER STATEMENT Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934 and STATEMENT ON SCHEDULE 13D Under the Securities Exchange Act of 1934 THE MULTICARE COMPANIES, INC. (Name of Subject Company) GENESIS ELDERCARE ACQUISITION CORP. AND GENESIS ELDERCARE CORP. (Bidder) COMMON STOCK, $.01 PAR VALUE PER SHARE (Title of Class of Securities) 62543 V1 0 (CUSIP Number of Class of Securities) MICHAEL R. WALKER GENESIS ELDERCARE CORP. 148 WEST STATE STREET KENNETT SQUARE, PA 19348 TELEPHONE: (610) 444-6350 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) COPIES TO: WILLIAM E. CURBOW, ESQ. RICHARD J. MCMAHON, ESQ. PAUL J. SHIM, ESQ. SIMPSON THACHER & BARTLETT BLANK ROME COMISKY & MCCAULEY CLEARY, GOTTLIEB, STEEN & HAMILTON 425 LEXINGTON AVENUE 1200 FOUR PENN CENTER PLAZA ONE LIBERTY PLAZA NEW YORK, NEW YORK 10017 PHILADELPHIA, PENNSYLVANIA 19103 NEW YORK, NEW YORK 10006 TELEPHONE: (212) 455-2000 TELEPHONE: (215) 569-5500 TELEPHONE: (212) 225-2000
CALCULATION OF FILING FEE [CAPTION] TRANSACTION VALUATION* AMOUNT OF FILING FEE** $1,088,194,828 $217,639
* Based on the offer to purchase all of the outstanding shares of Common Stock of the Subject Company at $28.00 cash per share, 30,817,069 shares outstanding, 4,341,346 shares reserved for issuance upon conversion of the Subject Company's convertible debentures, 3,690,686 options outstanding and a maximum of 15,000 shares that may be issued pursuant to certain of the Subject Company's agreements or plans as of June 13, 1997. ** 1/50 of 1% of Transaction Valuation. h CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. Amount Previously Paid: Form or Registration No.: Filing Party: Date Filed:
CUSIP NO. 62543 V1 0 1 NAMES OF REPORTING PERSONS: S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS: GENESIS ELDERCARE ACQUISITION CORP. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF and BK 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 14,013,966 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 45.5% (based on 30,817,069 shares outstanding) 10 TYPE OF REPORTING PERSON CO
2
CUSIP NO. 62543 V1 0 1 NAMES OF REPORTING PERSONS: S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS: GENESIS ELDERCARE CORP. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF and BK 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 14,013,966 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 45.5% (based on 30,817,069 shares oustanding) 10 TYPE OF REPORTING PERSON HC
3 This Tender Offer Statement on Schedule 14D-1 relates to the offer by Genesis ElderCare Acquisition Corp., a Delaware corporation (the "Purchaser"), to purchase all of the outstanding shares of Common Stock, $0.01 par value per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company"), at a purchase price of $28.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 20, 1997 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal (which, together with the Offer to Purchase, constitute the "Offer"), a copy of which is attached hereto as Exhibit (a)(2). The Purchaser is a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation (the "Parent"). ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is The Multicare Companies, Inc. The information set forth in Section 7 ("Certain Information Concerning the Company") of the Offer to Purchase is incorporated herein by reference. (b) The exact title of the class of equity securities being sought in the Offer is Common Stock, $.01 par value per share, of the Company. The information set forth in the Introduction (the "Introduction") of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; No Cash Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is filed by the Parent and the Purchaser. The information set forth in Section 8 ("Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG") of the Offer to Purchase and in Schedule I thereto is incorporated herein by reference. (e) and (f) During the last five years, neither the Parent nor the Purchaser, nor, to the best knowledge of the Parent or the Purchaser, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) The information set forth in Section 8 ("Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Section 8 of the Offer to Purchase, since January 1, 1994, there have been no transactions which would be required to be disclosed under this Item 3(a) between any of the Parent or the Purchaser, or, to the best knowledge of the Parent and the Purchaser, any of the persons listed in Schedule I to the Offer to Purchase and the Company or any of its executive officers, directors or affiliates. (b) The information set forth in Section 8 ("Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG") and Section 10 ("Background of the Offer; Contacts with the Company") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Section 8 and Section 10 of the Offer to Purchase, since January 1, 1994, there have been no contacts, negotiations or transactions which would be required to be disclosed under Item 3(b) between any of the Parent, the Purchaser or any of their respective subsidiaries or, to the best knowledge of the Parent and the Purchaser, any of those persons listed in Schedule I to the Offer to Purchase and the Company or its affiliates concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. 4 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(g) The information set forth in the Introduction, Section 6 ("Price Range of Shares; No Cash Dividends"), Section 10 ("Background of the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement; Certain Other Agreements"), Section 12 ("Purpose of the Offer; the Merger; Plans for the Company") and Section 14 ("Effect of the Offer on the Market for the Shares, NYSE Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Introduction and Section 8 ("Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG") of the Offer to Purchase is incorporated herein by reference. Except as set forth in the Introduction and Section 8 of the Offer to Purchase, neither the Parent nor the Purchaser nor, to the best knowledge of the Parent and the Purchaser, any of the persons listed in Schedule I to the Offer to Purchase or any associate or majority-owned subsidiary of the Parent or the Purchaser or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares. (b) The information set forth in the Introduction and Section 11 ("The Merger Agreement; Certain Other Agreements") of the Offer to Purchase is incorporated herein by reference. Except as set forth in the Introduction and Section 11 of the Offer to Purchase, neither the Parent nor the Purchaser nor, to the best knowledge of the Parent and the Purchaser, any of the persons or entities referred to above or any executive officer, director or subsidiary of any of the foregoing has effected any transactions in the Shares during the past sixty days. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in Section 9 ("Source and Amount of Funds"), Section 10 ("Background of the Offer; Contacts with the Company"), and Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Sections 9, 10 and 17 of the Offer to Purchase, none of the Parent nor the Purchaser nor, to the best knowledge of the Parent and the Purchaser, any of the persons listed in Schedule I to the Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loans or option arrangements, puts or calls, guarantees of loans, guarantee agreements or any giving or withholding of proxies). ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ("Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG") of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 11 ("The Merger Agreement; Certain Other Agreements") of the Offer to Purchase is incorporated herein by reference. (b) and (c) The information set forth in Section 16 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 9 ("Source and Amount of Funds") and Section 16 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a) (1) Offer to Purchase dated June 20, 1997. 5 (a) (2) Letter of Transmittal. (a) (3) Notice of Guaranteed Delivery. (a) (4) Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a) (5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a) (6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a) (7) Summary Advertisement as published on June 20, 1997. (a) (8) Press Release issued by the Parent on June 16, 1997. (b) (1) Amended and Restated Commitment Letter, dated June 14, 1997 to the Purchaser from Mellon Bank, N.A., Citicorp Securities, Inc., Citibank N.A., First Union Capital Markets Corp., First Union National Bank and NationsBank, N.A. (b) (2) Amended and Restated Commitment Letter, dated June 14, 1997 to Genesis Health Ventures, Inc. from Mellon Bank, N.A., Citicorp Securities, Inc., Citibank, N.A., First Union Capital Markets Corp., First Union National Bank and NationsBank, N.A. (b) (3) Commitment Letter dated June 15, 1997 to Genesis Health Ventures, Inc. and Purchaser from Morgan Stanley Bridge Fund, L.L.C. and Montgomery Securities, L.P. (c) (1) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and The Multicare Companies, Inc. (c) (2) Tender Agreement and Irrevocable Proxy dated June 16, 1997 among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Daniel E. Straus. (c) (3) Tender Agreement and Irrevocable Proxy dated June 16, 1997 among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Moshael J. Straus. (c) (4) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Daniel E. Straus. (c) (5) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Moshael J. Straus. (c) (6) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Stephen R. Baker. (c) (7) Letter Agreement dated June 16, 1997 between Genesis Health Ventures, Inc. and Straus Associates. (d) Not applicable. (e) Not applicable. (f) Not applicable. 6 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. GENESIS ELDERCARE CORP. By: /s/ George V. Hager, Jr. NAME: GEORGE V. HAGER, JR. TITLE: SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER GENESIS ELDERCARE ACQUISITION CORP. By: /s/ George V. Hager, Jr. NAME: GEORGE V. HAGER, JR. TITLE: SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: June 20, 1997 7 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. 11(a)(1) Offer to Purchase, dated June 20, 1997.................................. 11(a)(2) Letter of Transmittal................................................... 11(a)(3) Notice of Guaranteed Delivery........................................... 11(a)(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees............................................ 11(a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees.................................................. 11(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9..................................................... 11(a)(7) Summary Advertisement as published on June 20, 1997..................... 11(a)(8) Press Release issued by the Parent on June 20, 1997..................... 11(b)(1) Amended and Restated Commitment Letter dated June 14, 1997 to the Purchaser from Mellon Bank, N.A., Citicorp Securities, Inc., Citibank N.A., First Union Capital Markets Corp., First Union National Bank and NationsBank, N.A........................................................ 11(b)(2) Amended and Restated Commitment Letter, dated June 14, 1997 to Genesis Health Ventures, Inc. from Mellon Bank, N.A., Citicorp Securities, Inc., Citibank N.A., First Union Capital Markets Corp., First Union National Bank and NationsBank, N.A. 11(b)(3) Commitment Letter dated June 15, 1997 to Genesis Health Ventures, Inc. and Purchaser from Morgan Stanley Bridge Fund, L.L.C. and Montgomery Securities, L.P. 11(c)(1) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and The Multicare Companies, Inc. 11(c)(2) Tender Agreement and Irrevocable Proxy dated June 16, 1997 among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Daniel E. Straus. 11(c)(3) Tender Agreement and Irrevocable Proxy dated June 16, 1997 among Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Moshael J. Straus. 11(c)(4) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Daniel E. Straus. 11(c)(5) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Moshael J. Straus. 11(c)(6) Noncompetition and Consulting Agreement dated June 16, 1997 among Genesis Health Ventures, Inc., Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp. and Stephen R. Baker. 11(c)(7) Letter Agreement dated June 16, 1997 between Genesis Health Ventures, Inc. and Straus Associates.
8 EX-11 2 EXHIBIT 11(A1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. AT $28.00 NET PER SHARE BY GENESIS ELDERCARE ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF GENESIS ELDERCARE CORP. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JULY 18, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF SHARES OF COMMON STOCK WHICH CONSTITUTES, ON A FULLY-DILUTED BASIS, A MAJORITY OF THE VOTING POWER ON THE DATE OF PURCHASE OF ALL SECURITIES OF THE MULTICARE COMPANIES, INC. (THE "COMPANY") ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER, (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND (III) THE RECEIPT BY GENESIS ELDERCARE ACQUISITION CORP. (THE "PURCHASER") OF THE PROCEEDS PURSUANT TO THE DEBT FINANCING COMMITMENTS ENTERED INTO IN CONNECTION WITH THE MERGER AGREEMENT IN ORDER TO PURCHASE THE SHARES PURSUANT TO THE OFFER AND THE MERGER, REFINANCE ALL INDEBTEDNESS OF THE COMPANY DUE AS A RESULT OF THE CONSUMMATION OF THE OFFER OR THE MERGER AND PAY RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE INTRODUCTION AND SECTIONS 1, 9 AND 15. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES OF THE COMMON STOCK OF THE COMPANY AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES TO THE PURCHASER. IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares (as defined herein) of the Company should either (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and any other required documents to the Depositary (as defined herein), and either deliver the certificates representing the tendered Shares and any other required documents to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to Montgomery Securities or Morgan Stanley & Co. Incorporated (each, a "Dealer Manager") or to D.F. King & Co., Inc. (the "Information Agent") at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or the Dealer Managers, or from brokers, dealers, commercial banks or trust companies. THE DEALER MANAGERS FOR THE OFFER ARE: MONTGOMERY SECURITIES MORGAN STANLEY DEAN WITTER JUNE 20, 1997 TABLE OF CONTENTS
PAGE INTRODUCTION........................................................................................................... 1 THE TENDER OFFER....................................................................................................... 4 1. Term of the Offer; Expiration Date................................................................................ 4 2. Acceptance for Payment and Payment for Shares..................................................................... 5 3. Procedure for Tendering Shares.................................................................................... 6 4. Withdrawal Rights................................................................................................. 8 5. Certain Federal Income Tax Consequences........................................................................... 8 6. Price Range of Shares; No Cash Dividends.......................................................................... 9 7. Certain Information Concerning the Company........................................................................ 9 8. Certain Information Concerning the Parent, the Purchaser, Genesis, Cypress and TPG................................ 11 9. Source and Amount of Funds........................................................................................ 13 10. Background of the Offer; Contacts with the Company................................................................ 23 11. The Merger Agreement; Certain Other Agreements.................................................................... 23 12. Purpose of the Offer; the Merger; Plans for the Company........................................................... 36 13. Dividends and Distributions....................................................................................... 37 14. Effect of the Offer on the Market for the Shares, NYSE Listing and Exchange Act Registration..................................................................................... 38 15. Certain Conditions of the Offer................................................................................... 38 16. Certain Legal Matters and Regulatory Approvals.................................................................... 39 17. Fees and Expenses................................................................................................. 44 18. Miscellaneous..................................................................................................... 44 SCHEDULE I -- DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT, THE PURCHASER AND GENESIS, MEMBERS OF CYPRESS L.L.C. AND DIRECTORS AND EXECUTIVE OFFICERS OF ONWIST AND TPG ADVISORS....................................................................................................... I-1
i To: The Stockholders of THE MULTICARE COMPANIES, INC. INTRODUCTION Genesis ElderCare Acquisition Corp., a Delaware corporation formerly known as Waltz Acquisition Corp. (the "Purchaser") and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formerly known as Waltz Corp. (the "Parent"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company"), at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. The Purchaser will pay all fees and expenses of Montgomery Securities and Morgan Stanley & Co. Incorporated ("Morgan Stanley"), each of which is acting as a Dealer Manager for the Offer (in such capacity, the "Dealer Manager"), ChaseMellon Shareholder Services, L.L.C., which is acting as the Depositary (in such capacity, the "Depositary") and D.F. King & Co., Inc., which is acting as the Information Agent (in such capacity, the "Information Agent"), incurred in connection with the Offer. See Section 17. The Board of Directors of the Company (the "Board of Directors") has approved the Merger Agreement (as defined below) and the transactions contemplated thereby, including the Offer and the Merger (as defined below), and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the holders of the Shares and recommends that the holders of the Shares accept the Offer and tender their Shares to the Purchaser. The Board of Directors has received the written opinion dated June 16, 1997 of Smith Barney Inc. ("Smith Barney"), financial advisor to the Company, to the effect that, as of such date and based upon and subject to certain matters stated therein, the $28.00 cash consideration to be received in the Offer and the Merger by holders of Shares (other than Parent and its affiliates) was fair, from a financial point of view, to such holders. A copy of the opinion of Smith Barney is attached to the Company's Solicitation/Recommendation Statement on Form 14D-9 which is being distributed to the stockholders of the Company, and stockholders are urged to read the opinion carefully in its entirety for the assumptions made, matters considered and limitations on the review undertaken by Smith Barney. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1) SUCH NUMBER OF SHARES WHICH CONSTITUTES, ON A FULLY-DILUTED BASIS, A MAJORITY OF THE VOTING POWER ON THE DATE OF PURCHASE OF ALL SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION"), (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT") (THE "HSR ACT CONDITION"), AND (III) THE RECEIPT BY THE PURCHASER OF THE PROCEEDS OF THE FINANCING PURSUANT TO THE COMMITMENT LETTER AND THE BRIDGE FINANCING COMMITMENT LETTER (EACH AS DEFINED IN SECTION 9) ENTERED INTO IN CONNECTION WITH THE MERGER AGREEMENT IN ORDER TO PURCHASE THE SHARES PURSUANT TO THE OFFER AND THE MERGER, REFINANCE ALL INDEBTEDNESS OF THE COMPANY DUE AS A RESULT OF THE CONSUMMATION OF THE OFFER OR THE MERGER AND PAY RELATED FEES AND EXPENSES (THE "FINANCING CONDITION"). SEE SECTIONS 1, 9 AND 15. IF THE PURCHASER PURCHASES NOT LESS THAN THAT NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. SEE SECTION 12. The Parent estimates that approximately $1.483 billion of financing will be required in connection with the transactions pursuant to the Merger Agreement and that, in addition, approximately $37 million of existing indebtedness of the Company and its subsidiaries will remain outstanding after the Merger. The Purchaser has received from a group of lenders for which Mellon Bank, N.A. is acting as administrative agent, a commitment letter indicating their willingness to lend to the Purchaser up to $625 million in the aggregate and has received from Morgan Stanley Bridge Fund, L.L.C. and Montgomery Group Holdings, L.L.C. a commitment letter indicating their willingness to purchase up to $133 million and $67 million, respectively, of subordinated debt securities of the Purchaser. The remainder of the funds necessary to finance the Offer and the Merger will consist of $720 million from the issuance and sale of common stock of the Parent ("Parent Common Stock") to Genesis Health Ventures, Inc. ("Genesis"), The Cypress Group L.L.C. (together with its affiliates, "Cypress") and TPG Partners II, L.P. (together with its affiliates, "TPG"). For more information concerning the financing of the Offer and the Merger and related transactions, see Section 9. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of June 16, 1997 (the "Merger Agreement"), by and among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and 1 subject to the conditions of the Merger Agreement, and in accordance with the Delaware General Corporation Law (the "DGCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and become a wholly owned subsidiary of the Parent, and the separate corporate existence of the Purchaser will cease. See Section 11. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Company or any subsidiary of the Company and each Share owned by the Parent, the Purchaser or any other subsidiary of the Parent, which shall be cancelled, and other than Shares, if any (collectively, "Dissenting Shares"), held by stockholders who have properly exercised appraisal rights under Section 262 of the DGCL) will, by virtue of the Merger and without any action on the part of the holders of the Shares be converted into the right to receive $28.00 in cash (the "Merger Consideration"), payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Share, less any required withholding taxes. The Merger Agreement is more fully described in Section 11. Certain federal income tax consequences of the sale of the Shares pursuant to the Offer and the exchange of Shares for the Merger Consideration pursuant to the Merger are described in Section 5. The Company has represented to the Parent that as of the close of business on June 13, 1997, there were 30,817,069 Shares issued and outstanding, 4,341,346 Shares reserved for issuance upon conversion of the Company's 7% Convertible Subordinated Debentures due 2003 (the "7% Debentures"), 3,690,686 Shares reserved for issuance upon the exercise of outstanding stock options and approximately 15,000 Shares reserved for issuance pursuant to the Company's Employee Stock Purchase Program. Based upon the foregoing, the Purchaser believes that approximately 19,432,051 Shares constitute a majority of the outstanding Shares on a fully-diluted basis. Simultaneously with the execution of the Merger Agreement, the Parent and the Purchaser entered into a Tender Agreement and Irrevocable Proxy (the "Tender Agreements") with each of Daniel E. Straus and Moshael J. Straus (each, a "Stockholder" and together, the "Stockholders") as a condition to the willingness of the Parent and the Purchaser to proceed with the Offer and the Merger. Pursuant to the Tender Agreements, each Stockholder agreed to validly tender (or cause the record owner thereof to tender) and not withdraw, pursuant to and in accordance with the terms of the Offer, all of the Shares and any other securities entitled to vote generally in the election of directors beneficially owned by such Stockholder (the "Owned Shares"). Pursuant to the Tender Agreements, each Stockholder also agreed that during the period commencing on the date thereof and continuing until the earlier of (x) the consummation of the Offer and (y) the termination of the Tender Agreements, at any meeting of the Company's stockholders or in connection with any written consent of the Company's stockholders, subject to the absence of a preliminary or permanent injunction or other requirement under applicable law, such Stockholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the Merger and the terms thereof and each of the other actions contemplated by the Merger Agreement and the Tender Agreements and any actions required in furtherance thereof; (ii) against any action or agreement that would impede, interfere with, or prevent the Offer or the Merger; and (iii) except as otherwise agreed to in writing in advance by the Parent, against the following actions (other than the Offer, the Merger and the transactions contemplated by the Merger Agreement and the Tender Agreements): (I) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its subsidiaries; (II) any sale, lease or transfer of a material amount of the assets or business of the Company or its subsidiaries, or any reorganization, restructuring, recapitalization, special dividend, dissolution, liquidation or winding up of the Company or its subsidiaries; (III) any change in the present capitalization of the Company including any proposal to sell any material equity interest in the Company or any amendment of the certificate of incorporation of the Company; and (IV) against an election of new members of the Board of Directors of the Company except where the vote is cast in favor of the nominees of a majority of the existing directors of the Company. In addition, each Stockholder agreed not to enter into any agreement, arrangement or understanding with any person the effect of which would be inconsistent or violative of the foregoing. Further, each Stockholder granted to, and appointed the Purchaser and any designee of the Purchaser such Stockholder's irrevocable (until the termination of the Tender Agreements) proxy and attorney-in-fact (with full power of substitution) to vote the Owned Shares of such Stockholder as indicated in this paragraph. As of June 16, 1997, the Stockholders beneficially owned 14,013,966 Shares, or 36.1% of the outstanding Shares on a fully-diluted basis. For a more detailed description of the Tender Agreements, see Section 11. 2 The Company has advised the Purchaser that, to the knowledge of the Company, all the directors of the Company intend to tender their Shares pursuant to the Offer. In connection with the Merger Agreement, the Parent and the Purchaser also entered into Noncompetition and Consulting Agreements (the "Noncompetition Agreements") with each of Daniel E. Straus and Moshael J. Straus (each, a "Consultant" and together the "Consultants"). Pursuant to the Noncompetition Agreements, the Parent irrevocably appointed each Consultant, and each Consultant agreed to act as, a consultant, for a period of 12 months (the "Consulting Term") commencing on the date of the consummation of the Merger (the "Closing"), to perform such reasonable consulting services as the chief executive officer of the Parent requests. As compensation for each Consultant's services, the Parent agreed to pay each Consultant a consulting fee of $1.5 million payable in immediately available funds at the Closing. In addition, each Consultant will be reimbursed for all expenses actually incurred by such Consultant in the performance of his duties. As consideration for each Consultant's agreement to the restrictive covenants described in the second following paragraph (the "Restrictive Covenants"), the Parent agreed, among other things, to pay each Consultant a cash payment in the amount of $1.5 million payable in immediately available funds at the Closing. The Noncompetition Agreements also provide that the Consultants will not, for a period of one year after the date thereof, in any capacity, directly or indirectly, for his own account or for the benefit of any person, establish, engage in or be connected with any Competitive Business. The term "Competitive Business" means any Restricted Business conducted in the Restricted Zone. Restricted Business means institutional pharmacy, rehabilitation services, long-term care services, skilled nursing facilities or assisted living facilities but does not include providing any other goods or services to skilled nursing facilities, assisted living facilities and other health care facilities. The Restricted Zone means any town in Connecticut or Rhode Island in which the Company operates a long term care facility and an area of 15 miles surrounding such facility; any county in Illinois, New Jersey, Ohio, West Virginia or Wisconsin in which the Company operates a long term care facility and an area of 15 miles surrounding such facility; all portions of Massachusetts east of Worcester; all portions of Pennsylvania east of Harrisburg and an area of 15 miles around any facility located in Virginia or Vermont; but in no event includes any portion of any state other than Connecticut, Rhode Island, Illinois, New Jersey, Ohio, West Virginia, Wisconsin, Massachusetts, Pennsylvania, Virginia or Wisconsin. The foregoing does not restrict either Consultant from owning interests in, or developing, real estate so long as such Consultant is not operating any Restricted Business. In addition, the Consultants may not pursue certain development projects. Simultaneously with the execution of the Merger Agreement, the Parent and the Purchaser also entered into a Noncompetition Agreement with Stephen R. Baker. The terms of such agreement are identical in all material respects to the terms of the Noncompetition Agreements described above, except that the Noncompetition Agreement with Mr. Baker (i) does not contain any provisions relating to the rendering of, or payment for, consulting services by Mr. Baker and (ii) provides for a cash payment of $500,000 to Mr. Baker as consideration for his agreement to the Restrictive Covenants. For a more detailed discussion of the Noncompetition Agreements, see Section 11. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 3 THE TENDER OFFER 1. TERM OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Purchaser will accept for payment and pay for all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, July 18, 1997, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE MINIMUM CONDITION, THE HSR ACT CONDITION AND THE FINANCING CONDITION AND CERTAIN OTHER CONDITIONS. SEE SECTION 15, WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE PURCHASER RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION) AND TO MODIFY THE TERMS OF THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT, INCLUDING THE PROVISIONS OF THE MERGER AGREEMENT SET FORTH IN THE NEXT PARAGRAPH, AND THE APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE ANY OR ALL OF SUCH CONDITIONS TO THE OFFER HAVE NOT BEEN SATISFIED, THE PURCHASER RESERVES THE RIGHT (BUT SHALL NOT BE OBLIGATED) TO (I) TERMINATE THE OFFER AND RETURN ALL TENDERED SHARES TO TENDERING STOCKHOLDERS, (II) WAIVE SUCH UNSATISFIED CONDITIONS AND PURCHASE ALL SHARES VALIDLY TENDERED OR (III) EXTEND THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN TENDERED, UNTIL THE TERMINATION OF THE OFFER, AS EXTENDED. Subject to the applicable rules and regulations of the Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 15 shall have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Under the terms of the Merger Agreement, however, without the consent of the Company, the Purchaser will not reduce the number of Shares subject to the Offer, reduce the price per Share payable in the Offer, modify or add to the conditions to the Offer, except as provided in the next sentence, extend the Offer, change the form of consideration payable in the Offer (other than by increasing the cash offer price) or amend or modify any term of the Offer in any manner adverse to any of the Company's stockholders. The Purchaser may, without the consent of the Company, but subject to the Company's right to terminate the Merger Agreement after September 15, 1997 (which date may be extended by the Parent to October 15, 1997 if the Parent is and has been diligently pursuing approval of the applications and notices filed with governmental authorities in order to consummate the Offer and the Merger), if the Purchaser has not accepted Shares for payment pursuant to the Offer by such date (i) extend the Offer if at the scheduled expiration date of the Offer any conditions to the Purchaser's obligation to purchase Shares has not been satisfied, until such time as such conditions are satisfied or waived, or (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission applicable to the Offer or in order to obtain any material regulatory approval applicable to the Offer. The Purchaser shall have no obligation to pay interest on the purchase price of tendered Shares. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer pursuant to Section 15. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, and such announcement in the case of an extension will be made in accordance with Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Purchaser may choose to make any public announcement, except as provided by applicable law (including Rules 14d-4(c) and 14(d)-6(d), under the Exchange Act which require that material changes be promptly disseminated to holders of Shares), the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. If the Purchaser makes a material change in the terms of the Offer or if it waives a material condition of the Offer, the Purchaser will disseminate additional tender offer material and extend the Offer to the extent required by Rules 14d-4(c), 4 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the materiality, of the changes. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought, a minimum ten business day period from the day of such change is generally required to allow for adequate dissemination to stockholders. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday, or a federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay for all Shares validly tendered and not properly withdrawn on or prior to the Expiration Date as soon as practicable after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions of the Offer set forth in Section 15, including without limitation the Minimum Condition, the HSR Act Condition and the Financing Condition. In addition, subject to applicable rules of the Commission, the Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares pending receipt of any other regulatory approvals specified in Section 16. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act. For information with respect to approvals required to be obtained prior to the consummation of the Offer, including the HSR Act, see Section 16. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) Certificates for such Shares ("Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to and received by the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If, for any reason whatsoever, acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed or the Purchaser is unable to accept for payment or pay for Shares tendered pursuant to the Offer, then without prejudice to the Purchaser's rights set forth herein, the Depositary may nevertheless, on behalf of the Purchaser and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to and duly exercises withdrawal rights as described in Section 4. If any tendered Shares are not accepted for payment for any reason or if Share Certificates are submitted for more Shares than are tendered, Share Certificates evidencing unpurchased or untendered Shares will be returned without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a 5 Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES. VALID TENDERS. Except as set forth below, in order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (i) Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date or (ii) the guaranteed delivery procedures described below must be complied with. BOOK-ENTRY TRANSFER. The Depositary will make a request to establish accounts with respect to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make book-entry delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at such Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by the Letter of Transmittal, must in any case be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. SIGNATURE GUARANTEES. Signatures on Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the Share Certificates are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or Share Certificates not accepted for payment or not tendered are to be returned, to a person other than the registered holder, the Share Certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name of the registered holder appears on such certificates, with the signatures on such certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 of the Letter of Transmittal. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each such delivery. GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available, or such stockholder cannot deliver the Share Certificates and all other required documents to reach the Depositary on or prior to the Expiration Date, or such stockholder cannot complete the procedure for 6 delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by the Purchaser is received by the Depositary as provided below on or prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation), representing all tendered Shares in proper form for transfer, together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three New York Stock Exchange ("NYSE") trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution and a representation that the stockholder owns the Shares tendered within the meaning of, and that the tender of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of Share Certificates for, or of Book-Entry Confirmation with respect to, such Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Accordingly, payment might not be made to all tendering stockholders at the same time and will depend upon when Share Certificates or Book-Entry Confirmations of such Shares are received into the Depositary's account at a Book-Entry Transfer Facility. APPOINTMENT AS PROXY. By executing the Letter of Transmittal, a tendering stockholder irrevocably appoints designees of the Purchaser and each of them as such stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date hereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will, with respect to the Shares (and such other Shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination shall be final and binding on all parties. The Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may in the opinion of its counsel be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Purchaser, the Parent, any of their affiliates or assigns, either Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the "backup withholding" provisions of federal income tax law, the Depositary may be required to withhold 31% of the amount of any payments of cash pursuant to the Offer. In order to avoid backup withholding, each stockholder surrendering Shares in the Offer must, unless an exemption 7 applies, provide the payor of such cash with such stockholder's correct taxpayer identification number ("TIN") on a substitute Form W-9 and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the substitute Form W-9 included in the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Depositary). Certain stockholders (including among others all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. OTHER REQUIREMENTS. The Purchaser's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer, including the tendering stockholder's representation and warranty that the stockholder is the holder of the Shares within the meaning of, and that the tender of the Shares complies with, Rule 14e-4 under the Exchange Act. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after August 18, 1997. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then without prejudice to the Purchaser's rights under the Offer, the Depositary may nevertheless, on behalf of the Purchaser, retain tendered Shares and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this Section 4. Any such delay in acceptance for payment will be accompanied by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of the Purchaser, the Parent, any of their affiliates or assigns, either Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The summary of tax consequences set forth below is for general information only and is based on the law as currently in effect. The tax treatment of each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, persons who are not citizens or residents of the United States, stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who received payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS. 8 The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for Federal income tax purposes under the Internal Revenue Code of 1986, as amended, and may also be a taxable transaction under applicable state, local, foreign income or other tax laws. Generally, for Federal income tax purposes, a stockholder will recognize gain or loss in an amount equal to the difference between the cash received by the stockholder pursuant to the Offer or the Merger and the stockholder's adjusted tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer or the Merger. For Federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year as of the date the Purchaser accepts such Shares for payment pursuant to the Offer or the effective date of the Merger, as the case may be. There are limitations on the deductibility of capital losses. 6. PRICE RANGE OF SHARES; NO CASH DIVIDENDS. The Shares are listed and traded on the NYSE under the symbol "MUL". The following table sets forth, for the quarters indicated, the high and low sales prices per Share on the NYSE as reported in the Company's Annual Reports on Form 10-K for the years ended December 31, 1996 and December 31, 1995 (the "1996 Annual Report" and the "1995 Annual Report," respectively) with respect to periods occurring in 1995 and 1996 and as reported by the Dow Jones News Service thereafter. The Company has not paid cash dividends on the Shares and has no plans to do so.
High Year Ended December 31, 1995: First Quarter.............................................................................................. $ 15 1/2 Second Quarter............................................................................................. $ 15 1/8 Third Quarter.............................................................................................. $ 15 5/8 Fourth Quarter............................................................................................. $ 16 1/8 Year Ended December 31, 1996: First Quarter.............................................................................................. $ 19 1/4 Second Quarter............................................................................................. $ 20 7/8 Third Quarter.............................................................................................. $ 21 3/4 Fourth Quarter............................................................................................. $ 22 3/8 Year Ended December 31, 1997: First Quarter.............................................................................................. $ 20 1/4 Second Quarter (through June 19, 1997)..................................................................... $ 27 1/4 Low Year Ended December 31, 1995: First Quarter.............................................................................................. $ 11 5/8 Second Quarter............................................................................................. $ 11 1/4 Third Quarter.............................................................................................. $ 11 1/4 Fourth Quarter............................................................................................. $ 11 3/4 Year Ended December 31, 1996: First Quarter.............................................................................................. $ 14 7/8 Second Quarter............................................................................................. $ 17 1/2 Third Quarter.............................................................................................. $ 18 Fourth Quarter............................................................................................. $ 17 3/4 Year Ended December 31, 1997: First Quarter.............................................................................................. $ 17 1/4 Second Quarter (through June 19, 1997)..................................................................... $ 17 1/4
On March 28, 1997, the last full trading day prior to the Company's engagement of Smith Barney, the closing sale price per Share reported on the NYSE was $19.00. On June 13, 1997, the last full trading day prior to announcement of the Offer, the closing sale price per Share reported on the NYSE was $25 5/8. On June 19, 1997, the last full trading day before commencement of the Offer, the closing sale price per Share reported on the NYSE was $26 7/8. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The summary information concerning the Company in this Section 7 and elsewhere in this Offer to Purchase is derived from the 1996 Annual Report, the 1995 Annual Report, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and other publicly available information. The summary information set forth below is qualified in its entirety by reference to such reports (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available reports and documents filed by the Company with the Commission and other publicly available information. Although the Purchaser does not have any knowledge that would indicate that any statements contained herein based upon such reports are untrue, the Purchaser does not assume any responsibility for the accuracy or completeness of the information contained therein, or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but which are unknown to the Parent and the Purchaser. GENERAL. The Company, through a predecessor, started business in 1984 under the laws of Delaware. The Company's principal executive offices are located at 411 Hackensack Avenue, Hackensack, New Jersey 07601. The telephone number of the Company at such offices is (201) 488-8818. The Company is a leading provider of high quality long-term care, specialty medical services and assisted living residences in selected geographic regions. 9 FINANCIAL INFORMATION. Set forth below are certain selected consolidated financial data for the Company's last three fiscal years and the fiscal quarters ended March 31, 1996 and March 31, 1997 which were derived from the 1996 Annual Report, the 1995 Annual Report and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. More comprehensive financial information is included in the reports (including management's discussion and analysis of financial condition and results of operations) and other documents filed by the Company with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents including the financial information and related notes contained therein. Such reports and other documents may be examined and copies thereof may be obtained from the offices of the Commission and the NYSE in the manner set forth below. THE MULTICARE COMPANIES, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
FISCAL YEAR THREE MONTHS ENDED DECEMBER 31, ENDED MARCH 31, 1994 1995 1996 1996 1997 INCOME STATEMENT DATA Net revenues..................................................... $262,416 $353,048 $532,230 $120,057 $168,792 Earnings before income taxes & extraordinary item................ 27,496 35,945 46,307 10,015 13,910 Income taxes..................................................... 10,454 13,798 17,570 3,818 5,150 Extraordinary items, net of tax.................................. 1,620 3,722 2,827 1,481 873 Net income....................................................... $ 15,422 $ 18,425 $ 25,910 $ 4,716 $ 7,887 Net income per common share assuming full dilution............... $ 0.64 $ 0.69 $ 0.90 $ 0.18 $ 0.24 Weighted average number of Common Shares outstanding assuming full dilution.................................................. 23,967 26,513 33,172 26,523 36,111 BALANCE SHEET DATA (AT END OF PERIOD) Total assets..................................................... $308,755 $470,958 $761,667 $774,740 Total liabilities................................................ 208,650 357,063 553,732 549,247 Shareholders' equity............................................. 100,105 113,895 207,935 225,493
The Shares are registered under the Exchange Act. Accordingly, the Company is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in such proxy statements and distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, such material should also be available for inspection at the library of the NYSE, 20 Broad Street, New York, New York 10005. Except as otherwise noted in this Offer to Purchase, all of the information with respect to the Company set forth in this Offer to Purchase has been derived from publicly available information. CERTAIN PROJECTIONS. In connection with the Parent's and the Purchaser's due diligence review of the Company and during the course of negotiations between the Parent and the Purchaser, the Company and their respective advisors described in Section 10 of this Offer to Purchase, the Company provided the Parent and the Purchaser with certain projections of future operating performance of the Company which the Parent and the Purchaser believe are not publicly available. Such projections cover the five-year period beginning with 1997 and, using the Company's 1996 fiscal year as a benchmark, assume, among other things, (i) a compound annual growth rate for total revenues of 29.5%; (ii) EBITDAR margins of approximately 18.2% to 19.5%; (iii) a compound annual growth rate for EBITDAR of 27.8%; (iv) a compound annual growth rate for earnings of 39.0%; and (v) annual capital expenditures for property, plant and equipment and acquisitions for the years 1998, 10 1999, 2000 and 2001 of $207.7 million, $215.6 million, $204.7 million and $218.5 million, respectively. Such projections did not take into account any of the potential effects of the transactions contemplated by the Offer or the Merger. Such projections provided by the Company to the Parent and the Purchaser were prepared as part of the effort to sell the Company. While presented with numerical specificity, such projections are based upon a variety of assumptions relating to the business of the Company, industry performance, general business and economic conditions and other matters and are subject to significant uncertainties and contingencies, many of which are beyond the Parent's, the Purchaser's or the Company's control, and therefore, such projections are inherently imprecise, and there can be no assurances that any such projections will be realized or that actual results will not differ significantly from those set forth above. None of the Parent, the Purchaser, the Company, their respective directors or any of such parties' respective financial advisors accept any responsibility for such projections or the basis or assumptions on which they were prepared. Such projections were not intended to be a forecast of financial results by the Company and were not prepared with a view to public disclosure or compliance with guidelines established by the American Institute of Certified Public Accountants regarding projections and forecasts. The Parent and the Purchaser reviewed the Company's projections but disagreed with a number of key assumptions used by the Company's management in preparing the projections. Accordingly, the Parent and the Purchaser did not use or rely on the Company's projections nor did the Parent or the Purchaser conduct a discounted cash flow analysis or any other valuation on the basis of such projections in connection with its valuation of the Company. The foregoing summary of such projections is being included herein only because such information was made available to the Purchaser by the Company. 8. CERTAIN INFORMATION CONCERNING THE PARENT, THE PURCHASER, GENESIS, CYPRESS AND TPG. THE PARENT. The Parent is a newly formed Delaware corporation organized at the direction of Genesis, Cypress and TPG in connection with the Offer and the Merger. At the time of the Merger, it is anticipated that the Parent Common Stock will be owned approximately 42% by Genesis, approximately 29% by Cypress and approximately 29% by TPG. Until the acceptance for payment of the Shares pursuant to the Offer, it is not anticipated that the Parent will have any significant assets or liabilities or engage in any activities other than those incident to its formation, the Offer the Merger and the transactions in connection therewith. The address of the Parent is 148 West State Street, Kennett Square, Pennsylvania 19348. THE PURCHASER. The Purchaser is a newly formed Delaware corporation organized at the direction of the Parent in connection with the Offer and the Merger. The address of the Purchaser is the same as the address of the Parent. 11 GENESIS. Genesis is a leading provider of healthcare and support services to the elderly. Genesis has developed the Genesis ElderCareSM delivery model of integrated healthcare networks to provide cost-effective, outcome oriented services to the elderly. Through these integrated healthcare networks, Genesis provides basic healthcare and specialty medical services to more than 75,000 customers in five regional markets in the Eastern United States in which over 3,000,000 people over the age of 65 reside. The networks include 156 eldercare centers with approximately 22,000 beds; 16 primary care physician clinics; approximately 96 physicians, physician assistants and nurse practitioners; 12 institutional pharmacies and five medical supply distribution centers serving over 52,000 beds; 28 professional pharmacies; certified rehabilitation agencies providing services through over 375 contracts; and eight home healthcare agencies. Genesis has concentrated its eldercare networks in five geographic regions in order to achieve operating efficiencies, economics of scale and significant market share. The five geographic markets that Genesis principally serves are: Massachusetts/Connecticut/New Hampshire; Eastern Pennsylvania/Delaware Valley; Southern Delaware/Eastern Shore of Maryland; Baltimore, Maryland/Washington, D.C.; and Central Florida. Set forth below are certain selected consolidated financial data relating to Genesis and its subsidiaries for Genesis' last three fiscal years and the periods ended March 31, 1996 and March 31, 1997 which have been derived from the financial statements contained in Genesis' Annual Report on Form 10-K for the fiscal years ended September 30, 1995 and September 30, 1996 and Genesis' Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. More comprehensive financial information is included in the reports (including management's discussion and analysis of financial condition and results of operations) and other documents filed by Genesis with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial information and related notes contained therein. Such reports and other documents may be examined and copies thereof may be obtained from the offices of the NYSE in the manner set forth below. GENESIS HEALTH VENTURES, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS)
FISCAL YEAR ENDED SIX MONTHS SEPTEMBER 30, ENDED MARCH 31, 1994 1995 1996 1996 1997 INCOME STATEMENT DATA Net revenues................................................... $388,616 $486,393 $671,469 $287,517 $ 531,807 Operating income before capital costs.......................... 69,373 93,293 128,269 54,697 91,810 Earnings before income taxes & extraordinary items............. 27,710 40,296 58,086 21,532 39,372 Income taxes................................................... 10,019 14,765 20,917 7,864 14,370 Extraordinary items, net of tax................................ 18 1,923 -- -- 553 Net income..................................................... $ 17,673 $ 23,608 $ 37,169 $ 13,668 $ 24,449 BALANCE SHEET DATA (AT END OF PERIOD) Total assets................................................... $511,698 $600,389 $950,669 $1,341,213 Total liabilities.............................................. 316,232 378,841 436,061 758,247 Shareholders' equity........................................... 195,466 221,548 514,608 582,966
Genesis is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning Genesis' directors and officers, their remuneration, options granted to them, the principal holders of Genesis' securities and any material interest of such persons in transactions with Genesis is required to be disclosed in such proxy statements and distributed to Genesis' stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material is 12 also available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. The financial statements set forth in Item 1 of Genesis' Quarterly Report on Form 10-Q for the period ended March 31, 1997 and in Item 8 of Genesis' Annual Report on Form 10-K for the year ended September 30, 1996 are incorporated herein by reference. CYPRESS. It is anticipated that Cypress will invest in the common stock of the Parent through Cypress Merchant Banking Partners L.P. ("CMBP L.P.") and Cypress Offshore Partners L.P. ("Cypress Offshore"). CMBP L.P. is a Delaware limited partnership formed in 1994 to invest in securities of entities selected by its general partner. Cypress Offshore is a Cayman Islands limited partnership formed in 1995 to invest in securities of entities selected by its investment general partner. Cypress Associates L.P., a Delaware limited partnership, is the sole general partner of CMBP L.P. and the investment general partner of Cypress Offshore. The Cypress Group L.L.C. ("Cypress L.L.C."), a Delaware limited liability company, is the sole general partner of Cypress Associates L.P., and Onwist Ltd. ("Onwist"), a Cayman Islands limited liability company, is the administrative general partner of Cypress Offshore The business of Cypress L.L.C. consists of performing the functions of, and serving as, the general partner of Cypress Associates L.P. and a related partnership. The address of Cypress L.L.C. is 65 East 55th Street, 19th Floor, New York, New York 10022. The business of Onwist consists of performing the functions of, and serving as, the administrative general partner of Cypress Offshore Partners L.P. and the general partner of a related partnership. The address of Onwist is P.O. Box 1043, George Town, Grand Cayman, Cayman Islands. TPG. It is anticipated that TPG will invest in the common stock of the Parent through TPG Partners II, L.P. ("TPG II") and TPG Parallel II, L.P. ("TPG Parallel"). TPG II and TPG Parallel are Delaware limited partnerships formed in 1997 to invest in securities of entities selected by their general partner. The sole general partner of TPG II and TPG Parallel is TPG GenPar II, L.P. ("TPG GenPar"), a Delaware limited partnership. The sole general partner of TPG GenPar is TPG Advisors II, Inc., a Delaware corporation ("TPG Advisors"). The business of TPG Advisors consists of performing the functions of, and serving as, the general partner of TPG GenPar. The address of TPG Advisors is 201 Main Street, Suite 2420, Fort Worth, Texas 76102. The name, citizenship, business address, present principal occupation or employment and five year employment history of each of the directors and executive officers of the Parent, the Purchaser and Genesis, the members of Cypress L.L.C. and the directors and executive officers of Onwist and TPG Advisors are set forth on Schedule I hereto. 9. SOURCE AND AMOUNT OF FUNDS. The Purchaser will require approximately $1.483 billion to (i) purchase the Shares pursuant to the Offer and the Merger, (ii) pay fees and expenses to be incurred in connection with the completion of the Offer, Merger and the financing transactions in connection with therewith, (iii) refinance certain indebtedness of the Company and (iv) make certain cash payments to employees in accordance with the Merger Agreement and in accordance with the Noncompetition Agreements. The Offer is conditioned upon, among other things, the Financing Condition. Of the funds required to finance the foregoing, approximately $720 million will be furnished to the Purchaser as capital contributions by the Parent from the sale by the Parent of its common stock ("Parent Common Stock") to Cypress, TPG and Genesis. The balance of the funds necessary to finance the foregoing will come from (i) the proceeds of loans from a syndicate of Lenders (as defined below) in the aggregate amount of up to $625 million (the "Bank Financing") and (ii) $200 million, in the aggregate, from the proceeds of the issuance and sale by the Purchaser to Morgan Stanley Bridge Fund, L.L.C. and Montgomery Group Holdings, L.L.C. of senior subordinated increasing rate notes (the "Bridge Notes"). Set forth below is a summary description of the Financing. Consummation of the Financing is subject to, among other things, the negotiation and execution of definitive financing agreements on terms satisfactory to the parties thereto. There can be no assurance that the terms set forth below will be contained in such agreements or that such agreements will not contain materially different provisions. PARENT COMMON STOCK INVESTMENT BY CYPRESS, TPG AND GENESIS. On June 15, 1997, each of Cypress, TPG and Genesis delivered commitment letters pursuant to which Cypress and TPG have each agreed to purchase shares of Parent Common Stock for a purchase price of $210 million and Genesis has agreed to purchase shares of Parent Common Stock for a purchase price of $300 million (collectively, the "Investors' Commitment") subject to satisfaction of certain conditions including (i) the Minimum Condition and all other applicable conditions of the Offer set forth in the Merger Agreement and (ii) the consummation of the Bank Financing in the aggregate principal amount of $625 million and the sale of the Bridge Notes in the aggregate amount of $200 million. 13 In connection with such investments in Parent Common Stock, Cypress, TPG and Genesis have agreed to enter into a Stockholders' Agreement (the "Stockholders' Agreement") relating to their respective ownership interest in the Parent. Pursuant to the Stockholders' Agreement, among other things, each of Cypress, TPG and Genesis, as holders of Parent Common Stock, will at all times have the right to designate one-third of the members to the Parent's Board of Directors. The following actions by the Parent will require the consent of the directors designated by Genesis: sales of capital stock, mergers, dissolution, acquisitions in excess of specified thresholds, transactions with affiliates, dividends and redemptions, loans and investments in excess of specified thresholds, amendment of articles, by-laws and loan documents, change in business, fundamental changes, material contracts (other than termination of the Management Agreement (as defined below) in accordance with its terms). The Stockholders' Agreement also will provide that sales of Parent Common Stock by a stockholder to a party other than an affiliate of such stockholder (including partners) and, in the case of Cypress, other than TPG, and in the case of TPG, other than Cypress, will require approval of the other stockholders, and shall be subject to a right of first offer on the part of each such stockholder on terms to be set forth in the Stockholders' Agreement. In connection with the funding pursuant to their respective equity commitments, Genesis, Cypress and TPG also will enter into an agreement ("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") the Parent Common Stock held by Cypress and TPG commencing on the fourth anniversary of the Merger and for a period of 270 days thereafter, at a price determined pursuant to the terms of the Put/Call Agreement. Cypress and TPG will have the option, on the terms and conditions set forth in the Put/Call Agreement, to require Genesis to purchase (the "Put") such Parent Common Stock commencing on the fifth anniversary of the Merger 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' and TPG's Parent Common Stock. The calculated equity value will be determined based upon a multiple of the Parent's earnings before interest, taxes, depreciation, amortization and rental expenses, as adjusted ("EBITDAR") after deduction of certain liabilities. The multiple to be applied to EBITDAR will depend on whether the Put or the Call is being exercised. Any payment to Cypress or TPG 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 and TPG will receive at a minimum their original investment plus a 25% compound annual return thereon regardless of the calculated equity value. Any additional equity value attributable to Cypress' or TPG's Parent Common Stock will be determined on the basis set forth in the Put/Call Agreement which provides generally for additional equity value of the Parent to be divided based upon the proportionate share of the capital contributions of the stockholders to the Parent. Upon exercise of the Put by Cypress or TPG, there will be no minimum return to Cypress or TPG; any payment to Cypress or TPG will be limited to Cypress' or TPG'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' and TPG's capital contributions and the remaining equity value to be divided based upon the proportionate share of the capital contributions of the stockholders to the Parent. Cypress' and TPG'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 the occurrence of the leverage recapitalization of Genesis, with such terms to be defined in the Put/Call Agreement. Upon an event of acceleration or the failure by Genesis to satisfy its obligations upon exercise of the Put, Cypress and TPG will have the right to terminate the Stockholders' Agreement and Management Agreement and to control the sale or liquidation of the Parent. 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 and TPG will retain a claim against Genesis for the difference, if any, between the proceeds of such sale and the put option exercise price. In the event of a change of control of Genesis, the option price shall be payable solely in cash provided any such payment will be subordinated to the payment of principal and interest under the Genesis Bank Financing (as defined below). GENESIS BANK FINANCING. Genesis has accepted an Amended and Restated Commitment Letter dated June 14, 1997 (as so amended, the "Genesis Commitment Letter") from Mellon Bank, N.A. ("Administrative Agent"), Citicorp Securities, Inc., Citibank N.A., First Union Capital Markets Corp., First Union National Bank and NationsBank, N.A. (singly, each is a "Lender", and collectively, all are "Lenders") pursuant to which the Lenders have committed, subject to certain conditions contained therein, to provide Genesis and its subsidiaries with four loan facilities totaling $850 million for the purpose of 14 refinancing the existing indebtedness of Genesis; funding interest and principal payments on the facilities and certain remaining indebtedness; funding permitted acquisitions; purchasing approximately 42% of the Parent Common Stock for an aggregate purchase price of approximately $300 million; purchasing for approximately $24 million, the rehabilitation and therapy business of the Company; and funding Genesis' and its subsidiaries' working capital and general corporate purposes, including fees and expenses of the transactions. The Lenders' commitment terminates October 15, 1997. Lenders expect to syndicate all or a portion of each of the facilities described above (collectively, the "Genesis Bank Financing") to additional lenders ("New Lenders") prior to or after consummation of the Offer. Pursuant to the Genesis Commitment Letter, Genesis has agreed to (i) indemnify the Administrative Agent, the Lenders and the New Lenders and their respective affiliates, officers, directors, employees, agents and advisors against any and all liabilities and expenses incurred in connection with the transactions contemplated by the Genesis Commitment Letter and the Purchaser Commitment Letter (as defined below), (ii) reimburse the Lenders for all reasonable out-of-pocket expenses incurred in connection with the transactions contemplated by the Purchaser Commitment Letter and (iii) pay a fee to the Administrative Agent. The Genesis Commitment Letter provides that subject to the applicable conditions set forth therein, the Lenders will provide Genesis with a (i) $200 million six year Term Loan (the "Genesis Tranche A Term Facility"), (ii) $200 million seven year Term Loan (the "Genesis Tranche B Term Facility"), (iii) $200 million Term Loan maturing on June 1, 2005 (the "Genesis Tranche C Term Facility") and (iv) $250 million six year Revolving Credit Facility (the "Genesis Revolving Credit Facility"), including a $25 million sublimit for standby letters of credit ("Letters of Credit") (collectively, the "Genesis Senior Facilities" and individually, a "Genesis Senior Facility"). The Lenders shall have equal commitments for each Genesis Facility. The Genesis Senior Facilities will be secured by a first priority security interest in all of the (i) stock, partnership interests and other equity of all of Genesis' present and future direct and indirect subsidiaries (including, without limitation, Genesis' and its subsidiaries' ownership interest in the Parent) other than stock of the Purchaser, the Company and the Company's direct and indirect subsidiaries and its direct and indirect subsidiaries and (ii) all intercompany notes among Genesis and any subsidiaries or among any subsidiaries. Loans under the Genesis Senior Facilities will bear, at the option of Genesis, interest rates at the per annum Prime Rate as announced by the Administrative Agent, or the applicable Adjusted LIBO Rate. "Adjusted LIBO Rate" means a rate of interest on one, two, three or six month periods plus the applicable margin determined by Lender. The Adjusted LIBO Rate will differ among each Genesis Facility. The initial Adjusted LIBO Rates are as follows: loans under the Genesis Tranche A Term Facility will bear interest at a rate equal to LIBO Rate plus 2.5%; loans under the Genesis Tranche B Term Facility will bear interest at a rate equal to LIBO Rate plus 2.75%; loans under the Genesis Tranche C Term Facility will bear interest at a rate equal to LIBO Rate plus 3.0%; and loans under the Genesis Revolving Credit Facility will bear interest at a rate equal to LIBO Rate plus 2.5%. Subject to meeting certain financial covenants, the interest rate applicable to the Genesis Senior Facilities will be reduced. Lenders are entitled to receive a commitment fee equal to .125% per annum on the Genesis Senior Facilities commencing on May 31, 1997 ("Genesis Initial Commitment Fee"), a commitment fee equal to 0.5% per annum on the Genesis Senior Facilities commencing on Closing Date ("Genesis Commitment Fee"), and a facility fee equal to 2.25% of the total Genesis Senior Facilities ("Facility Fee"). Upon five business days following receipt of quarterly and annual compliance certificates, a reduction in the Commitment Fee will take effect if performance standards are met. The Genesis Tranche A Term Facility, Genesis Tranche B Term Facility and Genesis Tranche C Term Facility are subject to amortization in quarterly installments, commencing at the end of the first calendar quarter after the Closing Date. The consummation of the transactions pursuant to the Genesis Senior Facilities shall be no later than October 15, 1997, unless extended to a later date in the sole discretion of the Lenders. All the net cash proceeds received by Genesis from (i) the sale of assets of Genesis or its subsidiaries other than sales in the ordinary course of business and (ii) any sale of common stock or debt securities of Genesis or its subsidiaries (other than the proceeds of equity raised for purposes of complying with the Put/Call Agreement) will be applied as a mandatory prepayment pursuant to the Genesis Senior Facilities. In addition, 50% of Excess Cash Flow (as defined in the Genesis Commitment Letter) must be applied to the repayment of the Genesis Senior Facilities and shall be payable annually within 120 days of each fiscal year end. With respect to the Genesis Senior Facilities, all prepayments shall be applied first, on a pro rata basis, to Genesis Tranche A Term Facility, Genesis Tranche B Term Facility and Genesis Tranche C Term Facility; and second, prepayments shall be applied to the Genesis Revolving Credit Facility, with a corresponding reduction in the commitments thereunder. 15 Loans under the Genesis Senior Facilities may be prepaid at any time, in whole or in part, provided that (i) there are customary "breakage" fees for prepaying LIBO Rate portions of loans and (ii) each partial prepayment shall be in the amount of at least $10 million or an integral multiple of $5 million in excess thereof. The Lenders' obligation to make initial loans under the Genesis Senior Facilities will be subject to the following conditions: (a) all loans made by the Lenders under the Genesis Senior Facilities shall be in full compliance with the Federal Reserve's Margin regulations; (b) all documentation relating to the Genesis Senior Facilities shall be executed and delivered in form and substance satisfactory to the Lenders; (c) the Administrative Agent, on behalf of the Lenders, shall have a perfected first priority lien and security interest in all the stock and other equity interests of Genesis' direct and indirect subsidiaries, including any of Genesis' equity interest in the Parent (excluding the Purchaser, the Company and its direct and indirect subsidiaries), as well as all inter-company notes, and all filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made and all filing and recording fees and taxes shall have been duly paid; (d) Genesis shall have advised the Lenders of all of the material documents in connection with the Offer, the Merger and related transactions (other than documents to which the Lenders and New Lenders would be parties) and such documents shall have been accepted by Lenders; (e) no material adverse change shall have occurred in the business, condition (financial or otherwise), operations, properties or prospects of Genesis and its subsidiaries taken as a whole since December 31, 1996; (f) there shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that (i) could have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of Genesis and its subsidiaries taken as a whole or on the Offer or (ii) in the judgment of the Lenders, could materially adversely affect the Lenders, the Genesis Senior Facilities or the ability of Genesis and its subsidiaries to perform their obligations thereunder; (g) the Lenders shall have received such opinions of counsel to the various parties to the transactions referred to herein as to such matters as shall be reasonably satisfactory to the Lenders; (h) the Lenders shall have received such corporate resolutions, certificates and other documents as the Lenders shall reasonably request; (i) appropriate filings shall have been made by all necessary parties under the HSR Act, and the applicable waiting periods shall have expired or been terminated; (j) all governmental consents and approvals and third-party consents and approvals necessary in connection with the Genesis Senior Facilities and other related transactions shall have been obtained and shall be final (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority; (k) there shall exist no default under any of the loan documents and the representations and warranties of Genesis and its subsidiaries therein shall be true and correct immediately prior to, and after giving effect to, funding; (l) all accrued fees and expenses with respect to the transactions shall have been paid; (m) all conditions to the initial funding under the Bank Financing shall have been satisfied and the closing thereunder shall have occurred simultaneously with the closing of the Genesis Senior Facilities; (n) Genesis shall have paid $300 million for 42% of the Parent Common Stock, and Cypress and TPG, collectively shall have paid at least $418.7 million for 58% of the Parent Common Stock; (o) at least three business days prior to the initial funding, the Lenders shall have received financial statements consisting of (i) a cash flow statement accurately reflecting Genesis' earnings before interest, taxes, depreciation and amortization ("EBITDA") of at least $124 million, on a PRO FORMA basis, giving effect to all acquisitions and dispositions occurring within the twelve-month period and (ii) a Genesis balance sheet reflecting total funded debt of not more than $781 million, on a PRO FORMA basis, giving effect to the consummation of all transactions in connection with the equity of the Parent, including, without limitation, all borrowings in connection therewith or otherwise contemplated thereunder, the application of all proceeds of such borrowings and the amount of all outstanding indebtedness after giving effect to the foregoing, each of which statements shall be in form and accompanied by explanatory notes acceptable to the Lenders; (p) all indebtedness of Genesis and its subsidiaries shall have been repaid in full and all commitments in respect thereof shall have been canceled; (q) Genesis and the Company shall have entered into the Management Agreement, satisfactory in form and substance to the Lenders under which Genesis will provide management services to the Company and its subsidiaries in consideration of the payment of management fees; (r) Genesis will provide an opinion of counsel and a certificate of a firm of independent certified public accountants (each of whom shall be satisfactory to the Lenders in their complete discretion) demonstrating to the satisfaction of the Lenders that the entirety of the Genesis Bank Financing will constitute "senior indebtedness" for purposes of the Genesis publicly-held senior subordinated debt and that the consummation of the transactions contemplated hereby do not violate the covenants governing such indebtedness; and (s) Genesis shall have delivered letters in form and substance satisfactory to the Lenders attesting to the solvency of Genesis, including letters from (i) Genesis' chief financial officer and (ii) a nationally recognized appraisal firm, valuation consultant or investment banking firm satisfactory to the Lenders. The Lenders' obligation to make initial loans under the Genesis Senior Facilities after the initial funding is subject, among other things, to the usual and customary conditions for transactions of the nature contemplated by the Genesis Commitment Letter, including, without limitation, the following: (i) no default shall exist under the loan documents, (ii) the 16 representations and warranties of Genesis and its subsidiaries shall be true and correct immediately prior to, and after giving effect to, funding; (iii) the Lenders are satisfied that each incurrence of debt under the Genesis Senior Facilities is permitted by, and will rank senior to, Genesis' publicly-held senior subordinated debt; and (iv) the chief financial officer of Genesis shall deliver a certificate demonstrating compliance with the Fixed Charge Coverage ratio set forth in the Genesis Commitment Letter both before and after giving effect to the loans requested at such time. The Genesis Senior Facilities will contain representations and warranties, events of default and affirmative, negative and financial covenants customary for credit facilities of this nature. BANK FINANCING. The Purchaser has accepted an Amended and Restated Commitment Letter dated June 14, 1997 (as so amended, the "Commitment Letter") from the Administrative Agent and the Lenders pursuant to which the Lenders have committed, subject to certain conditions contained therein, to provide the Purchaser and the Company with the Short Term Facilities (as defined below) and the Senior Facilities (as defined below). The Short Term Facilities consist of (a) a $200 million loan facility to the Purchaser to fund the purchase of Shares and pay certain fees and expenses associated with the transactions herein described and (b) a $425 million facility to the Company and its subsidiaries to refinance existing indebtedness of the Company and its subsidiaries, to fund working capital, general corporate purposes, and to pay interest, principal and fees and expenses associated with the Short Term Facilities. The Senior Facilities consist of four loan facilities totaling $625 million to the Company and its subsidiaries for the purpose of refinancing the Short Term Facilities, funding interest and principal payments on such facilities and on certain remaining indebtedness, funding the purposes of the Short Term Facilities (if the Short Term Facilities are not used) and funding working capital and general corporate purposes. The Short Term Facilities and the Senior Facilities are collectively referred to as the "Facilities" or the "Bank Financing". The Lenders' commitment for the Short Term Facilities terminates October 15, 1997 and their commitment for the Senior Facilities terminates 120 days following the expiration of the Offer. Lenders expect to syndicate all or a portion of each of the Facilities to New Lenders prior to or after consummation of the Offer. The Parent, the Purchaser and Genesis have agreed to (i) indemnify the Lenders and the New Lenders and their respective affiliates, officers, directors, employees, agents and advisors against certain liabilities and expenses incurred in connection with the transactions contemplated by the Commitment Letter and (ii) reimburse the Lenders for all reasonable out-of- pocket expenses incurred in connection with the transactions contemplated by the Commitment Letter. The Lenders' obligation to make initial loans under both the Short Term Facilities and Senior Facilities will be subject, among other things, to the following conditions: (a) the restrictions in Section 203 of the DGCL and any other impediment under Delaware law shall be inapplicable to the acquisition of the Shares and to any subsequent transactions between the Purchaser or any of its affiliates and the Company or any of its affiliates, and all conditions to avoiding the restrictions contained therein shall have been satisfied; (b) at least a majority of the Shares shall have been tendered to the Purchaser for purchase pursuant to the Offer and shall be purchased concurrently with the initial funding; (c) the Lenders shall be satisfied that no legal impediment to the Merger under Section 253 or Section 251 of the DGCL on the terms set forth in the Merger Agreement exist or would exist following the consummation of the Offer; (d) all loans made by the Lenders under the Facilities shall be in full compliance with the Federal Reserve's Margin regulations; (e) the Board of Directors of the Company shall have recommended acceptance of the Offer and shall have authorized execution of agreements with respect to the Merger; (f) the Offer shall not be subject to any injunction or similar order and shall be consummated in accordance with all applicable law; (g) all documentation relating to the Facilities shall be executed and delivered and shall be in form and substance satisfactory to the Lenders; (h) all filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made and all filing and recording fees and taxes shall have been duly paid; (i) all of the material documents in connection with the Offer, the Merger and related transactions shall have been accepted by Lenders; (j) no material adverse change shall have occurred in the business, condition (financial or otherwise), operations, properties or prospects of the Purchaser or the Company and their subsidiaries taken as a whole since December 31, 1996; (k) there shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that (i) could have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Company and its subsidiaries taken as a whole or on the Offer or the Merger or (ii) in the judgment of the Lenders, could materially adversely affect the Lenders, the Facilities or the ability of the Parent to perform its obligations thereunder; (l) the Lenders shall have received such opinions of counsel to the various parties to the transactions referred to herein as to such matters as shall be reasonably satisfactory to the Lenders; (m) the Lenders shall have received such corporate resolutions, certificates and other documents as the Lenders shall reasonably request; (n) appropriate filings shall have been made by all necessary parties under the HSR Act, and the applicable waiting periods shall have expired or been terminated; (o) all governmental consents and approvals and third-party consents and approvals necessary in connection with the Offer, the Merger, the Facilities and other related transactions shall have been 17 obtained and shall be final and shall remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority; (p) there shall exist no default under any of the loan documents and the representations and warranties of the Parent and its subsidiaries therein shall be true and correct immediately prior to, and after giving effect to, funding; (q) all accrued fees and expenses shall have been paid; (r) all conditions to the initial funding under the Genesis Bank Financing shall have been satisfied and the closing thereunder shall have occurred concurrently with the closing of the first Facility to close; (s) Genesis shall have paid $300 million for 42% of the Parent Common Stock, and Cypress and TPG, collectively, shall have paid at least $418.7 million for 58% of the Parent Common Stock; (t) all indebtedness of the Company shall have been repaid in full and all existing credit facilities of the Company shall have been canceled, except, as specified in the definitive credit agreement, mortgage debt, industrial revenue bonds and other debt aggregating no more than $37 million plus the amount of existing convertible debt of the Company that is not converted into Common Stock of the Company prior to initial funding under the Facilities; (u) the total amount payable by the Purchaser in the Offer and the Merger, including consulting, non-competition, severance and other payments to employees of the Company and all amounts provided to refinance existing indebtedness of the Company and all amounts of assumed indebtedness, shall not exceed $1.520 billion in the aggregate; (v) the Company and its subsidiaries, and Genesis shall have entered into the Management Agreement satisfactory in form and substance to the Lenders; (w) at least three business days prior to the initial funding, the Lenders shall have received financial statements consisting of (i) a cash flow statement accurately reflecting a minimum EBITDA of $124 million, on a PRO FORMA basis, giving effect to all acquisitions and dispositions occurring within the prior twelve-month period and (ii) a balance sheet reflecting total funded debt of not more than $781 million, on a PRO FORMA basis, giving effect to the consummation of all transactions in connection with the Merger, including, without limitation, all borrowings in connection therewith or otherwise contemplated hereunder, the application of all proceeds of such borrowings and the amount of all outstanding indebtedness after giving effect to the foregoing, each of which statements shall be in form and accompanied by explanatory notes acceptable to the Lenders; (x) concurrently with the delivery of the financial statements, the Lenders shall have received a certificate of the chief financial officer of the Parent, in form and content satisfactory to the Lenders, demonstrating compliance with the financial covenants set forth herein; (y) the Purchaser shall have received at least $200 million in proceeds from the Subordinated Bridge Facility (as defined below) which facility shall be on such terms and conditions as shall be acceptable to the Lenders, and (z) a tax-sharing agreement acceptable to the Lenders shall have been executed by the Parent and the Company and its subsidiaries. The Lenders' obligation to make loans under the Short Term Facilities and Senior Facilities after the initial funding will be subject to the usual and customary conditions for transactions of this nature, including, without limitation, the following: (i) there shall exist no default under the loan documents and (ii) the representations and warranties of the Purchaser and the Company shall be true and correct immediately prior to, and after giving effect to, funding. SHORT TERM FACILITIES. The Short Term Facilities encompass two facilities, a $200 million facility to the Purchaser ("Purchaser Facility") and the $425 million facility to the Company and its subsidiaries ("Company Facility"). All indebtedness outstanding under the Short Term Facilities will be due and payable on the earlier of 120 days after the initial closing date or upon the effectiveness of the Merger between the Purchaser and the Company or the abandonment thereof. Each facility is more fully described below. Loans under the Short Term Facilities will bear interest at a rate per annum equal to Prime Rate plus 1.5% (as defined in the Commitment Letter) and payable on a quarterly basis. Lenders are entitled to receive a commitment fee equal to .125% per annum on the unused amount of the total Short Term Facilities payable quarterly in arrears, commencing on May 31, 1997 ("Initial Commitment Fee") and a commitment fee equal to .5% per annum on the unused amount of the total Short Term Facilities payable quarterly in arrears, commencing on the Closing Date ("Commitment Fee"), and a facility fee equal to 2.25% of the total Senior Facilities ("Facility Fee"). PURCHASER FACILITY. The proceeds of the loans made to the Purchaser under the Purchaser Facility will be used to fund the purchase of Shares pursuant to the Offer and to pay fees and expenses associated with the Offer, the Subordinated Bridge Financing and the Short Term Facilities. Advances under the Purchaser Facility shall be made at Purchaser's option either (i) on a dollar for dollar basis with the Subordinated Bridge Financing or (ii) after the net proceeds of the Subordinated Bridge Financing have been appropriately expended. No funds under the Purchaser Facility shall be advanced if the ratio of Tendered Stock Value (defined below) to the Purchaser's indebtedness to Lenders is (or, after giving effect to the Purchaser Facility and Subordinated Bridge Financing advances, would be) less than 2.5:1.0. "Tendered Stock Value" shall mean the then current market value of the shares. Loans made under the Purchaser Facility will be secured by a pledge of (i) all Shares purchased pursuant to the Offer or otherwise owned by the Purchaser, the Parent or any of their affiliates and (ii) an amount to be deposited in an account as an interest reserve to fund interest, fees and expenses owing to Lenders under Purchaser 18 Facility loans and advances ("Purchaser Facility Collateral"). The obligations of the Purchaser in respect to the Purchaser Facility are to be fully guaranteed by the Parent. In addition to the conditions to the initial loans under the Short Term Facilities and the Senior Facilities, the Lenders' obligation to make loans under the Purchaser Facility will be subject to the following conditions: (i) the Merger shall be effected as expeditiously as possible following the Offer; (ii) the Purchaser shall have the unrestricted right, subject only to prior notification pursuant to Section 14(f) of the Exchange Act, to designate and cause to be appointed a majority of the Board of Directors of the Company; (iii) the Administrative Agent, on behalf of the Lenders, shall have a perfected first priority lien and security interest in the Purchaser Facility Collateral; (iv) payment of the full amount of the Facility Fee; (v) payment of an Administrative Agent and Lender fees in amounts to be agreed to by the Parent, the Purchaser and the appropriate Lenders; (vii) the Purchaser shall have no activities other than the acquisition and holding of Shares and the Merger between the Purchaser and the Company, and (viii) the Purchaser shall use its best efforts to cause the Merger between the Purchaser and the Company to occur as expeditiously as possible. COMPANY FACILITY. The proceeds of the Company Facility shall be used to refinance existing indebtedness of the Company and its subsidiaries, to fund working capital, general corporate purposes, interest principal and fees and expenses associated with the Facilities. The Company and its subsidiaries shall be jointly and severally liable for the obligations under the Company Facility. The Company Facility will contain financial and other covenants and representations and warranties customary in similar financings and shall be secured by a pledge of the equity in all of the Company's present and future direct and indirect subsidiaries and their intercompany notes. SENIOR FACILITIES. The Commitment Letter provides that after completion of the Merger and subject to the applicable conditions, Lenders will provide to the Company as successor under the Merger a (i) $250 million six year Term Loan (the "Tranche A Term Facility"), (ii) $150 million seven year Term Loan (the "Tranche B Term Facility"), (iii) $100 million Term Loan maturing on June 1, 2005 (the "Tranche C Term Facility") and (iv) $125 million six year Revolving Credit Facility (the "Revolving Credit Facility"). The Senior Facilities will be secured by a first priority security interest in all of the (i) stock of the Company, (ii) stock, partnership interests and other equity of all of the Company's present and future direct and indirect subsidiaries and of its stock in the pharmacy business of Genesis and (iii) intercompany notes among the Parent and any subsidiaries or among any subsidiaries. All of the obligations of the Company with respect to any indebtedness under the Senior Facilities shall be guaranteed by the Parent. Loans under the Senior Facilities will bear, at the option of the Company, interest at the per annum Prime Rate as announced by the Administrative Agent, or the applicable Adjusted LIBO Rate. "Adjusted LIBO Rate" means a rate of interest on one, two, three or six month interest periods plus the applicable margin determined by the Lender. The Adjusted LIBO Rate will differ among each Facility. The initial Adjusted LIBO Rates are as follows: loans under the Tranche A Term Facility will bear interest at a rate equal to LIBO Rate plus 2.5%; loans under the Tranche B Term Facility will bear interest at a rate equal to LIBO Rate plus 2.75%; loans under Tranche C Term Facility will bear the interest at a rate equal to LIBO Rate plus 3.0% and; loans under the Revolving Credit Facility will bear interest at a rate equal to LIBO Rate plus 2.5%. Five business days following receipt of the quarterly and annual compliance certificates, if performance standards are met, changes in the interest rates will take effect. Subject to meeting certain financial covenants, the interest rate will be reduced. Lenders are entitled to receive a commitment fee equal to 0.5% per annum on Facilities and, upon five business days following receipt of quarterly and annual compliance certificates, a reduction in the commitment fee will take effect if performance standards are met. 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 Closing Date, pursuant to an amortization schedule set forth in Schedule I of the Commitment Letter. All net proceeds received by the Company from (i) the sale of assets of the Company or its subsidiaries other than sales in the ordinary course of business (and other than the sale of the Company's rehabilitation and therapy business) and (ii) any sale of common stock or debt securities of the Company (other than (a) the Permanent Financing (as defined below) and (b) equity contributed by the Parent) in respect of common stock will be applied as a mandatory prepayment. In addition, 50% of Excess Cash Flow (as defined in the Commitment Letter) must be applied to the Senior Facilities and shall be payable annually within 120 days of each fiscal year end. With respect to the Senior Facilities, all prepayments shall be applied first, 19 on a pro rata basis, to Tranche A Term Facility, Tranche B Term Facility and Tranche C Term Facility; and second, prepayments shall be applied to the Revolving Credit Facility, with a corresponding reduction in the commitments. With respect to net cash proceeds of a disposition of any Wisconsin, Illinois or Ohio facilities within two years of the closing date, the prepayments shall be applied first, to the Tranche A Term Facility; second, Tranche B Term Facility and Tranche C Term Facility; and third, Revolving Credit Facility, with corresponding reduction in the commitments. Loans under the Senior Facilities may be prepaid at any time, in whole or in part, provided that (i) there are customary "breakage" fees for prepaying LIBO Rate portions of Loans and (ii) each partial prepayment shall be in the amount of at least $10 million or an integral multiple of $5 million in excess thereof. In addition to the conditions to the initial loans under the Short Term Facilities and the Senior Facilities, the Senior Facilities will be also subject to the following conditions: (i) the Merger shall be effective; (ii) the Administrative Agent on behalf of the Lenders, shall have a perfected first priority lien and security interest in all stock and other equity interests of the Company and its subsidiaries as well as all intercompany notes of the Parent and its subsidiaries; (iii) the Parent shall have delivered letters to Lenders, in form and substance satisfactory to the Lenders, attesting to the solvency of the Parent, after giving effect to the transactions referred to herein, from (a) the Company's chief financial officer and (b) from a nationally recognized appraisal firm, valuation consultant or investment banking firm satisfactory to the Lenders; (iv) the Short Term Facilities shall have been repaid in full and all commitments thereunder canceled; (v) upon the completion of the Merger, the Company shall confirm its agreement to be bound by the terms of the credit documents by agreement satisfactory in form and content to the Lenders; and (vi) the sale of the Company's rehabilitation and therapy business to Genesis shall have been consummated in a transaction whereby the net cash proceeds after taxes and related fees and expenses of such sale shall be approximately $20 million. The Senior Facilities will contain representations and warranties, events of default and affirmative, negative and financial covenants customary for credit facilities of this nature, including those specified in the Short Term Facility. SUBORDINATED BRIDGE FINANCING. The Purchaser has accepted a commitment letter (the "Bridge Financing Commitment Letter") from Morgan Stanley Bridge Fund, L.L.C. and Montgomery Group Holdings, L.L.C. (collectively, the "Bridge Lenders") pursuant to which Morgan Stanley Bridge Fund, L.L.C. and Montgomery Group Holdings, L.L.C. have committed to purchase $133 million and $67 million, respectively, of Bridge Notes. The proceeds from the sale of the Bridge Notes will be used to pay a portion of the purchase price of the Shares purchased pursuant to the Offer and to pay interest, fees and expenses incurred in connection with the Offer. The Bridge Notes will mature one year from the date of the Bridge Lenders' initial purchase of the Bridge Notes. The obligation of each of the Bridge Lenders' to purchase the Bridge Notes pursuant to the Bridge Financing Commitment Letter will expire on the earliest of (i) consummation of the Offer or another transaction or series of transactions in which the Parent, the Purchaser or any of their respective affiliates acquires, directly or indirectly, any stock or assets of the Company, (ii) termination of the Merger Agreement and (iii) 5:00 p.m. New York City time on September 30, 1997 or, at the option of the Purchaser and subject to the payment in full of the Additional Commitment Fee (as defined below), December 5, 1997. Interest on the Bridge Notes is payable quarterly in arrears at the Applicable Interest Rate. "Applicable Interest Rate" shall mean the highest of the following, as determined as of the beginning of each three-month period: (i) the base rate (as announced by Citibank, N.A.) plus 325 basis points, (ii) three-month U.S. Dollar LIBO Rate plus 600 basis points and (iii) the highest yield on any of the one, three, five and ten year direct obligations issued by the United States plus 500 basis points. If the Bridge Notes are not retired in whole within six months after their issuance, the Applicable Interest Rate otherwise in effect will be increased by 100 basis points and will thereafter increase by an additional 50 basis points at the end of each subsequent three-month period as long as the Bridge Notes are outstanding (the "Incremental Spread"), PROVIDED, however, that (i) in no event will the Applicable Interest Rate exceed 17% and (ii) the amount of cash interest paid will be subject to a cap of 14.50%, with the excess, if any, of the Applicable Interest Rate over such interest rate cap to be paid in additional Bridge Notes. The Bridge Notes will be unsecured and will be senior to all subordinated indebtedness of the Purchaser and will be subordinate to all senior indebtedness of the Purchaser, including but not limited to, the Bank Financing. The Bridge Notes will be entitled to the benefits of a senior subordinated guarantee from the Parent, the Company and each of the Company's subsidiaries. In consideration of their commitment, the Bridge Lenders are entitled to receive a non-refundable fee of 1.0% of the commitment in respect of the Bridge Notes upon the Purchaser's acceptance of such commitment (the "Initial Commitment 20 Fee") and an additional fee of 1.5% of the principal amount of Bridge Notes purchased by the Bridge Lenders (the "Takedown Fee"). In the event that the Purchaser elects to extend the Bridge Lenders' commitment beyond September 30, 1997, the Bridge Lenders are entitled to receive an additional non-refundable fee of 1.0% of the above-referenced commitment (the "Additional Commitment Fee"). The Parent, the Purchaser and Genesis will pay all legal and other out-of-pocket expenses of each of Morgan and Montgomery as incurred, including travel costs, document production and other related expenses, and the fees of outside counsel as well as other professional advisors engaged with the Purchaser's consent thereto. In the event the Transaction (as defined below) does not close, the Bridge Lenders shall be entitled to receive from Genesis an amount equal to the lesser of (i) 33% of the amount of any fees paid to the Parent pursuant to Section 8.2(a) of the Merger Agreement and (ii) the sum of the Initial Commitment Fee, the Additional Commitment Fee (if the Bridge Lenders' commitment has been extended beyond September 30, 1997) and any out-of-pocket expenses incurred by the Bridge Lenders in connection therewith. The Takedown Fee will be earned and payable upon the issuance of any Bridge Notes. As additional consideration, each of the Parent, the Purchaser and Genesis have agreed, jointly and severally, to indemnify the Bridge Lenders and their officers, directors, employees and affiliates from any losses, claims, damages or liabilities arising out of or related to the Transaction. Upon the issuance of the Bridge Notes, warrants (the "Warrants") representing 5.0% of the fully-diluted common equity of the Parent (the "Escrowed Warrant Amount") will be placed in an escrow account with a mutually agreeable escrow agent and will be released to the holders of the Rollover Notes (as defined below), if any such Rollover Notes are issued, as follows: 2.5% at the time the Rollover Notes are issued and an additional 0.625% at the end of each three-month period thereafter if any Rollover Notes remain outstanding at such time. If the aggregate amount of Bridge Notes issued is less than $200 million, then the Escrowed Warrant Amount will be reduced pro rata. All Warrants will be exercisable at a nominal price for a period of five years from the date such Warrants are released from escrow and will have customary anti-dilution provisions and registration rights. Subject to a ten-day notice requirement, the Bridge Notes may be redeemed, in whole or in part, at the option of the Purchaser, at any time, at 102.8% of par plus accrued interest. The Purchaser, however, is required to redeem the Bridge Notes at par plus accrued interest with, subject to certain agreed upon exceptions, (i) the net proceeds from a Permanent Financing (as defined below), (ii) the net proceeds from the issuance of any other debt or equity securities and (iii) the net proceeds from asset sales; PROVIDED, however, that the redemption price shall be 102.8% of par plus accrued interest if the Bridge Notes are redeemed with or in anticipation of funds raised by any means other than a Permanent Financing in which Montgomery Securities and Morgan Stanley have acted as exclusive agents or sole underwriters to the Purchaser. In addition, the Purchaser is required to redeem the Bridge Notes upon any change-of-control of the Purchaser at a redemption price of 101% of par plus accrued interest. The terms of the Bridge Financing Commitment Letter require the Purchaser to use its best efforts to issue and sell as soon as practicable following the Merger, debt securities in a public offering or private placement (the "Permanent Financing") in which Montgomery Securities and Morgan Stanley will act as exclusive agents or sole underwriters to the Purchaser, the proceeds of which will be used to redeem the Bridge Notes in accordance with the terms and provisions described above. The Bridge Lenders' commitment to purchase the Bridge Notes is subject to certain conditions, including but not limited to the following: (i) the consummation of the transactions pursuant to the Merger Agreement (the "Transaction") in accordance therewith; (ii) the Merger Agreement, Offer and other documentation shall be reasonably satisfactory in form and substance to the Bridge Lenders, in their sole discretion, without any material amendment, modification or waiver of any of the terms or conditions thereof without the prior written consent of the Bridge Lenders; (iii) the structure of the Transaction, including the tax, federal margin regulation, ERISA, accounting and other consequences thereof, and corporate and legal structure shall be reasonably satisfactory to the Bridge Lenders; (iv) other financings and transactions contemplated to be consummated on the date of the Closing shall be consummated on terms reasonably satisfactory to the Bridge Lenders, including but not limited to (a) the closing of the Bank Financing, if required to consummate the Offer (but if borrowings under the Bank Financing are not required to consummate the Offer, the credit agreement for the Bank Financing shall have been executed and delivered and all conditions precedent to funding thereunder (other than consummation of the Merger) shall have been satisfied or waived in writing), (b) the issuance of Parent Common Stock in the aggregate amount of $720 million, (c) the refinancing (or satisfactory arrangements relating to the refinancing) of approximately $381 million of debt of the Company and (d) the entry into the Management Agreement; (v) receipt by each of the Bridge Lenders of solvency certificates and independent solvency opinions, each in form and substance reasonably satisfactory to the Bridge Lenders, to the extent required by the Lenders under the Bank Financing; (vi) completion of all loan documentation and other documentation relating to the Bridge Notes, the Rollover Notes and the Warrants in form and substance reasonably satisfactory to the Bridge Lenders, including the issuance of appropriate Parent, Company and subsidiary guarantees, and the receipt by each of 21 the Bridge Lenders of reasonably satisfactory customary opinions of counsel as to the transactions contemplated thereby; (vii) receipt of all material regulatory, governmental agency or third party consents and approvals necessary for the Purchaser to complete the Offer; (viii) absence of any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its subsidiaries, taken as a whole, since December 31, 1996; (ix) absence of facts or circumstances inconsistent with information disclosed to the Bridge Lenders prior to the date of the Bridge Financing Commitment Letter that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on (a) the condition (financial or otherwise), business, assets, liabilities (contingent or otherwise), properties, value, operations, results of operations or prospects of (i) either the Parent or the Purchaser, individually or (ii) the Company and its subsidiaries, taken as a whole, or (b) any aspect of the Transaction or the refinancing of the Bridge Notes; (x) absence of any event or circumstance which would materially adversely affect the ability of Genesis to perform its obligations under the Management Agreement; (xi) absence of any action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that in the reasonable judgment of the Bridge Lenders (a) could have a material adverse effect on the business condition (financial or otherwise), operations, properties or prospects of the Company and its subsidiaries, taken as a whole, or on the Offer or the Merger or (b) could materially adversely affect the Bridge Lenders, the Bridge Notes or the ability of the Purchaser or the Company to perform its obligations thereunder; (xii) absence of any disruption or change in financial, banking or capital markets or in the regulatory environment that could materially and adversely affect the sale of the Bridge Notes or the refinancing thereof; (xiii) absence of any material default or potential default and accuracy of representations and warranties and (xiv) upon consummation of the Offer, neither the Purchaser nor the Company nor any of their subsidiaries will have any outstanding debt (other than arrangements satisfactory to the Bridge Lenders relating to refinancing outstanding debt) other than the Bridge Notes and the Bank Financing in excess of $37 million plus the amount of 7% Debentures that does not convert into Company common stock. The Purchaser has agreed that if the Bridge Notes are not redeemed at maturity, they may be refinanced, subject to the fulfillment of certain conditions, by the issuance of certain rollover notes (the "Rollover Notes") having a maturity of ten years from the issuance date thereof. Interest on the Rollover Notes is payable quarterly in arrears at a rate per annum equal to the sum of (i) the Incremental Spread (as defined above) as of the date of the issuance of the Rollover Notes, which shall increase by an additional 50 basis points at the end of each three-month period for so long as the Rollover Notes are outstanding, plus (ii) the highest of the following, as determined as of the beginning of each three-month period: (a) the base rate (as announced by Citibank, N.A.) plus 325 basis points, (b) three-month U.S. Dollar LIBOR plus 600 basis points and (c) the highest yield on any of the one, three, five and ten-year direct obligations issued by the United States plus 500 basis points, PROVIDED, however, that (I) in no event shall the interest on the Rollover Notes exceed 17% and (II) the amount of interest paid will be subject to a cap of 14.50% with the excess, if any, of such interest rate over the interest rate cap to be paid in additional Rollover Notes. A funding fee equal to 2.8% of the principal amount of the Bridge Notes will be payable in cash to the Bridge Lenders pro rata based on their respective shares of Bridge Notes held upon the issuance thereof. Upon issuance of the Rollover Notes, the Purchaser will be entitled to receive the Warrants held in escrow in the amounts and at the times described above. The Purchaser may redeem the Rollover Notes, in whole or in part, at any time at par plus accrued interest, PROVIDED, however, that if the Rollover Notes are sold to third party purchasers on a fixed rate basis no less favorable to the Purchaser than the then applicable rate of interest, the Rollover Notes will be non-callable for five years from the date of issuance and will be callable thereafter at par plus accrued interest plus a premium equal to 50% of the coupon in effect on the date of issuance of the Rollover Notes, declining ratably on each yearly anniversary to par one year prior to the maturity of the Rollover Notes. The Purchaser, however, is required to redeem the Rollover Notes at par plus accrued interest with, subject to certain agreed upon exceptions, (i) the net proceeds from a Permanent Financing, (ii) the net proceeds from the issuance of any other debt or equity securities and (iii) the net proceeds from asset sales; PROVIDED, however, that the redemption price shall be par plus accrued interest. In addition, the Purchaser is required to redeem the Rollover Notes upon any change-of-control of the Purchaser at a redemption price of 101% of par plus accrued interest. Any redemption or other acquisition of the Rollover Notes, whether optional, mandatory or upon a change of control, will be made pro rata among the Bridge Lenders based on the principal amount of Rollover Notes held by each of them. Pursuant to the Bridge Financing Commitment Letter, the Purchaser is required to use its best efforts to file a "shelf" registration statement with respect to the Rollover Notes as soon as practicable after the issuance of the Rollover Notes, and to keep such registration statement effective until the Rollover Notes have been redeemed. If a "shelf" registration statement for the Rollover Notes has either (i) not been filed within 60 days of the issuance of the Rollover Notes or (ii) not been 22 declared effective within 120 days of the issuance of the Rollover Notes, the Purchaser will pay liquidated damages of $0.192 per week per $1000 principal amount of Rollover Notes until such time as such registration statement has become effective. The Purchaser will also pay such liquidated damages for any period of time following the effectiveness of such registration statement that the registration statement is not available for resales thereunder. In addition, the Rollover Notes will have registration rights with respect any future issuances of debt securities by the Purchaser. The obligation of each of the Bridge Lenders to accept the Rollover Notes in exchange for the Bridge Notes is subject to certain conditions, including but not limited to the following: (i) at the time of issuance, there shall exist no default or potential default under the agreement pursuant to which the Bridge Notes are issued to the Bridge Lenders, (ii) all fees and other amounts owing to the Bridge Lenders shall have been paid in full and (iii) no injunction, decree, order or judgment enjoining the issuance of the Rollover Notes shall be in effect. The Rollover Notes will be unsecured and will be senior to all subordinated indebtedness of the Purchaser and will be subordinate to all senior indebtedness of the Purchaser, including but not limited to, the Bank Financing. The Rollover Notes will be entitled to the benefits of a senior subordinated guarantee from the Parent, the Company and each of the Company's subsidiaries. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. In March 1997, senior management of Genesis was contacted by representatives of Smith Barney who indicated that the Company was exploring the possible sale of the Company. On April 21, 1997, Genesis (through its financial advisor, Montgomery Securities) contacted representatives of Smith Barney regarding its potential interest in exploring a possible acquisition of or combination with the Company and was advised that the Company was already in discussions regarding a potential transaction with another party and was not in a position to invite Genesis into the process. On April 25, 1997, Smith Barney contacted Montgomery to indicate that the Company was establishing a formal process whereby multiple strategic and financial buyers were to be contacted with respect to a possible acquisition of the Company and that Genesis would be one of the potential buyers contacted. Similarly, Cypress was contacted with respect to a possible acquisition of the Company. On April 29, 1997, Genesis executed a confidentiality agreement with the Company and subsequently received certain information about the Company and its subsidiaries. On May 5, 1997, representatives of Cypress contacted senior management of Genesis to discuss the possibility of a joint bid for the Company. Following preliminary financial and other analysis of the information concerning the Company provided on May 7, 1997, senior management of Genesis met with representatives from Montgomery to discuss the possible acquisition of the Company by Genesis. Based on this meeting, it was concluded that Genesis would be prepared to submit an offer to acquire the Company; however, it was also concluded that in order to enhance the competitiveness of Genesis' offer, it would be prudent to explore the possibility of a joint bid with Cypress. On May 9, 1997, Michael R. Walker, Chairman and Chief Executive Officer of Genesis, spoke with Daniel Straus to set up a meeting for the following week in which they planned to discuss reasons for the sale and prospects for the Company. On May 13, 1997, Mr. Walker had dinner with Mr. Straus to discuss the Company's goals and opportunities as well as Genesis' interest in acquiring the Company. Mr. Straus indicated to Mr. Walker that subject to clarification of a number of issues (including price), the Company would be interested in exploring the possible sale of the Company to Genesis. Mr. Walker indicated to Mr. Straus that to reach agreement on price, Genesis would need to have access to additional confidential information regarding the Company. Mr. Straus agreed to provide Genesis with access to the additional information. On May 14, 1997, Genesis submitted an initial indication of interest at a price of $26.00 to $27.50 per share payable in the form of cash and stock. On May 20, 1997, Genesis, together with its financial and legal advisors, met with representatives of the Company and Smith Barney to perform a due diligence investigation of the Company. Also, on May 20, 1997, representatives of TPG, which was then acting independently of Genesis and Cypress, met with Mr. Straus at Smith Barney's office in New York. On May 21, 1997, Genesis and its advisors again met with Mr. Straus to discuss a potential acquisition of the Company by Genesis. On May 23, 1997, Cypress contacted TPG with respect to the possibility of TPG joining Genesis and Cypress in making a bid to acquire the Company. 23 On May 28 and 29, 1997, senior management of Genesis visited facilities of the Company. In the evening on May 29 and continuing through May 30, 1997, Mr. Walker spoke with Mr. Straus regarding the structure of the proposed transaction. On June 1, 1997, Genesis, Cypress and TPG submitted a proposal for the acquisition of the Company at a per share price in cash of $29.00 per share, subject to finalization of the Merger Agreement. That evening, the Company, Genesis, Cypress and TPG and their respective advisors met to negotiate the final terms of the Merger Agreement. After a series of negotiations, the parties did not agree to the terms of the Merger Agreement, and the negotiations ceased that evening. On June 2, 1997, Mr. Walker contacted Mr. Straus to discuss why the negotiations had ceased the evening before, and to determine the feasibility of restarting the negotiations. Thereafter, the principals and their respective advisors again met to attempt to finalize the Merger Agreement. During the negotiations, Genesis decided that the transaction as then negotiated and structured had resulted in a transaction that was no longer economically attractive to the Genesis shareholders. Consequently, the negotiations ceased for a second time, and Genesis, Cypress and TPG indicated that they were withdrawing their bid. Between June 3, 1997 and June 5, 1997, representatives of Cypress, Montgomery, Smith Barney and Schroeder Wertheim and Co. Incorporated, which had recently been engaged as financial advisor to the Company in order to assist the Company in reviewing various proposals and in the negotiation of such proposals, had numerous conversations to discuss the scenarios under which Genesis, Cypress and TPG would be prepared to resubmit a proposal to acquire the Company. On June 5, 1997, Montgomery indicated to Smith Barney that Genesis, Cypress and TPG would only reenter the process if the Company presented a proposal to them that was, in their view, economically feasible and acceptable. On June 6, 1997, Genesis was advised of the terms under which the Company would be prepared to approve a proposal from Genesis, Cypress and TPG. In addition, Mr. Walker received a separate letter on behalf of the Company indicating that the Company had set a date of June 10, 1997 as the deadline for final bids for the acquisition of the Company. On June 10, 1997, Montgomery indicated to Smith Barney that Genesis, Cypress and TPG would not be submitting a bid on that date, but that, assuming the group could resolve certain structural issues, it may submit a proposal at a later date. On June 13, 1997, the Parent and Purchaser submitted a proposal to acquire the Company for $28.00 per share in cash. On June 14 and 15, 1997, legal counsel for Genesis, Cypress and TPG met with legal counsel for the Company to negotiate terms of the Merger Agreement. On June 16, 1997, the Merger Agreement was executed and Genesis, Cypress, TPG and the Company issued press releases announcing the transaction. 11. THE MERGER AGREEMENT; CERTAIN OTHER AGREEMENTS. The following is a summary of the Merger Agreement, the Tender Agreements and the Noncompetition Agreements, which summary is qualified in its entirety by reference to the copies thereof filed as exhibits to the Tender Offer Statement on Schedule 14D-1. THE MERGER AGREEMENT THE OFFER. The Merger Agreement provides for the commencement of the Offer as promptly as practicable after the date of the Merger Agreement, but in no event later than five business days from and including the date of public announcement of the execution of the Merger Agreement. The obligation of the Purchaser to accept for payment and pay for Shares tendered pursuant to the Offer is subject only to the satisfaction or waiver by the Purchaser of the conditions described in Section 15. Under the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, to waive any such condition (other than the Minimum Condition, which may only by waived with the Company's consent) and make any other changes in the terms and conditions of the Offer; PROVIDED, that, unless previously approved by the Company in writing, no change may be made which (a) reduces the number of Shares subject to the Offer, (b) reduces the price per Share payable in the Offer, (c) modifies or adds to the conditions to the Offer, (d) extends the Offer other than as described in the next sentence, (e) changes the form of consideration payable in the Offer (other than by increasing the cash offer price) or (f) amends or modifies any term of the Offer in any manner adverse to any of the Company's stockholders. The Purchaser may, without the consent of the Company, but subject to the Company's right to terminate the Merger Agreement pursuant to Section 8.1(b) (ii) thereof, (i) extend the Offer, if at the scheduled expiration date of the Offer any of the conditions to the Purchaser's obligation to purchase Shares shall not be satisfied, until such time as such conditions are satisfied or waived or (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer or in order to obtain any material regulatory approval applicable to the Offer. The Purchaser agrees 24 that: (A) in the event it would otherwise be entitled to terminate the Offer at any scheduled expiration thereof due to the failure of one or more of the conditions to the Offer set forth in paragraphs (a), (f) or (g) or the first sentence of the introductory paragraph of Exhibit A to the Merger Agreement to be satisfied or waived, it will give the Company notice thereof and, at the request of the Company, extend the Offer until the earlier of (1) such time as such condition is or conditions are satisfied or waived and (2) the date chosen by the Company which shall not be later than (x) September 15, 1997, or October 15, 1997 if the option to extend set forth in Section 8.1(b)(ii)(y) of the Merger Agreement is exercised or (y) the date on which the Company reasonably believes all such conditions will be satisfied; provided that if any such condition is not satisfied by the date so chosen by the Company, the Company may request and the Purchaser will make further extensions of the Offer in accordance with the terms of this paragraph; and (B) in the event that it would otherwise be entitled to terminate the Offer at any scheduled expiration date thereof due solely to the failure of the Minimum Condition to be satisfied, it will, at the request of the Company (which request may be made by the Company only on one occasion), extend the Offer for such period as may be requested by the Company not to exceed ten days from such scheduled expiration date. The Merger Agreement provides that, subject to the terms and conditions of the Offer and the Merger Agreement, the Purchaser will accept for payment and pay for Shares promptly after the expiration of the Offer. Furthermore, the Merger Agreement provides that the Parent is obligated to contribute to the Purchaser any funds necessary to purchase shares pursuant to this Offer and to perform and of its other obligations pursuant to the Merger Agreement. THE MERGER. The Merger Agreement provides that, upon the terms and subject to the conditions thereof and in accordance with the DGCL, at the Effective Time, the Purchaser will be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the surviving corporation. At the Parent's election, any direct or indirect subsidiary of the Parent other than the Purchaser may be merged with and into the Company instead of the Purchaser. At the Effective Time, each Share issued and outstanding immediately prior to the Effective Time (unless otherwise provided for) will be cancelled, extinguished and converted into the right to receive $28.00 in cash or any higher price that may be paid pursuant to the Offer, payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Share in the manner described in the Merger Agreement (the "Merger Consideration"). In addition, as of the Effective Time, each share of the capital stock of the Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation, and each share of Common Stock that is owned by the Company or any subsidiary of the Company ("Treasury Shares") and each share of Common Stock that is owned by the Parent, the Purchaser or other subsidiary of the Parent ("Parent Shares") shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. The Merger Agreement provides that, immediately prior to the Effective Time, the unexercisable portion of each outstanding stock option to purchase Shares (an "Option"), will become immediately exercisable in full, subject to all expiration, lapse and other terms and conditions thereof, and the Company shall take all action necessary so that each Option will be cancelled, in exchange for the right to receive an amount in cash equal to the product of (i) the number of Shares previously subject to such Option and (ii) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Option. The Merger Agreement provides that Shares that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have properly exercised and perfected appraisal rights under Section 262 of the DGCL will not be converted into the right to receive the Merger Consideration, but will be entitled to receive the consideration as determined pursuant to Section 262 of the DGCL; PROVIDED, HOWEVER, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder's Shares shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration as described above. The Merger Agreement also provides that at the Effective Time and without any further action on the part of the Company and the Purchaser, the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), of the Company, as in effect immediately prior to the Effective Time, will be the certificate of incorporation of the Surviving Corporation until thereafter and further amended as provided therein and under the DGCL. At the Effective Time and without any further action on the part of the Company and the Purchaser, the By-Laws of the Purchaser will be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms and as provided by law. The Merger Agreement provides that the directors of the Purchaser immediately prior to the Effective Time will be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws 25 of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualify on their earlier resignation or removal. AGREEMENTS OF THE PARENT, THE PURCHASER AND THE COMPANY. STOCKHOLDERS MEETING. Pursuant to the Merger Agreement, following the purchase of Shares pursuant to the Offer, the Company will take all action necessary in accordance with applicable law to convene a meeting of its stockholders (the "Stockholders Meeting") as promptly as practicable to consider and vote upon the Merger Agreement and the transactions contemplated thereby. The Company will, through the Board of Directors recommend that the Company's stockholders vote in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, subject to the Board of Director's fiduciary duty under applicable law. At the meeting of the Company's stockholders, the Parent will cause all Shares owned by the Parent, the Purchaser or any other subsidiary of Parent to be voted in favor of the adoption of the Merger Agreement and the transactions contemplated thereby. PROXY STATEMENT. As soon as practicable, following the purchase of Shares pursuant to the Offer, the Company will prepare and file with the Commission under the Exchange Act a proxy statement (the "Proxy Statement") and shall use its reasonable best efforts to cause the Proxy Statement to be mailed to stockholders of the Company as promptly as practicable after such filing. COMPANY BOARD REPRESENTATION. The Merger Agreement provides that, promptly upon the purchase by the Purchaser of such number of Shares pursuant to the Offer as satisfies the Minimum Condition (the "Majority Acquisition"), and from time to time thereafter, the Purchaser will be entitled to designate up to such number of directors on the Board of Directors of the Company as will give the Purchaser representation on the Board of Directors as represents a percentage of the Board of Directors equal to the percentage of the aggregate number of Shares owned by the Purchaser, provided that, from the Majority Acquisition until the Effective Time, at least two persons who were directors of the Company on the date of the Merger Agreement (the "Continuing Directors") will be directors of the Company and that if the number of Continuing Directors is reduced below two for any reason, any remaining Continuing Director will be entitled to fill such vacancy or if no Continuing Directors remain, the other directors will fill such vacancies with persons not affiliated with the Purchaser, the Parent or the Company. From the time of the Majority Acquisition to the Effective Time, the Company will use its reasonable best efforts to cause persons designated by the Purchaser to constitute the same percentage as is on the board of (i) each committee of the Board of Directors, (ii) each board of directors of each subsidiary of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. The Company's obligations to appoint designees to its Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. ACCESS TO INFORMATION; CONFIDENTIALITY. Pursuant to the Merger Agreement, from the date thereof to the Effective Time, the Company shall, and shall cause its subsidiaries, to, afford the Parent and its authorized representatives reasonable access during normal business hours to all of the properties, personnel, contracts, agreements and books and records of the Company and its subsidiaries, and will promptly deliver or make available to the Parent all filings by the Company pursuant to federal or state securities laws, and all other information concerning the business, properties, assets and personnel of the Company and its subsidiaries as the Parent may from time to time reasonably request. The Merger Agreement also incorporates by reference the terms of a Confidentiality Agreement between the Company and the Guarantor. NO SOLICITATION OF TRANSACTIONS. The Merger Agreement provides that the Company, its subsidiaries and their respective officers, directors, employees, representatives and advisors will immediately cease any existing discussions or negotiations, if any, with any parties conducted prior to the date of the Merger Agreement with respect to any proposal (an "Acquisition Proposal") for an acquisition of all or any substantial part of the business and properties or capital stock of the Company and its subsidiaries taken as a whole, directly or indirectly, whether by merger, consolidation, share exchange, tender offer, purchase of assets or shares of capital stock or otherwise (an "Acquisition Transaction"); PROVIDED that following the cessation of any such discussions or negotiations, future discussions or negotiations with any such parties will be governed by the remaining provisions of this paragraph. Except as set forth in the Merger Agreement, neither the Company or any of its affiliates, nor any of its or their respective officers, directors, employees, representatives or agents, will, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than the Parent and the Purchaser, any affiliate or associate of the Parent and the Purchaser or any designees of the Parent or the Purchaser) concerning any Acquisition Proposal. Notwithstanding the foregoing, (a) the Board of Directors may take, and disclose to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under 26 the Exchange Act with respect to any tender offer for shares of capital stock of the Company; PROVIDED, that the Board of Directors will not recommend that the stockholders of the Company tender their shares in connection with any such tender offer unless the Board of Directors shall have determined in good faith, after consultation with outside counsel that failing to take such action would constitute a breach of the Board of Directors' fiduciary duty under applicable law; (b) the Company may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any person or group pursuant to customary confidentiality agreements, and may participate in discussions and negotiate with such person or group concerning any Acquisition Proposal, if such person or group has submitted a written Acquisition Proposal to the Board of Directors and the Board of Directors determines in its good faith judgment, after consultation with outside counsel that failing to take such action would constitute a breach of the Board of Directors' fiduciary duty under applicable law; and (c) the Company may terminate the Merger Agreement if the Company receives an Acquisition Proposal in writing (1) that the Board of Directors determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (2) as a result of which, the Board of Directors determines in good faith, after consultation with outside counsel, that it is obligated by its fiduciary duty under applicable law to terminate the Merger Agreement; PROVIDED, that such termination pursuant to this clause (c) will not be effective until the Company has made payment of the full fee and expense reimbursement required by Section 8.2 of the Merger Agreement. Under the Merger Agreement, the Board of Directors is obliged to notify the Parent immediately if any such proposal is made and will in such notice, indicate in reasonable detail the identity of the offeror and the terms and conditions of any proposal and, subject to the fiduciary duties of the Board of Directors under applicable law, will keep the Parent promptly advised of all developments which could reasonably be expected to culminate in the Board of Directors withdrawing, modifying or amending its recommendation of the Offer, the Merger and the other transactions contemplated by the Merger Agreement. The Company has also agreed not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party, unless the Board of Directors shall have determined in good faith, that failing to release such third party or waive such provisions would constitute a breach of the fiduciary duties of the Board of Directors under applicable law. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the Purchaser agrees that all rights to indemnification existing in favor of the present or former directors, officers, and employees of the Company (as such) or any of its subsidiaries or present or former directors of the Company or any of its subsidiaries serving or who served at the Company's or any of its subsidiaries' request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (collectively, the "Covered Persons"), as provided in the Company's Certificate of Incorporation or By-Laws, or the articles of incorporation, by-laws or similar documents of any of the Company's subsidiaries and the indemnification agreements with such present and former directors, officers and employees as in effect as of the date of the Merger Agreement with respect to matters occurring at or prior to the Effective Time will survive the Merger and continue in full force and effect and without modification (other than modifications following the Merger which would enlarge the indemnification rights) for a period of not less than the statutes of limitations applicable to such matters, and the Surviving Corporation is required to comply fully with its obligations thereunder. Without limiting the foregoing, the Company will, and after the Effective Time, the Surviving Corporation will periodically advance reasonably incurred expenses as so incurred with respect to the foregoing (including with respect to any action to enforce rights to indemnification or the advancement of expenses) to the fullest extent permitted under applicable law; PROVIDED, HOWEVER, that the person to whom the expenses are advanced must provide an undertaking (without delivering a bond or other security) to repay such advance if it is ultimately determined that such person is not entitled to indemnification. In addition, for a period of six (6) years after the Effective Time, the Surviving Corporation will maintain officers' and directors' liability insurance and fiduciary liability insurance for the Covered Persons (whether or not they are entitled to indemnification thereunder) who were covered at the time of the Merger Agreement by the Company's existing officers' and directors' or fiduciary liability insurance policies on terms no less advantageous to such Covered Persons than insurance existing at the time of the Merger Agreement. The Surviving Corporation will indemnify and hold harmless (and advance expenses to), to the fullest extent permitted under applicable law, each director, officer, employee, fiduciary and agent of the Company or any subsidiary of the Company serving as such on the date of the Merger Agreement against any costs and expenses in connection with any claim, action, suit, proceeding or investigation relating to any of the transactions contemplated thereby, and in the event of any such claim, action, suit, proceeding or investigation, (i) the Surviving Corporation will pay the reasonable fees and expenses of counsel selected by such parties and (ii) the parties to the Merger Agreement will cooperate in the defense of any such matter; provided, however, that the Surviving Corporation will not be liable for any settlement effected without its prior written consent, which consent shall not unreasonably be withheld. The Surviving Corporation shall pay all reasonable costs and expenses, including attorneys' fees, that may be incurred by and indemnified parties in enforcing the indemnity and other 27 obligations provided for by Section 6.8 of the Merger Agreement, and such obligations will survive the consummation of the Merger at the Effective Time and shall continue for the periods specified in the Merger Agreement. In the event the Surviving Corporation or any of its respective successors or assigns (i) consolidates with or mergers into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, it is required to make proper provisions so that successors and assigns of the Surviving Corporation assume the obligations set forth in Section 6.8 of the Merger Agreement. FURTHER ACTION; REASONABLE EFFORTS. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, each of the parties thereto shall use its reasonable efforts to take, or cause to be taken, all action, and to do or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by and in connection with the Merger Agreement as soon as practicable to (i) obtain all consents, amendments to or waivers under the Company's contractual arrangements (other than agreements relating to long term debt or consents, amendments or waivers, the failure of which will not have a Material Adverse Effect (as defined in the Merger Agreement) with respect to the Company, impair the ability of the Company to perform its obligations under the Merger Agreement or delay the transactions contemplated by the Merger Agreement, (ii) make all necessary or appropriate registrations and filings with governmental entities, (iii) defend any lawsuits challenging the Merger Agreement or the transactions contemplated thereby, (iv) fulfill or cause the fulfillment of the conditions to Closing set forth in Article 7 of the Merger Agreement. In connection with and without limiting the foregoing, the Company and its Board of Directors will (x) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger, the Merger Agreement or the transaction contemplated thereby or by the Tender Agreement, and (y) if any such statute or regulation becomes applicable to any of the foregoing, take all action necessary to ensure that the Offer, the Merger and the transactions contemplated by the Merger Agreement and the Voting Agreement are consummated as promptly as practicable and to otherwise minimize the effect of such statute or regulation on such transactions. The Company and the Parent agreed to file as promptly as practicable, but not later than 10 days following the commencement of the Offer, the notification and report required pursuant to the HSR Act. The Parent agreed to cause to be filed as promptly as practicable and in no event later than July 15, 1997, all other applications and notices required to be filed with governmental authorities in order to consummate the Offer and the Merger, and to pursue diligently the approval of such applications. CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement, the Company has covenanted and agreed that, during the period from the date of the Merger Agreement to the Effective Time, (1) the Company will, and will cause each of its subsidiaries, subject to certain exceptions, to, conduct its operations according to its ordinary course of business consistent with past practice (although it will not be a breach of such covenant if a deviation from past practice occurs as a result of the limitations set forth in clauses (e) or (g) below), (2) the Company will, and will cause each of its subsidiaries to, use all reasonable efforts to preserve intact its business organization and to maintain satisfactory relationships with its customers, suppliers and others having material business relationships with it, (although it will not be a breach of such covenant if a deviation from past practice occurs as a result of the limitations set forth in clauses (e) or (g) below), and (3) the Company will not and will not permit any of its subsidiaries to, without the prior written consent of the Parent: (a) amend or propose to amend its Certificate of Incorporation or By-Laws or equivalent governing instruments; (b) authorize for issuance, issue, sell, pledge, deliver or agree or commit to issue, sell, pledge or deliver (whether through the issuance or granting of any options, warrants, calls, subscriptions, stock appreciation rights or other rights or other agreements) or otherwise encumber any capital stock of any class or any securities convertible into or exchangeable for shares of capital stock of any class, other than the issuance of Shares issuable upon exercise of Company Stock Options (as defined in the Merger Agreement) or conversion of 7% Debentures outstanding on the date of the Merger Agreement or pursuant to the Stock Purchase Plan or the Directors Plan (in each such case, in accordance with the present terms thereof); (c) split, combine or reclassify any of its capital stock or declare, pay or set aside for payment any dividend or other distribution in respect of or substitution for its capital stock, or redeem, purchase or otherwise acquire any shares of its capital stock; (d) except as set forth in Schedule 4.9 of the Merger Agreement, increase or establish any compensation or benefit plan, agreement, policy, practice, program or arrangement that would be a Plan (had such plan, agreement, policy, practice, program or arrangement been adopted prior to the date of the Merger Agreement) or otherwise increase in any manner the compensation payable or to become payable by the Company or any of its subsidiaries to any of their respective directors, officers, former employees, or employees, other than in the ordinary course of business consistent with past practice or as required under any existing employment agreement or Plan or the Merger Agreement; 28 (e) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, limited liability company, partnership, joint venture, association or other business organization or division thereof or (y) any assets, outside of the ordinary course of business that in the aggregate is in excess of $10 million (the foregoing does not, however, restrict any construction project identified or commenced by the Company prior to the Merger Agreement that is not prohibited by clause (h) below); (f) sell, lease, license, or otherwise dispose of, or enter into any material contract, commitment, lease or agreement with respect to, any properties or assets (i) that are material to the Company and its subsidiaries taken as a whole and (ii) other than in the ordinary course of business consistent with past practice; (g) (x) incur any long-term indebtedness in excess of the aggregate amount of the Company's consolidated long-term indebtedness outstanding as of June 16, 1997 other than (i) indebtedness not to exceed $10 million at any one time outstanding, the proceeds of which are used to make acquisitions permitted by clause (e) above; PROVIDED, that the ratio of the principal amount of the indebtedness incurred to finance such acquisitions to the aggregate pro forma cash flow of the businesses so acquired during the four fiscal quarters preceding such acquisition does not exceed 6:1, and (ii) additional indebtedness not to exceed $10 million on the date shares are purchased in the Offer, and except for intercompany indebtedness between the Company and any of its subsidiaries or between such subsidiaries, or (y) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any subsidiary or joint venture of the Company or to officers and employees of the Company or any of its subsidiaries for travel, business or relocation expenses in the ordinary course of business consistent with past practice; (h) make or agree to make any new capital expenditure or capital expenditures other than in accordance with the Company's 1997 budget which was delivered to the Parent; (i) make any tax election or settle or compromise any tax liability that will have a Material Adverse Effect with respect to the Company; (j) make any material change to its accounting methods, principles or practices, except as may be required by generally accepted accounting principles; (k) enter into any other agreements, commitments or contracts that are material to the Company and its subsidiaries taken as a whole, other than in the ordinary course of business consistent with past practice, or otherwise make any material change that is adverse to the Company (including by way of termination) in (i) any existing agreement, commitment or arrangement that is material to the Company and its subsidiaries taken as a whole or (ii) the conduct of the business or operations of the Company and its subsidiaries; or (l) agree, commit or arrange to do any of the foregoing. EMPLOYEE MATTERS. The Merger Agreement provides that on and after the Effective Time, the Parent will cause the Surviving Corporation to comply in all respects with the change of control provisions in the employment agreements of Moshael J. Straus, Daniel E. Straus, Steven R. Baker, Andrew Horowitz, Alan D. Solomont and Susan S. Bailis. Without limiting the foregoing, all amounts payable upon such change in control shall be paid in cash immediately following the Majority Acquisition. Pursuant to the Merger Agreement, the Parent agreed to pay or to cause the Surviving Corporation to pay, to certain employees of the Company identified to the Parent (each an "Affected Employee") an amount (the "Accrued Bonus Payment") equal to such employee's annual bonus multiplied by a fraction, the numerator of which is the number of days that have elapsed from December 31, 1996 (or the date of hire of the Affected Employee, if later) until the Effective Time and the denominator of which is 365; provided, that if any such employee terminates his or her employment other than for Good Reason to Terminate (as defined below) prior to December 31, 1997, the numerator will be the lesser of 181 and the number of days that have elapsed from the date of hire of the Affected Employee until June 30, 1997. Payment of each Accrued Bonus Payment will be payable upon the earlier to occur of (i) the termination following the purchase of Shares pursuant to the Offer of the Affected Employee's employment, (ii) the occurrence of an event that constitutes Good Reason to Terminate and (iii) not later than February 15, 1998, if the Affected Employee is employed by the Surviving Corporation or any of its subsidiaries on December 31, 1997. In the Merger Agreement, the Parent agreed that the Surviving Corporation would make certain severance payments to each of the Company's corporate and non-facility employees and certain non-ancillary employees (which does not include any person identified in the first paragraph of this section), on the date of termination of any such employee by the Surviving Corporation or its subsidiary (other than a termination for Cause (as defined below)), as the case may be, or by such 29 employee following the occurrence of an event that constitutes Good Reason to Terminate. Prior to the date that is eighteen months after the Effective Time, the Parent has agreed that the Surviving Corporation will not, and will not permit its subsidiaries to, terminate any such employees on less than 90 days prior written notice of such termination. Notwithstanding the foregoing, no employee shall be entitled to a severance payment as described in the preceding two sentences if such employee receives a notice of termination or is terminated by the Company or voluntarily resigns at any time prior to the purchase of Shares pursuant to the Offer or on a date that is after the date that is eighteen months after the Effective Time. For purposes of the Merger Agreement, "Cause" means conviction of a felony or a crime involving personal dishonesty or theft or misappropriation of the property of the Surviving Corporation or its subsidiaries and "Good Reason to Terminate" is deemed to occur if the Parent, the Surviving Corporation or any of their subsidiaries or affiliates (i) takes any action which substantially reduces an affected employee's title, duties, responsibilities, salary, or, unless such change affects all employees of the Surviving Corporation or its subsidiaries at a comparable level of seniority and responsibility, benefits, or (ii) requires the affected employee to relocate permanently in excess of 25 miles from the his or her primary place of business. In addition, the Merger Agreement provides that notwithstanding anything contained in the Merger Agreement or any other document, agreement or instrument to the contrary, if any person is terminated by the Company (other than for cause) following the purchase of Shares pursuant to the Offer but prior to the Effective Time, all Options held by such person will be treated as provided in Section 3.1(d) of the Merger Agreement. REPRESENTATION AND WARRANTIES. The Merger Agreement contains various customary representations and warranties of the parties thereto including, without limitation, representations and warranties by the Company as to the Company's organization, capitalization, authorization for the agreement, the absence of conflicts with governing instruments or other agreements, governmental approvals, compliance with SEC filings, preparation of financial statements, undisclosed liabilities, veracity of information supplied, absence of certain changes or events, finders and investment bankers fees, voting requirement for approval, absence of litigation, taxes, compliance with certain laws, title to properties, compliance with agreements, employee benefit plans, and insurance, and environmental matters. In addition, the Merger Agreement contains representations and warranties by the Parent and the Purchaser concerning their organization, authorization for the agreement, the absence of conflicts with governing instruments or other agreements, governmental approvals, veracity of information supplied, financing, fraudulent transfer laws, finders and investment bankers fees, and regulatory approvals. CONDITIONS OF THE MERGER. Under the Merger Agreement, the respective obligations of the Parent, the Purchaser and the Company to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) the Merger Agreement shall have been approved by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with the Company's Certificate of Incorporation and the DGCL (which the Company has represented shall be solely the affirmative vote of a majority of the outstanding Shares); (b) no legal requirements shall have been enacted, entered, promulgated or enforced by any court or governmental entity which prohibits or prevents the consummation of the Merger (PROVIDED, that the party or parties invoking this condition shall use reasonable efforts to have any such legal requirement vacated or removed); and (c) any applicable waiting period under the HSR Act will have expired or been terminated. TERMINATION, FEES AND EXPENSES. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after adoption by the stockholders of the Company, as follows: (a) By the mutual written consent of the Parent, the Purchaser and the Company (but only by action of the Continuing Directors (as defined in the Merger Agreement) after the purchase of Shares pursuant to the Offer); (b) By the Parent, the Purchaser or the Company (but only by action of the Continuing Directors after the purchase of Shares pursuant to the Offer): (i) if a court of competent jurisdiction or other governmental entity of the United States shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such Order or other action shall have become final and nonappealable; or (ii) (x) as a result of the failure, occurrence or existence of any of the conditions set forth in Exhibit A to the Merger Agreement (1) the Purchaser shall have failed to commence the Offer within five business days following the date of the Merger Agreement or (2) the Offer shall have terminated or expired in accordance with its terms without the Purchaser having accepted for payment any Shares pursuant to the Offer or (y) the Purchaser shall not have accepted for payment any Shares pursuant to the Offer by September 15, 1997, PROVIDED, that such date may 30 be extended at the option of the Parent to October 15, 1997, but only if the Parent is and has been diligently pursuing approval of the applications with the relevant governmental authorities, PROVIDED, FURTHER, HOWEVER, that the passage of the period referred to in clause (y) shall be tolled for any part thereof (but not exceeding 30 calendar days in the aggregate) during which any party shall be subject to a non-final order, decree, ruling or action restraining, enjoining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the consummation of the Merger; and PROVIDED FURTHER that the right to terminate the Merger Agreement pursuant to clause (b) (ii) will not be available to any party whose willful breach of its representations and warranties contained in the Merger Agreement or whose failure to perform any of its obligations under the Merger Agreement results in the failure, occurrence or existence of any such condition; (c) By the Company, if the Company receives an Acquisition Proposal in writing from any person or group (i) that the Board of Directors determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (ii) as a result of which, the Board of Directors determines in good faith, after consultation with outside counsel, that it is obligated by its fiduciary duty under applicable law to terminate the Merger Agreement; PROVIDED, that such termination pursuant to this clause (c) will not be effective until the Company has made payment of the full fee and expense reimbursement required by Section 8.2 of the Merger Agreement. (d) By the Parent or the Purchaser prior to the purchase of Shares pursuant to the Offer in the event of a material breach by the Company of any representation, warranty, covenant or other agreement contained in the Merger Agreement which has not been cured within 15 days after giving of written notice to the Company; (e) By the Company, if the Parent or the Purchaser shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in the Merger Agreement, which failure to perform has not been cured within 15 days after the giving of written notice to the Parent or the Purchaser; (f) By the Parent, if, prior to the purchase of Shares in the Offer, the Company shall have (i) withdrawn, modified or amended in any respect adverse to the Parent or the Purchaser its approval or recommendation of the Merger Agreement or any of the transactions contemplated herein, (ii) failed to include in the Proxy Statement or Information Statement such recommendation, (iii) recommended any Acquisition Proposal or Acquisition Transaction from or with a person other than the Parent or any of its subsidiaries or (iv) resolved to do any of the foregoing; (g) By the Parent, if, prior to the purchase of Shares in the Offer (i) an Acquisition Proposal that is publicly disclosed shall have been commenced, publicly proposed or communicated to the Company which contains a proposal as to price (without regard to the specificity of such price proposal) and (ii) the Company shall not have rejected such proposal within 10 business days of its receipt or the date its existence first becomes publicly disclosed, if sooner; (h) By the Parent, if (i) any person or group (as defined in Section 13(d)(2) of the Exchange Act) (other than Genesis, the Parent, the Purchaser or any of its or their affiliates) shall have become, or shall have made a proposal seeking to become, after the date hereof the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of at least 35% of the outstanding Shares, other than acquisitions of securities for bona fide arbitrage purposes only, and other than acquisition of beneficial ownership solely as a result of a person having discretionary authority to vote or dispose of shares in an investment advisory or similar capacity or shall have made a proposal to acquire, directly or indirectly, all or substantially all of the consolidated assets of the Company and its subsidiaries and (ii) following public announcement of such person or group becoming such beneficial owner or proposing such beneficial ownership or acquisition, at the next scheduled expiration of the Offer all conditions to the Offer (other than the Minimum Condition) shall have been satisfied or waived; and (i) By the Company, if Parent shall not have delivered the Letter of Credit (as defined below) by June 25, 1997. The Merger Agreement provides further that if: (1) the Company terminates the Merger Agreement pursuant to clause (c) above; (2) the Company terminates the Merger Agreement pursuant to clause (b) (ii) above and at such time the Parent would have been permitted to terminate the Merger Agreement under clause (f) or (g) above; (3) the Parent terminates the Merger Agreement pursuant to clause (f) or (g) above; or (4) the Parent terminates the Merger Agreement pursuant to clause (d) or (h) above and (in the case of clause (4) only) within one year of such termination the Company shall have consummated, or have entered into a definitive agreement with respect to, an Acquisition Transaction pursuant to which the holders of the Shares have received or will receive consideration (including the value of any retained equity) equal to or greater than the Merger Consideration, then the Company shall pay to Parent, within one business day following (in the case of clauses (1), (2) and (3)) such termination and, in the case of clause (4), such consummation or entering into of a definitive agreement, a fee, in cash, of $25 million, PROVIDED, HOWEVER, that the Company in no event shall be obligated to pay more than one such 31 fee and the amount of fees paid as provided in this paragraph and the amount of expense reimbursement paid under the next paragraph shall not exceed $25 million. Upon the termination of the Merger Agreement under circumstances in which the Company would be obligated to pay a fee as described in the previous paragraph, then the Company is obligated to reimburse the Parent and Genesis (not later than one business day after submission of statements therefor) for all actual documented out-of-pocket expenses incurred by or on behalf of any of them or their affiliates in connection with the Offer and the Merger and the consummation of all transactions contemplated by the Merger Agreement (including, without limitation, fees and disbursements payable to financing sources, investment bankers, counsel to Purchaser, Parent, the Guarantor or any of the foregoing, and accountants) ("expenses"). In all cases, the total amount of fees paid as described in the previous paragraph and reimbursement of expenses as described in this paragraph shall not exceed $25 million. Upon termination of the Merger Agreement pursuant to clause (d) above, the Company shall reimburse the Parent (not later than one business day after submission of statements therefor) for expenses, which reimbursement in no event will exceed $12 million. GUARANTY. The Merger contains a guaranty (the "Guaranty") by Genesis, as a primary obligor and not as surety, to the Company, of the due and punctual observance, performance and discharge of each obligation of the Parent and the Purchaser contained in the Merger Agreement and the Voting Agreement. Obligations of the Parent and the Purchaser so guaranteed are hereinafter referred to as the "Obligations." Genesis agreed that if either or both of the Parent and the Purchaser fails to observe, perform or discharge any Obligation, Genesis shall promptly itself, observe, perform or discharge such Obligation, or cause either the Parent or the Purchaser to observe, perform or discharge such Obligation, in all cases as if and to the extent that Genesis was the primary obligor with respect to such Obligation, and shall pay any and all actual damages that may be incurred or suffered by the Company in consequence thereof, and any and all costs and expenses, including, without limitation, attorneys' fees and expenses, that may be incurred by the Company in collecting such Obligation and/or in preserving or enforcing any rights under the Guaranty or under the Obligations. The liability of Genesis under the Guaranty with respect to each and all of the Obligations is absolute and unconditional, irrespective of any waiver of, amendment to, modification of, consent or departure from, the guaranteed agreements, including, without limitation, any waiver or consent involving a change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations. Notwithstanding anything to the contrary set forth in the Merger Agreement, in consideration of the substantial time and expense invested by the Company in the transactions contemplated by the Merger Agreement and the loss of opportunities otherwise available to the Company as a result thereof, if, at any scheduled expiration of the Offer occurring after August 15, 1997 on which each of the conditions set forth in clauses (a) through (g) on Exhibit A to the Merger Agreement (as well as the HSR Act condition set forth in clause (ii) of the first sentence of the introductory paragraph of such Exhibit A) has been satisfied or waived, the Parent shall not have satisfied or waived the condition set forth in clause (iii) of the first sentence of the introductory paragraph of such Exhibit A and the Merger Agreement is thereafter terminated, then Genesis shall pay to the Company $30 million, in cash in immediately available funds. Subject to the next sentence, upon making such payment none of the Parent, the Purchaser, Genesis or any of their affiliates shall have any further liability with respect to the failure to complete the transactions contemplated by the Merger Agreement. This limitation will not apply if the Parent or the Purchaser breaches the Merger Agreement (and the breach remains unremedied after five days notice to the Parent or the Purchaser) or if Genesis, the Parent or the Purchaser fail to use reasonable best efforts to obtain such financing. In addition, Genesis has agreed to deliver to the Company a clean, irrevocable letter of credit (the "Letter of Credit") for $30 million, drawn on Mellon Bank, N.A., in form reasonably acceptable the Company to secure its obligation to pay the amount as set forth in the previous paragraph. Genesis will use its reasonable best efforts to deliver the Letter of Credit prior to commencement of the Offer, but in all events will deliver it not later than June 25, 1997. TENDER AGREEMENTS AND IRREVOCABLE PROXIES As an inducement and a condition to the Parent and the Purchaser entering into the Merger Agreement and incurring the obligations set forth therein, including the Offer and the Merger, the Parent required that each of Daniel E. Straus and Moshael J. Straus (each, a "Stockholder" and together, the "Stockholders") enter into a Tender Agreement and Irrevocable Proxy (the "Tender Agreements") with the Parent and the Purchaser. Pursuant to the Tender Agreements, each Stockholder agreed to validly tender (or cause the record owner thereof) and not withdraw, pursuant to and in accordance with the terms of the Offer, all of the Shares and any other securities entitled to 32 vote generally in the election of directors beneficially owned by such Stockholder (the "Owned Shares"). The Tender Agreements provide that each Stockholder will, for all Owned Shares tendered by such Stockholder in the Offer and accepted for payment by the Purchaser, receive a price per Owned Share equal to $28.00, or such higher per share consideration paid to other stockholders who have tendered into the Offer. Pursuant to the Tender Agreements, each Stockholder agreed that during the period commencing on the date thereof and continuing until the earlier of (x) the consummation of the Offer and (y) the termination of the Tender Agreements, at any meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the Company's stockholders, however called, or in connection with any written consent of the Company's stockholders, subject to the absence of a preliminary or permanent injunction or other requirement under applicable law by any United States federal, state or foreign court barring such action, such Stockholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the Merger and the terms thereof and each of the other actions contemplated by the Merger Agreement and the Tender Agreements and any actions required in furtherance thereof; (ii) against any action or agreement that would impede, interfere with, or prevent the Offer or the Merger; and (iii) except as otherwise agreed to in writing in advance by the Parent, against the following actions (other than the Offer, the Merger and the transactions contemplated by the Merger Agreement and the Tender Agreements): (I) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its subsidiaries (including any transaction contemplated by an Acquisition Proposal); (II) any sale, lease or transfer of a material amount of the assets or business of the Company or its subsidiaries, or any reorganization, restructuring, recapitalization, special dividend, dissolution, liquidation or winding up of the Company or its subsidiaries; (III) any change in the present capitalization of the Company including any proposal to sell any material equity interest in the Company or any amendment of the Certificate of Incorporation of the Company; and (IV) against an election of new members of the Board of Directors of the Company except where the vote is cast in favor of the nominees of a majority of the existing directors of the Company. In addition, each Stockholder agreed not to enter into any agreement, arrangement or understanding with any person the effect of which would be inconsistent or violative of the foregoing. Pursuant to the Tender Agreements, each Stockholder granted to, and appointed the Purchaser and any designee of the Purchaser, each of them individually, such Stockholder's Irrevocable (until the termination of the Tender Agreements) Proxy and Attorney-In-Fact (with full power of substitution) to vote the Owned Shares of such Stockholder as indicated in the preceding paragraph. As of June 16, 1997, the Stockholders beneficially owned 14,013,966 Shares, or 36.1% of the outstanding Shares on a fully-diluted basis. The Tender Agreements provide that the Stockholders entered into such agreements solely as the owner of Owned Shares and not in his capacity as a director or officer, and that the agreements set forth therein shall in no way restrict the Stockholders in the exercise of his fiduciary duties as a director and officer of the Company, which, in the case of the following paragraph, such duties will be exercised only in accordance with the instructions of the Company's Board of Directors acting in compliance with the requirements of the Merger Agreement. The Tender Agreements provide that each Stockholder will immediately cease any existing discussions or negotiations, if any, with any parties conducted with respect to any Acquisition Proposal. The Tender Agreements further provide that each Stockholder will not, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than the Parent and the Purchaser or any affiliate, associate or designee of the Parent or the Purchaser) concerning any proposal for an acquisition of all or any substantial part of the business and properties or capital stock of the Company and its subsidiaries taken as a whole, directly or indirectly, whether by merger, consolidation, share exchange, tender offer, purchase of assets or shares of capital stock or otherwise. The Tender Agreements provide that each Stockholder will not, until the termination thereof, directly or indirectly (i) except as permitted thereby, sell, transfer, pledge, hypothecate, encumber, assign or dispose of such security or the Beneficial Ownership thereof (as determined pursuant to Rule 13d-3 under the Exchange Act), offer to sell, transfer or dispose or make an option, agreement or arrangement or understanding to do the foregoing ("Transfer") to any person any or all Owned Shares or (ii) except as permitted thereby, grant any proxies or powers of attorney, deposit any Owned Shares into a voting trust or enter into a voting agreement, understanding or arrangement with respect to such Owned Shares. The Tender Agreements provide that notwithstanding anything to the contrary therein, each Stockholder shall have the right to Transfer Owned Shares (i) to any Family Member, (ii) to the trustee or trustees of a trust solely (except for remote contingent interests) for the benefit of such Stockholder and/or one or more Family Members, (iii) to a foundation created or established by such Stockholder, (iv) to a corporation of which such Stockholder and/or any Family Members owns all of the outstanding capital stock, 33 (v) to a partnership of which such Stockholder and/or any Family Members owns all of the partnership interests, (vi) to the executor, administrator or personal representative of the estate of such Stockholder, (vii) to any guardian, trustee or conservator appointed with respect to the assets of such Stockholder or (viii) by operation of law; provided, that in the case of any Transfer pursuant to clauses (i) through (vii), the transferee shall execute an agreement to be bound by the terms of the Tender Agreements, or terms substantially identical thereto. For purposes of the foregoing, "Family Member" has the meaning ascribed to "Related Parties" under Section 672(c) of the Internal Revenue Code of 1986, as amended. Each Tender Agreement, and all rights and obligations of the parties thereunder, terminates upon the earlier of (i) the date upon which the Parent has purchased and paid for all of the Owned Shares of the applicable Stockholder in accordance with the Offer, (ii) the date on which the Merger Agreement is terminated under such circumstances in which Parent is not and will not be entitled to a fee pursuant to Section 8.2(a) of the Merger Agreement and (iii) May 31, 1998. The Tender Agreements contain customary representations and warranties by the parties. NONCOMPETITION AND CONSULTING AGREEMENTS In connection with the Merger Agreement, the Parent and the Purchaser entered into Noncompetition and Consulting Agreements (the "Noncompetition Agreements") with each of Daniel E. Straus and Moshael J. Straus (each, a "Consultant" and together the "Consultants"). Pursuant to the Noncompetition Agreements, the Parent irrevocably appointed each Consultant, and each Consultant agreed to act as a consultant, for a period of 12 months (the "Consulting Term") commencing on the date of the consummation of the Merger (the "Closing") , to perform such reasonable consulting services as the chief executive officer of the Parent requests, subject to following paragraph. If the Merger Agreement is terminated, the Noncompetition Agreements will be simultaneously terminated. During the Consulting Term, each Consultant as an independent contractor will make himself available upon reasonable notice for such time during regular business hours as shall be reasonably necessary for the business of the Company. Such consulting services will be rendered in Hackensack, New Jersey. As compensation for each Consultant's services, the Parent agreed to pay each Consultant a consulting fee of $1.5 million payable in immediately available funds at the Closing. In addition, each Consultant will be reimbursed for all expenses actually incurred by such Consultant in the performance of his duties. As consideration for each Consultant's agreement to the restrictive covenants described in the second following paragraph (the "Restrictive Covenants"), the Parent, among other things, agreed to pay each Consultant and each Consultant agreed to accept as full consideration for his agreement to the Restrictive Covenants a cash payment in the amount of $1.5 million payable in immediately available funds at the Closing. The Noncompetition Agreements provide that the Consultants will not, for a period of one year after the date thereof, in any capacity (including, but not limited to, owner, partner, shareholder, consultant, agent, employee, officer, director or otherwise), directly or indirectly, for his own account or for the benefit of any person, establish, engage in or be connected with any Competitive Business. The term "Competitive Business" means any Restricted Business conducted in the Restricted Zone. Restricted Business means institutional pharmacy, rehabilitation services, long-term care services, skilled nursing facilities or assisted living facilities but does not include providing any other goods or services to skilled nursing facilities, assisted living facilities and other health care facilities. The Restricted Zone means any town in Connecticut or Rhode Island in which the Company operates a long term care facility and an area of 15 miles surrounding such facility; any county in Illinois, New Jersey, Ohio, West Virginia or Wisconsin in which the Company operates a long term care facility and an area of 15 miles surrounding such facility; all portions of Massachusetts east of Worcester; all portions of Pennsylvania east of Harrisburg and an area of 15 miles around any facility located in Virginia or Vermont; but in no event includes any portion of any state other than Connecticut, Rhode Island, Illinois, New Jersey, Ohio, West Virginia, Wisconsin, Massachusetts, Pennsylvania, Virginia, or Wisconsin. The foregoing does not restrict either Consultant from owning interests in, or developing, real estate so long as such Consultant is not operating any Restricted Business. In addition, the Consultants may not pursue certain development projects. For a period of three years commencing on the Closing Date, each Consultant will not, except with the express prior written consent of Parent, directly or indirectly, disclose, communicate or divulge to any person, or use for the benefit of any person, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the Company or the business engaged in by the Company, including, but not limited to, technical know-how, processes, customers, 34 prospects, costs, designs, marketing methods and strategies, finances and suppliers. This provision does not apply to any information which at the time of disclosure (i) is generally available to or known to the public (other than as a result of unauthorized disclosure directly or indirectly by such Consultant) or (ii) such Consultant discloses, at the direction and authorization of Parent, or as required by law. If either Consultant is required in a judicial, administrative or governmental proceeding to disclose any information which is the subject of the restrictions contained in this paragraph, then such Consultant will notify Parent as soon as possible so that Parent may either seek an appropriate protective order or relief, or waive the provisions of this paragraph. If, in the absence of such an order, relief or waiver, such Consultant is required, in the written opinion of counsel, to disclose such information to any court, administrative agency or governmental authority, then such Consultant may disclose such information without liability. The Noncompetition Agreement provides that neither Consultant will for a period of two years after the date thereof, except with the express written consent of Parent (which shall not be unreasonably withheld or delayed in the case of an employee of the Company or the Surviving Corporation who has received a notice of termination from the Company or the Surviving Corporation, as the case may be) or as is otherwise contemplated by the Merger Agreement, directly or indirectly, whether as an employee, owner, partner, agent, director, officer, shareholder or in any other capacity, for his own account or for the benefit of any person (i) solicit, divert or induce any of (1) the Company's employees or (2) the Surviving Corporation's employees to leave or to work for him or any person with which he is connected or (ii) hire any of the Company's or the Surviving Corporation's employees other than the other Consultant, the Chief Operating Officer, such Consultant's personal secretary and the persons who shall be acceptable to Parent and identified on a schedule to be agreed upon prior to the purchase of Shares in the Offer. In the event either Consultant is found by a nonappealable judgment of a court of competent jurisdiction to have violated the nonsolicitation provision described in the preceding paragraph, in addition to the reasonable fees and expenses of Parent's counsel incurred to enforce such provision, such Consultant shall pay to Parent, as liquidated damages, an amount equal to 200% of the applicable employee's annual compensation (including, without limitation, salary, bonus and benefits) at the time of the violation; PROVIDED, that in the event such Consultant is found by such court to have not violated such nonsolicitation provision, Parent shall pay to such Consultant the reasonable fees and expenses of counsel incurred by such Consultant to defend such action and any actual damages resulting from Parent's interference with such Consultant's commercial relationships. Pursuant to the Noncompetition Agreements, each Consultant agreed to pay to the Surviving Corporation, immediately following the Closing, the principal amount of indebtedness, and accrued interest thereon, owed by such Consultant or Health Resources of Cinnaminson, Inc., one of the Company's subsidiaries. Simultaneously with the execution of the Merger Agreement, the Parent and the Purchaser also entered into a Noncompetition Agreement with Stephen R. Baker. The terms of such agreement are identical in all material respects to the terms of the Noncompetition Agreements described above, except that the Noncompetition Agreement with Mr. Baker (i) does not contain any provisions relating to the rendering of, or payment for, consulting services by Mr. Baker, (ii) provides for a cash payment of $500,000 to Mr. Baker as consideration for his agreement to the Restrictive Covenants and (iii) does not contain any provision relating to Health Resources Cinnaminson, Inc. COLCHESTER Genesis has agreed to acquire for $8.4 million the land and buildings of an eldercare facility located in New London, Connecticut owned by Straus Associates, a partnership which is owned by Daniel E. Straus, Moshael J. Straus and certain other members of their family. The facility is currently under lease to a subsidiary of the Company. Upon acquisition of the facility, Genesis will assume the lease. Acquisition of the facility is subject to certain conditions including receipt of all necessary governmental and third party licenses, permits and approvals and consummation of the Merger. 12. PURPOSE OF THE OFFER; THE MERGER; PLANS FOR THE COMPANY. PURPOSE. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger set forth in the Merger Agreement, the Purchaser intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. VOTE REQUIRED TO APPROVE THE MERGER. The Board of Directors of the Company has approved the Merger Agreement in accordance with the DGCL. If required for approval of the Merger, the Company has agreed, subject to the satisfaction of the conditions to the Merger set forth in the Merger Agreement, in accordance with and subject to the DGCL, to duly convene a 35 meeting of its stockholders as promptly as practicable following the purchase of Shares pursuant to the Offer for the purpose of considering and taking action on the Merger Agreement. If stockholder approval is required, the Merger Agreement must generally be approved by the vote of the holders of a majority of the outstanding Shares. As a result, if the Minimum Condition is satisfied, the Purchaser will have the power, to approve the Merger Agreement without the affirmative vote of any other stockholder. APPRAISAL RIGHTS. Stockholders do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, stockholders of the Company at the time of the Merger who do not vote in favor of the Merger and comply with all statutory requirements will have the right under the DGCL to demand appraisal of, and receive payment in cash of the fair value of, their Shares outstanding immediately prior to the effective date of the Merger in accordance with Section 262 of the DGCL. Under the DGCL, stockholders who properly demand appraisal and otherwise comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash. Any such judicial determination of the fair value of such Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares. In WEINBERGER V. UOP, INC., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Stockholders should recognize that the value so determined could be equal to or higher or lower than the price per Share paid pursuant to the Offer or the consideration per Share to be paid in the Merger. In addition, several decisions by Delaware courts have held that in certain circumstances a controlling stockholder of a corporation involved in a merger has a fiduciary duty to other stockholders that requires that the merger be fair to other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of the consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in WEINBERGER and RABKIN V. PHILIP A. HUNT CHEMICAL CORP that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above. However, a damages remedy or injunctive relief may be available if a merger is found to be the product of unfairness, including fraud, misrepresentation or other misconduct. THE FOREGOING SUMMARY OF THE RIGHTS OF STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESENTATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DELAWARE LAW. The foregoing description of certain provisions of the DGCL is not necessarily complete and is qualified in its entirety by reference to the DGCL. RULE 13E-3. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger following the purchase of Shares pursuant to the Offer in which the Purchaser seeks to acquire any remaining Shares. Rule 13e-3 should not be applicable to the Merger if the Merger is consummated within one year after the expiration or termination of the Offer and the price paid in the Merger is not less than the per Share price paid pursuant to the Offer. However, in the event that the Purchaser is deemed to have acquired control of the Company pursuant to the Offer and if the Merger is consummated more than one year after completion of the Offer or an alternative acquisition transaction is effected whereby stockholders of the Company receive consideration less than that paid pursuant to the Offer, in either case at a time when the Shares are still registered under the Exchange Act, the Purchaser may be required to comply with Rule 13e-3 under the Exchange Act. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger or such alternative transaction and the consideration offered to minority stockholders in the Merger or such alternative transaction, be filed with the Commission and disclosed to stockholders prior to consummation of the Merger or such alternative transaction. The purchase of a substantial number of Shares pursuant to the Offer may result in the Company being able to terminate its Exchange Act registration. See Section 14. If such registration were terminated, Rule 13e-3 would be inapplicable to any such future Merger or such alternative transaction. 36 PLANS FOR THE COMPANY. If the Purchaser obtains control of the Company pursuant to the Offer, the Parent expects to conduct a detailed review of the Company and its businesses, assets, corporate structure, capitalization, operations, properties, policies, management and personnel and to consider what, if any, changes would be desirable in light of the circumstances that then exist. Such changes could include changes in the Company's businesses, corporate structure, certificate of incorporation, by-laws, capitalization, board of directors, management or dividend policy. The Company and Genesis will enter into a management agreement (the "Management Agreement") pursuant to which Genesis will manage the Company's operations. The Management Agreement will be for a term of five years with automatic renewals for one year unless either party terminates the Agreement. Genesis will be paid a fee of six percent of the Company's net revenues for its services under the Management Agreement provided that payment of one third of such fee shall be subordinate to the satisfaction of the Company's senior and subordinate debt covenants and that payment of the management fee shall be no less than $23.9 million in any one year. Under the Management Agreement, Genesis will be responsible for the Company's non-extraordinary sales, general and administrative expenses (other than certain specified third-party expenses), and all other expenses of the Company will be paid by the Company. As soon as reasonably practicable following the consummation of the Merger, Parent, Genesis and NeighborCare, Inc., a subsidiary of Genesis, will enter into a joint venture pursuant to which Parent will contribute the stock and/or assets of the pharmacy businesses owned by the Company and Genesis will contribute the stock and/or assets of NeighborCare, Inc. Ownership interests in the pharmacy joint venture shall be allocated to the Parent and Genesis in proportion to the value of the pharmacy business contributed to the joint venture by the Company and Genesis, respectively. In addition, as soon as reasonably practicable following the consummation of the Merger, Genesis will acquire the assets of the rehabilitation and therapy businesses owned by the Company for an aggregate consideration of approximately $24 million. Except as described in this Offer to Purchase, neither the Parent nor the Purchaser has any present plans or proposals that would relate to or result in an extraordinary corporate transaction such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries or a sale or other transfer of a material amount of assets of the Company or any of its subsidiaries, any material change in the capitalization or dividend policy of the Company or any other material change in the Company's corporate structure or business or the composition of its Board of Directors or management. 13. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the date of the Merger Agreement (except as contemplated thereby), split, combine or otherwise change the Shares or its capitalization, or disclose that it has taken any such action, then without prejudice to the Purchaser's rights under Section 15, the Purchaser may make such adjustments to the purchase price and other terms of the Offer as it deems appropriate to reflect such split, combination or other change. If on or after the date of the Merger Agreement (except as contemplated thereby), the Company should declare or pay any cash or stock dividend or other distribution on, or issue any right with respect to, the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of the Purchaser or the nominee or transferee of the Purchaser on the Company's stock transfer records of such Shares that are purchased pursuant to the Offer, then without prejudice to the Purchaser's rights under Section 15, (i) the purchase price payable per Share by the Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution (including additional Shares) or right received and held by a tendering stockholder shall be required to be promptly remitted and transferred by the tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance or appropriate assurance thereof, the Purchaser will, subject to applicable law, be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. 14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NYSE LISTING AND EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares. This could adversely affect the liquidity and market value of the remaining Shares held by the public. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing. The NYSE would normally give consideration to suspending or removing from the list a security of a company when (i) the number of shareholders is less than 1,200 or (ii) the number of publicly-held shares is less than 600,000, and the aggregate market value of publicly held shares subject to adjustment is less than $8 million. For purposes of (i) above, the number of beneficial holders of stock held in the name of NYSE member organizations will be considered in addition to the holders of record. For purposes of (ii) above, the shares held by officers, directors, or their immediate families and other concentrated holdings of 10% or more are excluded in calculating the number of publicly held 37 shares. If as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing the market for the Shares could be adversely affected. In the event that the Shares no longer meet the requirements of the NYSE for continued listing, it is possible that such Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or through other sources. However, the extent of the public market for the Shares and the availability of such quotations would depend upon such factors as the number of stockholders and/or the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares. The Shares are currently registered under the Exchange Act. The purchase of Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act. Registration of the Shares may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of the Shares and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of the securities pursuant to Rule 144 under the Securities Act of 1933. 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement, the Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, unless (i) there shall have been validly tendered and not properly withdrawn prior to the expiration of the Offer such number of Shares which would constitute, on a fully diluted basis, a majority of the Company's voting power on the date of purchase, of all securities of the Company entitled to vote generally in the election of directors or in a merger (the "Minimum Condition"), (ii) any applicable waiting period under the HSR Act has been terminated and (iii) the Purchaser shall have received the funding pursuant to the Debt Financing Commitments. Furthermore, the Purchaser will not be required to pay for any Shares not theretofore accepted and may terminate the Offer if at any time before such acceptance, any of the following conditions exists (other than as a result of action or inaction on the part of the Parent or its subsidiaries which constitutes a breach of the Merger Agreement): (i) there shall have been any action or proceeding brought by any governmental authority before any federal or state court or governmental, administrative or regulatory authority or agency, located or having jurisdiction within the United States, or any statute, rule, regulation or legislation enacted, promulgated or issued by any governmental authority located or having jurisdiction within the United States, which has or would reasonably be expected to have the effect of: (a) making illegal or otherwise directly or indirectly restraining, prohibiting or making materially more costly the making of the Offer, the acceptance for payment of, payment for or ownership of the Shares by the Parent or the Purchaser, the consummation of any of the transactions contemplated by the Merger Agreement or materially delaying the Merger; (b) prohibiting or materially limiting the ownership or operation by the Company or any of its subsidiaries, or by the Parent, the Purchaser or any of the Parent's subsidiaries or Genesis or any of its subsidiaries of all or any material portion of the business or assets of the Company or any of its material subsidiaries, or the Parent or any of its material subsidiaries, or compelling the Purchaser, the Parent or any of the Parent's subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its material subsidiaries or the Parent or any of its material subsidiaries, as a result of the transactions contemplated by the Offer or the Merger Agreement; (c) imposing or confirming limitations on the ability of the Purchaser, the Parent, or any of the Parent's subsidiaries effectively to acquire or to exercise full rights of ownership of Shares; or (d) requiring divestiture by the Parent or the Purchaser of any Shares; (ii) there shall have occurred any event, or the Purchaser shall have become aware of any fact that will have a Material Adverse Effect with respect to the Company; 38 (iii) any of the representations and warranties of the Company set forth in the Merger Agreement (without giving any effect to any qualification regarding materiality) shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of determination; (iv) the Company shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under the Merger Agreement; (v) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (vi) there shall have occurred (a) any general suspension of or limitation on prices for trading on the NYSE, American Stock Exchange or NASDAQ National Market, (b) any declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (c) any material limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or any other event that would limit the extension of credit by banks or other lending institutions, (d) any commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States having a significant adverse effect on the functionality of financial markets in the United States or (e) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; or (vii) any material approval, permit, authorization, consent or waiting period of any governmental authority applicable to the purchase of Shares pursuant to the Offer or the Merger or the ownership or operation by the Company or any of its subsidiaries, or by the Parent or any of its subsidiaries or by Genesis or any of its subsidiaries of all or a material portion of the business or assets of the Company or any of its subsidiaries shall not have been obtained or satisfied on terms satisfactory to the Parent in its reasonable discretion. Notwithstanding anything contained in the Merger Agreement, no condition involving (i) performance of agreements by the Company or (ii) the accuracy of representations and warranties made by the Company, will be deemed not fulfilled, and the Parent and the Purchaser will not be entitled to fail to accept Shares for payment or terminate the Offer on such basis, if the respects in which such agreements have not been performed or the representations and warranties are inaccurate (without giving effect to any qualification regarding materiality), in the aggregate, are not materially adverse to the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. The foregoing conditions are for the sole benefit of the Purchaser and the Parent and may, subject to the terms of the Merger Agreement, be waived by the Purchaser and the Parent in whole or in part at any time and from time to time in their sole discretion. The failure by the Parent, or the Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. GENERAL. Except as set forth below, neither the Purchaser nor the Parent is aware of any licenses or other regulatory permits that appear to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein, or of any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect acquisition of the stock of the Company's subsidiaries) by the Purchaser pursuant to the Offer as contemplated herein. Should any such approval or other action be required, it is the Parent's present intention to seek such approval or action. There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, the Parent or the Purchaser or that certain parts of the businesses of the Company, the Parent or the Purchaser might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken, any of which could cause the Purchaser to elect (subject to the terms of the Merger Agreement) to terminate the Offer without the purchase of the Shares thereunder. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 16. 39 STATE TAKEOVER LAWS. A number of states have adopted takeover laws and regulations which purport to varying degrees to be applicable to attempts to acquire securities of corporations which are incorporated in such states or which have or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, principal executive offices or principal places of business therein. To the extent that certain provisions of certain of these state takeover statutes purport to apply to the Offer, the Purchaser believes that such laws conflict with federal law and constitute an unconstitutional burden on interstate commerce. In 1982, the Supreme Court of the United States, in EDGAR V. MITE CORP., invalidated on constitutional grounds the Illinois Business Takeovers Act, which as a matter of state securities law made takeovers of corporations meeting certain requirements more difficult, and the reasoning in such decision is likely to apply to certain other state takeover statutes. However, in 1987, in CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court of the United States held that the State of Indiana could, as a matter of corporate law and in particular those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, in TLX ACQUISITION CORP. V. TELEX CORP., a federal district court in Oklahoma ruled that the Oklahoma statutes were unconstitutional insofar as they applied to corporations incorporated outside Oklahoma in that they would subject such corporations to inconsistent regulations. Similarly, in TYSON FOODS, INC. V. MCREYNOLDS, a federal district court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. In December 1988, a federal district court in Florida held in GRAND METROPOLITAN PLC V. BUTTERWORTH that the provisions of the Florida Affiliated Transactions Act and the Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida. Except as described herein, the Purchaser has not attempted to comply with any state takeover statutes in connection with the Offer. The Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that any state takeover statute is found applicable to the Offer, the Purchaser might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, the Purchaser may not be obligated to accept for purchase or pay for, any Shares tendered. See Section 16. ANTITRUST. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The purchase of the Parent Common Stock pursuant to the Investors' Commitment is subject to such requirements and, as a result thereof, the acquisition of Shares may not be consummated until expiration of the waiting period under the HSR Act with respect to the purchase of the Parent Common Stock pursuant to the Investors' Commitment. See Section 2. Genesis, Cypress and TPG intend, as soon as reasonably practicable following the date hereof, to file with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of the Parent Common Stock pursuant to the Investors' Commitment. Under the provisions of the HSR Act, the purchase of the Parent Common Stock pursuant to the Investors' Commitment may not be consummated until the expiration of a 30-calendar day waiting period following the filing by Genesis, Cypress and TPG unless both the Antitrust Division and the FTC terminate the waiting period prior thereto. If, within such 30-calendar day waiting period, either the Antitrust Division or the FTC requests additional information or documentary material from Genesis, Cypress and TPG the waiting period would be extended for an additional 20 calendar days following substantial compliance by Genesis, Cypress and TPG with such request. Thereafter, the waiting period could be extended only by court order. If the purchase of the Parent Common Stock pursuant to the Investors' Commitment is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not (other than as may be requested by the Company pursuant to the Merger Agreement), be extended and in any event the purchase of and payment for Shares will be deferred until 20 days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division or a court order is obtained by the FTC or the Antitrust Division prohibiting the sale of the Parent Common Stock pursuant to the Investors' Commitment. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Purchaser pursuant to the Offer. At any time before or after the purchase by the 40 Purchaser of Shares pursuant to the Offer, either of the FTC and the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Purchaser or the divestiture of substantial assets of the Parent, its subsidiaries or the Company. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of publicly available information relating to the businesses in which the Company and its subsidiaries are engaged, the Purchaser has determined that the Company and Genesis both provide similar services in certain geographic areas. Although the Purchaser believes that the acquisition of Shares pursuant to the Offer would not violate the antitrust laws, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such challenge is made, what the outcome will be. See Section 15 for certain conditions to the Offer, including conditions with respect to litigation and certain government actions. FEDERAL AND STATE HEALTHCARE REGULATORY AUTHORITIES. The Company owns, operates and/or manages long term care facilities and assisted living facilities, and provides institutional pharmacy services and other non-acute health services. Certain of the above services or facilities are provided or operated in Connecticut, Illinois, New Jersey, Massachusetts, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and Wisconsin. The regulatory requirements of these jurisdictions may require notice of and/or approval prior to any direct or indirect change in ownership, control or management of any of the facilities or services. These regulatory requirements include, without limitation, those providing for licensure, dispensing pharmaceuticals and related medical supplies, certificate of need or similar laws restricting development and/or expansion activities ("CON laws" or "CON"), participation in the Medicaid program, as well as federal laws regarding participation in the Medicare and the Medicaid programs and dispensing pharmaceuticals. To the extent that the consummation of the Offer or the consummation of the Merger is determined to constitute any such change in ownership, control or management of facilities or services under the applicable regulatory requirements, consummation of the Offer and the consummation of the Merger would be subject to compliance with the regulatory requirements of the applicable state, as well as any applicable federal laws and receipt, to the extent applicable, of any required approvals or other authorizations. The state and federal requirements are subject to interpretation by the various agencies and may, in certain instance, be subject to waiver. Pursuant to federal Medicare program standards, providers must notify the Medicare program as promptly as possible upon initiating negotiations for a change of ownership but in no event later than 15 working days after the transaction causing the change in ownership occurs. When a provider undergoes a change of ownership, the provider must also file a final cost report no later than 45 days following the change in ownership. According to Medicare program standards, the merger of the provider corporation into another corporation, or the consolidation of two or more corporations, resulting in the creation of a new corporation constitutes a change in ownership. However, transfer of corporate stock or the merger of another corporation into the provider corporation does not constitute a change of ownership. The Drug Enforcement Agency ("DEA") standards provide that written consent of the administrator of the DEA is required for or other transfer of DEA registration. CONNECTICUT. The Connecticut regulatory requirements provide that notice of any change of ownership of a long term care facility owned by an individual, partnership or association, or the change in ownership of 10% or more of stock of a corporation which owns, conducts, operates or maintains such a facility must be given to the Connecticut Department of Public Health ("CtDPH") at least 90 days prior to the effective date of the proposed change. Upon receipt of the notice the CtDPH will forward an application which must be completed and filed with the CtDPH. Additionally, filings and approvals must be obtained from the Connecticut Departments of Public Health and Social Services in the event any facility intends to transfer all or part of its ownership or control prior to being initially licensed. ILLINOIS. The Illinois licensure regulatory requirements provide that whenever ownership of a long term care facility is transferred the transferee must obtain a new probationary license and the transferee must notify the Illinois Department of Public Health at least 30 days prior to final transfer. Likewise, long term care facility Medicaid providers must notify the Department of Public Aid at least 30 days prior to a change in ownership of a facility or prior to the lease of a facility to a new operator. The applicable regulations provide that approval of a corporate entity, such as a pharmacy or home health agency, as a participant in the Medicaid Program applies only to existing ownership and corporate structure and is not transferable and therefore prior to a change in ownership or corporate structure approval for the new provider must be obtained. The Illinois CON law prohibits the construction or modification of a long term care facility, including a change of ownership of a long term care facility without obtaining CON approval. A change of ownership is defined as a transfer of stock of over 50%, the issuance of a new license or the issuance of a new Medicaid or Medicare provider number. However, an exemption can be requested from the Health Facilities Planning Board prior to the acquisition of the ownership interest. 41 Such exemption will be granted if certain information is provided to the Board, and a legal notice is published, certain other procedural requirements are met and the Board determines an exemption is appropriate under applicable standards. The Illinois pharmacy regulatory requirements prohibit operation of a pharmacy without a license. Those regulations require that any entity proposing a change of ownership of a pharmacy file an application with the Illinois Department of Professional Regulation and receive a new license in order to proceed with the transfer. The Illinois home health agency licensure standards require licensure by a new owner or person in interest prior to the sale or transfer of a home health agency. MASSACHUSETTS. The Massachusetts regulatory requirements provide that a completed notice of intent form must be submitted to the Massachusetts Department of Public Health ("MaDOH") at least 90 days in advance of any transfer of ownership (including a transfer of a majority of stock) of any long term care facility in order to allow the MaDOH to determine whether the applicant is suitable for licensure. Additionally, an applicant must apply for a license within 48 hours of the transfer. The Massachusetts Department of Elder Affairs ("MaDEA") requires that an Application for Certification to MaDEA be submitted at least 30 days prior to the transfer of ownership of an assisted living residence and approval of such certification is dependent INTER ALIA, upon the MaDEA determining that the applicant satisfies the various standards. The acquisition of an existing long term care facility is generally subject to CON review unless the MaDOH is notified of the intent to acquire the facility at least 30 days prior to contractual arrangements are entered into to acquire the facility and there will be no change in the services or bed capacity of the facility to be acquired. The Massachusetts Board of Registration in Pharmacy requires the filing of an application in connection with the change of ownership or management of a pharmacy. Additionally, any corporation or partnership which owns a pharmacy must notify the Board within ten working days of certain changes to the entity including in certain instances, a change in the stockholders. According to the Massachusetts Department of Public Welfare, Division of Medical Assistance a provider must notify the Division prior to a change of direct or indirect ownership of a healthcare entity (including a long term care facility, a pharmacy, home health agency, or in certain circumstances an assisted living facility). Upon receipt of such notice the Division will determine whether an application needs to be filed prior to the actual ownership change. NEW JERSEY. The New Jersey CON standards exempt from CON review a transfer of ownership interest in a long term care facility in which the prospective owner satisfies the New Jersey Department of Health and Senior Services ("NJDOH") review of the prospective owner's prior operating experience and compliance with other laws. Regardless of whether CON review is required, according to the NJDOH, ownership may not be transferred in a long term care facility unless the prospective owner has applied for a new license and received approval prior to the transfer of ownership. The licensure review process will include a review of the prospective owner's operations in New Jersey and other jurisdictions. The New Jersey State Board of Pharmacy regulations provide, that whenever there is any change of ownership of the business entity holding a permit to operate a pharmacy, the new ownership of the entity must apply for a permit not less than 30 days in advance of the change of ownership. The New Jersey Medicaid standards require that, upon sale or change of ownership of an approved pharmacy, the new owner must apply in order to participate in the Medicaid program. OHIO. The Ohio licensure requirements provide that health care facilities must provide notice of changes in ownership to the Department of Health. A certificate of need is not needed for the acquisition or merger of an existing health care facility that does not involve a change in the number of beds, by service or in the number or type of service. However, a notice of intent is required to be filed with the Ohio Department of Health ("OHDOH") and the health service agency designated for the health service area in which the activity will be conducted. The Ohio Medical Assistance regulations require long term care providers to notify the OHDOH at least 45 days prior to the effective date of certain changes including any contract of sale. Other providers are required to inform the Ohio Department of Human Services within ownership. PENNSYLVANIA. The Pennsylvania Department of Health ("PaDOH") requirements provide that long term care facilities must notify PaDOH in writing at least 90 days in advance of a potential change in ownership or licensee and within 30 days of the effective date of any transfer of stock of 5% or more. The PaDOH licensure regulations require home health care agencies to notify PaDOH in writing within 30 days of a change in the partners, officers, directors, principal stockholders or persons in charge of a home health care agency owned by a partnership or corporation. The Pennsylvania State Board of Pharmacy ("PaBOP") regulations provide that pharmacy licenses are not transferable and require the submission of an application, and issuance of a permit in order to change ownership of a pharmacy. To the extent assisted living beds are operated as a personal care facility, the Pennsylvania Department of Public Welfare ("PaDPW") requires notice within thirty days of the change in ownership. The Pennsylvania Medicaid regulations require a change in ownership or control interest of 5% or more of a long term care facility, home health agency, or pharmacy to be reported to PaDPW within 30 days of the date the change occurs. Additionally, any long term care facility provider that enters into an agreement of sale that will result in a change of ownership of the long term care facility must notify PaDPW at least 30 days prior to the effective date of sale and 42 PaDPW will enter into a provider agreement with the buyer or transfer the current agreement subject to the buyer's satisfaction of certain standards. The Pennsylvania CON law was subject to a "sunset" provision in December, 1996 and is no longer in effect. PaDPW has issued a policy statement to the effect that generally it will not enter into a provider agreement with any long term care facility which did not receive CON approval for the beds at issue prior to the sunset of the CON law. RHODE ISLAND. The Rhode Island regulatory requirements provide that any change in owner (including in the case of a partnership, the removal of, addition or substitution of a partner which results in a new partner acquiring a controlling interest in the partnership), operator (including a change in the person or entity responsible for certain management functions), or lessee of a licensed health care facility, including a long term care facility, requires prior review by the Health Services Council and approval of the Rhode Island Department of Health ("RIDOH") as a condition precedent to the transfer, assignment or issuance of a new license. Notice of change in owner or operator of a long term care facility must be provided to RIDOH at least six weeks prior to the date of the proposed change. The approval process includes notice to the public and the opportunity for public comment, as well as consideration of the applicant's record of providing services. VERMONT. The Vermont long term care facility licensure standards require that a facility provide notice to the Vermont Division of Licensing and Protection at least 90 days prior to any proposed change of ownership which will cause a discharge or transfer of residents. Written notice must also be given of any change in the persons with an ownership or control interest of five percent or more. A CON to operate a long term care facility can be transferred in the event of a change in ownership. Such transfers require 30 days prior written notice to the Health Policy Council. Failure to give such notice invalidates the CON held by the long term care facility. When the Health Policy Council receives notice of a transfer of a CON, the Health Policy Council may in its discretion reopen its review for the purpose of evaluating the management and financial capabilities of the proposed transferee. According to the Vermont Division of Rate Setting, 60 days notice is required to be given upon a transfer of ownership of a long term care facility if there is going to be a request for a set up of basis of assets. VIRGINIA. The Virginia CON laws provide that at least 30 days before any person is contractually obligated to acquire an existing nursing home for a cost in excess of $600,000, the purchaser must notify the commissioner of the Virginia Department of Health ("VaDoH") and the regional health planning agency that serves the area in which the facility is located. If the commissioner finds that a reviewable clinical health service or beds are to be added as a result of the acquisition, the commissioner may require the proposed new owner to obtain approval prior to acquisition. If such approval is required, the application will be considered under the appropriate batch group. The licensure regulations require a long term facility to notify the VaDoH of any changes; which affect the accuracy of the license of long term care facility including a change in management or ownership, at least 30 days in advance of the change. WEST VIRGINIA. The West Virginia long term care facility licensure standards provide that, in the case of a transfer of ownership, the proposed new owner must file an application with the West Virginia Department of Health and Human Resources ("WVaDHHR") no later than 30 days before the proposed transfer date. Thereafter, the WVaDHHR is required to issue or deny the license within three months of proof of the transfer of ownership is submitted. During the time period between the application and the determination of the WVaDHHR, the pending application serves as a license. The West Virginia personal care home licensure standards require submission of an application at least 90 days prior to change in a licensee. West Virginia CON laws prohibit the transfer of ownership of a long term care facility without first obtaining CON approval. The CON process includes notification of intent and submission of an application which is considered under an appropriate batch group. The approval is subject to the applicant's satisfaction INTER ALIA of various standards require. West Virginia Board of Pharmacy ("WVaBOP") requirements provide that a pharmacy permit is not transferable. According to WVaBOP, a new permit will be necessary if a new DEA number is issued. WISCONSIN. The Wisconsin CON standards provide that no person may transfer through sale or lease any long term care approval. The Wisconsin regulatory requirements provide that a long term care facility license is issued only for the premises and persons named in the application and require a new license to be issued whenever ownership of a long term care facility is transferred. Notification of the proposed transfer, the filing of an application and license must occur at least 30 days prior to final transfer. Moreover, notification of any change in management of such a facility must be provided to the state. The Wisconsin pharmacy licensure requirements prohibit operation of a pharmacy following a change in ownership unless the change in ownership has been reported to the Wisconsin Pharmacy Board Examining Office and a new license has been issued. The Wisconsin Medical Assistance regulations provide that any change in the status of provider (including any change in ownership, management or control) must be reported in the Wisconsin Department of Social Services ("WiDSS") by the effective date of change. With regard to changes in ownership, a non-nursing home provider must notify WiDSS and obtain a new Medicaid provider agreement and a nursing home provider will be assigned the provider agreement of the prior owner. 43 MARGIN CREDIT REGULATIONS. Federal Reserve Board Regulations G, T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly thereby. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of the margin stock. Under the Margin Credit Regulations, the Shares are presently margin stock and the maximum loan value thereof is generally 50% of their current market value. The definition of "indirectly secured" contained in the Margin Credit Regulations provides that the term does not include an arrangement with a customer if the lender in good faith has not relied upon margin stock as collateral in extending or maintaining the particular credit. 17. FEES AND EXPENSES. Montgomery Securities and Morgan Stanley are acting as Dealer Managers in connection with the Offer. In addition, Montgomery Securities is acting as financial advisor to Genesis in connection with its investment in the Parent and Morgan Stanley is acting as financial advisor to the Parent in connection with the Transactions described in the Offer. As compensation for its services as Dealer Manager and advisor Montgomery Securities will receive a fee of approximately $5.0 million if the Offer is consummated. In the event the Offer is not consummated, Montgomery Securities will receive a fee of approximately $2.5 million. As compensation for its services, Morgan Stanley will receive a fee of approximately $5.0 million if the Transactions are consummated. Genesis will also reimburse Montgomery Securities for reasonable out-of-pocket expenses including reasonable attorney's fees and has also agreed to indemnify Montgomery Securities against certain liabilities and expenses in connection with the Offer, including certain liabilities under the Federal Securities Laws. The Parent will also reimburse Morgan Stanley for reasonable out-of-pocket expenses including reasonable attorney's fees and have also agreed to indemnify Morgan Stanley against certain liabilities and expenses in connection with the Offer, including certain liabilities under the Federal Securities Law. For a discussion of certain fees and expenses payable to the Bridge Lenders, see Section 9 ("Source and Amount of Funds -- Subordinated Bridge Financing"). The Purchaser has retained D.F. King & Co., Inc. to act as the Information Agent and ChaseMellon Shareholder Services, L.L.C. to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners. The Information Agent and the Depositary will receive reasonable and customary compensation for services relating to the Offer and will be reimbursed for certain out-of-pocket expenses. The Purchaser and the Parent have also agreed to indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Shares pursuant to the Offer (other than to the Dealer Managers, the Information Agent and the Depositary). Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. 18. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with any such state statute. If after such good faith effort, the Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Managers or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. The Purchaser and the Parent have filed with the Commission a Schedule 14D-1 (including exhibits) pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. Such statement and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the offices of the Commission (except that they will not be available at the regional offices of the Commission) in the manner set forth in Section 8 of this Offer to Purchase. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. GENESIS ELDERCARE ACQUISITION CORP. June 20, 1997 44 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT, THE PURCHASER AND GENESIS, MEMBERS OF CYPRESS L.L.C. AND DIRECTORS AND EXECUTIVE OFFICERS OF ONWIST AND TPG ADVISORS 1. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT AND THE PURCHASER. The name, present principal occupation or employment and five-year employment history of each director and executive officer of the Parent and the Purchaser are set forth below. All directors and executive officers listed below are citizens of the United States, other than Mr. Spiegel who is a citizen of Canada. The business address of Mr. Walker, Mr. Hager and Mr. Howard is 148 West State Street, Kennett Square, Pennsylvania 19348. The business address of Mr. Singleton, Mr. Spiegel and Mr. Stern is 65 East 55th Street, 19th Floor, New York, New York 10022. The business address of Mr. Coulter, Mr. Coslet and Mr. Peterson is 600 California Street, Suite 1850, San Francisco, California 94108.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME AND POSITION EMPLOYMENT HISTORY Michael R. Walker Founder, Chairman and Chief Executive Officer of Genesis since 1985. From 1981 Chairman, Chief through 1985, Mr. Walker served as Chief Financial Officer and, later, as Executive Officer and President and Chief Operating Officer of Health Group Care Centers. Director George V. Hager, Jr. Senior Vice President and Chief Financial Officer of Genesis since February Senior Vice 1996. Mr. Hager joined Genesis in July 1992 as Vice President and Chief President, Chief Financial Officer. Prior thereto, Mr. Hager was the partner in charge of the Financial Officer and healthcare practice for KPMG Peat Marwick LLP in the Philadelphia office. Director James L. Singleton Vice Chairman of Cypress since May 1994. Prior to May 1994, Mr. Singleton was Vice President, a Managing Director with Lehman Brothers where he worked in the Merchant Assistant Secretary Banking Group. and Director James G. Coulter Managing partner of TPG since 1992. Prior to 1992, Mr. Coulter was a Vice Vice President, President of Keystone, Inc. Assistant Secretary and Director Jonathan J. Coslet Partner of TPG since 1993. Prior to 1993, Mr. Coslet was in the Investment Director Banking Department of Donaldson, Lufkin & Jenrette Securities Corporation, specializing in leveraged acquisitions and high-yield finance. Richard R. Howard Director of Genesis since 1985; President of Genesis since June, 1986. Mr. Director Howard joined Genesis in September 1985 as Vice President of Development. Previously, Mr. Howard was the Chief Financial Officer of Health Group Care Centers. Karl I. Peterson Vice President of TPG since 1995. From 1992 until 1995, Mr. Peterson was in Director the Mergers and Acquisitions Department and the Leveraged Buyout Group of Goldman, Sachs & Co. William Spiegel Principal of Cypress since May 1994. Prior to May 1994, Mr. Spiegel was with Director Lehman Brothers where he worked in the Merchant Banking Group. James A. Stern Chairman of Cypress since May 1994. Prior to May 1994, Mr. Stern was a Director Managing Director with Lehman Brothers where he was the head of the Merchant Banking Group.
I-1 2. DIRECTORS AND EXECUTIVE OFFICERS OF GENESIS. The name, present principal occupation or employment and five-year employment history of each director and executive officer of Genesis are set forth below. All directors and executive officers listed below are citizens of the United States. The business address of all of the persons set forth below is 148 West State Street, Kennett Square, Pennsylvania 19348.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY Michael R. Walker Founder, Chairman and Chief Executive Officer of Genesis since 1985. From 1981 through 1985, Mr. Walker served as Chief Financial Officer and, later, as President and Chief Operating Officer of Health Group Care Centers. Roger C. Lipitz Director of Genesis since 1994; Chairman of Meridian Healthcare, Inc. from 1969 through 1993. Alan B. Miller Director of Genesis since October, 1993; Chairman, President and Chief Executive Officer of Universal Health Services, Inc. since 1978. Fred F. Nazem Director of Genesis since January, 1989; Founder and Managing Partner of Nazem & Company. Richard R. Howard Director of Genesis since 1985; President of Genesis since June, 1986. Mr. Howard joined Genesis in September 1985 as Vice President of Development. Previously, Mr. Howard was the Chief Financial Officer of Health Group Care Centers. Samuel H. Howard Director of Genesis since March, 1988; Founder and Chairman of Phoenix Healthcare Corporation and the founder and President of Phoenix Communi- cations Group, Inc. and Phoenix Holdings, Inc. Allen R. Freedman Director of Genesis since February, 1996; Chairman and Chief Executive Officer of Fortis, Inc. and Chairman of the Board of its principal insurance and investment affiliates in the United States since 1990. Stephen E. Luongo Director of Genesis since October, 1993; Partner in the law firm of Blank Rome Comisky & McCauley since 1979. Blank Rome Comisky & McCauley serves as outside legal counsel for Genesis. David C. Barr Executive Vice President of Genesis since October 1988. John F. DePodesta Senior Vice President, Law and Public Policy since January 1996. Prior thereto, he was a partner and currently is of-counsel in the law firm of Pepper, Hamilton & Scheetz. Mr. Depodesta currently serves as the Executive Vice President, Law and Regulatory Affairs and Director of Primus Telecommunications, Inc., and the Chairman of the Board of Iron Road Railways, Incorporated, both of which he co-founded in 1994. Pepper, Hamilton & Scheetz performs outside legal services for Genesis. George V. Hager, Jr. Senior Vice President and Chief Financial Officer since February 1996. Mr. Hager joined Genesis in July 1992 as Vice President and Chief Financial Officer. Prior thereto, Mr. Hager was the partner in charge of the healthcare practice for KPMG Peat Marwick LLP in the Philadelphia office. Edward B. Romanov, Senior Vice President, Development of Genesis since May 1992. Jr. Maryann Timon Senior Vice President for Genesis' Managed Care Division since May 1996. From January 1995 through May 1996 Ms. Timon served as Corporate Vice President of the Managed Care Division. Ms. Timon joined Genesis in December 1990 to form and serve as President of a wholly owned subsidiary, Healthcare Services Network.
I-2 James V. McKeon Vice President and Corporate Controller of Genesis since April 1997. Mr. McKeon joined Genesis in June 1994 as Director of Financial Reporting and Investor Relations. From September 1986 until June 1994 Mr. McKeon was employed by KPMG Peat Marwick, most recently as Senior Manager. Kenneth R. Kuhnle Vice President and Treasurer of Genesis since February 1990. Marc D. Rubinger Vice President and Chief Information Officer of Genesis since November 1995. Prior thereto, Mr. Rubinger served as General Manager-Decision Support Systems of Shared Medical Systems. Michael G. Bronfein President and Chief Executive Officer of NeighborCare, Inc. since 1991. Deborah M. Soutar President of Genesis ElderCareSM Rehabilitation Services since December, 1993. From August 1991 through November, 1993, Ms. Soutar served as Vice President, Operations of Genesis. Dr. Vincent T. President of New England Region, Genesis since October, 1996. Prior thereto, Barnaba Dr. Barnaba was President of Genesis ElderCareSM Physician Services, Inc. since February, 1988. David C. Almquist President of Chesapeake Region, Genesis since October 1996. Prior thereto, Mr. Almquist served in the capacity of both Senior Vice President and Divisional President of Centers Division with Genesis. From June 1991 through November 1993, Mr. Almquist served as Senior Vice President of Nursing Centers for Meridian Healthcare. Robert A. Reitz President of Mid Atlantic Region Genesis since October 1996. From November 1993 through September 1996, Mr. Reitz was Vice President of Centers Division and was Vice President of Meridian Healthcare from 1992 to 1993. Mary Ann Miller President of Centers Southern Region Genesis since October 1996. Prior thereto, Ms. Miller was President of ASCO Healthcare.
3. MEMBERS OF CYPRESS L.L.C. The name, present principal occupation or employment and five-year employment history of each member of Cypress L.L.C. are set forth below. All persons listed below are citizens of the United States. The business address of each of the persons listed below is 65 East 55th Street, 19th Floor, New York, New York 10022.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY James A. Stern Chairman of Cypress since May 1994. Prior to May 1994, Mr. Stern was a Managing Director with Lehman Brothers where he was the head of the Merchant Banking Group. Jeffrey P. Hughes Vice Chairman of Cypress since May 1994. Prior to May 1994, Mr. Hughes was a Managing Director with Lehman Brothers where he worked in the Merchant Banking Group. James L. Singleton Vice Chairman of Cypress since May 1994. Prior to May 1994, Mr. Singleton was a Managing Director with Lehman Brothers where he worked in the Merchant Banking Group. David P. Spalding Vice Chairman of Cypress since May 1994. Prior to May 1994, Mr. Spalding was a Managing Director with Lehman Brothers where he worked in the Merchant Banking Group.
I-3 4. DIRECTORS AND EXECUTIVE OFFICERS OF ONWIST. The name, present principal occupation or employment and five-year employment history of each director of Onwist are set forth below. Mr. Douglas and Mr. Smith are citizens of Bermuda. Mr. Spalding is a citizen of the United States. The business address of Mr. Douglas and Mr. Smith is c/o Bank of Bermuda (Cayman) Limited, P.O. Box 513 G.T., British American Tower, Third Floor, Georgetown, Grand Caymen, Caymen Islands, B.W.I. The business address of Mr. Spalding is 65 East 55th Street, 19th Floor, New York, New York 10022.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY Luis A. Douglas Senior Executive Vice President, Corporate Clients of The Bank of Bermuda Limited since March 1997. Prior to March 1997, Mr. Douglas was Executive Vice President, Corporate Trust of The Bank of Bermuda Limited. David T. Smith Senior Vice President, Corporate Trust of The Bank of Bermuda Limited since March 1997. Prior to March 1997, Mr. Smith was a Vice President of The Bank of Bermuda Limited. David P. Spalding Vice Chairman of Cypress since May 1994. Prior to May 1994, Mr. Spalding was a Managing Director with Lehman Brothers where he worked in the Merchant Banking Group.
5. DIRECTORS AND EXECUTIVE OFFICERS OF TPG ADVISORS. The name, present principal occupation or employment and five-year employment history of each director and executive officer of TPG Advisors are set forth below. All directors and executive officers listed below are citizens of the United States. The business address of Mr. Bonderman and Mr. O'Brien is 201 Main Street, Suite 2420, Fort Worth, Texas 76102. The business address of Mr. Coulter and Mr. Price is 600 California Street, Suite 1850, San Francisco, California 94108. The business address of Mr. Schifter is 1133 Connecticut Avenue, N.W., Washington, D.C. 20036.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY David Bonderman Managing partner of TPG since 1992. Prior to 1992, Mr. Bonderman was Chief Operating Officer and Chief Investment Officer of Keystone Inc. James G. Coulter Managing partner of TPG since 1992. Prior to 1992, Mr. Coulter was a Vice President of Keystone Inc. William S. Price Managing partner of TPG since 1992. Prior to 1992, Mr. Price was Vice President of Strategic Planning and Business Development for GE Capital. Richard P. Schifter Managing partner of TPG since 1994. From prior to 1992 until joining TPG in 1994, Mr. Schifter was a partner at the law firm of Arnold & Porter in Washington, D.C. James J. O'Brien Chief Financial Officer of TPG since 1992. Prior to 1992, Mr. O'Brien was an independent financial and business consultant to a wide range of corporate clients.
I-4 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY OVERNIGHT COURIER DELIVERY: Post Office Box 3301 120 Broadway -- 13th Floor 85 Challenger Road -- South Hackensack, NJ 07606 New York, New York 10271 Mail Drop -- Reorg. Dept. Attn: Reorganization Department Attn: Reorganization Department Ridgefield Park, NJ 07660 Attn: Reorganization Department BY FACSIMILE TRANSMISSION: (201) 329-8936 CONFIRM BY TELEPHONE: (201) 296-4860
Any questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Call Toll Free (800) 488-8035 THE DEALER MANAGERS FOR THE OFFER ARE: MONTGOMERY SECURITIES 600 Montgomery Street San Francisco, CA 94111 1-800-227-4786 (ext. 5945) MORGAN STANLEY DEAN WITTER Morgan Stanley & Co., Incorporated 1585 Broadway -- 35th Floor New York, NY 10036 (212) 761-4341 EX-11 3 EXHIBIT 11(A2) [EXHIBIT 11(A)(2)] LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. PURSUANT TO THE OFFER TO PURCHASE DATED JUNE 20, 1997 BY GENESIS ELDERCARE ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF GENESIS ELDERCARE CORP. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JULY 18, 1997 UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY OVERNIGHT COURIER DELIVERY: Post Office Box 3301 120 Broadway -- 13th Floor 85 Challenger Road South Hackensack, NJ 07606 New York, New York 10271 Mail Drop -- Reorg. Dept. Attn: Reorganization Department Attn: Reorganization Department Ridgefield Park, NJ 07660 Attn: Reorganization Department BY FACSIMILE TRANSMISSION: (201) 329-8936 CONFIRM BY TELEPHONE: (201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders, either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase)] is utilized, if tenders of Shares are to be made by book-entry transfer into the account of ChaseMellon Shareholder Services, L.L.C., as Depositary (the "Depositary"), at the Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility" and collectively the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders". Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
DESCRIPTION OF SHARES TENDERED NAME(S) & ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS SHARES CERTIFICATE(S) AND SHARE(S) TENDERED NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) TOTAL NUMBER SHARE OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** Total Shares...................... * Need not be completed by Book-Entry Stockholders. ** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. See Instruction 4.
h CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution Check box of Book-Entry Transfer Facility (check one): h The Depository Trust Company h The Philadelphia Depository Trust Company Account Number Transaction Code Number h CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): Window Ticket Number (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Institution that Guaranteed Delivery: If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility (check one): h The Depositary Trust Company h The Philadelphia Depository Trust Company Account Number Transaction Code Number 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Genesis ElderCare Acquisition Corp., a Delaware corporation formerly known as Waltz Acquisition Corp. (the "Purchaser"), a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formerly known as Waltz Corp. (the "Parent"), the above-described shares of Common Stock, $.01 par value per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company"), at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 20, 1997 (the "Offer to Purchase") and in this Letter of Transmittal (which together constitute the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, receipt of which is hereby acknowledged. Subject to, and effective upon, acceptance for payment for the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions (including additional Shares) or rights declared, paid or issued with respect to the tendered Shares on or after the date hereof and payable or distributable to the undersigned on a date prior to the transfer to the name of the Purchaser or nominee or transferee of the Purchaser on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distribution) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (as defined herein) (and any Distribution) or transfer ownership of such Shares (and any Distribution) on the account books maintained by a Book-Entry Transfer Facility, together in either case with appropriate evidences of transfer, to the Depositary for the account of the Purchaser, (b) present such Shares (and any Distribution) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distribution), all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints designees of the Purchaser as such stockholder's proxy, with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date hereof. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares the Purchaser must be able to exercise full voting rights with respect to such Shares. The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distribution) tendered hereby and (b) when the Shares are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distribution), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any Distribution). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer; and pending such remittance or appropriate assurance thereof, the Purchaser will be, subject to applicable law, entitled to all rights and privileges as owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. 3 All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date (as defined in the Offer to Purchase) and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after August 18, 1997. See Section 4 of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated herein under "Special Delivery Instructions", please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. Unless otherwise indicated herein under "Special Payment Instructions", please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility (as defined herein) designated above. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 4 SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned or if Shares tendered by book-entry transfer which are not accepted for payment are to be returned by credit to an account maintained at a Book-Entry Transfer Facility. Issue: h check h certificates to: Name (Please Print) Address (Include Zip Code) (TAX ID. OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) h Credit Shares tendered by book-entry transfer that are not accepted for payment to (Check one): h DTC h PDTC (DTC or PDTC Account No.)
SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail: h check h certificates to: Name (Please Print) Address (Include Zip Code) (TAX ID. OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9)
5 SIGN SIGN HERE HERE AND COMPLETE SUBSTITUTE FORM W-9 g X X (Signature(s) of Holder(s)) Dated: , 1997 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) (Please Print) Capacity (full title) Address (Include Zip Code) Area Code and Telephone Number Tax Identification or Social Security Number COMPLETE SUBSTITUTE FORM W-9 Guarantee of Signature(s) (See Instructions 1 and 5) Authorized Signature Name Name of Firm (Please Print) Address (Include Zip Code) Area Code and Telephone Number Dated , 1997
SIGN SIGN HERE HERE g s
6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above, or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates evidencing tendered Shares, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITORY (INCLUDING, IN THE CASE OF BOOK ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. 7 If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or not purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, the Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or an exemption therefrom, is submitted. Except as otherwise provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) listed in this Letter of Transmittal. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. A Book-Entry Stockholder may request that Shares not accepted for payment be credited to such account maintained at a Book-Entry Transfer Facility as such Book-Entry Stockholder may designate under "Special Payment Instructions". If no such instructions are given, such Shares not accepted for payment will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the Merger Agreement (as defined in the Offer to Purchase), the conditions of the Offer (Other than the Minimum Condition (as defined in the Offer to Purchaser)) may be waived by the Purchaser in whole or in part at any time and from time to time in its sole discretion. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 8 If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to the Dealer Managers or the Information Agent at their respective addresses and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or the Dealer Managers or from brokers, dealers, commercial banks or trust companies. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 9 PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. SUBSTITUTE FORM W-9 PART 1 -- PLEASE PROVIDE YOUR TIN Social Security Number IN THE BOX AT RIGHT AND CERTIFY or BY SIGNING AND DATING BELOW: Employer Identification Number Department of the Treasury Internal Revenue Service. PART 2 -- Certification -- Under the penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and PAYEE'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding because (a) I am exempt from backup IDENTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service (the NUMBER ("TIN") "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). Sign Here g SIGNATURE PART 3 -- DATE , 1997 Awaiting TIN h
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld. Signature Date , 1997
10 THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Call Toll Free (800) 488-8035 THE DEALER MANAGERS FOR THE OFFER ARE: MONTGOMERY SECURITIES 600 Montgomery Street San Francisco, CA 94111 1-800-227-4786 (ext. 5945) MORGAN STANLEY DEAN WITTER Morgan Stanley & Co., Incorporated 1585 Broadway -- 35th Floor New York, NY 10036 (212) 761-4341 June 20, 1997 11 EX-11 4 EXHIBIT 11(A3) [EXHIBIT 11(A)(3)] NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. As set forth in Section 3 of the Offer to Purchase described below, this instrument or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for Shares (as defined below) are not immediately available or the certificates for Shares and all other required documents cannot be delivered to ChaseMellon Shareholder Services, L.L.C. ("the Depositary") on or prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary. THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY HAND: BY OVERNIGHT COURIER DELIVERY: Post Office Box 3301 120 Broadway -- 13th Floor 85 Challenger Road South Hackensack, NJ 07606 New York, New York 10271 Mail Drop -- Reorg. Dept. Attn: Reorganization Department Attn: Reorganization Department Ridgefield Park, NJ 07660 Attn: Reorganization Department BY FACSIMILE TRANSMISSION: (201) 329-8936 CONFIRM BY TELEPHONE: (201) 296-4860
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to Genesis ElderCare Acquisition Corp., a Delaware corporation formerly known as Waltz Acquisition Corp. and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formerly known as Waltz Corp., upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 20, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, par value $.01 per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Signature(s) Name(s) of Record Holders Number of Shares PLEASE TYPE OR PRINT Certificate Nos. (If Available) Dated , 1997 Address(es) ZIP CODE Area Code and Tel. No(s) Check one box if Shares will be tendered by book-entry transfer) h The Depository Trust Company h Philadelphia Depository Trust Company Account Number GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. NAME OF FIRM ADDRESS ZIP CODE AREA CODE AND TEL. NO AUTHORIZED SIGNATURE Name PLEASE TYPE OR PRINT Title Dated , 1997 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-11 5 EXHIBIT 11(A4) [EXHIBIT 11(A)(4)] OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. AT $28.00 NET PER SHARE BY GENESIS ELDERCARE ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF GENESIS ELDERCARE CORP. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON JULY 18, 1997 UNLESS THE OFFER IS EXTENDED. June 20, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Genesis ElderCare Acquisition Corp., a Delaware corporation formerly known as Waltz Acquisition Corp. (the "Purchaser") and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formerly known as Waltz Corp. (the "Parent"), to act as Dealer Managers in connection with the Purchaser's offer to purchase for cash all the outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company") at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated June 20, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated June 20, 1997. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if Share Certificates are not immediately available or if such certificates and all other required documents cannot be delivered to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") by the Expiration Date or if the procedure for book-entry transfer cannot be completed by the Expiration Date. 4. The Letter to Stockholders of the Company from the Chairman, President and Chief Executive Officer of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to ChaseMellon Shareholder Services, L.L.C., the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON JULY 18, 1997 UNLESS THE OFFER IS EXTENDED. 1 The offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the expiration of the Offer such number of Shares which constitutes, on a fully diluted basis, a majority of the voting power of all securities of the Company entitled to vote generally in the election of directors or in a merger, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and (iii) the receipt by the Purchaser of the proceeds of the financing pursuant to the Debt Financing Commitments (as defined in Section 9 of the Offer to Purchase). The Board of Directors of the Company (the "Board of Directors") has approved the Merger Agreement (as defined below) and the transactions contemplated thereby, including the Offer and the Merger (as defined below) and determined that terms of the Offer and the Merger are fair to, and in the best interests of, the holders of the Shares and recommends that the holders of the Shares accept the Offer and tender their Shares to the Purchaser. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of June 16, 1997 (the "Merger Agreement"), among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the Delaware General Corporation Law, the Purchaser will be merged with and into the Company (the "Merger"). Following the Merger, the Company will continue as the surviving corporation and become a wholly owned subsidiary of the Parent, and the separate corporate existence of the Purchaser will cease. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book- entry delivery of Shares, and other required documents should be sent to the Depositary, and (ii) either Share Certificates, representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at one of the Book-Entry Transfer Facilities (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share Certificates or other required documents on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. The Purchaser will not pay any commissions or fees to any broker, dealer or other person (other than the Dealer Managers, the Depositary and D.F. King & Co., Inc. (the "Information Agent") (as described in the Offer to Purchase)) for soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchaser will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Inquiries you may have with respect to the Offer should be addressed to the Information Agent or the undersigned, at the respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent. Very truly yours, MONTGOMERY SECURITIES MORGAN STANLEY & CO. INCORPORATED NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, THE PARENT, THE DEALER MANAGER, THE COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-11 6 EXHIBIT 11(A5) [EXHIBIT 11(A)(5)] OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. AT $28 NET PER SHARE BY GENESIS ELDERCARE ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF GENESIS ELDERCARE CORP. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 18, 1997, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase dated June 20, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal relating to an offer by Genesis ElderCare Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation (the "Parent"), to purchase all of the outstanding shares of Common Stock, $.01 par value per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company"), at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to ChaseMellon Shareholder Services, L.L.C., the Depositary, prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is directed to the following: 1. The tender price is $28.00 per share, net to the seller in cash without interest thereon. 2. The Offer is made for all of the outstanding Shares. 3. The Board of Directors of the Company has approved the Merger Agreement (as defined below) and the transactions contemplated thereby, including the Offer and the Merger (as defined below) and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the holders of Shares and recommends that holders of the Shares accept the Offer and tender their Shares to the Purchaser. 1 4. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of June 16, 1997 (the "Merger Agreement") by and among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, that subsequent to the consummation of the Offer, the Purchaser will merge with and into the Company (the "Merger"). At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Company or any subsidiary of the Company and each Share owned by the Parent, the Purchaser or any other subsidiary of the Parent, which shall be cancelled, and other than Shares, if any, held by stockholders who have properly exercised appraisal rights under Section 262 of the Delaware General Corporation Law) will, by virtue of the Merger and without any action on the part of the holders of the Shares be converted into the right to receive $28.00 in cash, payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Share, less any required withholding taxes. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on July 18, 1997, unless the Offer is extended. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. 7. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the expiration of the Offer, such number of Shares which constitutes, on a fully-diluted basis, a majority of the voting power on the date of purchase of all securities of the Company entitled to vote generally in the election of directors or in a merger, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and (iii) the receipt by the Purchaser of the proceeds of the financing pursuant to the debt Financing Commitments (as defined in the Offer to Purchase) entered into in connection with the Merger Agreement in order to purchse the Shares pursuant to the Offer and the Merger, refinance all indebtedness of the Company due as a result of the consummation of the Offer or the Merger and to pay related fees and expenses. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with any such state statute. If, after such good faith effort, the Purchaser cannot comply with such state statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Montgomery Securities and Morgan Stanley & Co. Incorporated, the Dealer Managers for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. If you wish to have us tender any or all of the Shares held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize a tender of your Shares, all such Shares will be tendered unless otherwise specified in such instruction form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF THE MULTICARE COMPANIES, INC. BY GENESIS ELDERCARE ACQUISITION CORP. The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase dated June 20, 1997 (the "Offer to Purchase") and the related Letter of Transmittal pursuant to an offer by Genesis ElderCare Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation, to purchase all outstanding shares of Common Stock, $.01 par value per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned. Number of Shares to be Tendered* Shares Dated SIGN HERE , 1997 Signature(s) Please Print Name(s) Address Area Code and Telephone Number Tax, Identification, or Social Security Number * Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. 3 EX-11 7 EXHIBIT 11(A6) EXHIBIT 11(A)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: I.E. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: I.E., 00-00000000. The table below will help determine the number to give the payer.
GIVE THE GIVE THE SOCIAL EMPLOYER SECURITY IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- FOR THIS TYPE OF ACCOUNT: NUMBER OF --
1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, the first individual on the account1 3. Husband and wife The actual owner of the (joint account) account or, if joint funds, either person1 4. Custodian account of a minor The minor2 (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor1 6. Account in the name of guardian The ward, minor, or or committee for a designated incompetent person3 ward, minor or incompetent person 7. a. The usual revocable savings The grantor-trustee1 trust account (grantor is also trustee) b. So-called trust account that The actual owner4 is not a legal or valid trust under State law 8. Sole proprietorship account The owner4 9. A valid trust, estate or pension The legal entity (Do not trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)5 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the partnership 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
1 List first and circle the name of the person whose number you furnish. 2 Circle the minor's name and furnish the minor's social security number. 3 Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. 4 Show your individual name. You may also enter your business name. You may use either your Social Security Number or your Employer Identification Number. 5 List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: (Bullet) A corporation. (Bullet) A financial institution. (Bullet) An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. (Bullet) The United States or any agency or instrumentalities. (Bullet) A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality. (Bullet) A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. (Bullet) An international organization or any agency or instrumentality thereof. (Bullet) A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. (Bullet) A real estate investment trust. (Bullet) A common trust fund operated by a bank under section 584(a) of the Code. (Bullet) An exempt charitable remainder trust, or non-exempt trust described in section 4947(a)(1) of the Code. (Bullet) An entity registered at all times under the Investment Company Act of 1940. (Bullet) A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: (Bullet) Payments to nonresident aliens subject to withholding under section 1441 of the Code. (Bullet) Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. (Bullet) Payments of patronage dividends where the amount received is not paid in money. (Bullet) Payments made by certain foreign organizations. (Bullet) Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: (Bullet) Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. (Bullet) Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). (Bullet) Payments described in section 6049(b)(5) of the Code to nonresident aliens. (Bullet) Payments on tax-free covenant bonds under section 1451 of the Code. (Bullet) Payments made by certain foreign organizations. (Bullet) Payments made to a nominee. Exempt payees described above should file a Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6045, 6050A and 6050N of the Code and the regulations promulgated therein. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-11 8 EXHIBIT 11(A7) Exhibit 11(a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated June 20, 1997 and the related Letter of Transmittal (and any amendments thereto) and is being made to all holders of Shares. The Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a state statute. If the Purchaser becomes aware of any state where the making of the Offer is prohibited, the Purchaser will make a good faith effort to comply with any such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any applicable statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In those jurisdictions where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Montgomery Securities or Morgan Stanley & Co. Incorporated or one or more registered brokers or dealers licensed under the laws of such jurisdictions. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of The Multicare Companies, Inc. at $28.00 Net Per Share by Genesis ElderCare Acquisition Corp. a wholly owned subsidiary of Genesis ElderCare Corp. Genesis ElderCare Acquisition Corp., a Delaware corporation formerly known as Waltz Acquisition Corp. (the "Purchaser") and a wholly owned subsidiary of Genesis ElderCare Corp., a Delaware corporation formerly known as Waltz Corp. (the "Parent"), is offering to purchase all of the outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of The Multicare Companies, Inc., a Delaware corporation (the "Company"), at a purchase price of $28.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 20, 1997 (the "Offer to Purchase") and in the related Letter of 2 Transmittal (which, as amended from time to time, together constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JULY 18, 1997, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the expiration of the Offer such number of Shares which constitutes, on a fully diluted basis, a majority of the voting power on the date of purchase of all securities of the Company entitled to vote generally in the election of directors or in a merger, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act of 1976, as amended, and (iii) the receipt by the Purchaser of the proceeds pursuant to the debt financing commitment letters entered into in connection with the Merger Agreement (as defined below) in order to purchase the Shares pursuant to the Offer and the Merger (as defined below), refinance all indebtedness of the Company due as a result of the consummation of the Offer or the Merger and pay related fees and expenses. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. Following the consummation of the Offer, the Purchaser intends to effect the Merger, as described below. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of June 16, 1997 (the "Merger Agreement"), by and among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the Delaware General Corporation Law ("DGCL"), the Purchaser will be merged with and into the Company (the "Merger"), and each Share issued and outstanding immediately prior to the effective time of the Merger (other than Shares owned by the Company or any subsidiary of the Company and each Share owned by the Parent, the Purchaser or any other subsidiary of the Parent, which shall be cancelled, and other than Shares, if any, held by stockholders who have properly exercised appraisal rights under the DGCL) will, by virtue of the Merger and without any action on the part of the holders of the Shares, be converted into the right to receive $28.00 in cash, payable to the holder thereof, without interest, upon the surrender of the certificate formerly representing such Share, less any required withholding taxes. The Merger Agreement is more fully described in Section 11 of the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED 3 THEREBY, INCLUDING THE OFFER AND THE MERGER, AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES TO THE PURCHASER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. Subject to the applicable rules and regulations of the Securities and Exchange Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 15 of the Offer to Purchase shall have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement to be made no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. 4 The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, July 18, 1997, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after August 18, 1997. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered such Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to purchase) unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the second sentence of this paragraph. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination will be final and binding. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security 5 position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Dealer Managers or the Information Agent as set forth below. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or the Dealer Managers, and copies will be furnished promptly at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Managers and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. 6 The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Call Toll Free 1-800-488-8035 The Dealer Managers for the Offer are: MORGAN STANLEY DEAN WITTER MONTGOMERY SECURITIES Morgan Stanley & Co. 600 Montgomery Street Incorporated San Francisco, California 94111 1585 Broadway 35th Floor 1-800-227-4786 (ext. 5945) New York, New York 10036 (212) 761-4341 June 20, 1997 EX-11 9 EXHIBIT 11(A8) (GENESIS LETTERHEAD) CONTACT ON DAY OF ANNOUNCEMENT: LYNN MADONNA (212) 583-8525 CONTACT AFTER JUNE 16: GEORGE HAGER (610) 444-6350 CYPRESS/TPG CONTACT: OWEN BLICKSILVER (212) 303-7603 FOR IMMEDIATE RELEASE GENESIS HEALTH VENTURES, INC. TO ACQUIRE THE MULTICARE COMPANIES, INC. WITH THE CYPRESS GROUP LLC AND TEXAS PACIFIC GROUP GENESIS SIGNS MULTI-YEAR MANAGEMENT CONTRACT WITH AN OPTION TO ACQUIRE MULTICARE'S OPERATIONS KENNETH SQUARE, PA - JUNE 16, 1997 - Genesis Health Ventures, Inc. (NYSE: GHV) ("Genesis"), The Cypress Group, LLC ("Cypress") and The Texas Pacific Group ("TPG") today announced that they have formed a new company, to be named Genesis ElderCare Acquisition Corp. ("GEAC") and signed an agreement to acquire The Multicare Companies, Inc. (NYSE:MUL) for $28.00 per share. The transaction is valued at $1.4 billion. Multicare, a New Jersey-based long term care company with first quarter 1997 annualized revenues of approximately $675 million, provides services through 155 facilities with approximately 16,000 beds. Multicare has approximately 37.0 million fully diluted shares outstanding and as of March 31, 1997 had $342 million in debt outstanding, excluding $75 million in convertible debt. Separately, Genesis announced that it will enter into a multi-year management services contract with GEAC to manage Multicare's operations for an annual management fee of six percent of total revenues. All Multicare services and products will be branded under the Genesis ElderCare banner. Under the merger agreement, GEAC will promptly commence a cash tender offer for all Multicare shares at $28.00 per share. The offer is subject to, among other things, the tender of a majority of the outstanding shares on a fully diluted basis, GEAC's receipt of financing pursuant to its debt financing commitments, the expiration of termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and all other 2 regulatory approvals. The cash offer to shareholders is to be followed by a merger in which each remaining share will be converted into the right to receive the cash price per share paid in the offer. The offer will be made only pursuant to definitive offering documents. The agreement was approved by the Board of Directors of both companies. It is anticipated that the transaction will close in the third quarter of 1997. Additionally, Multicare co-founders Daniel and Moshael Straus have entered into a voting agreement whereby they will tender and vote their shares in favor of the transaction. Specific terms of the agreements call for: o Genesis to invest $300 million in exchange for approximately 42% of GEAC common stock and Cypress and TPG to invest $420 million in GEAC in exchange for approximately 58% of GEAC common stock. Following completion of the transaction, GEAC will be a consolidated subsidiary of Genesis. o Genesis to enter into a put/call agreement with Cypress and TPG giving Genesis the option to acquire the equity of Cypress and TPG in GEAC after four years; Cypress and TPG will have the option to put their equity to GEAC to Genesis after five years. Under a separate agreement, Genesis will contribute its institutional pharmacy and GEAC will contribute the Multicare institutional pharmacy to a joint venture to be operated by Genesis. Multicare's institutional pharmacy business currently serves approximately 28,000 beds through eight pharmacies. In addition, Genesis will acquire upon closing of the merger Multicare's rehabilitation therapy business. Multicare's therapy business is running at an annualized rate of approximately $20 million in revenues. "As a result of this transaction, we have established a contiguous market concentration from New Hampshire down the eastern corridor to Washington, D.C. Genesis is now strategically positioned, as the eldercare provider of choice, to offer our customers, partners and affiliates a comprehensive array of eldercare services and products unsurpassed by any other healthcare provider," commented Michael R. Walker, Genesis chairman and chief executive officer. "Our management agreement will allow us to fold Multicare's operations into our Genesis ElderCare Networks and enable us to delivery the high quality, cost-effective, integrated care demanded in today's managed care environment. We see an exceptionally strong strategic and geographic fit between the two companies, especially in Massachusetts, New Jersey, Pennsylvania and West Virginia, and anticipate substantive operating synergies as well as future margin improvement in our specialty medical services and management services businesses, "he noted. 3 "The achievement of these initiatives and the synergies of combining these companies will benefit the shareholders, customers and employees of Genesis and Multicare," Walker concluded. "We could not be more pleased than to enter into this strategic acquisition with Mike Walker and the Genesis team," said Jamie Singleton, vice chairman, The Cypress Group. "We believe the fit between these two outstanding companies will drive a standard of care in the healthcare industry that is unparalleled among long term care providers." "These two companies offer a natural strategic fit. They are high margin, fast growing businesses with an excellent reputation for quality care," said James G. Coulter, founding partner, Texas Pacific Group. "The combination should provide benefits to the company's customers and stakeholders." Bank financing for the transaction will be provided by Mellon Bank, NationsBank, First Union and Citibank. Morgan Stanley and Montgomery Securities will provide a bridge loan commitment and high yield take-out financing. Montgomery Securities acted as advisor to Genesis and Morgan Stanley acted as advisor to Cypress and TPG. Genesis Health Ventures, Inc. a recognized innovator in the healthcare industry, was founded in 1985 to redefine how America cares for the elderly and is dedicated to helping older adults live a full life as independently as possible in their later years. The Company, which consolidated its businesses under the brand name Genesis ElderCare in 1996, has established Genesis ElderCare Networks in four regional markets in the eastern United States and currently serves more than 100,000 customers daily. The Cypress Group manages a private equity fund with more than $1 billion in commitments. Cypress invests in privately negotiated transactions, targeting established operating companies and investing with management to foster continued growth. The Cypress Group, based in New York City is headed by its four partners: James A. Stern, Jeffrey P. Hughes, James L. Singleton, and David P. Spalding. Texas Pacific Group, based in San Francisco and Fort Worth, Texas, is sponsor of TPG Partners II, L.P., of Fort Worth, a $2.5 billion investment partnership which specializes in corporate acquisitions in a wide range of industries and succeeds TPG Partners, L.P., a $720 million partnership formed in December 1993. TPG's principles include David Bonderman, James G. Coulter, and William S. Price. CERTAIN OF THE MATTERS DISCUSSED IN THIS NEWS RELEASE WHICH ARE NOT STATEMENTS OF HISTORICAL FACT ARE FORWARD LOOKING STATEMENTS, AND BECAUSE SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES ACTUAL RESULTS MAY DIFFER FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT COULD CAUSE SUCH DIFFERENCES INCLUDE BUT ARE NOT LIMITED TO THOSE DISCUSSED IN GENESIS' ANNUAL REPORT ON FORM 10K FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND ITS OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. 3 ************************* FOR MORE INFORMATION, PLEASE DIAL INTO TODAY'S CONFERENCE CALL TO BE HOSTED BY MICHAEL WALKER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND GEORGE HAGER, CHIEF FINANCIAL OFFICER OF GENESIS HEALTH VENTURES AT 9:00AM EASTERN DAYLIGHT TIME 1-800-227-7067 EX-11 10 EXHIBIT 11(B1) Exhibit 11(b)(1) MELLON BANK, N.A. CITICORP SECURITIES, INC. CITIBANK N.A. FIRST UNION CAPITAL MARKETS CORP. FIRST UNION NATIONAL BANK NATIONSBANK, N.A. June 14, 1997 Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.) c/o The Cypress Group L.L.C. 65 E. 55th Street, 19th Floor New York, NY 10022 Amended and Restated Commitment Letter (Revised) Gentlemen: Reference is made to that certain Commitment Letter, dated May 31, 1997, issued to you by Mellon Bank, N.A., Citicorp Securities, Inc., First Union Capital Markets Corp. and NationsBank, N.A. as amended and restated pursuant to that certain Amended and Restated Commitment Letter, dated June 14, 1997 issued to you by Mellon Bank, N.A. ("Mellon"), Citicorp Securities, Inc. and Citibank, N.A. (collectively, "Citicorp"), First Union Capital Markets Corp. and First Union National Bank (collectively, "First Union") and NationsBank, N.A. ("NationsBank") (as so modified, the "Existing Commitment Letter"). You have requested that the Existing Commitment Letter be amended in certain respects and the undersigned Co-Arrangers are willing to so amend the Existing Commitment Letter on the terms and conditions set forth below in this Amended and Restated Commitment Letter (this "Commitment Letter"). Upon your execution of this Commitment Letter, the terms hereof shall amend and replace the terms set forth in the Existing Commitment Letter except that any fees, indemnities or other amounts that shall have accrued under the Existing Commitment Letter shall remain in full force and effect. If you do not execute and deliver this Commitment Letter at or before 5:00 p.m. (Philadelphia local time) on June 19, 1997, this Commitment Letter shall be of no effect and the terms of the Existing Commitment Letter shall remain in full force and effect without any modifications. Based on our discussions, Mellon, Citicorp, First Union and NationsBank and/or their affiliates are pleased to provide Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.) ("Merger Sub") with financing commitments for, to agree to act as co-arranging banks (the "Co-Arrangers")1 in connection with and to arrange for the syndication of, the senior debt facilities described below and on Annex A. Terms not otherwise defined herein are used herein as defined in Annex A hereto. We are advised that you are wholly owned by Genesis ElderCare Corp. (formerly known as Waltz Corp.) ("Parent"), the capital stock of which is, or shall be, owned by The Cypress Group L.L.C., TPG Partners II, L.P. and Genesis Health Ventures, Inc. We further understand that you intend to acquire outstanding shares of The Multicare Companies, Inc. ("Multicare") through a cash tender offer and merger in which Multicare will be the survivor and a wholly-owned subsidiary of Parent. You have asked the Co-Arrangers to provide commitments for the senior debt facilities to Multicare and to you described on the attached Annex A (the "Credit Facilities"). The Credit Facilities will be available for the purposes set forth on Annex A attached hereto. Certain fees payable in connection with the Credit Facilities are set forth on Annex B attached hereto. Subject to the satisfaction of the conditions contained in this Commitment Letter and your acceptance hereof, Mellon, Citicorp, First Union and NationsBank each severally commit to lend one quarter of the aggregate amount of the Credit Facilities on the terms and conditions referred to herein and described in the attached Annex A subject to, among other things, payment of the fees set forth in Annex B. Once paid or payable, the fees or any part thereof, payable hereunder shall not be refundable under any circumstances, regardless of whether the transactions or borrowings contemplated hereby are consummated. Except as set forth on Annex B, all fees payable hereunder shall be paid in immediately available funds and shall be in addition to reimbursement of out-of-pocket expenses incurred by the Co-Arrangers. The fees referred to herein are in addition to (1) the commitment and other fees, expenses and charges referred to in the Term Sheet, and (2) the fees to be paid to Mellon, as Administrative Agent, as separately agreed between the Borrower and Mellon. The terms and conditions of this commitment and undertaking are not limited to those set forth in the attached Annex A and Annex B. Those matters that are not covered or made clear herein or in such Annex A or Annex B are subject to mutual agreement of the parties. - -------- 1 For purposes of determining allocable shares of entitlements and obligations, Citicorp Securities, Inc. and Citibank, N.A. shall be deemed to be one entity and First Union Capital Markets Corp. and First Union National Bank shall be deemed to be one entity. -2- In addition, this commitment and undertaking is subject to (i) the preparation, execution and delivery of mutually acceptable loan documentation, incorporating substantially the terms and conditions outlined herein and in the attached Annex A, (ii) the absence of any material adverse change in the loan syndication market for transactions of this type or any relevant information (financial or otherwise) provided to the Co-Arrangers in connection with this Commitment Letter or the transactions contemplated hereby, (iii) the condition that the financing closes no later than as provided in Annex A, (iv) your execution and delivery of this commitment letter and the payment of the fees at such times and in such amounts as are set forth on Annex B, (v) the execution and delivery of the amended and restated commitment letter, dated as of even date herewith, by Genesis (the "Genesis Commitment Letter") and the payment of the fees required to be paid thereunder and (vi) our favorable review and acceptance of the Non-Accepted Documents or the favorable resolution of the exceptions to Accepted Documents (as defined in Annex A). The Co-Arrangers intend to syndicate the Credit Facilities to additional lenders with corresponding reductions in the initial commitments of the Co-Arrangers. The syndication may occur before or after initial funding. The Co-Arrangers will manage all aspects of the syndication (in consultation with you), including the timing of all offers to potential Lenders and the acceptance of commitments, the amounts offered and the compensation provided. You shall fully cooperate with the Co-Arrangers in the syndication process. You agree that any of the Co-Arrangers, in connection with the syndication of any portion of its commitment, may share all or a portion of any of the fees payable pursuant to this Commitment Letter, in its sole discretion, with any of the other Lenders. You agree to indemnify and hold harmless the Administrative Agent, the Co- Arrangers, each Lender and their respective affiliates, officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, amounts paid in settlement, court costs and expenses (including, without limitation, fees and disbursements of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or by reason of, or in connection with any claims or actions arising out of the Existing Commitment Letter, this Commitment Letter, Existing Genesis Commitment Letter (as defined in the Genesis Commitment Letter), the Genesis Commitment Letter or the transactions contemplated hereby or thereby including, without limitation, the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with the proposed tender offer, the proposed merger, the equity investment of Genesis or others in Parent, any financing related thereto or other transaction referred to in Annex A hereto or Annex A to the Genesis Commitment Letter, whether or not an Indemnified Party is a party thereto and whether or not the transactions contemplated herein are consummated, except to the extent such claim, damage, loss, liability, amount paid in settlement, court cost or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or wilful misconduct. -3- In further consideration of the commitment and undertaking of the Co- Arrangers hereunder and recognizing that in connection herewith the Co-Arrangers are incurring costs and expenses, including, without limitation, fees and expenses of counsel and due diligence, transportation, computer, duplication, search, filing and recording fees, you hereby acknowledge your obligation to pay such costs and expenses (whether incurred before or after the date hereof) regardless of whether any of the transactions contemplated hereby are consummated or any loan documents are agreed to and signed. The obligations hereunder are absolute and unconditional and shall be due and payable as and when they arise and shall be subject to no set-off or counterclaim notwithstanding (a) any failure of the Co-Arrangers to assert claims against any other persons or collateral, or (b) any other event or condition which could serve as a defense to the obligations arising hereunder, each such defense being, to the fullest extent permitted by applicable law, hereby waived. This letter is for your confidential use only. We understand that you will not disclose this letter to any person other than to your accountants, attorneys, investment bankers and other advisors, and then only in connection with the transactions contemplated hereby and on a confidential basis, except that you may file a copy of this letter in any public record in which it is required by law to be filed and, subject to the last sentence of this commitment letter, you may provide a copy of this letter on a confidential basis to Genesis and Multicare and its/their accountants, attorneys, investment bankers and other advisors. We also understand that you will permit each of the undersigned to review and approve any reference to it or any of its affiliates contained in any press release or similar public disclosure prior to public release. Please be advised that companies with interests that may conflict with yours may be or become customers of one or more of the undersigned and that one or more of the undersigned may be providing financing or other services to them. EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS COMMITMENT LETTER AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE CO-ARRANGERS OR THEIR AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF. In issuing this commitment and undertaking, the Co-Arrangers are relying on the accuracy of the information furnished to them by you or by others on your behalf and by your affiliates, including that summarized above. This Commitment Letter may not be amended or waived except by an instrument in writing signed by the Co-Arrangers and you. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page -4- of this Commitment Letter by facsimile transmission shall be as effective as a hand delivery of an original executed counterpart hereof. This Commitment Letter shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania. The parties hereto agree that any dispute under this Commitment Letter shall be brought only in a Pennsylvania state court or in the United States District Court for the Eastern District of Pennsylvania. Please evidence your acceptance of the provisions of this Commitment Letter, Annex A, Annex B and the other matters referred to above by signing in the space provided below and returning a copy of this Commitment Letter to us (together with payment of the required fees at or before 5:00 p.m. (Philadelphia local time) on June 19, 1997, the time at [INTENTIONALLY LEFT BLANK] -5- which the Co-Arrangers' commitments and undertakings set forth above (if not accepted prior thereto) will expire. DELIVERY OF A COPY OF THIS COMMITMENT LETTER TO THE MULTICARE COMPANIES, INC. OR ANY REPRESENTATIVE OR AGENT THEREOF SHALL BE DEEMED TO BE YOUR ACCEPTANCE OF THE TERMS HEREOF. Very truly yours, MELLON BANK, N.A. By /s/ Barbara J. Hauswald Title: Vice President CITICORP SECURITIES, INC. By /s/ E. Ogimachi Title: Vice President CITIBANK, N.A. By /s/ E. Ogimachi Title: Vice President FIRST UNION CAPITAL MARKETS CORP. By /s/ Andrew J. Gamble Title: Managing Director -6- FIRST UNION NATIONAL BANK By /s/ Joseph H. Towell Title: Senior Vice President NATIONSBANK, N.A. By /s/ Lucine Kirchhoff Title: Director ACCEPTED this ____ day of _______, 1997 GENESIS ELDERCARE ACQUISITION CORP. (formerly known as WALTZ ACQUISITION CORP.) By /s/ James L. Singleton Title: The undersigned agrees as of the date first above written to guarantee and act as surety for all obligations of Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.) arising out of or in connection with this Amended and Restated Commitment Letter. This obligation is absolute and subject to no set-off or counterclaim. GENESIS ELDERCARE CORP. (formerly known as Waltz Corp.) By /s/ James L. Singleton Title: Vice President -7- Dated: June 14, 1997 ANNEX A SUMMARY OF TERMS Borrower(s): Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.) ("Merger Sub") is the Borrower under the Short- Term Merger Sub Facility, and The Multicare Companies, Inc. ("Multicare") and its present and future direct and indirect subsidiaries are, collectively, the Borrowers under the Short-Term Multicare Facility and the Senior Facilities. Accordingly, the terms "Borrower" and "Borrowers" shall mean Merger Sub when applicable or used with reference to the Short-Term Merger Sub Facility and shall mean Multicare and its subsidiaries or any one or more of them, as the context may require, when applicable or used with reference to the Short-Term Multicare Facility or the Senior Facilities. Parent: Genesis ElderCare Corp. (formerly known as Waltz Corp.), the capital stock of which is owned by The Cypress Group L.L.C. ("Cypress"), TPG Partners II, L.P. ("TPG") and Genesis Health Ventures, Inc. ("Genesis"), owns 100% of the capital stock of Genesis ElderCare Acquisition Corp. (formerly Waltz Acquisition Corp.) (herein "Merger Sub") and, after the merger described below, will own 100% of the capital stock of Multicare. Transactions: Merger Sub shall enter into an Agreement and Plan of Merger (the "Merger Agreement") with Multicare. Thereafter, Merger Sub shall make a tender offer (the "Offer") for all of the shares of common stock of Multicare (the "Shares"). In the event that 90% or more of the Shares are tendered in the Offer, Merger Sub shall immediately effect a merger (the "253 Merger") with Multicare under Section 253 of the Delaware General Corporation Law and Multicare shall be the survivor of the 253 Merger. In the event that less than 90% (but more than 50%) of the Shares are tendered in the Offer, Merger Sub and Multicare shall proceed as promptly and diligently as possible to effect a merger under Section 251 of the Delaware General Corporation Law (the "251 Merger"). If the 253 Merger can be effected, the sole lending Facility available shall be the Senior Facility referred to below. If, at the expiration of the Offer, less than 90% (but more than 50%) of the Shares are tendered, the Short-Term Merger Sub Facility and the Short-Term Multicare Facility referred to below shall be available but the Senior Facilities shall not be available until the effectiveness of the 251 Merger. Upon effectiveness of the 251 Merger, the Senior Facilities shall be -1- closed, and the Short-Term Merger Sub Facility and the Short-Term Multicare Facility shall be repaid and terminated. Co-Arrangers: Mellon Bank, N.A. ("Mellon"), Citicorp Securities, Inc. and Citibank, N.A. (collectively, "Citicorp"), First Union Capital Markets Corp. and First Union National Bank (collectively, "First Union") and NationsBanc Capital Markets, Inc. ("NationsBanc").** Administrative Agent: Mellon. Lenders: The Co-Arrangers and/or their affiliates and other financial institutions (the "Lenders") to be arranged by the Co-Arrangers and approved by the Company, whose approval will not be unreasonably withheld. The Borrowers shall cooperate with the Co-Arrangers in the syndication of the Senior Facilities, whether before or after the initial funding of the Senior Facilities, and shall provide and cause its advisors to provide all information reasonably deemed necessary by the Co-Arrangers to complete a successful syndication. Facility Fee: As set forth in that separate commitment letter, dated as of May 31, 1997, as amended and restated, between Merger Sub and the Co- Arrangers. Unused Commitment Fee: As set forth on Schedule I attached hereto. Short Term Facilities: The following facilities will terminate 120 days after the initial closing date or earlier upon the effectiveness of the 251 Merger or the abandonment thereof. Short-Term Merger Sub Facility: A multiple draw credit facility to Merger Sub in an amount not to exceed $200,000,000 subject to the following: (a) To be used exclusively, but only after the proceeds of capital contributions to Merger Sub by Parent (in an aggregate amount of at least $718,700,000 are used, (i) to fund the purchase of Shares pursuant to the Offer and (ii) to pay fees and expenses associated with the Offer, Subordinated Bridge Financing and the Facilities. - ------- ** For purposes of determining each Co-Arranger's ratable share of entitlements and obligations hereunder, Citicorp Securities, Inc. and Citibank N.A. shall be one entity and First Union Capital Markets Corp. and First Union National Bank shall be deemed to be one entity. -2- (b) Advances under the Short-Term Merger Sub Facility shall, at the election of Merger Sub, be made either (i) on a dollar for dollar basis with the Subordinated Bridge Financing (hereinafter defined) or (ii) after the net proceeds of the Subordinated Bridge Financing have been utilized for the purposes in (a) above. (c) No funds shall be advanced if the ratio of Tendered Stock Value/Merger Sub indebtedness is (or, after giving effect to the proposed senior and subordinated advances, would be) less than 2.5:1.0. "Tendered Stock Value" shall mean the then current market value of the Shares as such term is used in Regulation U. A portion of the Facility, as determined by the Co-Arrangers, shall be held back to pay interest, fees and expenses owing to the Lenders. Interest shall be paid quarterly at the Prime Rate (as defined in Schedule I) plus 1 1/2% and the commitment fee on the unused amount of the commitment shall be 0.5% payable quarterly in arrears. All Conditions set forth herein (other than Nos. (8) and (24)) shall be satisfied as to Merger Sub (and, unless the context otherwise requires, as to Multicare) plus the additional conditions that (i) more than 50% of the Shares (including, for this purpose, shares of common stock of Multicare subject to conversion rights and rights to purchase) shall have been tendered pursuant to the Offer, (ii) Merger Sub shall have the unrestricted right, subject only to prior notification pursuant to Section 14(f) of the Securities Exchange Act of 1934, to designate and cause to be appointed a majority of the Board of Directors of Multicare, (iii) the Board of Directors of Multicare (as constituted before the change in its composition referred to in clause (ii)) shall have approved the 251 Merger, and (iv) the Lenders shall be satisfied that no legal impediment to a merger under Section 251 of the Delaware General Corporation Law on the terms set forth in the Merger Agreement (hereinafter defined) exists or would exist after the Offer. The full amount of the Facility Fee referred to above shall be payable at the initial funding. The representations and warranties and the covenants and the other terms of the Short-Term Merger Sub Facility shall be such as shall be deemed appropriate by the Co-Arrangers for transactions of this nature, including Administrative Agent and Co-Arranger fees. Merger Sub shall have no activities other than the acquisition and holding of the Shares and the merger with Multicare. Merger Sub shall use its best efforts to cause a merger with Multicare to occur as expeditiously as possible. -3- Parent shall guarantee the debt and shall secure its guarantee with a pledge of the stock of Merger Sub and Merger Sub shall secure its obligations with the Shares tendered. If the Subordinated Bridge Financing is guaranteed by Multicare and its subsidiaries on a subordinated basis, then Multicare and its subsidiaries shall guaranty the indebtedness of Merger Sub under each Facility hereunder on a senior basis and shall secure their guarantees of each Facility hereunder by pledges of equity in Multicare's direct and indirect subsidiaries. Short-Term Multicare Facility: A revolving senior credit facility to Multicare in an amount not to exceed $425,000,000 to be used to refinance existing indebtedness of Multicare and its subsidiaries, to fund interest and principal payments on the Short-Term Multicare Facility, to fund working capital and general corporate purposes and to pay fees and expenses associated with the Facility. Multicare and its direct and indirect subsidiaries shall be jointly and severally liable as Borrowers under the Facility. Interest shall be paid quarterly at the Prime Rate (as defined in Schedule I hereto) plus 1 1/2% per annum, and the commitment fee on the unused amount of the Facility shall be 0.5%. Multicare and its subsidiaries shall be joint and several Borrowers under the Facility. The Facility shall be secured by a pledge of the equity in all of Multicare's present and future direct and indirect subsidiaries as well as intercompany notes. It shall be a condition of funding the Short-Term Multicare Facility that all conditions to the initial funding under the Short- Term Merger Sub Facility shall have been satisfied prior to or concurrently with closing under the Short-Term Multicare Facility. The representations and warranties and the covenants and other terms of the Short-Term Multicare Facility shall be such as shall be deemed appropriate by the Co-Arrangers for transactions of this nature, including, without limitation, financial covenants of the type applicable to the Senior Facility and, also, Administrative Agent and Co-Arranger Fees. Senior Facilities: Except as expressly noted below, incorporated in the descriptions of the Short-Term Facilities or included in the definitive credit agreement for the Short-Term Facilities, the terms set forth below expressly relate to the Senior Facilities. -4- Senior Facilities: Total facility equal to $625,000,000 comprising the following: A. $250,000,000 Six Year Term Loan (the "Tranche A Term Facility"). B. $150,000,000 Seven Year Term Loan (the "Tranche B Term Facility"). C. $100,000,000 Term Loan maturing 6/01/05 (the "Tranche C Term Facility"). D. $125,000,000 Six Year Revolving Credit Facility (the "Revolving Credit Facility"). The Co-Arrangers shall share equally in each of the facilities. Use of Proceeds: The Senior Facilities shall be available for the following purposes: (i) to refinance the Short-Term Facilities; (ii) to fund interest and principal payments on the Senior Facilities and existing indebtedness; (iii) to pay the consideration required by the merger of Merger Sub and Multicare as well as the transaction costs related thereto; and (iv) to fund the Borrowers' working capital, capital expenditure needs and general corporate purposes. Closing Dates: (i) For the Short-Term Facilities and, unless (ii) is applicable, the Senior Facilities: no later than October 15, 1997, unless extended to a later Closing Date in the sole discretion of the Co-Arrangers. (ii) For the Senior Facilities if there shall have been a prior funding under a Short-Term Facility: no later than the date that is 120 days following the expiration of the Offer, unless extended to a later Closing Date in the sole discretion of the Co-Arrangers. Security for Senior Facility: (a) A pledge of stock of Multicare, (b) a pledge of stock, partnership interests and other equity of all of its present and future direct and indirect subsidiaries and of its stock in the pharmacy business of Genesis, and (c) a pledge of all intercompany notes among Parent and any Borrowers or among any of the Borrowers. In addition, Parent shall guaranty the indebtedness under the Senior Facilities. -5- Term Amortization: A. Tranche A Term Facility: Six years from closing, with annual amortization, payable quarterly, as follows: Year 1 $30,000,000 12% Year 2 $35,000,000 14% Year 3 $40,000,000 16% Year 4 $45,000,000 18% Year 5 $50,000,000 20% Year 6 $50,000,000 20% B. Tranche B Term Facility: Seven years from closing, with annual amortization, payable quarterly, as follows: Year 1 $ 1,500,000 1% Year 2 $ 1,500,000 1% Year 3 $ 1,500,000 1% Year 4 $ 1,500,000 1% Year 5 $ 1,500,000 1% Year 6 $ 1,500,000 1% Year 7 $141,000,000 94% C. Tranche C Term Facility: Maturing 6/01/05, with annual amortization, payable quarterly, as follows: Year 1 $ 1,000,000 1% Year 2 $ 1,000,000 1% Year 3 $ 1,000,000 1% Year 4 $ 1,000,000 1% Year 5 $ 1,000,000 1% Year 6 $ 1,000,000 1% Year 7 $ 1,000,000 1% Year 8 $93,000,000 93% D. Revolving Credit Facility: Six years from closing. Mandatory Prepayments: Subject to any mandatory prepayment provisions respecting proceeds of equity set forth in the Subordinated Bridge Facility (as defined below in "Covenants of the Borrowers") which mandatory prepayment provisions shall, unless a default shall then exist under the Senior Facilities or shall be caused thereby, be satisfied prior to the mandatory prepayment provisions set forth herein, there shall be a mandatory prepayment of the Senior Facilities equal to the amount of all net cash proceeds from (a) the sale of assets of the Borrowers other than sales in the ordinary course of business and other than the sale of Multicare's therapy business consistent with paragraph (e) of "Covenants of Borrowers" set forth below and (b) any sale of common stock or debt securities of the -6- Borrowers (other than (i) the Permanent Subordinated Debt Facility (as defined below in "Covenants of the Borrowers") and (ii) equity contributed by Parent in respect of common stock. An amount equal to 50% of Excess Cash Flow (as defined below in "Selected Financial Definitions") shall be payable annually within 120 days of fiscal year end. With respect to the Senior Facilities, except with respect to net cash proceeds of a disposition of any Wisconsin, Illinois or Ohio facilities within two years of the date of closing consistent with paragraph (e) of "Covenants of the Borrowers" set forth below or any sale of Multicare's contract therapy business consistent with paragraph (e) of "Covenants of the Borrowers" set forth below, all prepayments shall be applied to the Senior Facilities in the following order: 1. First on a pro rata basis (except to the extent that any holder of the Tranche B Term Facility or any holder of the Tranche C Term Facility shall decide not to accept a prepayment thereof) to the Tranche A Term Facility, Tranche B Term Facility, and Tranche C Term Facility (which reductions shall be applied to each subsequent payment under the applicable amortization schedule on a pro rata basis); and 2. Second, to the Revolving Credit Facility with a corresponding reduction in the commitments. As to any prepayment in respect of net cash proceeds of a disposition of any Wisconsin, Illinois or Ohio facilities within two years of the date of closing consistent with paragraph (e) of "Covenants of the Borrowers" set forth below, all prepayments shall be applied in the following order: 1. First, to the Tranche A Term Facility (which reductions shall be applied to each subsequent payment under the applicable amortization schedule on a pro rata basis); 2. Then, pro rata to the Tranche B Term Facility and Tranche C Term Facility (except to the extent that any holder of the Tranche B Term Facility or any holder of the Tranche C Term Facility shall decide not to accept a prepayment thereof) (which reductions shall be applied to each subsequent payment under the applicable amortization schedule on a pro rata basis); and 3. Then to the Revolving Credit Facility with a corresponding reduction in the commitments. -7- All prepayments in respect of the Short-Term Facilities shall be applied as agreed upon by the parties prior to the execution of a definitive credit agreement. Commitment Reductions: The Borrowers will have the right, upon at least three business days' notice, to terminate or cancel, in whole or in part, the unused portion of the Revolving Credit Facility; provided that each partial reduction shall be in the amount of at least $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Voluntary Prepayment: Allowed in full (or in part) provided that (i) loans bearing interest at the Prime Rate (each a "Prime Rate Loan") may be prepaid on one business day's prior notice and loans bearing interest at the LIBO Rate (each a "LIBO Rate Loan") may be prepaid upon five business days' prior notice (subject to breakage indemnity) and (ii) each partial prepayment shall be in the amount of at least $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Interest: See Schedule I attached hereto. Drawings under Revolving Credit Facility: On one business day's prior notice for Prime Rate Loans and three business days' prior notice for LIBO Rate Loans. Each borrowing must be in the amount of $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Representations and Warranties: Usual and customary for transactions of this nature, including, without limitation, absence of any material adverse change in the business, condition (financial or otherwise), operations, properties or prospects of Borrowers or Multicare or in the industry served by Multicare generally, the absence of any environmental hazards or liabilities, the absence of material litigation, accurate and complete disclosure, existence of a December 31 fiscal year and such additional representations and warranties as are deemed appropriate by the Co-Arrangers for this transaction. Conditions Precedent to Initial Funding of the Facilities: Usual and customary for transactions of this nature, including, without limitation, the following: (1) The restrictions in Section 203 of the Delaware General Corporation Law and any other impediment under Delaware law shall be inapplicable to the acquisition of the shares of Multicare -8- and to any subsequent transactions between Merger Sub or any of its affiliates and Multicare or any of its affiliates, and all conditions to avoiding the restrictions contained therein shall have been satisfied. (2) At least a majority of the Shares of each outstanding class of stock of Multicare shall have been tendered to Merger Sub for purchase pursuant to the Offer and shall be purchased concurrently with the initial funding. (3) The Lenders shall be satisfied that no legal impediment to the merger under Section 253 or 251, as the case may be, of the Delaware General Corporation Law on the terms set forth in the Merger Agreement or would exist following the consummation of the Offer and (a) in the case of a Short-Term Facility, the merger shall be effected as expeditiously as possible following such consummation and (b) in the case of the Senior Facilities, the merger shall be effective. (4) All loans made by the Lenders under the Facilities shall be in full compliance with the Federal Reserve's Margin regulations. (5) The Offer shall not be subject to any injunction or similar order and shall be consummated in accordance with all applicable law. The Board of Directors of Multicare shall have recommended acceptance of the Offer and shall have authorized execution of agreements with respect to the merger. (6) All documentation relating to the Facilities shall be in form and substance satisfactory to the Lenders. (7) The Administrative Agent, on behalf of the Lenders, shall have a perfected first priority lien and security interest in (a) in the case of the Senior Facilities, all stock and other equity interests of Multicare and its subsidiaries as well as all intercompany notes (among any of the Borrowers or among Parent and any of the Borrowers) and (b) in the case of the Short-Term Facilities, the security described under the caption "Short-Term Merger Sub Facility" or "Short-Term Multicare Facility," as the case may be, and, in each case, all filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made and all filing and recording fees and taxes shall have been duly paid. In the event that, upon the initial funding of the Short-Term Merger Sub Facility, Merger Sub shall not be the registered owner of the tendered Shares, Merger Sub shall execute a pledge agreement and take or cause to be taken such other actions as the Co-Arrangers may -9- request to assure perfection of the Lenders' security interest in the Shares as promptly as possible. (8) The Borrowers shall have delivered letters in form and substance satisfactory to the Lenders attesting to the solvency of the Borrowers, after giving effect to the transactions referred to herein, from their chief financial officer and from a nationally recognized appraisal firm, valuation consultant or investment banking firm satisfactory to the Lenders. (9) Merger Sub has advised the Co-Arrangers that all of the material documents in connection with the Offer, merger and related transactions (other than documents to which the Co-Arrangers and other Lenders would be parties) are listed on Schedule II attached hereto, which Schedule also reflects those documents which have been accepted by the Co-Arrangers (and, if applicable, exceptions to such acceptances) and those which have not yet been accepted by the Co-Arrangers (respectively, the "Accepted Documents" and, together with any other material documents omitted from Schedule II, the "Non-Accepted Documents"). The Co-Arrangers shall be reasonably satisfied with all Non-Accepted Documents, and the Non-Accepted Documents shall be delivered in final form to the Co-Arrangers as promptly as possible following the date hereof. Upon notification in writing by the Co-Arrangers that a Non-Accepted Document has been accepted, such document shall be deemed an Accepted Document. If the Co-Arrangers shall be reasonably satisfied that the requested revisions to a previously delivered document or other actions with respect thereto noted on Schedule II hereto have been made or taken without any other alteration to such document to which the Co-Arrangers may reasonably object, the exceptions shall be deemed withdrawn. No Accepted Document (including those as to which exceptions shall be deemed withdrawn) may be amended, modified or supplemented, nor may any of its terms or conditions in favor of Parent, Merger Sub, Multicare or Genesis be waived, and the Offer, merger and other transactions contemplated thereunder shall take place in strict compliance therewith. At the request of Merger Sub, the Co-Arrangers will deliver a revised Schedule II reflecting the then current status of the documents listed on Schedule II as among Accepted, Accepted subject to exceptions or Non-Accepted. (10) No material adverse change shall have occurred in the business, condition (financial or otherwise), operations, properties or prospects of the Borrowers taken as a whole since December 31, 1996. -10- (11) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that (i) could have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of Multicare and its subsidiaries taken as a whole or on the Offer or the merger or (ii) in the judgment of the Lenders, could materially adversely affect the Lenders, the Facilities or the ability of the Borrowers to perform their obligations thereunder. (12) The Lenders shall have received such opinions of counsel to the various parties to the transactions referred to herein as to such matters (including, without limitation, due organization, due authorization for the various transactions referred to herein, and compliance with health care, corporate and other laws and regulations) as the Co-Arrangers shall reasonably request, and each thereof shall be reasonably satisfactory to the Lenders. The Lenders shall also have received such corporate resolutions, certificates and other documents as the Lenders shall reasonably request. (13) Appropriate filings shall have been made by all necessary parties under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the applicable waiting period shall have expired or been terminated. (14) All governmental consents and approvals and third party consents and approvals necessary in connection with the Offer, the merger, the Facilities and other related transactions shall have been obtained and shall be final (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority. (15) There shall exist no default under any of the loan documents and the representations and warranties of the Borrowers therein shall be true and correct immediately prior to, and after giving effect to, funding. (16) All accrued fees and expenses (including reasonable fees and disbursements of counsel to the Co-Arrangers) shall have been paid. (17) All conditions to the initial funding under the credit facilities described in the amended and restated Commitment Letter, dated of even date herewith, issued by the Co-Arrangers to Genesis shall have been satisfied and the closing thereunder shall have -11- occurred concurrently with the closing of the first Facility to close. (18) Substantially contemporaneously with the initial funding, Genesis shall pay at least $300,000,000 for 42% of the common stock of Parent, and Cypress and TPG collectively shall pay at least $418,700,000 for 58% of the common stock of Parent. All of the proceeds of such sales of stock shall have been contributed in respect of common stock to Merger Sub. (19) As this relates to the Short-Term Facilities, all indebtedness of Multicare shall have been repaid in full and all existing credit facilities of Multicare shall have been cancelled, except, as specified in the definitive credit agreement, mortgage debt, industrial revenue bonds and other debt aggregating no more than $37,000,000 plus the amount of existing convertible debt of Multicare that is not converted into common stock of Multicare prior to initial funding under the Facilities. As this relates to the Senior Facilities, the indebtedness of Multicare shall have been paid and cancelled to the extent set forth above and the Short- Term Facilities shall have been repaid in full and all commitments thereunder cancelled. (20) The total amount payable by Merger Sub in the Offer and the merger, including consulting, non-competition, severance and other payments to employees of Multicare and all amounts provided to refinance existing indebtedness of Multicare and all amounts of assumed indebtedness, shall not exceed $1,520,000,000 in the aggregate. (21) The Borrowers and Genesis shall have entered into a management agreement satisfactory in form and substance to the Co-Arrangers (the "Management Agreement"), under which Genesis will provide management services to the Borrowers in consideration of the payment of management fees. (22) At least three business days prior to the initial funding, the Lenders shall have received financial statements, accompanied by a certificate of the chief financial officer of the Borrower, at the end of and for the twelve month period ending on the last day of the month preceding initial funding. The financial statements shall consist of (i) a cash flow statement accurately reflecting EBITDA, on a pro forma basis to the beginning of the period (as required for the financial covenants), all acquisitions and dispositions occurring within the twelve month period and (ii) a balance sheet reflecting, on a pro forma basis, the consummation of all transactions in connection with the Multicare merger, including, without limitation, all borrowings in connection -12- therewith or otherwise contemplated hereunder, the application of all proceeds of such borrowings and the amount of all outstanding indebtedness after giving effect to the foregoing, each of which statements shall be in form and accompanied by explanatory notes acceptable to the Co--Arrangers. The cash flow statement shall reflect EBITDA for the twelve month period of no less than $124,000,000, and the balance sheet shall reflect total funded debt of not more than $781,000,000. Concurrently with the delivery of the financial statements, the Lenders shall have received a certificate of the chief financial officer of the Borrower, in form and content satisfactory to the Co-Arrangers, demonstrating compliance with the financial covenants set forth herein. (23) Merger Sub shall have received at least $200,000,000 in proceeds from the Subordinated Bridge Facility which facility shall be on such terms and conditions as shall be acceptable to the Co-Arrangers (the "Subordinated Bridge Facility"). (24) Upon the merger, Multicare shall confirm its agreement to be bound by the terms of the credit documents by agreement satisfactory in form and content to the Lenders. (25) A tax-sharing agreement acceptable to the Co-Arrangers shall have been executed by Parent and Multicare and its subsidiaries. (26) The transactions referred to in clause (iii) of paragraph (e) under "Covenants of the Borrowers" shall have been consummated prior to or concurrently with closing under the Senior Facilities. Conditions Precedent to Each Loan After the Initial Funding: Usual and customary for transactions of this nature, including, without limitation, the following: there shall exist no default under the loan documents and the representations and warranties of the Borrowers shall be true and correct immediately prior to, and after giving effect to, funding. Covenants of the Borrowers: Usual and customary for transactions of this nature, including, without limitation, the following, applicable to the Borrowers (except as otherwise provided herein), and such additional covenants as are deemed appropriate by the Co-Arrangers for this transaction as a result of their due diligence: (a) Restriction on loans, advances and other investments other than (i) investments in cash equivalents, (ii) loans, advances and other investments in wholly-owned subsidiaries, (iii) the investment in -13- the institutional pharmacy business of Genesis referred to in paragraph (e) below and (iv) such other investments as shall be agreed upon by the Borrowers and Co-Arrangers prior to the execution of a definitive credit agreement. (b) Restriction on other indebtedness (including, without limitation, guarantees, capital leases and assumed debt) other than (i) intercompany indebtedness among Multicare and its wholly-owned subsidiaries, (ii) a Subordinated Bridge Facility of at least $200,000,000 and other subordinated debt which is incurred to refinance the Subordinated Bridge Facility and which contains terms no more onerous to the Borrowers and at least as favorable to the senior debt holders as the terms set forth in the Subordinated Bridge Facility (the "Permanent Subordinated Debt Facility") and (iii) such other indebtedness as shall be agreed upon by the Co-Arrangers and the Borrowers prior to the execution of a definitive credit agreement. (c) Prohibition on distributions to shareholders of Multicare (and prior to the 251 Merger or the 253 Merger, to shareholders of Merger Sub) except dividends payable solely in common stock, or options, warrants or other rights to purchase common stock, of Multicare. (d) Restriction on mergers or consolidations except (i) mergers between or among Multicare and its wholly-owned subsidiaries or in connection with permitted acquisitions in which Multicare is the surviving entity, (ii) mergers among wholly-owned subsidiaries of Multicare and (iii) the 251 Merger or the 253 Merger. (e) Restriction on sale, lease or other disposition of assets, other than (i) in the ordinary course of business, (ii) with the consent of the Required Lenders, and subject to the Mandatory Prepayment provisions set forth above, the sale of the facilities in Ohio, Wisconsin and/or Illinois for cash on terms which reflect the fair market value of the assets sold, (iii) the sale of Multicare's contract therapy business to Genesis in a transaction whereby the net cash proceeds after taxes and related fees and expenses of such sale shall be approximately $20,000,000; (iv) the transfer of Multicare's institutional pharmacy business to Genesis in exchange for approximately 20-25% of the outstanding common stock in the institutional pharmacy business of Genesis; and (v) such other sales, leases and dispositions as may be agreed upon by the Borrowers and Co-Arrangers prior to the execution of a definitive credit agreement. (f) Conduct all transactions with affiliates on an arm's-length basis. -14- (g) Prohibition on prepayment, defeasance, purchase, redemption or making of any payment in respect of subordinated debt, except payments may be made (i) in respect of permitted management fees as set forth in paragraph (n) below, (ii) so long as no default exists after giving effect to such payment, in respect of interest on the Subordinated Bridge Facility and the Permanent Subordinated Debt Facility and (iii) in respect of principal of the Subordinated Bridge Facility, with proceeds of the Permanent Subordinated Debt Facility. (h) Prohibition on material changes in accounting treatment and reporting practices including, without limitation, changes in the Borrowers' or Parent's fiscal year. (i) Maintenance of appropriate and adequate insurance. (j) Prohibition on creation of any lien, charge or other encumbrance except (i) ordinary course statutory and tax liens, (ii) ordinary course liens for workers' compensation, performance bonds, and other similar liens, (iii) minor encumbrances on title to real property, and (v) such other liens as may be agreed upon by the Co-Arrangers and the Borrowers prior to the execution of a definitive credit agreement. (k) Prohibition on giving or agreeing to give a negative pledge on assets, other than (i) pursuant to the Facilities and (ii) in connection with any permitted existing indebtedness so long as such permitted indebtedness does not prohibit security interests supporting the Facilities. (l) Maintenance of corporate or partnership existence, as the case may be. (m) Compliance (and maintenance of procedures to assure compliance) with all applicable laws, ordinances or governmental rules and regulations and obtain and maintain all necessary licenses, permits and approvals. Without limiting the generality of the foregoing, the Borrowers shall maintain all licensing, Medicaid and Medicare reimbursement privileges and other rights. (n) Maintenance in full force and effect of the Management Agreement subject to no amendment, modification or waiver except as permitted by the Required Lenders, which agreement shall be the exclusive agreement for management services to any Borrower. -15- (i) Provision that management fees thereunder shall be no less than $23,900,000 per annum but shall otherwise be limited to 6% of consolidated net revenues of Multicare and shall be subordinated to the Facilities on terms satisfactory to the Co- Arrangers. Management fees may be accrued but not paid except as set forth in this paragraph. Management fees shall be payable to the extent they do not exceed in any fiscal year the greater of (A) 4% of the consolidated net revenues of Multicare and (B) an annual rate of $23,900,000. To the extent management fees provided for under the Management Agreement in any fiscal year (including the payment of accrued management fees) would exceed the amount specified in the preceding sentence, such excess amount shall be payable only to the extent that, both before and after giving effect to a payment, (i) there shall exist no default under the Facilities and (ii) the Fixed Charge Coverage Ratio shall be at least 1.5/1 for the two most recent fiscal quarters of the Borrower. (ii) Prohibition on any consensual restriction directly or indirectly limiting the ability or right (whether by covenant, event of default, subordination, penalty, or otherwise) of Borrower or any of its subsidiaries to pay on a timely basis management fees of at least $23,900,000 annually to Genesis or any of its subsidiaries under the Management Agreement except in the event of a material default by Genesis or a subsidiary of Genesis thereunder. (iii) Provision in the Management Agreement acceptable to the Co-Arrangers effectively prohibiting any party thereto from entering into, or permitting to exist, any direct or indirect restriction on its ability to comply with the terms of, as applicable, either or both of (i) and (ii) above. (o) Prohibition on acquisitions subject to such exceptions as may be agreed to by the Borrowers and the Co-Arrangers prior to the execution of a definitive credit agreement. (p) Prohibition on amendments, modifications or waivers of any provision of articles or bylaws or Accepted Documents or any material partnership, joint venture or other similar agreement, except such amendments, modifications or waivers that do not materially adversely affect the rights or interests of the Lenders. -16- (q) Limitation on Capital Expenditures. (r) Within 45 days after the end of the first three fiscal quarters of each fiscal year, furnish quarterly consolidated and consolidating balance sheets, income statements and statements of cash flow of the Borrowers, such financial statements to be certified by the chief financial officer of Multicare or Merger Sub, as the case may be, (which certification may be subject to year-end audit adjustments) and accompanied by appropriate compliance certificates. Within 90 days after the end of each fiscal year, furnish annual audited financial statements of the Borrowers certified by the Borrowers' independent accountants, accompanied by appropriate compliance certificates. Annually, the Borrowers shall provide accountants' management letters and annual budgets and independent evaluations from persons and in form acceptable to the Administrative Agent confirming (i) the arm's length nature of the Borrowers' transactions with affiliates during the preceding fiscal year and (ii) compliance by Genesis or its management subsidiary with material terms of the Management Agreement during the preceding fiscal year. Within 10 days after the same are distributed, copies of all financial statements and reports sent to shareholders of the Borrowers or filed with the SEC or NASD. Promptly after request, furnish all other business and financial information that any Lender, through the Administrative Agent, may reasonably request, including, without limitation, information submitted by the Borrowers to any regulatory body. (s) Restrictions on change of control. For purposes of the Senior Facilities, "change of control" shall include, among other things, any event or condition whereby (i) 51% of the capital stock of Parent is not owned directly or indirectly by Cypress, Genesis and TPG Partners II, L.P. or any one or more of them or (ii) 100% of the capital stock of Merger Sub or Multicare, as the case may be, is not owned directly by Parent. (t) Maintenance of corporate separateness, including provisions restricting transactions between the Borrowers and Genesis. Financial Covenants: All covenants will be maintained continuously and measured as of the most recent fiscal quarter of the Borrowers, using a rolling four-quarter period for net income and Cash Flow unless otherwise stated. Following the closing of a permitted acquisition, the financial covenants and other covenants as agreed will be calculated as if the acquisition had been -17- consummated on the first day of the first of the last four completed fiscal quarters. (i) Fixed Charge Coverage Ratio: minimum levels to be agreed. (ii) Adjusted Senior Debt/Cash Flow: maximum levels to be agreed. (iii) Adjusted Total Debt/Cash Flow: maximum levels to be agreed. (iv) Consolidated Net Worth not less than an initial amount to be agreed plus (a) 75% of positive net income determined in accordance with GAAP (not to be reduced by losses) plus (b) the proceeds of the sale of equity plus (c) the reduction of debt as a result of the conversion of debt into equity. Selected Financial Definitions: Net Income: Net income determined in accordance with GAAP, less non-cash interest income, less extraordinary gains, plus extraordinary non-cash losses. Cash Flow: Net Income plus interest expense plus rental expense plus depreciation expense plus amortization expense plus income taxes and as adjusted for changes in accrued management fees payable. Fixed Charge Coverage Ratio: As at any date of determination, (1) Cash Flow of the Borrowers on a consolidated basis divided by (2) the sum of interest expense, income taxes and rental expense of the Borrowers on a consolidated basis for the most recent four fiscal quarters plus principal payments required to have been paid on indebtedness during the most recent four fiscal quarters. Adjusted Total Debt: As of any date, the sum of (a) all indebtedness, including the current portion thereof, plus (b) the product of rental expense for the four preceding fiscal quarters multiplied by eight. Adjusted Senior Debt: As of any date, the sum of (a) all indebtedness, including the current portion thereof, other than subordinated indebtedness plus (b) the product of rental expense for the four preceding fiscal quarters multiplied by eight. Consolidated Net Worth: The total amount of consolidated stockholders' equity of Multicare and its Subsidiaries as of any date of determination. -18- Net Cash Provided by Operations: Net Income plus depreciation plus amortization less capital expenditures, and as adjusted for changes in working capital. Excess Cash Flow: For any fiscal year, the amount, if any, by which (a) Net Cash Provided by Operations of the Borrowers on a consolidated basis for such fiscal year exceeds (b) the aggregate principal amount of indebtedness scheduled to be repaid during such fiscal year. Covenants of Parent: Usual and customary for transactions of this nature, including, without limitation, the following and such additional covenants as are deemed appropriate by the Co-Arrangers for this transaction as a result of their due diligence. (a) Prohibition on prepayment, defeasance, purchase, redemption or making of any payment in respect of subordinated debt. (b) Prohibition on distributions to shareholders of Parent except dividends payable solely in common stock, or options, warrants or other rights to purchase common stock of Parent. (c) Requirement that any cash proceeds of equity or any capital contributions be contributed as equity to Multicare or Merger Sub. (d) Maintenance of corporate existence and prohibition on mergers or consolidations. (e) Maintenance of 100% of capital stock of Multicare or Merger Sub subject to no liens except the pledge to the Administrative Agent for the benefit of the Co-Arrangers, the Administrative Agent and the Lenders. (f) Restriction on incurring additional indebtedness or carrying on any business or activity or entering into any transaction except holding the stock of Multicare or Merger Sub. (g) Within 45 days after the end of the first three fiscal quarters of each fiscal year, furnish quarterly balance sheets, income statements and statements of cash flow of Parent, such financial statements to be certified by Parent's chief financial officer (which certification may be subject to year-end audit adjustments) and accompanied by appropriate compliance certificates. Within 90 days after the end of each fiscal year, furnish audited annual financial statements of Parent certified by -19- Parent's independent accountants, accompanied by appropriate compliance certificates. Within 10 days after the same are distributed, copies of all financial statements and reports sent to shareholders of Parent or filed with the SEC or NASD. Promptly after request, furnish all other business and financial information that any Lender, through the Administrative Agent, may reasonably request. Events of Default: Usual and customary for transactions of this nature (relating to the Borrowers and Parent), including, without limitation, payment defaults, covenant defaults, breach of representations or warranties, change of control, termination of Management Agreement or breach by either party thereto, material adverse effect, cross-defaults to other indebtedness or material agreements and bankruptcy and insolvency. Required Lenders: Amendments and waivers will require the approval of Lenders holding more than 50% of the commitments (the "Required Lenders"), except that the consent of each affected Lender will be required, inter alia, to date or the amortization schedule, reduce the rate of interest or fees payable to the Lenders or release collateral except in the case of permitted asset sales. Interest Rate Protection: Within 90 days after the initial funding of the Senior Facilities, at least 50% of the Borrower's total funded indebtedness shall be fixed or have interest rate protection for a term of at least 3 years. Any Lender that provides interest rate protection shall be secured on a pari passu basis with the Lenders. Assignment and Participations: Any Lender may, upon notice to the Borrower and to the Administrative Agent, assign or sell a participation in a portion of its interest in the Senior Facilities to one or more lenders who are financial institutions or other persons; provided that (i) any assignment to a person not already a Lender shall require the approval of Borrower (not to be unreasonably withheld) and the Administrative Agent; and (ii) any assignment shall be subject to the payment of processing fees to the Administrative Agent by the parties to the assignment and requirements as to minimum transfers and retention, except in connection with the primary syndication by the Co-Arrangers. Miscellaneous: Standard acquisition financing indemnity and yield protection (including capital adequacy requirement, increased costs, payments free and clear -20- of withholding taxes and interest period breakage indemnities), eurodollar illegality and similar provisions. The Lenders will agree to maintain the confidentiality of all information received from the Borrowers in a manner customary for such undertaking. Indemnification: The Borrowers will indemnify and hold harmless the Administrative Agent, the Co-Arrangers and each Lender from any damages, losses, liabilities and expenses that may be incurred by or asserted against any of them, in each case arising out of, in connection with or by reason of the Offer or any other transaction contemplated hereby or the use or intended use of the proceeds of the Facilities, except to the extent that any of the foregoing is found in a final, non-appealable judgment to have resulted from the Administrative Agent's or such Co-Arranger's or Lender's gross negligence or wilful misconduct. Administrative Agency Fee: As agreed between the Borrowers and the Administrative Agent. Co-Arranger Fees: As agreed between the Borrowers and the Co-Arrangers. Expenses: The Borrower will pay all legal and other reasonable out-of-pocket expenses of the Co-Arrangers related to this transaction (including all reasonable due diligence and syndication expenses and reasonable expenses associated with domestic and foreign meetings) whether or not any of the transactions contemplated hereby are consummated. Such expenses shall be separate from and in addition to fees paid directly to the Co-Arrangers. The Borrower shall also pay the expenses of each Lender in connection with the enforcement of any loan document. Counsel: Drinker Biddle & Reath LLP Governing Law: Pennsylvania. -21- SCHEDULE I Commitment Fee: Payable quarterly in arrears on the unused amount of the Revolving Credit Facility, as follows: Adjusted Total Commitment Debt/Cash Flow Fee below 3.0 .25% >3.0<3.50 .25% >3.50<4.0 .3125% >4.0<4.5 .3125% >4.5<5.0 .375% >5.0<5.5 .50% >5.5<6.0 .50% >6.0 .50% Interest Rate Options: The principal amount of the loans shall bear interest at the Prime Rate or at the Adjusted LIBO Rate at the Borrower(s)' option. Prime Rate: The rate of interest announced publicly by the Administrative Agent as its prime rate, which rate may not be the lowest rate available to its customers. Adjusted LIBO Rate: The LIBO Rate (for one, two, three or six month interest periods) plus the applicable margin determined as follows: LIBO Rate Margin for Tranche A Term Facility Adjusted Total and for Revolving Debt/Cash Flow Credit Facility below 3.0 .75% >3.0<3.50 1.00% >3.50<4.0 1.25% >4.0<4.5 1.50% >4.5<5.0 1.75% >5.0<5.5 2.00% >5.5<6.0 2.25% >6.0 2.50% The applicable margin for Tranche B Term Loans bearing interest at the LIBO Rate plus applicable margin shall be 2.75 and the applicable margin for Tranche C Term Loans bearing interest at the LIBO Rate plus -22- applicable margin shall be 3.0 provided, however, at any time that the Adjusted Total Debt/Cash Flow is less than 4.5, the applicable margin for such Tranche B Term Loans shall be 2.5 and the applicable margin for such Tranche C Term Loans shall be 2.75. Notwithstanding the foregoing, at closing and until such time as the Borrowers' 1997 fiscal year-end financial statements have been delivered to the Lenders, (a) the applicable LIBO Rate Margin for all Tranche A Term Facility and Revolving Credit Facility loans shall be 2.5%, (b) the applicable LIBO Rate Margin for all Tranche B Term Facility loans shall be 2.75% and (c) the applicable LIBO Rate Margin for all Tranche C Term Loan Facility loans shall be 3.0%, and (d) the rate applicable to the commitment fee shall be 0.5%. Thereafter, all changes in margins and commitment fee rates will take effect five (5) business days following receipt of the quarterly or annual compliance certificate. Default Interest Rate: Default interest rate shall be calculated at 2% plus the rate(s) otherwise applicable. Basis of Calculation: Actual/360 day basis for LIBO Rate; actual/365(366) day basis for Prime. Payment Dates: Interest on Prime based loans shall be due and payable quarterly in arrears. Interest on LIBO Rate based loans shall be due and payable on the last day of the applicable LIBO Rate period, and quarterly if LIBO Rate funding periods exceed three months. Prepayment: The Borrowers will be responsible for breakage fees on borrowings under LIBO Rate funding periods which are prepaid, for any reason, prior to the end of the contract period. -23- NOTE: This Schedule II was prepared in connection with a review of certain documents in the context of the transactions described in the Existing Commitment Letter. To the extent that (a) the documents referred to on this Schedule have been modified since the drafts referred to on this Schedule, (b) new documents have been added or documents have been deleted from the list of documents to be approved or (c) the transactions have changed from those described in the Existing Commitment Letter in a manner which could reasonably affect the analysis of the documents, this Schedule II is subject to such modifications as the Co-Arrangers reasonably deem necessary or appropriate in light of such changes. SCHEDULE II LEGEND: NOTE: References to 1 = Accepted Documents refer to 2 = Accepted, subject to drafts described comment attached on attached materials, 3 = Non-Accepted except where otherwise indicated. Accepted/Non-Accepted Agreement and Plan of Merger among [G], [C], [T], [JV], [Merger Sub] and [Company] (1) 2 Non-Competition Agreements of Principal Shareholders (as described in Merger Agreement)(2) 2 Schedule 14D-9 (as described in Merger Agreement) 3 Certificate of Merger (as described in Merger 3 Agreement) Certificate of Incorporation of Multicare 1 By-laws of Multicare 1 Certificate of Incorporation of Merger Sub (3) 1 By-laws of Merger Sub (4) 1 Certificate of Incorporation of Surviving 3 Corporation -24- By-laws of Surviving Corporation 3 Management Agreement between Genesis 2 Eldercare Network Services, Inc. and Multicare Stock Purchase Agreement (Agreement to 2 Purchase Institutional Pharmacies) between Parent and Genesis Health Ventures, Inc. Subscription Agreements of __________ for common 2 stock of Parent Put/Call and Warrant Purchase Agreement between 2 ________ and ________ (including Warrant attached thereto) (5) Protective Agreement among [NEWCO] and [Caddie] 1 Commitment letter for Subordinated Parent (PIK) 2 Debt Subordinated Note Purchase Agreement 3 between Parent and Genesis Health Ventures, Inc. Subordinated Parent Note 3 Certificate of Incorporation of Parent (6) 1 By-laws of Parent (7) 1 Voting Agreements (as defined in Merger Agreement) 3 Subordinated Bridge Facility Commitment Letter 2 - ------------------------- (1) PWRW&G Draft 5/29/97 (Doc. #DS4:59320.1) (2) PWRW&G Draft 5/29/97 (Doc. #DS4:48874.7) (3) Certificate of incorporation of Genesis Eldercare Acquisition Corp., filed 5/29/97 Delaware Secretary of State (4) ST&B Draft by-laws, Genesis ElderCare Acquisition Corp. (5/30/97, 1:52 a.m.) (5) ST&B Draft (Doc 975PF39.CMP; 5/30/97 7:03 a.m.) (6) Certificate of incorporation of Genesis ElderCare Corp. filed 5/29/97 Delaware Secretary of State (7) ST&B Draft by-laws, Genesis ElderCare Corp. (5/30/97, 1:53 a.m.) -25- DESCRIPTION OF CONDITIONAL ACCEPTANCE OF CERTAIN DOCUMENTS Except where otherwise indicated, the comments set forth below refer to draft agreements prepared by Blank, Rome, Comisky & McCauley, counsel for Genesis Health Ventures, Inc., and distributed to Drinker Biddle & Reath LLP, counsel for the Administrative Agent, under cover of a letter dated May 29, 1997, from Richard J. McMahon to Howard Blum and Alan Schnitzer. AGREEMENT AND PLAN OF MERGER The most recent draft of the Merger Agreement circulated by Paul, Weiss, Rifkind, Wharton & Garrison (PWRW&G Draft 5/29/97; Doc #DS4:59320.1) is accepted by the Lenders, subject to the following additional provisions: 1. The Merger Consideration must be disclosed and approved by the Lenders. 2. Acceptance of tendered shares pursuant to the Offer must be conditioned upon receipt of all regulatory approvals and consents, and must not result in the loss of any license or permit or material contract. 3. Acceptance and purchase of tendered Common Stock pursuant to the Offer to be added as a condition to the Merger in Section 7.1. 4. The Merger Agreement should provide for the delivery of appropriate opinions of counsel with respect to the authorization, execution and delivery of the Merger Agreement and the legality and validity of the transactions contemplated thereby. 5. The Disclosure Letter must be provided to and approved by the Lenders. NON-COMPETITION AGREEMENTS Any agreement other than a reasonable non-competition agreement to be included therein, e.g. an additional agreement to acquire assets or make other payments to a Principal Shareholder (other than payments, not to exceed $8,500,000 to acquire the Colchester facility), must be expressly approved by the Lenders. -26- SUBORDINATED BRIDGE FINANCING COMMITMENT The Morgan Stanley/Montgomery Securities commitment by Shearman & Sterling for $200 million of bridge financing, as circulated on 5/31/97 (S&S Draft 5/30/97; Doc. 3929.11/NYL3A), is accepted, subject to the following provisions: 1. The commitment letter and term sheet will be revised to reflect the revised tender offer structure. 2. Upon the funding of the bridge financing, we understand that the bridge lenders desire to have subordinated guarantees of the Borrowers. The Lenders will permit such guarantees only when Multicare ceases to be a public company (i.e. upon consummation of the Merger). The funding of the bridge financing will be subject to approval by the Lenders of subordination terms applicable to the subordinated guaranties and, generally, to the bridge financing (including provisions for both the blockage of payment to the bridge lenders and standstill by the bridge lenders upon the exercise of remedies). 3. Clause (ii) of the definition of "Applicable Interest Rate" to read: "(ii) three-month U.S. Dollar LIBOR (as determined from specified sources), plus 600 basis points..." 4. The cash interest payment cap should be reduced to 14 1/2%. 5. The requirement for a guarantee from Genesis upon exercise of the put or call under the Put/Call Agreement must be deleted. 6. Mandatory redemptions out of net proceeds from asset sales will be permitted only to the extent such proceeds are not required to be used for the prepayment of the Senior Debt. 7. All terms which are subject to future agreement between the bridge lenders and Multicare must be approved by the Lenders. SUBORDINATED PIK DEBT COMMITMENT The draft PIK debt commitment, as first circulated to us by Samuel Becker of Blank Rome Comisky & McCauley on 5/29/97, is acceptable, provided that, in the event of any conflict between the provisions thereof and the provisions of Schedule III hereto (or to the Term Sheet attached as Annex A to the Waltz Commitment Letter), the provisions of such Schedule will control. -27- STOCK PURCHASE AGREEMENT 1. We need verification of the entities which comprise the institutional pharmacy business. 2. The Lenders require additional information as to whether "Merger Sub" should be a party to the Stock Purchase Agreement, as it will merge into the entity which owns the stock to be sold. 3. The Lenders require additional information as to the timing of the Closing in Section 2.2. 4. As written, Section 3.3 is not true. The "Seller" is Newco, which will not be the owner of the Shares. 5. The Lenders would like assurances in the Agreement, by way of additional conditions, that all regulatory approvals and consents, in addition to HSR, will be obtained as a condition to the transfer of stock, that any consents required under material contracts have been obtained, and that there has been no material adverse change in the institutional pharmacy business. PUT/CALL AND WARRANT PURCHASE AGREEMENT The mark-up to the Simpson Thatcher draft of 5/28/97 (7:05 pm), circulated by Blank Rome to Simpson Thatcher on 5/29/97, is accepted. The Lenders will not permit, under any circumstances, a Put to be exercised for Green's cash or debt. MANAGEMENT AGREEMENT 1. Revise the end of Section 4.4 as follows: ...., except as may otherwise be permitted under this Agreement or in the Senior Credit Agreement (as defined in Section 14.13 hereof). 2. Add the following to the end of Section 5.1: Notwithstanding the foregoing, in no event shall the Management Fee payable hereunder be less than $1,991,666 in any month or less than $23,900,000 in the aggregate in any year (the "Minimum Fee"). To the extent that the Management Fee payable hereunder in any month would exceed the Minimum Fee, such excess shall be payable only to the extent that, both before and after giving effect to the payment thereof, there shall exist no default under the Senior Credit Agreement (as defined in Section 14.13 below); and any portion of the Management Fee which is not paid shall accrue and be owing to the Manager only to the extent permitted under the Senior Credit Agreement. Neither party hereto shall -28- enter into or suffer to exist, any direct or indirect restriction of the ability of the Owner to make payment to the Manager of the Minimum Fee on a timely basis hereunder. 3. Delete Section 5.4. 4. Section 14.13 should be revised to properly define the "Senior Credit Agreement." PROTECTIVE AGREEMENT 1. Section 3.3 should not prohibit the moving of funds between Subsidiaries. SUBSCRIPTION AGREEMENT 1. The Lenders understand that the Exhibits will be the respective term sheets which have been reviewed and accepted (subject to the provisions hereof) by the Lenders. 2. "Conditions to Closing" on page 1 should read as follows: Closing of the purchase of the Common Stock is conditioned upon each of the following, which shall have occurred prior to or concurrently with such purchase: -29- ANNEX B (to Waltz Commitment Letter) Fees A facility fee (the ("Facility Fee"), equal to 2 1/4% of the amount of the total Credit Facilities, but not less than $14,062,500 irrespective of any reduction in the Credit Facilities, is earned by the Co-Arrangers at the time of the execution of the commitment letter to which this Annex B is attached (the "Commitment Letter"), and is payable by Genesis ElderCare Acquisition Corp. (formerly known as Waltz Acquisition Corp.) ("Waltz") as follows: (1) Upon the execution by Multicare and Merger Sub (or any affiliate of Merger Sub) of an agreement respecting merger, $2,109,375 of the Facility Fee shall be payable, but shall be deferred until the occurrence of the earlier to occur of the following: (a) the latest Closing Date set forth on Annex A, as the same may be extended, shall have expired prior to the date that a majority of the Shares of Multicare shall have been tendered under the Offer, in which event Waltz shall promptly pay the $2,109,375 in equal shares to each of Mellon, Citicorp, First Union and NationsBank and (b) the date prior to the latest Closing Date, as the same may be extended, by which a majority of the Shares of Multicare shall have been tendered under the Offer; provided, however, that, unless the conditions to payment in paragraph (2) below shall have been met, the amount of the Facility Fee payable under this paragraph (1) shall not exceed 33% of the breakup fees paid to Waltz or any one or more of its direct or indirect shareholders. (2) The $11,953,500 balance of the Facility Fee (shared equally by the Co-Arrangers) is payable when and if and only if (a) a majority of the Shares of Multicare shall have been tendered under the Offer prior to the latest Closing Date, as the date may be extended, and (b) a Transaction (as herein defined) shall occur at any time within two years of the Closing Date, as the date may be extended, whether or not any funding under the Credit Facilities shall take place and whether or not a definitive credit agreement shall have been executed. A "Transaction" shall be deemed to have taken place if (a) any Shares tendered in the Offer are purchased or (b) Waltz or The Cypress Group L.L.C. or TPG Partners II, L.P. or any person or persons affiliated with any of the foregoing or a group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) which includes, among other members, any of the foregoing, or any member of any such group shall have entered into any transaction or series or combination of transactions whereby, directly or indirectly, control of a material interest in Multicare or its business or a material portion of its assets is transferred to any, or any combination of, the foregoing or to any entity in which any of the foregoing has an interest, or (c) any funding shall occur under the Credit Facilities. (3) In addition to the foregoing fees, Waltz shall pay a Commitment Fee which commenced accruing on May 31, 1997 in an amount equal to .125% per annum of the total Credit Facilities, which shall be paid in equal amounts to the Co-Arrangers upon the initial funding of the Facilities or the Closing Date for the Short-Term Facilities as set forth on Annex A, whichever shall first occur. Notwithstanding the foregoing, it is understood that, unless the conditions in (a) and (b) set forth in paragraph (2) above to the payment of the Facility Fee shall be met, Waltz shall not be required to pay a Commitment Fee, but this sentence shall not relieve any other party obligated in respect of the Commitment Fee from liability in respect thereof. Terms used in this Annex B but not defined herein are used herein as defined in Annex A to the Commitment Letter. EX-11 11 EXHIBIT 11(B2) Exhibit 11(b)(2) MELLON BANK, N.A. CITICORP SECURITIES, INC. CITIBANK, N.A. FIRST UNION CAPITAL MARKETS CORP. FIRST UNION NATIONAL BANK NATIONSBANK, N.A. June 14, 1997 Genesis Health Ventures, Inc. 148 West State Street Kennett Square, PA 19348 Attention: George V. Hager, Jr. Senior Vice President and Chief Financial Officer Amended and Restated Commitment Letter (Revised) Gentlemen: Reference is made to that certain Commitment Letter, dated May 31, 1997, issued to you by Mellon Bank, N.A., Citicorp Securities, Inc., First Union Capital Markets Corp. and NationsBank, N.A. as amended and restated pursuant to that certain Amended and Restated Commitment Letter dated June 14, 1997 issued to you by Mellon Bank, N.A. ("Mellon"), Citicorp Securities, Inc. and Citibank, N.A. (collectively, "Citicorp"), First Union Capital Markets Corp. and First Union National Bank (collectively, "First Union") and NationsBank, N.A. ("NationsBank"). You have requested that the Existing Commitment Letter be amended in certain respects and the undersigned Co-Arrangers are willing to so amend the Existing Commitment Letter on the terms and conditions set forth below in this Amended and Restated Commitment Letter (this "Commitment Letter"). Upon your execution of this Commitment Letter, the terms hereof shall amend and replace the terms set forth in the Existing Commitment Letter except that any fees, indemnities or other amounts that shall have accrued under the Existing Commitment Letter shall remain in full force and effect. If you do not execute and deliver this Commitment Letter at or before 5:00 p.m. (Philadelphia local time) on June 19, 1997, this Commitment Letter shall be of no effect and the terms of the Existing Commitment Letter shall remain in full force and effect without any modifications. Based on our discussions, Mellon, Citicorp, First Union and NationsBank and/or their affiliates are pleased to provide Genesis Health Ventures, Inc. ("Genesis") with financing commitments for, to agree to act as co-arranging banks (the "Co-Arrangers")1 in connection with and to arrange for the syndication of, the senior debt facilities described below and on Annex A. Terms not otherwise defined herein are used herein and Annex B as defined in Annex A hereto. You have asked the Co-Arrangers to provide you with commitments for the senior debt facilities to Genesis consisting of (i) a $200,000,000 Six Year Term Loan Facility (the "Tranche A Term Facility"), (ii) a $200,000,000 Seven Year Term Loan Facility (the "Tranche B Term Facility"), (iii) a $200,000,000 Term Loan maturing 6/01/05 (the "Tranche C Term Facility") and (iv) a $250,000,000 Six Year Revolving Credit Facility (the "Revolving Credit Facility"), all as more fully described on the attached Annex A. The Tranche A Term Facility, the Tranche B Term Facility, the Tranche C Term Facility and the Revolving Credit Facility are collectively referred to herein as the "Senior Facilities." The Senior Facilities will be available for the purposes set forth on Annex A attached hereto. Certain fees payable in connection with the Senior Facilities are set forth on Annex B attached hereto. Subject to the satisfaction of the conditions contained in this Commitment Letter and your acceptance hereof, Mellon, Citicorp, First Union and NationsBank each severally commit to lend one quarter of the aggregate amount of the Senior Facilities on the terms and conditions referred to herein and described in the attached Annex A subject to, among other things, payment of the fees set forth in Annex B. Once paid or payable, the fees or any part thereof, payable hereunder shall not be refundable under any circumstances, regardless of whether the transactions or borrowings contemplated hereby are consummated. Except as set forth on Annex B, all fees payable hereunder shall be paid in immediately available funds and shall be in addition to reimbursement of out-of-pocket expenses incurred by the Co-Arrangers. The fees referred to herein are in addition to (1) the commitment and other fees, expenses and charges referred to in the Term Sheet, and (2) the fees to be paid to Mellon, as Administrative Agent, as separately agreed between the Borrower and Mellon. The terms and conditions of this commitment and undertaking are not limited to those set forth in the attached Annex A and Annex B. Those matters that are not covered or made clear herein or in such Annex A or Annex B are subject to mutual agreement of the parties. In addition, this commitment and undertaking is subject to (i) the preparation, execution and delivery of mutually acceptable loan documentation, incorporating substantially - -------- 1 For purposes of determining allocable shares of entitlements and obligations, Citicorp Securities, Inc. and Citibank, N.A. shall be deemed to be one entity and First Union Capital Markets Corp. and First Union National Bank shall be deemed to be one entity. -2- the terms and conditions outlined herein and in the attached Annex A, (ii) the absence of any material adverse change in the loan syndication market for transactions of this type or any relevant information (financial or otherwise) provided to the Co-Arrangers in connection with this Commitment Letter or the transactions contemplated hereby, (iii) the condition that the financing closes no later than as provided in Annex A, (iv) your execution and delivery of this commitment letter and the payment of the fees at such times and in such amounts as are set forth on Annex B, (v) the execution and delivery of the amended and restated commitment letter, dated as of even date herewith, by Genesis ElderCare Acquisition Corp. (formerly Waltz Acquisition Corp.) (the "Waltz Commitment Letter") and the payment of the fees required to be paid thereunder and (vi) our favorable review and acceptance of the Non- Accepted Documents or the favorable resolution of the exceptions to Accepted Documents (as defined in Annex A). The Co-Arrangers intend to syndicate the Senior Facilities to additional lenders with corresponding reductions in the initial commitments of the Co-Arrangers. The syndication may occur before or after initial funding. The Co-Arrangers will manage all aspects of the syndication (in consultation with you), including the timing of all offers to potential Lenders and the acceptance of commitments, the amounts offered and the compensation provided. You shall fully cooperate with the Co-Arrangers in the syndication process. You agree that any of the Co-Arrangers, in connection with the syndication of any portion of its commitment, may share all or a portion of any of the fees payable pursuant to this Commitment Letter, in its sole discretion, with any of the other Lenders. You agree to indemnify and hold harmless the Administrative Agent, the Co- Arrangers, each Lender and their respective affiliates, officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, amounts paid in settlement, court costs and expenses (including, without limitation, fees and disbursements of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or by reason of, or in connection with any claims or actions arising out of this Commitment Letter, the Existing Commitment Letter, or the Waltz Commitment Letter, the Existing Waltz Commitment Letter (as defined in the Waltz Commitment Letter or the transactions contemplated hereby or thereby including, without limitation, the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with the proposed tender offer, the proposed merger, the equity investment of you or others, any financing related thereto or other transaction referred to in Annex A hereto or Annex A to the Waltz Commitment Letter, whether or not an Indemnified Party is a party thereto and whether or not the transactions contemplated herein are consummated, except to the extent such claim, damage, loss, liability, amount paid in settlement, court cost or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or wilful misconduct. In further consideration of the commitment and undertaking of the Co- Arrangers hereunder and under the Waltz Commitment Letter, and recognizing that in -3- connection herewith and therewith the Co-Arrangers are incurring costs and expenses, including, without limitation, fees and expenses of counsel and due diligence, transportation, computer, duplication, search, filing and recording fees, you hereby acknowledge your obligation to pay such costs and expenses (whether incurred before or after the date hereof) regardless of whether any of the transactions contemplated hereby are consummated or any loan documents are agreed to and signed. Without limiting the generality of any other obligations hereunder, Genesis agrees that it shall pay the commitment fee of .125% per annum referred to on Annex B to the Waltz Term Sheet in accordance with the terms set forth on said Annex B if the Facilities described in Annex A to the Waltz Commitment Letter do not close. The obligations hereunder, including without limitation, the indemnification and cost payment provisions relating to the Waltz Commitment Letter and transactions contemplated thereby, are absolute and unconditional and shall be due and payable as and immediately when they arise and shall be subject to no set-off or counterclaim notwithstanding (a) any invalidity of the obligations set forth in the Waltz Commitment Letter or agreements, instruments or other documents delivered in connection therewith, (b) any failure of the Co-Arrangers to assert claims against any other persons or collateral, or (c) any other event or condition which could serve as a defense to the obligations arising hereunder, each such defense being, to the fullest extent permitted by applicable law, hereby waived. Each undertaking of Genesis hereunder is for the sole and exclusive benefit of the Co-Arrangers and there are no third party beneficiaries to such undertakings. This letter is for your confidential use only. We understand that you will not disclose this letter to any person other than to your accountants, attorneys, investment bankers and other advisors, and then only in connection with the transactions contemplated hereby and on a confidential basis, except that you may file a copy of this letter in any public record in which it is required by law to be filed and, subject to the last sentence of this commitment letter, you may provide a copy of this letter on a confidential basis to The Multicare Companies, Inc. and its accountants, attorneys, investment bankers and other advisors. We also understand that you will permit each of the undersigned to review and approve any reference to it or any of its affiliates contained in any press release or similar public disclosure prior to public release. Please be advised that companies with interests that may conflict with yours may be or become customers of one or more of the undersigned and that one or more of the undersigned may be providing financing or other services to them. EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS COMMITMENT LETTER AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE CO-ARRANGERS OR THEIR AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF. -4- In issuing this commitment and undertaking, the Co-Arrangers are relying on the accuracy of the information furnished to them by or on behalf of Genesis and its affiliates, including that summarized above. This Commitment Letter may not be amended or waived except by an instrument in writing signed by the Co-Arrangers and you. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter by facsimile transmission shall be as effective as a hand delivery of an original executed counterpart hereof. This Commitment Letter shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania. The parties hereto agree that any dispute under this Commitment Letter shall be brought only in a Pennsylvania state court or in the United States District Court for the Eastern District of Pennsylvania. Please evidence your acceptance of the provisions of this Commitment Letter, Annex A, Annex B and the other matters referred to above by signing in the space provided below and returning a copy of this Commitment Letter to us (together with payment of the required fees) at or before 5:00 P.M. (Philadelphia local time) on June 19, 1997, the time at [INTENTIONALLY LEFT BLANK] -5- which the Co-Arrangers' commitments and undertakings set forth above (if not accepted prior thereto) will expire. DELIVERY OF A COPY OF THIS COMMITMENT LETTER TO THE MULTICARE COMPANIES, INC. OR ANY REPRESENTATIVE OR AGENT THEREOF SHALL BE DEEMED TO BE YOUR ACCEPTANCE OF THE TERMS HEREOF. Very truly yours, MELLON BANK, N.A. By /s/ Barbara J. Hauswald Title: Vice President CITICORP SECURITIES, INC. By /s/ E. Ogimachi Title: Vice President CITIBANK N.A. By /s/ E. Ogimachi Title: Vice President FIRST UNION CAPITAL MARKETS CORP. By /s/ Andrew J. Gamble Title: Managing Director -6- FIRST UNION NATIONAL BANK By /s/ Joseph H. Towell Title: Senior Vice President NATIONSBANK, N.A. By /s/ Lucine Kirchhoff Title: Director ACCEPTED this ____ day of ______, 1997 GENESIS HEALTH VENTURES, INC. By /s/ George V. Hager Title: Senior Vice President and CFO -7- Dated: June 14, 1997 ANNEX A SUMMARY OF TERMS Borrowers: Genesis Health Ventures, Inc. (the "Company"), and its direct and indirect subsidiaries, all of which (subject to the following proviso) shall be jointly and severally liable (the Company and such subsidiaries, collectively, the "Borrowers") provided, however, that Genesis ElderCare Acquisition Corp. (formerly Waltz Corp.) ("Parent") and its direct and indirect subsidiaries (including, without limitation, the survivor of the merger of Genesis ElderCare Acquisition Corp. (formerly Waltz Acquisition Corp.) into The Multicare Companies, Inc. ("Multicare")) shall not be Borrowers hereunder (such entities referred to in this proviso being referred to herein collectively as the "Multicare Group"). Senior Facilities: Total facility equal to $850,000,000 comprising the following: A. $200,000,000 Six Year Term Loan (the "Tranche A Term Facility"). B. $200,000,000 Seven Year Term Loan (the "Tranche B Term Facility"). C. $200,000,000 Term Loan maturing 6/01/05 (the "Tranche C Term Facility"). D. $250,000,000 Six Year Revolving Credit Facility (the "Revolving Credit Facility"), including a $25,000,000 sublimit for standby letters of credit ("Letters of Credit"). The Co-Arrangers shall share equally in each of the facilities Co-Arrangers: Mellon Bank, N.A. ("Mellon"), Citicorp Securities, Inc. and Citibank, N.A. (collectively, "Citicorp"), First Union Capital Markets Corp. and First Union National Bank (collectively, "First Union") and NationsBanc Capital Markets, Inc. ("NationsBanc").** - -------- ** For purposes of determining each Co-Arranger's ratable share of entitlements and obligations hereunder, Citicorp Securities, Inc. and Citibank, N.A. shall be deemed to be one entity and First Union Capital Markets Corp. and First Union National Bank shall be deemed to be one entity. -1- Issuing Bank: Mellon will be the issuer of Letters of Credit. Administrative Agent: Mellon. Lenders: The Co-Arrangers and/or their affiliates and other financial institutions (the "Lenders") to be arranged by the Co-Arrangers and approved by the Company, whose approval will not be unreasonably withheld. The Borrowers shall cooperate with the Co-Arrangers in the syndication of the Senior Facilities, whether before or after the initial funding of the Senior Facilities, and shall provide and cause their advisors to provide all information reasonably deemed necessary by the Co-Arrangers to complete a successful syndication. Facility Fee: As set forth in that commitment letter, dated as of May 31, 1997, as amended and restated, between the Company to the Co-Arrangers. Unused Commitment Fee: As set forth on Schedule I attached hereto. Letter of Credit Commissions and Fees: As set forth on Schedule I attached hereto. Use of Proceeds: The Senior Facilities shall be available for the following purposes: (i) to refinance existing indebtedness of the Borrowers, including the present synthetic lease facility; (ii) to purchase approximately 42% of the common stock of Parent for an aggregate purchase price approximately equal to $300,000,000; (iii) to purchase for approximately $24,000,000 the contract therapy business of Multicare; (iv) to fund interest and principal payments on the Senior Facilities and existing indebtedness; (v) to fund the Borrowers' working capital, capital expenditure needs and general corporate purposes; and (vi) to fund permitted acquisitions. Closing Date: No later than October 15, 1997, unless extended to a later Closing Date in the sole discretion of the Co-Arrangers. Security: (a) A pledge of stock and partnership interests and other equity of all of the Company's present and future direct and indirect subsidiaries (including, without limitation, any Borrower's ownership interest in -2- Parent) other than the stock of Genesis ElderCare Acquisition Corp. (formerly Waltz Acquisition Corp.), Multicare and its direct and indirect subsidiaries, and (b) a pledge of all intercompany notes. Term Amortization: A. Tranche A Term Facility: Six years from closing, with annual amortization, payable quarterly, as follows: Year 1 $15,000,000 7-1/2% Year 2 $25,000,000 12-1/2% Year 3 $35,000,000 17-1/2% Year 4 $35,000,000 17-1/2% Year 5 $45,000,000 22-1/2% Year 6 $45,000,000 22-1/2% B. Tranche B Term Facility: Seven years from closing, with annual amortization, payable quarterly, as follows: Year 1 $ 2,000,000 1% Year 2 $ 2,000,000 1% Year 3 $ 2,000,000 1% Year 4 $ 2,000,000 1% Year 5 $ 2,000,000 1% Year 6 $ 2,000,000 1% Year 7 $188,000,000 94% C. Tranche C Term Facility: Maturing 6/01/05, with annual amortization, payable quarterly, as follows: Year 1 $ 2,000,000 1% Year 2 $ 2,000,000 1% Year 3 $ 2,000,000 1% Year 4 $ 2,000,000 1% Year 5 $ 2,000,000 1% Year 6 $ 2,000,000 1% Year 7 $ 2,000,000 1% Year 8 $186,000,000 93% D. Revolving Credit Facility: Six years from closing. Mandatory Prepayments: All net cash proceeds from (a) the sale of assets of the Borrowers other than sales in the ordinary course of business and (b) any sale of common stock or debt securities of Borrowers (other than the proceeds of equity used as permitted under subparagraph (p)(ii) under "Covenants"). -3- An amount equal to 50% of Excess Cash Flow (as defined below in "Selected Financial Definitions"), payable annually within 120 days of the fiscal year end. All prepayments shall be applied to the Senior Facilities in the following order: 1. First, on a pro rata basis (except to the extent that any holder of the Tranche B Term Facility or any holder of the Tranche C Term Facility shall decide not to accept a prepayment thereof) to the Tranche A Term Facility, Tranche B Term Facility and Tranche C Term Facility (which reduction shall be applied to each subsequent payment under the applicable amortization schedule on a pro rata basis); and 2. Second, to the Revolving Credit Facility with a corresponding reduction in the commitments. Commitment Reductions: The Borrowers will have the right, upon at least three business days' notice, to terminate or cancel, in whole or in part, the unused portion of the Revolving Credit Facility; provided that each partial reduction shall be in the amount of at least $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Voluntary Prepayment: Allowed in full (or in part) provided that (i) loans bearing interest at the Prime Rate (each a "Prime Rate Loan") may be prepaid on one business day's prior notice and loans bearing interest at the LIBO Rate (each a "LIBO Rate Loan") may be prepaid upon five business days' prior notice (subject to breakage indemnity) and (ii) each partial prepayment shall be in the amount of at least $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Interest: See Schedule I attached hereto. Drawings under Revolving Credit Facility: On one business day's prior notice for Prime Rate Loans and three business days' prior notice for LIBO Rate Loans. Each borrowing must be in the amount of $10,000,000 or an integral multiple of $5,000,000 in excess thereof. Letters of Credit: Letters of Credit will be issued by the Issuing Bank, at the ratable risk of the Lenders, for purposes to be agreed. No Letter of Credit will have a term longer than to be agreed, but Letters of Credit may provide for automatic renewal, subject to the Issuing Bank's contrary notification to -4- the beneficiary. The Borrower will post cash collateral for any Letters of Credit that have a term longer than that of the commitments under the Revolving Credit Facility or that remain outstanding after the expiration or termination of the Revolving Credit Facility (because of default or otherwise). Representations and Warranties: Usual and customary for transactions of this nature, including, without limitation, absence of any material adverse change in the business, condition (financial or otherwise), operations, properties or prospects of Borrowers or in the industry served by Borrowers generally, the absence of any environmental hazards or liabilities, the absence of material litigation, accurate and complete disclosure and such additional representations and warranties as are deemed appropriate by the Co- Arrangers for this transaction. Conditions Precedent to Initial Funding of the Senior Facilities: Usual and customary for transactions of this nature, including, without limitation, the following: (1) All documentation relating to the Senior Facilities shall be in form and substance satisfactory to the Lenders. (2) The Administrative Agent, on behalf of the Lenders, shall have a perfected first priority lien and security interest in all the stock and other equity interests of the Company's direct and indirect subsidiaries including any Borrower's equity interest in Parent (excluding Genesis ElderCare Acquisition Corp., Multicare and its direct and indirect subsidiaries) as well as all intercompany notes, and all filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made and all filing and recording fees and taxes shall have been duly paid. (3) The Borrowers shall have delivered letters in form and substance satisfactory to the Lenders attesting to the solvency of the Borrowers, after giving effect to the transactions referred to herein, from their chief financial officer and from a nationally recognized appraisal firm, valuation consultant or investment banking firm satisfactory to the Lenders. (4) The Company has advised the Co-Arrangers that all of the material documents in connection with the tender offer by Merger Sub, the merger between Merger Sub and Multicare and related transactions (other than documents to which the Co- -5- Arrangers and other Lenders would be parties) are listed on Schedule II attached hereto, which Schedule also reflects those documents which have been accepted by the Co-Arrangers (and, if applicable, exceptions to such acceptances) and those which have not yet been accepted by the Co-Arrangers (respectively, the "Accepted Documents" and, together with any other material documents omitted from Schedule II, the "Non-Accepted Documents"). The Co-Arrangers shall be reasonably satisfied with all Non-Accepted Documents, and the Non-Accepted Documents shall be delivered in final form to the Co-Arrangers as promptly as possible following the date hereof. Upon notification in writing by the Co-Arrangers that a Non-Accepted Document has been accepted, such document shall be deemed an Accepted Document. If the Co-Arrangers shall be reasonably satisfied that the requested revisions to a previously delivered document or other actions with respect thereto noted on Schedule II hereto have been made or taken without any other alteration to such document to which the Co-Arrangers may reasonably object, the exceptions shall be deemed withdrawn. No Accepted Document (including those as to which exceptions shall be deemed withdrawn) may be amended, modified or supplemented, nor may any of its terms or conditions in favor of Genesis, Multicare or Merger Sub be waived, and the tender offer, merger and other transactions contemplated thereunder shall take place in strict compliance therewith. At the request of Merger Sub, the Co-Arrangers will deliver a revised Schedule II reflecting the then current status of the documents listed on Schedule II as among Accepted, Accepted subject to exceptions or Non-Accepted. (5) No material adverse change shall have occurred in the business, condition (financial or otherwise), operations, properties or prospects of the Borrowers taken as a whole since December 31, 1996. (6) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that (i) could have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrowers taken as a whole or (ii) in the judgment of the Lenders, could materially adversely affect the Lenders, the Senior Facilities or the ability of the Borrowers to perform their obligations thereunder. (7) The Lenders shall have received such opinions of counsel to the various parties to the transactions referred to herein as to matters -6- (including, without limitation, due organization, due authorization for the various transactions referred to herein, and compliance with health care, corporate and other laws and regulations) as the Co-Arrangers shall reasonably request, and each thereof shall be reasonably satisfactory to the Lenders. The Lenders shall also have received such corporate resolutions, certificates and other documents as the Lenders shall reasonably request. (8) All governmental consents and approvals and third party consents and approvals necessary in connection with the Senior Facilities and other related transactions shall have been obtained and shall be final (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority. (9) There shall exist no default under any of the loan documents and the representations and warranties of the Borrowers therein shall be true and correct immediately prior to, and after giving effect to, funding. (10) All accrued fees and expenses (including reasonable fees and disbursements of counsel to the Co-Arrangers) shall have been paid. (11) All conditions to the initial funding under the credit facilities described in the amended and restated Commitment Letter, dated of even date herewith, issued by the Co-Arrangers to Genesis ElderCare Acquisition Corp. (formerly Waltz Acquisition Corp.) (the "Waltz Commitment Letter") shall have been satisfied, and the closing thereunder shall have occurred simultaneously with the closing under the Senior Facilities. (12) All loans made by the Lenders under the Senior Facilities shall be in full compliance with the Federal Reserve's Margin regulations. (13) Substantially contemporaneously with the initial funding, the Company shall pay at least $300,000,000 for 42% of the common stock of Parent and The Cypress Group L.L.C. and TPG Partners II, L.P., collectively shall pay at least $418,700,000 for 58% of the common stock of Parent. (14) All indebtedness of the Borrowers, including the present synthetic lease facility, shall have been repaid in full and all commitments in respect thereof shall have been cancelled other -7- than the debt permitted by the covenant contemplated below respecting limitations on indebtedness. (15) The Company and Multicare and its subsidiaries shall have entered into a management agreement, satisfactory in form and substance to the Co-Arrangers (the "Management Agreement") under which the Company will provide management services to Multicare and its subsidiaries in consideration of the payment of management fees. (16) The Company will provide an opinion of counsel and a certificate of a firm of independent certified public accountants (each of whom shall be satisfactory to the Co-Arrangers in their complete discretion) demonstrating to the satisfaction of the Co- Arrangers that the entirety of the Senior Facilities will constitute "senior indebtedness" for purposes of the 1995 Indenture and the 1996 Indenture and that the consummation of the transactions contemplated hereby do not violate the 1995 Indenture or the 1996 Indenture. (17) At least three business days prior to the initial funding, the Lenders shall have received financial statements, accompanied by a certificate of the chief financial officer of the Borrowers, at the end of and for the twelve month period ending on the last day of the month preceding initial funding. The financial statements shall consist of (i) a cash flow statement accurately reflecting EBITDA, on a pro forma basis to the beginning of the period (as required for the financial covenants), all acquisitions and dispositions occurring within the twelve month period and (ii) a balance sheet reflecting, on a pro forma basis, the consummation of all transactions in connection with purchase of the equity of Parent including, without limitation, all borrowings in connection therewith or otherwise contemplated hereunder, the application of all proceeds of such borrowings and the amount of all outstanding indebtedness after giving effect to the foregoing, each of which statements shall be in form and accompanied by explanatory notes acceptable to the Co-Arrangers. The cash flow statement shall reflect EBITDA for the twelve month period of no less than $167,000,000, and the balance sheet shall reflect total funded debt of not more than $1,055,000,000. Concurrently with the delivery of the financial statements, the Lenders shall have received a certificate of the chief financial officer of the Borrower, in form and content satisfactory to the Co-Arrangers, demonstrating compliance with the financial covenants. -8- (18) Appropriate filings shall have been made by all necessary parties under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the applicable waiting period shall have expired or been terminated. Conditions Precedent to Each Loan: Usual and customary for transactions of this nature, including, without limitation, the following: there shall exist no default under the loan documents and the representations and warranties of the Borrowers shall be true and correct immediately prior to, and after giving effect to, funding. The Co-Arrangers shall be satisfied that each incurrence of debt under the Senior Facilities is permitted by, and will rank senior to, the Company's publicly-held subordinated debt and the chief financial officer of the Company shall deliver a certificate demonstrating compliance with the Fixed Charge Coverage ratio set forth therein both before and after giving effect to the loans requested at such time. Covenants: Usual and customary for transactions of this nature, including, without limitation, the following, applicable to the Borrowers (except as otherwise provided herein), and such additional covenants as are deemed appropriate by the Co-Arrangers for this transaction as a result of their due diligence: (a) Restriction on loans, advances and other investments other than (i) investments in cash equivalents, (ii) loans, advances and other investments in wholly-owned subsidiaries (excluding (if otherwise applicable) the Multicare Group unless otherwise agreed to by the Required Lenders), (iii) the purchase of 42% of the common stock of Parent, (iv) the option to purchase shares of Parent pursuant to the Put/Call and Warrant Purchase Agreement referred to on Schedule II attached hereto (the "Put/Call Agreement"), including the purchase and ownership of shares of Parent consistent with paragraph (p) below, (v) the investment in the institutional pharmacy business referred to in paragraph (e) below and (vi) such other investments as shall be agreed upon by the Borrowers and Co-Arrangers prior to the execution of a definitive credit agreement. (b) Restriction on other indebtedness (including, without limitation, guarantees, capital leases and assumed debt) other than (i) intercompany indebtedness among the Company and its wholly-owned subsidiaries (excluding, if applicable, the Multicare Group), (ii) the subordinated debt issued pursuant to the 1995 Indenture and the 1996 Indenture, and (iii) such other indebtedness as shall be agreed upon by the Co-Arrangers and -9- the Borrowers prior to the execution of a definitive credit agreement. (c) Prohibition on distributions to shareholders of the Company except dividends payable solely in common stock, or options, warrants or other rights to purchase common stock, of the Company. (d) Restriction on mergers or consolidations except (i) mergers between or among the Company and its wholly-owned subsidiaries (except the Multicare Group, if applicable,) or in connection with permitted acquisitions in which the Company is the surviving entity, (ii) mergers among wholly-owned subsidiaries of the Company (excluding the Multicare Group unless otherwise agreed to by the Required Lenders) and (iii) as set forth in (p) below. (e) Restriction on sale, lease or other disposition of assets, other than (i) in the ordinary course of business, (ii) the disposition of no more than 25% of the equity of the Company's institutional pharmacy business in connection with a transaction whereby Multicare would transfer its institutional pharmacy business to the Company's pharmacy subsidiary (or parent thereof) in exchange for said equity and (iii) such other sales, leases and dispositions as may be agreed upon by the Borrowers and Co- Arrangers prior to the execution of a definitive credit agreement. (f) Conduct all transactions with affiliates on an arm's-length basis. (g) Prohibition on prepayment, defeasance, purchase, redemption or making of any payment in respect of subordinated debt except that, so long as no default exists after giving effect to such payment, interest on the Company's publicly-held subordinated debt may be paid in cash. (h) Prohibition on material changes in accounting treatment and reporting practices including, without limitation, changes in the Borrowers' fiscal year. (i) Maintenance of appropriate and adequate insurance. (j) Prohibition on creation of any lien, charge or other encumbrance except (i) ordinary course statutory and tax liens, (ii) ordinary course liens for workers' compensation, performance bonds, and other similar liens, (iii) minor encumbrances on title to real property, and (iv) such other liens as may be agreed upon by the -10- Co-Arrangers and the Borrowers prior to the execution of a definitive credit agreement. (k) Prohibition on giving or agreeing to give a negative pledge on assets, other than (i) pursuant to the Senior Facilities and (ii) in connection with any permitted existing indebtedness so long as such permitted indebtedness does not prohibit security interests supporting the Senior Facilities. (l) Maintenance of corporate or partnership existence, as the case may be. (m) Compliance (and maintenance of procedures to assure compliance) with all applicable laws, ordinances or governmental rules and regulations and obtain and maintain all necessary licenses, permits and approvals. Without limiting the generality of the foregoing, the Borrowers shall maintain all licensing, Medicaid and Medicare reimbursement privileges and other rights. (n) Maintenance in full force and effect of the Management Agreement subject to no amendment, modification or waiver except as permitted by the Required Lenders. (i) Provision that management fees thereunder shall be no less than $23,900,000 per annum but shall otherwise be limited to 6% of consolidated net revenues and shall be subordinated to the Multicare senior facilities on terms satisfactory to the Co-Arrangers. Management fees may be accrued but not paid except as set forth in this paragraph. Management fees shall be payable to the extent they do not exceed in any fiscal year the greater of (A) 4% of the consolidated net revenues of Multicare and (B) an annual rate of $23,900,000. To the extent management fees provided for under the Management Agreement in any fiscal year (including the payment of accrued management fees) would exceed the amount specified in the preceding sentence, such excess amount shall be payable only to the extent that, both before and after giving effect to a payment, (i) there shall exist no default under the Multicare senior facilities and (ii) the Fixed Charge Coverage Ratio shall be at least 1.5/1 for the two most recent fiscal quarters of the Borrowers. -11- (ii) Prohibition on any consensual restriction directly or indirectly limiting the ability or right (whether by covenant, event of default, subordination, penalty, or otherwise) of Multicare or any of its subsidiaries to pay on a timely basis management fees of at least $23,900,000 annually to the Company or any of its subsidiaries under the Management Agreement except in the event of a material default by the Company or a subsidiary of the Company thereunder. (iii) Provision in the Management Agreement acceptable to the Co-Arrangers effectively prohibiting any party thereto from entering into or permitting to exist, any direct or indirect restriction on its ability to comply with the terms of, as applicable, either or both of (i) or (ii) above. (o) Maintenance in full force and effect of the Put/Call Agreement, subject to no amendment or modification except as permitted by the Required Lenders. Restrictions on cash payments under the Put/Call Agreement. (p) Prohibition on acquisitions subject to the following and such other exceptions as may be agreed to by the Borrowers and the Co-Arrangers prior to the execution of a definitive credit agreement: (i) The Company may effect the acquisition described in paragraph (y) below. (ii) The Company (or a wholly-owned subsidiary of the Company) may acquire in a single transaction under the Put/Call Agreement described in (o) above 100% of the capital stock of Parent in exchange solely for common stock of the Company and/or net cash proceeds received by Genesis from a contemporaneous sale of its common stock. (iii) The Company or one of its subsidiaries may acquire the institutional pharmacy business of Multicare pursuant to the transactions described in paragraph (e) above. -12- (q) Prohibition on amendments, modifications or waivers of any provision of articles or bylaws or any Accepted Documents or any material partnership, joint venture or other similar agreement, except such amendments, modifications or waivers that do not materially adversely affect the rights or interests of the Lenders. (r) Limitation on Capital Expenditures. (s) Within 45 days after the end of the first three fiscal quarters of each fiscal year, furnish quarterly consolidated and consolidating balance sheets, income statements and statements of cash flow of (1) the Borrowers and (2) the Company and its consolidated subsidiaries, all such financial statements to be certified by the Company's chief financial officer (which certification may be subject to year-end audit adjustments) and accompanied by appropriate compliance certificates. Within 90 days after the end of each fiscal year, furnish audited annual financial statements of (1) the Borrowers and (2) the Company and its consolidated subsidiaries, in each case certified by the Borrowers' independent accountants, accompanied by appropriate compliance certificates. The Company's quarterly compliance certificate shall demonstrate compliance with the Fixed Charge Coverage Ratio set forth in the Company's public indentures. Annually, the Borrowers shall provide accountants' management letters and annual budgets and an independent evaluation acceptable to the Administrative Agent confirming the arm's length nature of the Borrowers' transactions with affiliates. Within 10 days after the same are distributed, copies of all financial statements and reports sent to shareholders of the Borrowers or filed with the SEC or NASD. Promptly after request, furnish all other business and financial information that any Lender, through the Administrative Agent, may reasonably request, including, without limitation, information submitted by the Borrowers to any regulatory body. (t) Restrictions on change of control. (u) Maintenance of corporate separateness including provisions restricting transactions between the Borrowers and the Multicare Group. (v) Compliance with the terms of the 1995 Indenture, the 1996 Indenture and other material agreements. -13- (w) If, for any reason other than a final order of a court of competent jurisdiction obtained by Multicare in a contested proceeding based on factors other than a material breach by Genesis under the Management Agreement, Genesis shall suffer a termination of the Management Agreement or a diminution of its responsibilities or authority thereunder, Genesis shall provide to Multicare (in a manner acceptable to the Co-Arrangers as reflected in the definitive credit agreement) a cash fund of at least $30,000,000 to be used in connection with obtaining the services of a replacement manager. (x) The institutional pharmacy business of the Company shall not be subject to any indebtedness or liens, other than in favor of the Lenders under the Senior Facilities. (y) Substantially contemporaneously with the merger of Genesis ElderCare Acquisition Corp. into Multicare, the Company shall acquire the contract therapy business of Multicare for a cash price of approximately $24,000,000 unless there shall have been a material adverse change in such business or the Company shall be in default under the Senior Facilities. Provisions Respecting The Multicare Group: Unless, and then only to the extent, agreed by the Required Lenders, the operations and financial affairs of the Multicare Group shall be maintained separately from those of the Company and its other subsidiaries (the "Genesis Group"), provided, however, that the Multicare Group may continue to be managed by the Company or a subsidiary of the Company pursuant to the Management Agreement. Accordingly, the definitive credit agreement shall contain, among other provisions to a similar effect, covenants acceptable to the Co-Arrangers prohibiting any merger or other combination or transfer of assets between a member of the Multicare Group and a member of the Genesis Group, and prohibiting or restricting any investments, loans or guarantees of any nature between a member of the Genesis Group and a member of the Multicare Group or any cash or other dividends or distributions between a member of the Genesis Group and a member of the Multicare Group, except that Genesis may invest in or advance funds to members of the Multicare Group to the extent of net cash proceeds received by the Company from a contemporaneous sale of its common stock. Financial Covenants: All covenants will be maintained continuously and measured as of the most recent fiscal quarter of the Borrowers, using a rolling four-quarter period for net income and Cash Flow unless otherwise stated. Following -14- the closing of a permitted acquisition, the financial covenants and other covenants as agreed will be calculated as if the acquisition had been consummated on the first day of the first of the last four completed fiscal quarters. Unless otherwise agreed to by the Required Lenders, the financial condition and results of operations of the Multicare Group shall not be combined with those of the Borrowers for purposes of covenant compliance under the credit agreement. (i) Fixed Charge Coverage Ratio: minimum levels to be agreed. (ii) Adjusted Senior Debt/Cash Flow: maximum levels to be agreed. (iii) Adjusted Total Debt/Cash Flow: maximum levels to be agreed. (iv) Consolidated Net Worth not less than an initial amount to be agreed plus 75% of the sum of (a) positive net income determined in accordance with GAAP (not to be reduced by losses), (b) the proceeds of the sale of equity (other than proceeds used to acquire shares of Parent or contributed or advanced to Multicare as permitted in paragraph (p) under "Covenants" if, at such time, Multicare is not combined with the Borrowers for the purpose of compliance with the financial covenants) and (c) the reduction of debt as a result of the conversion of debt into equity. Selected Financial Definitions: Net Income: Net income determined in accordance with GAAP, less non-cash interest income, less extraordinary gains, plus extraordinary non-cash losses. Cash Flow: Net Income plus interest expense plus rental expense plus depreciation expense plus amortization expense plus income taxes, and as adjusted for changes in accrued management fees receivable. Fixed Charge Coverage Ratio: As at any date of determination, (1) Cash Flow of the Borrowers on a consolidated basis divided by (2) the sum of interest expense, income taxes and rental expense of the Borrowers on a consolidated basis for the -15- most recent four fiscal quarters plus principal payments required to have been paid on indebtedness during the most recent four fiscal quarters. Adjusted Total Debt: As of any date, the sum of (a) all indebtedness, including the current portion thereof, plus (b) the product of rental expense for the four preceding fiscal quarters multiplied by eight. Adjusted Senior Debt: As of any date, the sum of (a) all indebtedness, including the current portion thereof, other than subordinated indebtedness plus (b) the product of rental expense for the four preceding fiscal quarters multiplied by eight. Consolidated Net Worth: The total amount of consolidated stockholders' equity of the Borrowers as of any date of determination. Net Cash Provided by Operations: Net Income plus depreciation plus amortization less capital expenditures, and as adjusted for changes in working capital. Excess Cash Flow: For any fiscal year, the amount, if any, by which (a) Net Cash Provided by Operations of the Borrowers on a consolidated basis for such fiscal year exceeds (b) aggregate principal amount of indebtedness scheduled to be repaid during such fiscal year. Events of Default: Usual and customary for a transaction of this nature, including, without limitation, payment defaults, covenant defaults, breach of representations or warranties, change of control, termination of or default under the Management Agreement or breach by any party thereto, the Put/Call Agreement or other Accepted Documents, material adverse effect, cross- defaults to other indebtedness or material agreements of the Borrowers, and bankruptcy and insolvency. Required Lenders: Amendments and waivers will require the approval of Lenders holding more than 50% of the commitments (the "Required Lenders"), except that the consent of each affected Lender will be required, inter alia, to increase the amount of any Lender's commitment, extend the maturity date or the amortization schedule, reduce the rate of interest or fees payable to the Lenders or to release collateral except in the case of permitted asset sales. -16- Interest Rate Protection: Within 90 days after the initial funding of the Senior Facilities, at least 50% of the Borrower's total funded indebtedness shall be fixed or have interest rate protection for a term of at least 3 years. Any Lender that provides interest rate protection shall be secured on a pari passu basis with the Lenders. Assignment and Participations: Any Lender may, upon notice to the Borrower and to the Administrative Agent, assign or sell a participation in a portion of its interest in the Senior Facilities to one or more lenders who are financial institutions or other persons; provided that (i) any assignment to a person not already a Lender shall require the approval of Borrower (not to be unreasonably withheld) and the Administrative Agent; and (ii) any assignment shall be subject to the payment of processing fees to the Administrative Agent by the parties to the assignment and requirements as to minimum transfers and retention, except in connection with primary syndication by the Co- Arrangers. Miscellaneous: Standard acquisition financing indemnity and yield protection (including capital adequacy requirement, increased costs, payments free and clear of withholding taxes and interest period breakage indemnities), eurodollar illegality and similar provisions. The Lenders will agree to maintain the confidentiality of all information received from the Borrowers in a manner customary for such undertaking. Indemnification: The Borrowers will indemnify and hold harmless the Administrative Agent, the Co-Arrangers, the Issuing Bank and each Lender from any damages, losses, liabilities and expenses that may be incurred by or asserted against any of them, in each case arising out of, in connection with or by reason of the tender offer or any other transaction contemplated hereby or the use or intended use of the proceeds of the Senior Facilities, except to the extent that any of the foregoing is found in a final, non-appealable judgment to have resulted from the Administrative Agent's, such Co-Arranger's, the Issuing Bank's or such Lender's gross negligence or wilful misconduct. Administrative Agency Fee: As agreed between the Borrowers and the Administrative Agent. Co-Arranger Fees: As agreed between the Borrowers and the Co-Arrangers. Expenses: The Borrower will pay all legal and other reasonable out-of-pocket expenses of the Co-Arrangers related to this transaction (including all reasonable due diligence and syndication expenses and reasonable expenses associated with domestic and foreign meetings) whether or not any of the transactions contemplated hereby are consummated. Such -17- expenses shall be separate from and in addition to fees paid directly to the Co-Arrangers. The Borrower shall also pay the expenses of each Lender in connection with the enforcement of any loan document. Counsel: Drinker Biddle & Reath LLP Governing Law: Pennsylvania. -18- SCHEDULE I Commitment Fee: Payable quarterly in arrears on the unused amount of the Revolving Credit Facility, as follows: Adjusted Total Commitment Debt/Cash Flow Fee below 3.0 .25% >3.0<3.50 .25% >3.50<4.0 .3125% >4.0<4.5 .3125% >4.5<5.0 .375% >5.0<5.5 .50% >5.5<6.0 .50% >6.0 .50% Interest Rate Options: The principal amount of the loans shall bear interest at the Prime Rate or at the Adjusted LIBO Rate at the Company's option. Prime Rate: The rate of interest announced publicly by the Administrative Agent as its prime rate, which rate may not be the lowest rate available to its customers. Adjusted LIBO Rate: The LIBO Rate (for one, two, three or six month interest periods) plus the applicable margin determined as follows: LIBO Rate Margin for Tranche A Term Facility, IP Purchase Term Loan Adjusted Total and for Revolving Debt/Cash Flow Credit Facility below 3.0 .75% >3.0<3.50 1.00% >3.50<4.0 1.25% >4.0<4.5 1.50% >4.5<5.0 1.75% >5.0<5.5 2.00% >5.5<6.0 2.25% >6.0 2.50% The applicable margin for Tranche B Term Loans bearing interest at the LIBO Rate plus applicable margin shall be 2.750% and the applicable -19- margin for Tranche C Term Loans bearing interest at the LIBO Rate plus applicable margin shall be 3.0% provided, however, at any time that the Adjusted Total Debt/Cash Flow is less than 4.5, the applicable margin for such Tranche B Term Loans shall be 2.5% and the applicable margin for such Tranche C Term Loans shall be 2.75%. Notwithstanding the foregoing, at closing and until such time as the Borrowers' 1997 fiscal year-end financial statements shall have been delivered to the Lenders, (a) the applicable LIBO Rate Margin for all Tranche A Term Facility loans, Revolving Credit Facility Loans and IP Purchase Term Loans shall be 2.5%, (b) the applicable LIBO Rate Margin for all Tranche B Term Facility loans shall be 2.75%, (c) the applicable LIBO Rate Margin for all Tranche C Term Loan Facility Loans shall be 3.0% and (d) the rate applicable to the commitment fee shall be 0.5%. Thereafter, all changes in margins and commitment fee rates will take effect five (5) business days following receipt of the quarterly or annual compliance certificate. Letter of Credit Commission and Fees: For standby Letters of Credit, the applicable LIBO Rate Margin on the face amount thereof for the period outstanding, payable on issuance and on any renewal, for the ratable account of the Lenders. In addition, the Borrowers will pay the Issuing Bank, for its sole account, .10% per annum on the face amount thereof for the benefit of the issuer plus its standard posted charges for such matters as opening, negotiation and transfer. Default Interest Rate: Default interest rate shall be calculated at 2% plus the rate(s) otherwise applicable. Basis of Calculation: Actual/360 day basis for LIBO Rate; actual/365(366) day basis for Prime. Payment Dates: Interest on Prime based loans shall be due and payable quarterly in arrears. Interest on LIBO Rate based loans shall be due and payable on the last day of the applicable LIBO Rate period, and quarterly if LIBO Rate funding periods exceed three months. Prepayment: The Borrowers will be responsible for breakage fees on borrowings under LIBO Rate funding periods which are prepaid, for any reason, prior to the end of the contract period. -20- NOTE: This Schedule II was prepared in connection with a review of certain documents in the context of the transactions described in the Existing Commitment Letter. To the extent that (a) the documents referred to on this Schedule have been modified since the drafts referred to on this Schedule, (b) new documents have been added or documents have been deleted from the list of documents to be approved or (c) the transactions have changed from those described in the Existing Commitment Letter in a manner which could reasonably affect the analysis of the documents, this Schedule II is subject to such modifications as the Co- Arrangers reasonably deem necessary or appropriate in light of such changes. SCHEDULE II LEGEND: NOTE: References to 1 = Accepted Documents refer to 2 = Accepted, subject to drafts described comment attached on attached materials, 3 = Non-Accepted except where otherwise indicated. Accepted/Non-Accepted Agreement and Plan of Merger among [G], [C], [T], [JV], [Merger Sub] and [Company] (1) 2 Non-Competition Agreements of Principal Shareholders (as described in Merger Agreement) (2) 2 Schedule 14D-9 (as described in Merger Agreement) 3 Certificate of Merger (as described in Merger 3 Agreement) Certificate of Incorporation of Multicare 1 By-laws of Multicare 1 -21- Certificate of Incorporation of Merger Sub (3) 1 By-laws of Merger Sub (4) 1 Certificate of Incorporation of Surviving 3 Corporation By-laws of Surviving Corporation 3 Management Agreement between Genesis 2 Eldercare Network Services, Inc. and Multicare Stock Purchase Agreement (Agreement to 2 Purchase Institutional Pharmacies) between Parent and Genesis Health Ventures, Inc. Subscription Agreements of __________ for common 2 stock of Parent Put/Call and Warrant Purchase Agreement between 2 ________ and ________ (including Warrant attached thereto) (5) Protective Agreement among [NEWCO] and [Caddie] 1 Commitment letter for Subordinated Parent (PIK) 2 Debt Subordinated Note Purchase Agreement 3 between Parent and Genesis Health Ventures, Inc. Subordinated Parent Note 3 Certificate of Incorporation of Parent (6) 1 By-laws of Parent (7) 1 Voting Agreements (as defined in Merger Agreement) 3 Subordinated Bridge Facility Commitment Letter 2 - ------------------------------------------------- (1) PWRW&G Draft 5/29/97 (Doc. #DS4:59320.1) (2) PWRW&G Draft 5/29/97 (Doc. #DS4:48874.7) (3) Certificate of incorporation of Genesis ElderCare -22- Acquisition, Inc., filed 5/29/97 Delaware Secretary of State (4) ST&B Draft by-laws, Genesis ElderCare Acquisition Corp. (5/30/97, 1:52 a.m.) (5) ST&B Draft (Doc 975PF39.CMP; 5/30/97 7:03 a.m.) (6) Certificate of incorporation of Genesis ElderCare Corp. filed 5/29/97 Delaware Secretary of State (7) ST&B Draft by-laws, Genesis ElderCare Corp. (5/30/97, 1:53 a.m.) -23- DESCRIPTION OF CONDITIONAL ACCEPTANCE OF CERTAIN DOCUMENTS Except where otherwise indicated, the comments set forth below refer to draft agreements prepared by Blank, Rome, Comisky & McCauley, counsel for Genesis Health Ventures, Inc., and distributed to Drinker Biddle & Reath LLP, counsel for the Administrative Agent, under cover of a letter dated May 29, 1997, from Richard J. McMahon to Howard Blum and Alan Schnitzer. AGREEMENT AND PLAN OF MERGER The most recent draft of the Merger Agreement circulated by Paul, Weiss, Rifkind, Wharton & Garrison (PWRW&G Draft 5/29/97; Doc #DS4:59320.1) is accepted by the Lenders, subject to the following additional provisions: 1. The Merger Consideration must be disclosed and approved by the Lenders. 2. Acceptance of tendered shares pursuant to the Offer must be conditioned upon receipt of all regulatory approvals and consents, and must not result in the loss of any license or permit or material contract. 3. Acceptance and purchase of tendered Common Stock pursuant to the Offer to be added as a condition to the Merger in Section 7.1. 4. The Merger Agreement should provide for the delivery of appropriate opinions of counsel with respect to the authorization, execution and delivery of the Merger Agreement and the legality and validity of the transactions contemplated thereby. 5. The Disclosure Letter must be provided to and approved by the Lenders. NON-COMPETITION AGREEMENTS Any agreement other than a reasonable non-competition agreement to be included therein, e.g. an additional agreement to acquire assets or make other payments to a Principal Shareholder (other than payments, not to exceed $8,500,000 to acquire the Colchester facility), must be expressly approved by the Lenders. -24- SUBORDINATED BRIDGE FINANCING COMMITMENT The Morgan Stanley/Montgomery Securities commitment by Shearman & Sterling for $200 million of bridge financing, as circulated on 5/31/97 (S&S Draft 5/30/97; Doc. 3929.11/NYL3A), is accepted, subject to the following provisions: 1. The commitment letter and term sheet will be revised to reflect the revised tender offer structure. 2. Upon the funding of the bridge financing, we understand that the bridge lenders desire to have subordinated guarantees of the Borrowers. The Lenders will permit such guarantees only when Multicare ceases to be a public company (i.e. upon consummation of the Merger). The funding of the bridge financing will be subject to approval by the Lenders of subordination terms applicable to the subordinated guaranties and, generally, to the bridge financing (including provisions for both the blockage of payment to the bridge lenders and standstill by the bridge lenders upon the exercise of remedies). 3. Clause (ii) of the definition of "Applicable Interest Rate" to read: "(ii) three-month U.S. Dollar LIBOR (as determined from specified sources), plus 600 basis points..." 4. The cash interest payment cap should be reduced to 14 1/2%. 5. The requirement for a guarantee from Genesis upon exercise of the put or call under the Put/Call Agreement must be deleted. 6. Mandatory redemptions out of net proceeds from asset sales will be permitted only to the extent such proceeds are not required to be used for the prepayment of the Senior Debt. 7. All terms which are subject to future agreement between the bridge lenders and Multicare must be approved by the Lenders. SUBORDINATED PIK DEBT COMMITMENT The draft PIK debt commitment, as first circulated to us by Samuel Becker of Blank Rome Comisky & McCauley on 5/29/97, is acceptable, provided that, in the event of any conflict between the provisions thereof and the provisions of Schedule III hereto (or to the Term Sheet attached as Annex A to the Waltz Commitment Letter), the provisions of such Schedule will control. -25- STOCK PURCHASE AGREEMENT 1. We need verification of the entities which comprise the institutional pharmacy business. 2. The Lenders require additional information as to whether "Merger Sub" should be a party to the Stock Purchase Agreement, as it will merge into the entity which owns the stock to be sold. 3. The Lenders require additional information as to the timing of the Closing in Section 2.2. 4. As written, Section 3.3 is not true. The "Seller" is Newco, which will not be the owner of the Shares. 5. The Lenders would like assurances in the Agreement, by way of additional conditions, that all regulatory approvals and consents, in addition to HSR, will be obtained as a condition to the transfer of stock, that any consents required under material contracts have been obtained, and that there has been no material adverse change in the institutional pharmacy business. PUT/CALL AND WARRANT PURCHASE AGREEMENT The mark-up to the Simpson Thatcher draft of 5/28/97 (7:05 pm), circulated by Blank Rome to Simpson Thatcher on 5/29/97, is accepted. The Lenders will not permit, under any circumstances, a Put to be exercised for Green's cash or debt. MANAGEMENT AGREEMENT 1. Revise the end of Section 4.4 as follows: ...., except as may otherwise be permitted under this Agreement or in the Senior Credit Agreement (as defined in Section 14.13 hereof). 2. Add the following to the end of Section 5.1: Notwithstanding the foregoing, in no event shall the Management Fee payable hereunder be less than $1,991,666 in any month or less than $23,900,000 in the aggregate in any year (the "Minimum Fee"). To the extent that the Management Fee payable hereunder in any month would exceed the Minimum Fee, such excess shall be payable only to the extent that, both before and after giving effect to the payment thereof, there shall exist no default under the Senior Credit Agreement (as defined in Section 14.13 below); and any portion of the Management Fee which is not paid shall accrue and be owing to the Manager only to the extent permitted under the Senior Credit Agreement. Neither party hereto shall -26- enter into or suffer to exist, any direct or indirect restriction of the ability of the Owner to make payment to the Manager of the Minimum Fee on a timely basis hereunder. 3. Delete Section 5.4. 4. Section 14.13 should be revised to properly define the "Senior Credit Agreement." PROTECTIVE AGREEMENT 1. Section 3.3 should not prohibit the moving of funds between Subsidiaries. SUBSCRIPTION AGREEMENT 1. The Lenders understand that the Exhibits will be the respective term sheets which have been reviewed and accepted (subject to the provisions hereof) by the Lenders. 2. "Conditions to Closing" on page 1 should read as follows: Closing of the purchase of the Common Stock is conditioned upon each of the following, which shall have occurred prior to or concurrently with such purchase: -27- ANNEX B (to Genesis Commitment Letter) Fees A facility fee (the ("Facility Fee") equal to 2 1/4% of the amount of the total Senior Facility, but not less than $19,125,000 irrespective of any reduction in the credit facility, is earned by the Co-Arrangers at the time of the acceptance of the commitment letter to which this Annex B is attached (the "Commitment Letter"), and is payable as follows:*** (1) $1,000,000 ($250,000,000 to each of the Co-Arrangers) was payable on May 31, 1997. (2) Upon the execution by Multicare and Merger Sub (or any affiliate of Merger Sub) of an agreement respecting merger, $1,868,750 of the Facility Fee shall be payable, but shall be deferred until the occurrence of the earlier to occur of the following: (a) the latest Closing Date set forth on Annex A, as the same may be extended, shall have expired prior to the date that a majority of the Shares of Multicare shall have been tendered under the Offer, in which event Genesis shall promptly pay $467,187.50 to each of Mellon, Citicorp, First Union and NationsBank and (b) the date prior to the latest Closing Date, as the same may be extended, by which a majority of the Shares of Multicare shall have been tendered under the Offer in which event the aggregate sum set forth in this paragraph (2) shall be paid as part of the sums set forth in (3) below. (3) If a majority of the Shares of Multicare shall have been tendered under the Offer prior to the latest Closing Date, as the same may be extended, the unpaid balance of the Facility Fee (including the aggregate sum under paragraph (2) above) shall be payable (and shall be promptly paid) as follows: $4,343,750 to NationsBank and $4,593,750 to each of Mellon, Citicorp and First Union. A credit shall be available against the balance of the Facility Fee referred to in this paragraph (3) in an amount equal to 1.5% of the cash proceeds received by Genesis prior to or concurrently with the initial funding - -------- *** The dollar amounts referred to in paragraphs (2) and (3) assume a Facility Fee of $19,125,000; if the total Facility Fee is greater, then each amount shall be adjusted accordingly. under the Senior Facilities from the issuance on terms acceptable to the Co-Arrangers of indebtedness subordinated to the Senior Facilities, but the credit shall not exceed $3,000,000. (4) In addition to the foregoing fees, Genesis shall pay a Commitment Fee which commenced accruing on May 31, 1997 in an amount equal to .125% per annum of the total Senior Facilities, which shall be paid in equal amounts to the Co-Arrangers upon the initial funding of the Senior Facilities or the Closing Date, as the same may be extended, whichever shall first occur. Terms used in this Annex B but not defined in Annex A are used herein as defined in Annex A to the Waltz Commitment Letter. EX-11 12 EXHBIIT 11(B3) MORGAN STANLEY BRIDGE FUND, L.L.C. MONTGOMERY GROUP HOLDINGS, L.L.C. 1585 Broadway 600 Montgomery Street New York, NY 10036 San Francisco, CA 94111 June 15, 1997 Genesis Health Ventures, Inc. 148 West State Street Kennett Square, PA 19348 Waltz Acquisition Corp. c/o The Cypress Group L.L.C. 65 East 55th Street 19th Floor New York, NY 10022 Ladies and Gentlemen: We understand that Waltz Corp. ("Holdings"), a Delaware corporation formed and wholly owned by Genesis Health Ventures, Inc. ("Genesis"), The Cypress Group L.L.C. ("Cypress") and TPG Partners II, L.P. ("TPG"), intends to acquire, through its wholly owned subsidiary Waltz Acquisition Corp., a Delaware corporation (together with any successor by merger, including with The Multicare Companies, Inc., "Merger Sub"), all of the outstanding common stock of The Multicare Companies, Inc., a Delaware corporation (the "Company"), pursuant to a tender offer and merger agreement (the "Merger Agreement") to be negotiated and entered into among Holdings, Merger Sub and the Company (such tender offer transaction, the "Acquisition"). After consummation of the Acquisition, Merger Sub would be merged with and into the Company (the "Merger"), with the Company being the surviving corporation. We understand that, the Company, Merger Sub and Holdings will enter into certain arrangements in connection with the Acquisition and the Merger: (i) Merger Sub proposes to enter into a Credit Agreement (the "Bank Credit Facility") with NationsBank, N.A., First Union, National Bank of North Carolina, Mellon Bank, N.A. and Citicorp Securities, Inc. and certain other financial institutions (the "Senior Lenders") for an aggregate of $625 million in bank borrowings, $500 million of which shall consist of term loans and $125 million of which shall consist of a revolving credit facility; provided, however, that if Genesis acquires the Company's institutional pharmacy business (the "IP Sale") prior to or simultaneously with the issuance of any Bridge Notes (as defined below), the availability under the Bank Credit Facility shall be automatically and permanently reduced by an amount equal to the after-tax proceeds received by Genesis from the IP Sale; 2 (ii) Merger Sub proposes to issue and sell on the date on which the Acquisition is consummated (the "Closing Date") and, if necessary, on the date on which the Merger is consummated (the "Merger Date") senior subordinated increasing rate notes (the "Bridge Notes") having substantially the terms (including guarantees) set forth in Exhibit A hereto (such Exhibit, together with Exhibit B hereto referred to below, being the "Term Sheet"), such that the aggregate cash proceeds from the issuance and sale of the Bridge Notes will be approximately $200 million, less fees and expenses payable to the Purchasers; (iii) Holdings proposes to issue and sell on the Closing Date shares of its common stock ("Holdings Shares") to Genesis, such that the cash proceeds from the issuance and sale of such Holdings Shares will be at least $300 million, which will be contributed as common equity to Merger Sub; (iv) Holdings proposes to issue and sell on the Closing Date Holdings Shares to Cypress and TPG, such that the cash proceeds from the issuance and sale of such Holdings Shares will be at least $400 million, which will be contributed as common equity to Merger Sub; (v) the Company would issue and sell as soon as practicable following the Acquisition, in a public offering or private placement, debt securities (the "Permanent Financing"), the proceeds of which will be used to redeem the Bridge Notes purchased hereunder. The Company and Merger Sub will offer Morgan Stanley & Co. Incorporated and Montgomery Securities the opportunity to act as exclusive agents or sole underwriters for the Permanent Financing, with the total underwriting or placement compensation associated therewith to be allocated between Morgan Stanley & Co. Incorporated and Montgomery Securities in the ratio of two-thirds and one third, respectively. In addition, if by the maturity date of the Bridge Notes the Permanent Financing shall not have been issued, or shall not have been issued in an amount sufficient to repay the principal of and accrued and unpaid interest on the Bridge Notes, such unpaid principal and interest will be satisfied by the issuance to the holders of the Bridge Notes of debt securities of the Company having substantially those terms set forth in Exhibit B hereto (the "Rollover Notes"); (vi) (a) Genesis, Cypress and TPG would collectively own all of the outstanding capital stock of Holdings; (b) Holdings would continue to own all of the outstanding capital stock of Merger Sub; (c) Merger Sub will make a tender offer for any and all outstanding common stock of the Company; (d) Merger Sub would own at least 51% of the outstanding capital stock of the Company after consummation of the Acquisition and (e) as soon as practicable after consummation of the Acquisition, Merger Sub will merge with and into the Company, with the Company surviving the Merger; 3 (vii) Genesis proposes to enter into a management services agreement (the "Management Agreement") with the Company on the Closing Date to manage the operations of the Company; and (viii) Genesis proposes to enter into a purchase agreement to acquire the therapy group business (the "Therapy Sale") from the Company for minimum after tax net cash proceeds to the Company of $20 million. The Acquisition, the Merger, the entry into the Management Agreement, if occurring prior to or simultaneously with the issuance of any Bridge Notes, the IP Sale, the Therapy Sale and the debt and equity financings thereof described above are hereinafter referred to as the "Transaction". Borrowings under the term loan portion of the Bank Credit Facility, together with the net cash proceeds from the issuance and sale of the Bridge Notes and the Holdings Shares, will provide funds sufficient to consummate the Acquisition, to refinance concurrently with the Acquisition approximately $381 million of the outstanding debt of the Company and to pay the fees and expenses incurred in connection with the consummation of the Transaction, and such proceeds shall be used for that purpose. We understand that the purchase price in respect of the Acquisition will be approximately $1,000 million. Not less than $50 million under the revolving credit facility shall remain undrawn at the time the Merger is completed; and, thereafter, such revolving credit facility will be used by the Company solely for its ongoing working capital needs and general corporate purposes (but not to finance the Transaction. Based upon and subject to the foregoing and as further provided below and in the Term Sheet, Morgan Stanley Bridge Fund L.L.C. and Montgomery Group Holdings, L.L.C. hereby severally commit to purchase, or to cause one or more of their respective affiliates, to purchase, at the Closing Date and, if necessary, on the Merger Date up to an aggregate amount (i) in the case of Morgan Stanley Bridge Fund L.L.C., equal to $133 million of the Bridge Notes and (ii) in the case of Montgomery Group Holdings, L.L.C., equal to $67 million of the Bridge Notes, in each case on the terms and subject to the conditions set forth in the Term Sheet. The term "Purchasers" as used in this Commitment Letter shall mean Morgan Stanley Bridge Fund L.L.C. and Montgomery Group Holdings, L.L.C., and one or more other persons who actually purchase or undertake the commitment to purchase the Bridge Notes referred to herein. If less than $200 million (less fees and expenses payable to the Purchasers) in Bridge Notes are issued, each Purchaser will purchase its pro rata portion of the issued Bridge Notes based upon its respective commitment. The obligations of each Purchaser to purchase Bridge Notes are several and not joint. You agree to continue to provide or cause to be provided to the Purchasers all of the information received by you or on your behalf or of which you become aware that is related to or affects Holdings, Merger Sub or the Company or any of its Subsidiaries, or any aspect of the Transaction. Please note, however, that the terms and conditions of this 4 Commitment Letter are not limited to those set forth herein or in the Term Sheet. Those matters that are not covered or made clear herein or in the Term Sheet are subject to mutual agreement of the parties. Neither the Purchasers nor any of you shall be liable or responsible for any consequential damages that may be alleged as a result of any failure to issue or purchase the Bridge Notes. Each of Merger Sub, Holdings and Genesis hereby jointly and severally agrees to pay each of the Purchasers in cash (a) a non-refundable commitment fee (the "Initial Commitment Fee") in an amount equal to 1.00% of the principal amount of the Bridge Notes to be purchased pursuant to this Commitment Letter, (b) a takedown fee (the "Takedown Fee") in an amount equal to 1.50% of the principal amount of the Bridge Notes actually purchased by such Purchaser and (c) if Merger Sub elects to extend the Purchasers' commitment hereunder beyond September 30, 1997, whether or not a portion of the Bridge Notes have been purchased hereunder, an additional non-refundable commitment fee (the "Additional Commitment Fee") in an amount equal to 1.00% of the principal amount of any remaining Bridge Notes to be purchased pursuant to this Commitment Letter. The Initial Commitment Fee will be earned upon your acceptance of this Commitment Letter (as evidenced by your execution hereof) and payable in cash concurrently with the closing of the Acquisition. The Additional Commitment Fee will be earned and payable in cash immediately upon your extension of the commitment of the Purchasers hereunder. In the event the Acquisition does not close, the Purchasers shall be entitled to receive from Genesis an amount equal to the lesser of (i) 33% of the amount of any breakup fees paid to Genesis, Cypress or TPG and (ii) the sum of the Initial Commitment Fee, the Additional Commitment Fee (if the Purchasers' commitment hereunder has been extended beyond September 30, 1997) and any out-of-pocket expenses incurred by the Purchasers in connection with the matters referred to herein, payable at the time of payment of any such breakup fee. The Takedown Fee will be earned and payable upon the issuance of any Bridge Notes. If less than $200 million of Permanent Financing is issued then Merger Sub, Holdings and Genesis shall pay to the Purchasers in cash on the date the Permanent Financing is consummated an amount equal to 0.028 multiplied by the difference between $200 million and the gross proceeds raised in the Permanent Financing. In addition, Holdings agrees to deliver, upon the first issuance of any Bridge Notes, Warrants (as defined in the Term Sheet) representing 5.0% of the fully-diluted common stock of Holdings, to be placed in an escrow account and released as described in the Term Sheet. Payments of the amounts and delivery of the Warrants referred to in this paragraph shall be allocated among the Purchasers based on their respective pro rata commitments to purchase Bridge Notes. In partial consideration for our commitment hereunder each of Holdings, Merger Sub and Genesis hereby agrees, jointly and severally, to indemnify and hold harmless the Purchasers, each of the members or shareholders or other investors or holders of interests in, or other transferees of the Purchasers (collectively, "Additional Investors"), any affiliates of the Purchasers (including without limitation Morgan Stanley Group Inc., Montgomery Securities and 5 their respective affiliates) and the Additional Investors, and each other person, if any, controlling the Purchasers or any Additional Investors and any of their respective affiliates, and any of the directors, officers, agents and employees of any of the foregoing (each, an "Indemnified Person") from and against any losses, claims, damages or liabilities related to, arising out of or in connection with the matters which are the subject of the commitment made hereunder (including, but without limitation, any use made or proposed to be made by Holdings, Merger Sub or the Company of the proceeds from the transactions referred to above) or in connection with any aspect of the Transaction (collectively, the "Subject Matter"), and will reimburse any Indemnified Person for all expenses (including fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any action, claim, suit, investigation or proceeding related to, arising out of or in connection with the Subject Matter, whether or not pending or threatened and whether or not such action, claim, suit or proceeding is brought by you, your subsidiaries, creditors or any Indemnified Person, or any Indemnified Person is otherwise a party thereto, and whether or not the Transaction is consummated. Holdings, Merger Sub and Genesis will not, however, be responsible for any losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of any Indemnified Person. Holdings, Merger Sub and Genesis also agree that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Holdings, Merger Sub, Genesis or any of their respective affiliates or associates for or in connection with the Subject Matter, except for any such liability for losses, claims, damages or liabilities incurred by you that are finally judicially determined to have resulted from the bad faith or gross negligence of such Indemnified Person. Neither Holdings, Merger Sub nor Genesis will, without the prior written consent of the Purchasers, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes a full and unconditional release of each Indemnified Person from any liabilities arising out of such action, claim, suit or proceeding. If the indemnification provided for in the second preceding paragraph of this Commitment Letter is judicially determined to be unavailable (other than in accordance with the terms hereof) to an Indemnified Person in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such Indemnified Person hereunder, Holdings, Merger Sub and Genesis agree to contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to you on the one hand, and the Purchasers, on the other hand, of the Acquisition or (ii) if the allocation provided by clause (i) is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of you and the Purchasers, as well as any other relevant equitable considerations; provided that in no event shall 6 the Purchasers' aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by us under the Commitment Letter. Each of Holdings, Merger Sub and Genesis agrees to pay as incurred all legal and other out-of-pocket expenses of the Purchasers in connection with the matters referred to herein, including travel costs, document production and other expenses of this type, and the fees of outside counsel and fees of other professional advisors retained with your consent, whether or not the Acquisition or the Merger is consummated or any Bridge Notes are actually issued. This commitment will expire at 5:00 p.m. New York City time on June 16, 1997 unless accepted prior to such time and, if accepted prior to such time, shall expire at the earliest of (i) consummation of the Acquisition or another transaction or series of transactions in which Holdings, Merger Sub, Genesis or any of their respective affiliates acquires, directly or indirectly, any stock or assets of the Company, (ii) termination of the Merger Agreement and (iii) 5:00 p.m. New York City time on September 30, 1997 or, at the option of Merger Sub and subject to the payment in full of the Additional Commitment Fee, December 5, 1997, if the closing of the Transaction shall not have occurred by such time. No such termination shall affect your obligations under each of the four immediately preceding paragraphs, which shall remain in full force and effect regardless of any termination or the completion of the transactions referred to herein. This Commitment Letter shall be governed by and construed in accordance with the internal laws of the State of New York. Any right to trial by jury with respect to any claim, action, suit or proceeding arising out of or contemplated by this letter is hereby waived and the parties hereto hereby submit to the non-exclusive jurisdiction of the federal and New York State courts located in the City of New York in connection with any dispute related to this letter and/or any matters contemplated hereby. This Commitment Letter is not assignable by you to any other Person. This Commitment Letter and the Term Sheet (and the contents thereof) may not be disclosed to any other person except your accountants and attorneys and to the Company in connection with the Acquisition and then only on a confidential basis and in connection with the Transaction. This letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter by telecopier shall be effective as delivery of a manually executed counterpart of this letter. 7 Please confirm that the foregoing is in accordance with your understanding by signing and returning to us an executed duplicate of this letter. Upon your acceptance hereof, this letter will constitute a binding agreement between us. MORGAN STANLEY BRIDGE FUND L.L.C. By: /s/ James M. Wickroit Name: James M. Wickroit Title: Vice President MONTGOMERY GROUP HOLDINGS, L.L.C. By: MMJ Investments, Inc., a Managing Member By: /s/ Jerome S. Markowitz Name: Jerome S. Markowitz Title: President Agreed to and Accepted: GENESIS HEALTH VENTURES, INC. By: /s/ George V. Hager Name: Title: WALTZ CORP. By: /s/ Karl Peterson Name: Title: WALTZ ACQUISITION CORP. By: /s/ Karl Peterson Name: Title: EXHIBIT A SENIOR SUBORDINATED INCREASING RATE NOTES: SUMMARY OF TERMS AND CONDITIONS(1) ISSUER: Merger Sub. AGENT: Morgan Stanley Group Inc. ISSUE: Senior Subordinated Increasing Rate Notes (the "Bridge Notes") issued pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement"). USE OF PROCEEDS: The proceeds of the Bridge Notes will be used (i) to finance, in part, the purchase price of the Acquisition and (ii) to pay costs and expenses in connection with the Transaction. PRINCIPAL AMOUNT: $200 million, less fees and expenses payable to the Purchasers, to be funded in one or two issuances. PRICE: 100% of the principal amount. INTEREST RATE: Interest on the Bridge Notes shall be paid at the Applicable Interest Rate (as defined below) and payable quarterly in arrears. "Applicable Interest Rate" means the highest of the following, as determined as of the beginning of each three-month period: (i) the base rate (as announced from time to time by Citibank, N.A.) plus 325 basis points, (ii) three-month U.S. Dollar LIBOR (as determined from specified sources) plus 600 basis points and (iii) the highest yield on any of the 1, 3, 5 and 10-year direct obligations issued by the United States plus 500 basis points; provided that if the Bridge Notes are not retired in whole by the end of the first six months following the first issuance date, the Applicable Interest Rate otherwise in effect will increase by 100 basis points and shall thereafter increase by an additional 50 basis - -------- (1) Capitalized terms used but not defined herein are used as defined in the Commitment Letter (the "Commitment Letter") to which this Summary of Terms and Conditions is attached. 2 points at the end of each subsequent three-month period for so long as the Bridge Notes are outstanding (the "Incremental Spread"); and provided further that (A) in no event shall the Applicable Interest Rate exceed 17% and (B) the amount of cash interest paid will be subject to a cap of 14.50%, with the excess (if any) of the Applicable Interest Rate over such interest rate cap to be paid in additional Bridge Notes. MATURITY: One year from the date of first issuance of any Bridge Notes. RANKING: The Bridge Notes will be senior to all subordinated indebtedness of Merger Sub and will be subordinated to all senior indebtedness of Merger Sub, including the Bank Credit Facility. GUARANTEES: Holdings, the Company and each of the Company's subsidiaries will issue a senior subordinated guarantee of the Bridge Notes and the Rollover Notes and under the Securities Purchase Agreement. MANDATORY REDEMPTION: Merger Sub will redeem the Bridge Notes at par plus accrued interest to the redemption date with, subject to certain agreed exceptions (including, solely with respect to clauses (ii) and (iii) below, required prepayments under the Bank Credit Facility), (i) the net proceeds from the issuance of any high yield debt securities (the "Permanent Financing"), (ii) the net proceeds from the issuance of any other debt or equity securities (with exceptions to be determined), and (iii) the net proceeds from asset sales (with exceptions to be determined); provided that the redemption price shall be 102.8% of par plus accrued interest if the Bridge Notes are redeemed with or in anticipation of funds raised by any means other than a Permanent Financing in which Morgan Stanley & Co. Incorporated and Montgomery Securities, together with such other parties with whom they mutually agree, have acted as exclusive agents or sole underwriters to Merger Sub. CHANGE-OF-CONTROL: Merger Sub will redeem the Bridge Notes upon any change-of-control (to be defined in a mutually acceptable manner) of Merger Sub at a redemption price of 101% of par plus accrued interest. The change-of-control provision will permit the put and call arrangements among Cypress, TPG and Genesis to be exercised in accordance with their terms. Any redemption or other acquisition of Bridge Notes, whether optional (as set forth below), mandatory 3 (as set forth above) or upon a change of control, will be made pro rata among the Purchasers based on the principal amount of Bridge Notes held by each of them. INTEREST PAYMENT: Quarterly in arrears. OPTIONAL REDEMPTION: The Bridge Notes will be callable, in whole or in part, upon not less than 10 days written notice, at the option of Merger Sub, at any time at 102.8% of par plus accrued interest to the redemption date. MANDATORY EXCHANGE: If the Bridge Notes have not been previously redeemed in full for cash on or prior to maturity, the principal of the Bridge Notes outstanding at maturity may, subject to certain conditions precedent, be satisfied at maturity through the issuance and delivery of the Rollover Notes described below in the attached term sheet (Exhibit B). The Rollover Notes will be issued at the same time as the Bridge Notes and held in escrow, as described above, pending such mandatory exchange. RIGHT TO RESELL BRIDGE NOTES: The Purchasers shall have the absolute and unconditional right to resell the Bridge Notes to one or more third parties, whether by assignment or participation. EQUITY AMOUNT; ESCROW: On the date of the first issuance of the Bridge Notes, warrants ("Warrants") representing 5.0% of the fully-diluted common stock of Holdings (the "Escrowed Warrant Amount") will be placed in an escrow account with a mutually agreeable escrow agent. The Warrants will be released to the holders of the Rollover Notes (if any are issued) as follows: 2.5% at the time the Rollover Notes (as defined below) are issued and an additional 0.625% at the end of each three-month period thereafter if any Rollover Notes remain outstanding at such time. If the aggregate amount of Bridge Notes issued is less than $200 million, then the Escrowed Warrant Amount will be reduced pro rata. 4 All Warrants will be exercisable at a nominal price for a period of five years from the date such warrants are released from the Escrow and will have customary anti-dilution provisions and demand, drag-along, tag-along and "piggy back" registration rights. In addition, the Rollover Notes will be held, undated, in escrow by the same escrow agent from the date that the Bridge Notes are purchased. CONDITIONS TO FUNDING: The execution and closing of the Securities Purchase Agreement and the funding of the Bridge Notes will be subject to satisfaction of conditions precedent, including but not limited to the following: 1. The Acquisition shall have been consummated in accordance with the Merger Agreement, and the Merger Agreement, tender offer and other documentation shall be reasonably satisfactory in form and substance to the Purchasers, without any material (as determined by the Purchasers in their reasonably excercised and sole discretion) amendment, modification or waiver of any of the terms or conditions thereof without the prior written consent of the Purchasers. The structure of the Transaction, including the tax, federal margin regulation, ERISA, accounting and other consequences thereof, and corporate and legal structure shall be reasonably satisfactory to the Purchasers. 2. The other financings and transactions contemplated to be consummated on the Closing Date shall have been consummated on terms reasonably satisfactory to the Purchasers, including without limitation (i) the closing of the Bank Credit Facility, if required to consummate the Acquisition (but if borrowings under the Bank Credit Facility are not required in order to consummate the Acquisition, the Bank Credit Facility shall have been executed and delivered and all conditions precedent to funding thereunder (other than the consummation of the Merger) shall have been satisfied or waived in writing), (ii) the issuance of the Holdings Shares referred to in the Commitment Letter (including 5 the issuance of such shares for aggregate cash proceeds of at least $700 million), (iii) the refinancing (or satisfactory arrangements relating to the refinancing) of approximately $381 million of debt of the Company, (iv) the entry into the Management Agreement (and provision thereunder for all accrued fees payable to Genesis to be junior and subordinate to the prior payment in full in cash of all principal, interest and fees owed to the Purchasers in connection with the Bridge Notes or any Permanent Financing), (v) the consummation of the Therapy Sale prior to (or simultaneously with) the Merger Date and (vi) if consummated prior to or simultaneously with the issuance of any Bridge Notes, the consummation of the IP Sale, all on terms and conditions (including the terms and conditions of (A) any stockholder agreements or arrangements and (B) any put/call arrangements), and in accordance with documentation, reasonably satisfactory to the Purchasers. The Bank Credit Facility will be on terms and conditions, and in accordance with documentation, reasonably satisfactory to the Purchasers. If the IP Sale is consummated prior to or simultaneously with the issuance of any Bridge Notes, availability under the Bank Credit Facility shall be automatically and permanently reduced by an amount equal to the after-tax proceeds received by Genesis in connection therewith. 3. Receipt by the Purchasers of solvency certificates and independent solvency opinions, each in form and substance reasonably satisfactory to the Purchasers, to the extent required by the lenders under the Bank Credit Facility. 4. Reasonably satisfactory completion of all loan documentation and other documentation relating to the Bridge Notes, the Rollover Notes and the Warrants in form and substance reasonably satisfactory to the Purchasers, including issuance of appropriate Holdings, Company and subsidiary guarantees, and receipt by the 6 Purchasers of reasonably satisfactory customary opinions of counsel as to the transactions contemplated thereby (including without limitation the tax aspects thereof and compliance with all applicable medicare, medicaid, state healthcare laws and regulations and securities laws), together with customary closing documentation that will be prepared within thirty days of the date of the Commitment Letter. 5. Receipt of all material governmental, shareholder and third party consents and approvals necessary or reasonably desirable in connection with any aspect of the Transaction or any other transactions contemplated hereby and satisfactory expiration of all applicable waiting periods without any actions to materially affect any material aspect of the Transaction. 6. Absence of any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its subsidiaries, taken as a whole, since December 31, 1996. No additional facts or information (including the occurrence of any events or circumstances) shall have come to the attention of Purchasers that are inconsistent with the information disclosed to the Purchasers by or on behalf of Genesis, Cypress or TPG prior to the date of the Commitment Letter and that, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on (a) the condition (financial or otherwise), business, assets, liabilities (contingent or otherwise), properties, value, operations, results of operations or prospects of (i) either Holdings or Merger Sub, individually, or (ii) the Company and its Subsidiaries, taken as a whole, or (b) any aspect of the Transaction or the refinancing of the Bridge Notes. Neither Holdings nor Merger Sub shall have incurred any material contractual obligations other than (i) the execution of the Merger Agreement, this Commitment Letter and one or more other commitment letters for 7 the Bank Credit Facility and the equity financings comprising part of the Transaction and the execution of the documentation thereunder and (ii) such other obligations as are acceptable to the Purchasers. No event or circumstance shall have occurred which would materially adversely affect the ability of Genesis to perform its obligations under the Management Agreement. 7. Absence of any action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that in the reasonable judgment of the Purchasers (i) could have a material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Company and its subsidiaries taken as a whole or on the Acquisition or the Merger or (ii) could materially adversely affect the Purchasers, the Bridge Notes or the ability of Merger Sub or the Company to perform its obligations thereunder. 8. Absence of any disruption or change in financial, banking or capital markets or in the regulatory environment that in the good faith judgment of the Purchasers could materially and adversely affect the sale of the Bridge Notes or the refinancing thereof. 9. Absence of any material default or potential default and accuracy of representations and warranties. 10. Upon consummation of the Acquisition, neither Merger Sub nor the Company nor any of their subsidiaries will have any outstanding debt (other than arrangements satisfactory to the Purchasers relating to refinance outstanding debt) other than the Bridge Notes and the Bank Credit Facility in excess of $37 million plus the amount of public convertible debt of the Company that does not convert into common stock (provided that the amount of available borrowings under the Bank Credit Facility are reduced by an equal amount). 8 REPRESENTATIONS AND WARRANTIES: The Securities Purchase Agreement will contain representations and warranties which are usual and customary for transactions of this nature or which the Purchasers reasonably determine to be appropriate in light of the business or operations of the Company or any of its subsidiaries (with the scope, exceptions and qualifications. to be agreed upon), including but not limited to the following: 1. Corporate existence. 2. Corporate and governmental authorizations; no contravention; binding and enforceable agreements. 3. Financial information 4. No material adverse change. 5. Environmental matters 6. Compliance with laws, including Medicare, Medicaid, ERISA and environmental laws. 7. No material litigation. 8. Existence, incorporation, etc., of subsidiaries. 9. Payment of taxes and other material obligations. 10. Full disclosure. 11. After consummation of the Transactions Genesis is in material compliance with its material debt. COVENANTS: The Securities Purchase Agreement will contain usual and customary covenants for transactions of this nature or which the Purchasers reasonably determine to be appropriate in light of the business or operations of the Company or any of its subsidiaries (with the scope and exceptions to be agreed upon), including without limitation the following: 1. Furnishing of information (including quarterly financial and operating reports). 2. Maintenance of property; insurance coverage. 3. Compliance with laws; conduct of business. 4. Use of proceeds. 5. Restrictions on indebtedness. 6. Negative pledge and restrictions on sale-leasebacks. 7. Restrictions on dividends and other restricted payments (including redemptions and prepayment of junior or pari passu indebtedness). 9 8. Restrictions on asset sales (other than, subject to mandatory redemption provisions, the IP Sale and the sale of the Ohio, Wisconsin and/or Illinois facilities for cash on terms which reflect the fair market value of the facilities sold). 9. Restrictions on transactions with affiliates. 10. Restrictions on mergers and consolidations. 11. Use best efforts to effect refinancing of Bridge Notes through the Permanent Financing as soon as practicable. 12. Limitation on investments. 13. Sales of subsidiaries' stock and absence of limitations on the ability of subsidiaries to upstream assets to Merger Sub. 14. Limitation on capital expenditures and acquisitions. 15. Availability of management to meet with holders of Bridge Notes or Rollover Notes upon request. 16. Maintenance of minimum net worth. EVENTS OF DEFAULT: The Securities Purchase Agreement will contain usual and customary events of default for transactions of this nature or which the Purchasers reasonably determine to be appropriate in light of the business or operations of the Company or any of its subsidiaries, including without limitation the following: 1. Failure to pay any principal when due or any interest or fees payable within five days of when due. 2. Failure to meet covenants, with grace periods where appropriate. 3. Representations or warranties false in any material respect when made. 4. Cross default to other debt of Merger Sub, the Company and their subsidiaries which is triggered by a default of such other debt (with minimum dollar amounts to be agreed upon). 5. Judgment defaults (with minimum dollar amounts to be agreed upon). 6. Other usual defaults, including without limitation, insolvency, bankruptcy and ERISA. 7. Any event or circumstance occurs that would materially adversely affect the ability of Genesis to perform its obligations under the Management Agreement or any party thereto materially breaches its obligations thereunder. 10 If an Event of Default shall occur and for so long as it shall be continuing, the Purchasers shall have, in addition to other customary rights and remedies (including without limitation the right to declare the principal of and all accrued interest on all Bridge Notes to be immediately due and payable), the right to appoint one representative to sit on the Board of Directors of Holdings. INDEMNIFICATION: Holdings, Merger Sub and Genesis will indemnify the Purchasers against all losses, liabilities, claims, damages, or expenses relating to the Bridge Notes, the Securities Purchase Agreement and the use of the Bridge Note proceeds or the commitments, including but not limited to attorney's fees and settlement costs, substantially on the terms set forth in the Commitment Letter. EXPENSES: Holdings, Merger Sub and Genesis will pay all legal and other out-of-pocket expenses of the Purchasers as incurred, including travel costs, document production and other expenses of this type, and the fees of outside counsel and fees of other professional advisors engaged with Merger Sub's consent. GOVERNING LAW: State of New York. AMENDMENTS AND WAIVERS: After the first issuance of the Bridge Notes, amendments and waivers will require the consent of persons holding in the aggregate at least 51% of the principal amount of the Bridge Notes outstanding, provided, that any such amendment will require the approval of each of Morgan Stanley Bridge Fund, L.L.C. and Montgomery Group Holdings, L.L.C. and provided further, that changes to certain economic provisions will require unanimous consent. MISCELLANEOUS: The provisions of the Commitment Letter and Term Sheet will be replaced by the provisions of any definitive documentation executed in connection with the Bridge Notes. Standard yield protection (including payments free and clear of withholding taxes and interest period breakage indemnities), eurodollar illegality and similar provisions. EXHIBIT B SENIOR SUBORDINATED ROLLOVER NOTES: SUMMARY OF TERMS AND CONDITIONS ISSUER: Merger Sub. ISSUE: Senior Subordinated Rollover Notes (the "Rollover Notes"). PRINCIPAL AMOUNT: Up to the outstanding principal amount of the Bridge Notes plus an amount equal to 2.8% of such principal amount, representing a funding fee payable to the Purchasers, to be paid to the Purchasers pro rata based on their respective shares of Bridge Notes held. PURPOSE: The Rollover Notes will be used in their entirety to redeem 100% of the outstanding principal amount of the Bridge Notes. MATURITY: 10 years after the issuance date of the Rollover Notes. INTEREST RATE: Interest on the Rollover Notes shall be paid at the Applicable Interest Rate (as defined below) and payable quarterly in arrears. "Applicable Interest Rate" means the sum of (A) the Incremental Spread (as defined in the Summary of Terms and Conditions for the Bridge Notes) as of the date of the issuance of the Rollover Notes, which shall (for so long as the Rollover Notes are held by the Purchasers) increase by an additional 50 basis points at the end of each three-month period for so long as the Rollover Notes are outstanding, plus (B) the highest of the following, as determined as of the beginning of each three-month period: (i) the base rate (as announced from time to time by Citibank, N.A.) plus 325 basis points, (ii) three months U.S. Dollar LIBOR (as determined from specified sources) plus 600 basis points and (iii) the highest yield on any of the 1, 3, 5 and 10 year direct obligations issued by the United States plus 500 basis points; and provided further that (A) in no event shall the Applicable Interest Rate exceed 17% and (B) the amount of cash interest paid will be subject to a cap of 14.50%, with the excess (if any) of the Applicable Interest Rate over such interest rate cap to be paid in additional Rollover Notes. OPTIONAL REDEMPTION: For so long as they are held by the Purchasers, the Rollover Notes will be redeemable at the option of Merger Sub, in whole or in 2 part, at any time at par plus accrued and unpaid interest to the redemption date, provided, however, that if the Rollover Notes are sold to third party purchasers on a fixed rate basis no less favorable to Merger Sub than the then applicable rate of interest (it being understood that the Purchasers shall have the right to unilaterally fix the Interest Rate on the Rollover Notes in conjunction with such third party sales and it also being understood that no such third party sales shall take place unless Merger Sub has been given 10 days' prior notice), the Rollover Notes will be non-callable for 5 years from the date of issuance and will be callable thereafter at par plus accrued interest plus a premium equal to 50% of the coupon in effect on the date of issuance of the Rollover Notes, declining ratably on each yearly anniversary to par one year prior to the maturity of the Rollover Notes. MANDATORY REDEMPTION: Same as Bridge Notes, except that the redemption price shall be at par plus accrued interest. CHANGE-OF-CONTROL: Merger Sub will redeem the Rollover Notes upon any change-of-control of Merger Sub at a redemption price of 101% of par plus accrued interest. Any redemption or other acquisition of Rollover Notes, whether optional (as set forth above), mandatory (as set forth above) or upon a change of control, will be made pro rata among the Purchasers based on the principal amount of Rollover Notes held by each of them. RANKING: Same as Bridge Notes. GUARANTEES: Same as Bridge Notes. REGISTRATION RIGHTS: Merger Sub will file, and will use its best efforts to cause to become effective, a "shelf" registration statement with respect to the Rollover Notes as soon as practicable after the issuance of the Rollover Notes. Merger Sub will keep the registration statement for the Rollover Notes effective until the Rollover Notes shall have been redeemed. If a "shelf" registration statement for the Rollover Notes has either (i) not been filed within 60 days from the date of issuance of the Rollover Notes, or (ii) not been declared effective within 120 days from the date of issuance of the Rollover Notes, Merger Sub will pay liquidated damages of $.192 per week per $1,000 principal amount of Rollover Notes until such time as such 3 registration statement has become effective. Merger Sub will also pay such liquidated damages for any period of time following the effectiveness of such registration statement that the registration statement is not available for resales thereunder. In addition, the holders of the Rollover Notes will have the right to "piggy back" in the registration of any debt securities which are registered by Merger Sub unless all of the Rollover Notes will be redeemed from the proceeds of such securities. RIGHT TO RESELL ROLLOVER NOTES AND WARRANTS: The Purchasers shall have the absolute and unconditional right to resell Rollover Notes and Warrants in compliance with applicable law to any third parties. RELEASE OF EQUITY FROM ESCROW: In the event that the Rollover Notes are exchanged for the Bridge Notes, the Purchasers shall be entitled to receive the Warrants held in escrow in the amounts and at the times described in the Bridge Notes Summary of Terms and Conditions. DEFEASANCE PROVISIONS: None. CONDITIONS TO ISSUANCE: The right to issue the Rollover Notes will be subject to satisfaction of the following conditions precedent: (i) at the time of issuance, there shall exist no default or potential default under the Securities Purchase Agreement, (ii) all fees and other amounts owing to the Purchasers shall have been paid in full and (iii) no injunction, decree, order or judgment enjoining such issuance shall be in effect. REPRESENTATION, WARRANTIES, COVENANTS, EVENTS OF DEFAULT, INDEMNITIES AND EXPENSES: As in the Securities Purchase Agreement (see above). GOVERNING LAW: State of New York. EX-11 13 EXHIBIT 11(C1) EX-11 14 EXHIBIT 11(C)(1) Exhibit 11(c)(1) AGREEMENT AND PLAN OF MERGER by and among WALTZ CORP., WALTZ ACQUISITION CORP. and THE MULTICARE COMPANIES, INC. __________________ JUNE 16, 1997 __________________ TABLE OF CONTENTS Page ---- ARTICLE 1 THE OFFER.........................................................2 Section 1.1 The Offer.......................................................2 Section 1.2 Company Actions.................................................4 ARTICLE 2 THE MERGER........................................................5 Section 2.1 The Merger......................................................5 Section 2.2 Closing; Effective Time.........................................6 Section 2.3 Certificate of Incorporation....................................6 Section 2.4 By-laws.........................................................6 Section 2.5 Directors and Officers..........................................6 ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATION; EXCHANGE OF CERTIFICATES..........................................7 Section 3.1 Effect on Capital Stock.........................................7 Section 3.2 Exchange of Common Stock........................................8 Section 3.3 No Liability...................................................10 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................10 Section 4.1 Organization.................................................10 Section 4.2 Capitalization...............................................10 Section 4.3 Subsidiaries.................................................11 Section 4.4 Authorization; Binding Agreement.............................12 Section 4.5 Noncontravention.............................................12 Section 4.6 Governmental Approvals.......................................13 Section 4.7 SEC Filings; Financial Statements; Undisclosed Liabilities...13 Section 4.8 Information Supplied.........................................14 Section 4.9 Absence of Certain Changes or Events.........................15 Section 4.10 Finders and Investment Bankers...............................15 Section 4.11 Voting Requirement...........................................15 Section 4.12 Litigation...................................................16 Section 4.13 Taxes........................................................16 Section 4.14 Compliance with Laws.........................................17 Section 4.15 Title to Properties..........................................17 Section 4.16 Other Agreements.............................................17 Section 4.17 Employee Benefit Plans.......................................17 Section 4.18 Insurance....................................................19 Section 4.19 Environmental Matters........................................19 i Page ---- ARTICLE 5 REPRESENTATIONS AND WARRANTIESOF PARENT AND MERGER SUB...........20 Section 5.1 Organization...................................................20 Section 5.2 Authorization; Binding Agreement...............................20 Section 5.3 Noncontravention...............................................21 Section 5.4 Governmental Approvals.........................................21 Section 5.5 Information Supplied...........................................22 Section 5.6 Financing......................................................22 Section 5.7 Fraudulent Transfer Laws.......................................22 Section 5.8 Finders and Investment Bankers.................................23 Section 5.9 Regulatory Approval............................................23 ARTICLE 6 COVENANTS........................................................23 Section 6.1 Conduct of Business of the Company.............................23 Section 6.2 Stockholder Approval; Proxy Statement..........................25 Section 6.3 Access and Information.........................................26 Section 6.4 No Solicitation................................................26 Section 6.5 Reasonable Efforts; Additional Actions.........................27 Section 6.6 Notification of Certain Matters................................29 Section 6.7 Public Announcements...........................................29 Section 6.8 Indemnification and Insurance..................................29 Section 6.9 Indemnification of Brokerage...................................31 Section 6.10Directors......................................................31 Section 6.11Company Debt...................................................32 Section 6.12Employee Matters...............................................32 ARTICLE 7 CONDITIONS.......................................................34 Section 7.1 Conditions to Each Party's Obligations.........................34 ARTICLE 8 TERMINATION......................................................35 Section 8.1 Termination....................................................35 Section 8.2 Fees and Expenses..............................................37 Section 8.3 Procedure for and Effect of Termination........................38 ARTICLE 9 GUARANTY.........................................................38 Section 9.1 Guaranty.......................................................38 Section 9.2 Absolute Guaranty..............................................39 Section 9.3 Continuing Guaranty............................................39 Section 9.4 Limitation.....................................................39 Section 9.5 Representations and Warranties.................................40 ii Page ---- ARTICLE 10 MISCELLANEOUS....................................................40 Section 10.1 Certain Definitions..........................................40 Section 10.2 Amendment and Modification...................................41 Section 10.3 Waiver of Compliance; Consents...............................41 Section 10.4 Survival.....................................................42 Section 10.5 Notices......................................................42 Section 10.6 Assignment...................................................43 Section 10.7 Expenses.....................................................43 Section 10.8 GOVERNING LAW................................................43 Section 10.9 Counterparts.................................................44 Section 10.10 Interpretation...............................................44 Section 10.11 Entire Agreement.............................................44 Section 10.12 No Third Party Beneficiaries.................................44 iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of June 16, 1997 (the "Agreement") by and among WALTZ CORP., a Delaware corporation ("Parent"), WALTZ ACQUISITION CORP. a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub") and THE MULTICARE COMPANIES, INC., a Delaware corporation (the "Company"). Merger Sub and the Company are sometimes collectively referred to herein as the "Constituent Corporations." WHEREAS, the respective Boards of Directors (or comparable body or entity) of the Guarantor, Parent, Merger Sub and the Company have approved the acquisition of the Company by Parent and the merger of Merger Sub with and into the Company on the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Merger Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the "Offer") to purchase all the issued and outstanding shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"), at a price per share of Common Stock of $28.00 net to the seller in cash, upon the terms and subject to the conditions set forth in this Agreement; and the Board of Directors of the Company has approved the Offer and the Merger (as hereinafter defined) and is recommending that the Company's stockholders accept the Offer; WHEREAS, as a condition of the willingness of Parent and Merger Sub to enter into this Agreement, those individuals (the "Principal Stockholders") who are today executing a Tender and Voting Agreement (as defined below), have entered into the Tender and Voting Agreement dated as of the date hereof (each, a "Voting Agreement") with Parent, pursuant to which, among other things, each Principal Stockholder will agree to tender his shares of Common Stock pursuant to the Offer and vote, subject to the terms and conditions thereof, such Principal Stockholder's shares of the Common Stock, in favor of the Merger and the approval and adoption of this Agreement; WHEREAS, the Board of Directors of the Company has approved the terms of the Voting Agreements; and WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. 2 NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1. THE OFFER Section 1.1 The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable but in no event later than the fifth business day from and including the date of the public announcement of this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, commence the Offer. The obligation of Merger Sub to, and of Parent to cause Merger Sub to, commence the Offer and accept for payment, and pay for, any shares of Common Stock tendered pursuant to the Offer shall be subject only to the conditions set forth in Exhibit A (any of which may be waived by Merger Sub in its sole discretion, provided that, without the consent of the Company, Merger Sub shall not waive the Minimum Condition (as defined in Exhibit A)) and to the terms and conditions of this Agreement. Merger Sub expressly reserves the right to modify the terms of the Offer, except that, without the consent of the Company, Merger Sub shall not (i) reduce the number of shares of Common Stock subject to the Offer, (ii) reduce the price per share of Common Stock to be paid pursuant to the Offer, (iii) modify or add to the conditions set forth in Exhibit A, (iv) except as provided in the next sentence, extend the Offer, (v) change the form of consideration payable in the Offer (other than by increasing the cash offer price) or (vi) amend or modify any term of the Offer in any manner adverse to any of the Company's stockholders. The initial expiration date shall be twenty business days from and including the commencement of the Offer. Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, but subject to the Company's right to terminate this Agreement pursuant to Section 8.1(b)(ii), (i) extend the Offer, if at the scheduled expiration date of the Offer any of the conditions to Merger Sub's obligation to purchase shares of Common Stock shall not be satisfied, until such time as such conditions are satisfied or waived or (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer or in order to obtain any material regulatory approval applicable to the Offer. Merger Sub agrees that: (A) in the event it would otherwise be entitled to terminate the Offer at any scheduled expiration thereof due to the failure of one or more of the conditions set forth in the first sentence of the introductory paragraph or paragraphs (a), (f), or (g) of Exhibit A to be satisfied or waived, it shall give the Company notice thereof and, at the request of the Company, extend the Offer until the earlier of (1) such time as such condition is, or conditions are, satisfied or waived and (2) the date chosen by 3 the Company which shall not be later than (x) September 15, 1997, or October 15, 1997 if the option to extend set forth in Section 8.1(b)(ii)(y) is exercised or (y) the date on which the Company reasonably believes all such conditions will be satisfied; provided that if any such condition is not satisfied by the date so chosen by the Company, the Company may request and Merger Sub shall make further extensions of the Offer in accordance with the terms of this Section 1.1(a); and (B) in the event that Merger Sub would otherwise be entitled to terminate the Offer at any scheduled expiration date thereof due solely to the failure of the Minimum Condition to be satisfied, it shall, at the request of the Company (which request may be made by the Company only on one occasion), extend the Offer for such period as may be requested by the Company not to exceed ten days from such scheduled expiration date. Subject to the terms and conditions of the Offer and this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, pay for all shares of Common Stock validly tendered and not withdrawn pursuant to the Offer that Merger Sub becomes obligated to purchase pursuant to the Offer promptly after the expiration of the Offer. (b) On the date of commencement of the Offer, the Parent and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule 14D-1 and the documents and exhibits included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"). The Offer Documents shall comply as to form in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder and the Offer Documents on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Merger Sub with respect to information supplied by the Company in writing for inclusion in the Offer Documents. Each of Parent, Merger Sub and the Company agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Merger Sub further agrees to take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable Federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. Parent and Merger Sub agree to provide the Company and its counsel any comments Parent, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly upon the receipt of such comments. 4 (c) Parent shall contribute to Merger Sub on a timely basis the funds necessary to purchase any shares of Common Stock that Merger Sub becomes obligated to purchase pursuant to the Offer and to perform any of its other obligations pursuant to this Agreement. Section 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company, at a meeting duly called and held on June 15, 1997, unanimously adopted resolutions approving this Agreement and the transactions contemplated hereby, including, the Offer, the Merger and the Voting Agreement, determining that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders and recommending that the Company's stockholders accept the Offer and tender their shares pursuant to the Offer and approve and adopt this Agreement. The Company further represents that Smith Barney Inc. ("Smith Barney") has delivered to the Board of Directors of the Company its opinion to the effect that, as of the date hereof, the consideration to be received by the holders of Common Stock (other than Parent and its affiliates) in the Offer and the Merger is fair to such holders from a financial point of view. The Company hereby consents to the inclusion in the Offer Documents of the recommendations of the Company's Board of Directors described in this Section 1.2(a). The Company has been advised by each of its directors and by each executive officer who as of the date hereof is aware of the transactions contemplated hereby, that such person intends to tender pursuant to the offer all Common Stock owned, of record or beneficially, by such person which such person may sell without liability under Section 16(b) of the Exchange Act. (b) Promptly following the filing of the Offer Documents with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing the recommendation described in Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the Company; provided that the Company shall not be required to include such recommendation in the Schedule 14D-9 if the Company receives an Acquisition Proposal (as defined in Section 6.4) from any person or group (i) that the Board of Directors of the Company determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (ii) as a result of which, the Board determines in good faith, after consultation with outside counsel, that it would constitute a breach of the Board's fiduciary duty under applicable law to so include such recommendation. The Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to 5 be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Merger Sub in writing for inclusion in the Schedule 14D-9. Each of the Company, Parent and Merger Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable Federal securities laws. The Parent and its counsel shall be given a reasonable opportunity to review the Schedule 14D-9 and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide the Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly upon the receipt of such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to furnish Merger Sub promptly with mailing labels containing the names and addresses of the record holders of Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Common Stock, and shall furnish to Merger Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as the Parent may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Merger Sub shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will, upon request, deliver to the Company all copies (in all forms) of such information then in their possession or control. ARTICLE 2 THE MERGER Section 2.1 The Merger. (a) Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 2.2) and in accordance with 6 the General Corporation Law of the State of Delaware (the "DGCL"), Merger Sub shall be merged with and into the Company, which shall be the surviving corporation in the Merger (the "Surviving Corporation"). At the Effective Time, the separate existence of Merger Sub shall cease and the other effects of the Merger shall be as set forth in Section 259 of the DGCL. (b) At the election of the Parent, any direct or indirect wholly owned Delaware subsidiary (as defined in Section 9.1(e)) of the Parent may be substituted for Merger Sub as a Constituent Corporation in the Merger. In such event, the parties agree to execute an appropriate amendment to this Agreement in order to reflect such substitution. Section 2.2 Closing; Effective Time . Subject to the provisions of Article 7, the closing of the Merger (the "Closing") shall take place in New York City at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, as soon as practicable but in no event later than 10:00 a.m. New York City time on the first business day after the date on which each of the conditions set forth in Article 7 have been satisfied or waived by the party or parties entitled to the benefit of such conditions, or at such other place, at such other time or on such other date as the Parent, Merger Sub and the Company may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date." At the Closing, Parent, Merger Sub and the Company shall cause a certificate of merger (the "Certificate of Merger") to be executed and filed with the Secretary of State of the State of Delaware in accordance with the DGCL. The Merger shall become effective as of the date and time of such filing, or such other time within twenty-four hours of such filing as Merger Sub and the Company shall agree to be set forth in the Certificate of Merger (the "Effective Time"). Section 2.3 Certificate of Incorporation. The certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall become, from and after the Effective Time, the certificate of incorporation of the Surviving Corporation, until thereafter altered, amended or repealed as provided therein and in accordance with applicable law. Section 2.4 By-laws. The by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall become, from and after the Effective Time, the by-laws of the Surviving Corporation, until thereafter altered, amended or repealed as provided therein and in accordance with applicable law. Section 2.5 Directors and Officers. The directors of Merger Sub and officers of the Company immediately prior to the Effective Time shall become, from and after the Effective Time, the directors and officers of the Surviving Corporation, until their respective successors are duly elected or appointed and qualify or their earlier resignation or removal. 7 ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATION; EXCHANGE OF CERTIFICATES Section 3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock or any shares of capital stock of Merger Sub: (a) Capital Stock of Merger Sub. Each share of the capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. (b) Treasury Stock and Parent-Owned Stock. Each share of Common Stock that is owned by the Company or any subsidiary of the Company ("Treasury Shares") and each share of Common Stock that is owned by Parent, Merger Sub or any other subsidiary of Parent ("Parent Shares") shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Common Stock. Subject to Section 3.1(e), each issued and outstanding share of Common Stock (other than shares to be canceled in accordance with Section 3.1(b)) shall be converted into the right to receive in cash, without interest, the price paid for each share of Common Stock in the Offer (the "Merger Consideration"). As of the Effective Time, all shares of Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Options. Immediately prior to the Effective Time, the unexercisable portion of each outstanding option (a "Company Stock Option") to purchase shares of Common Stock, shall become immediately exercisable in full, subject to all expiration, lapse and other terms and conditions thereof. The Company shall take all action necessary so that each Company Stock Option (and any rights thereunder) outstanding immediately prior to the Effective Time shall be canceled immediately prior to the Effective Time in exchange for the right to receive an amount in cash equal to the product of (A) the number of shares of Common Stock subject to such Company Stock Option immediately prior to the Effective Time (after giving effect to the first sentence of this Section 3.1(d)) and (B) the excess, if any, of (1) the Merger Consideration over (2) the per share exercise price of such Company 8 Stock Option, to be delivered by the Surviving Corporation immediately following the Effective Time. (e) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, each share of Common Stock that is issued and outstanding immediately prior to the Effective Time and that is held by a stockholder who has properly exercised and perfected appraisal rights under Section 262 of the DGCL (the "Dissenting Shares"), shall not be converted into or exchangeable for the right to receive the Merger Consideration, but shall be entitled to receive such consideration as shall be determined pursuant to Section 262 of the DGCL; provided, however, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost the right to appraisal and payment under the DGCL, each share of Common Stock of such holder shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, in accordance with Section 3.1(a), and such shares shall no longer be Dissenting Shares. The Company shall give prompt notice to Parent of any demands received by the Company for appraisal of shares of Common Stock, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. Section 3.2 Exchange of Common Stock. (a) On or before the Effective Time, Parent shall cause to be deposited in trust with a bank or trust company designated by the Parent and reasonably satisfactory to the Company (the "Paying Agent") cash, cash equivalents or a combination thereof in an aggregate amount equal to the product of (a) the number of shares of Common Stock issued and outstanding at the Effective Time (other than Dissenting Shares, Treasury Shares and Parent Shares), multiplied by (b) the Merger Consideration (such product being hereinafter referred to as the "Payment Fund"). Parent shall cause the Paying Agent to make the payments provided for in Section 3.1 out of the Payment Fund (other than Section 3.1(d) which shall be paid by the Surviving Corporation immediately following the Effective Time and other than Section 3.1(e)). The Paying Agent shall invest undistributed portions of the Payment Fund as Parent directs in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest investment grade rating from both Moody's Investor Services, Inc. and Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted Investments"); provided, however, that the maturities of Permitted Investments shall be such as to permit the Paying Agent to make prompt payment to former holders of shares of Common Stock entitled thereto as contemplated by this Section. Parent shall cause the Payment Fund to be promptly replenished to the 9 extent of any losses incurred as a result of Permitted Investments. All net earnings of Permitted Investments shall be paid to Parent as and when requested by Parent. If for any reason (including losses) the Payment Fund is inadequate to pay the amounts to which holders of Common Stock shall be entitled under Section 3.1 or this Section 3.2, Parent shall in any event be liable for payment thereof. The Payment Fund shall not be used for any purpose except as expressly provided in this Agreement. If any cash or cash equivalents deposited with the Paying Agent for purposes of paying the Merger Consideration for the Common Stock pursuant to this Article 3 remain unclaimed following the expiration of one year after the Effective Time, such cash or cash equivalents (together with accrued interest) shall be delivered to the Surviving Corporation by the Paying Agent and, thereafter, holders of certificates that immediately prior to the Effective Time represented shares of Common Stock shall be entitled to look only to the Surviving Corporation (subject to abandoned property, escheat or similar laws) as general creditors thereof. (b) Promptly after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented outstanding shares of Common Stock that were converted into the right to receive the Merger Consideration pursuant to Section 3.1 (the "Certificates") a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender by such holder to the Paying Agent of a Certificate, together with such letter of transmittal duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor, cash in an amount equal to the product of the number of shares of Common Stock represented by such Certificate multiplied by the Merger Consideration, and such Certificate shall forthwith be canceled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. If the payment is to be made to a person other than the person in whose name a Certificate surrendered is registered, it shall be a condition of payment that (a) the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and (b) the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 3.2, each Certificate shall represent for all purposes whatsoever only the right to receive the Merger Consideration in cash multiplied by the number of shares evidenced by such Certificate, without any interest thereon. (c) After the Effective Time there shall be no transfers on the stock transfer books of the Surviving Corporation of the shares of Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for transfer or for any 10 other reason, they shall be canceled and exchanged for cash as provided in this Article 3, except as otherwise provided by law. Section 3.3 No Liability. None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash from the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration payable to the holder of such Certificate pursuant to this Article 3 would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 4.6)), any such Merger Consideration shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed to Parent and Merger Sub in a letter delivered at or prior to the execution hereof (the "Disclosure Letter") the Company represents and warrants to Parent and Merger Sub as follows: Section 4.1 Organization. The Company and each of its subsidiaries is duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified to do business and in good standing in its jurisdiction of organization and in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except for such failures to be so duly qualified and in good standing that, individually or in the aggregate, will not have a Material Adverse Effect (as defined in Section 10.1(c)) with respect to the Company. The Company has previously delivered (or, in the case of subsidiaries, delivered or made available) to Parent correct and complete copies of the certificates of incorporation and by-laws (or equivalent governing instruments), as currently in effect, of the Company and each of its subsidiaries. Section 4.2 Capitalization. The authorized capital stock of the Company is 7,000,000 shares of Preferred Stock and 70,000,000 shares of Common Stock. At the close of business on June 13, 1997, (a) 30,817,069 shares of Common Stock were issued and outstanding, (b) 4,341,346 shares of Common Stock were 11 reserved for issuance upon conversion of the Company's 7% Convertible Subordinated Debentures due 2003 (the "7% Debentures"), (c) 3,690,686 shares of Common Stock were reserved for issuance upon conversion of Company Stock Options, (d) approximately 15,000 shares of Common Stock were reserved for issuance pursuant to the Company's Employee Stock Purchase Program, and (e) no shares of Common Stock were held by the Company in its treasury. Section 4.2 of the Disclosure Letter sets forth a complete and correct list, as of the date of this Agreement, of the holders of all Company Stock Options, the number of shares of Common Stock subject to each such option and the exercise prices thereof. Except as set forth above, at the close of business on June 13, 1997, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. All issued and outstanding shares of Common Stock have been duly authorized and are validly issued, fully paid, nonassessable and free of preemptive rights. All shares of Common Stock which may be issued upon conversion of the 7% Debentures or the Company Stock Options have been duly authorized and will be, when issued in accordance with the terms thereof, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in this Section 4.2 or in Section 4.3 of the Disclosure Letter and except with respect to purchases required to be made under the Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") and the Directors Retainer and Meeting Fee Plan (the "Directors Plan"), as of the date of this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound (i) obligating the Company or any of its subsidiaries to issue, deliver, sell, transfer, repurchase, redeem or otherwise acquire or vote, or cause to be issued, delivered, sold, transferred, repurchased, redeemed or otherwise acquired or voted, any shares of capital stock or other voting securities of the Company or of any of its subsidiaries, (ii) restricting the transfer of Common Stock or (iii) obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Section 4.3 Subsidiaries. All of the outstanding shares of capital stock of each of the Company's subsidiaries that are owned by the Company or any other subsidiary of the Company (collectively, the "Subsidiary Shares") have been duly authorized and are validly issued, fully paid and nonassessable and free of preemptive rights. Except as set forth in Section 4.3 of the Disclosure Letter, each of the Company's subsidiaries is a wholly owned subsidiary. Except for the security interests listed in Section 4.3 of the Disclosure Letter, all of the Subsidiary Shares are owned by the Company free and clear of all liens, claims, charges, encumbrances or security interests (collectively, "Liens") with respect thereto. Except for the capital stock of its subsidiaries and, except as set forth in Section 4.3 of the Disclosure Letter, the Company does not own, directly or indirectly, any capital stock or other 12 ownership interest in any corporation, limited liability company, partnership, joint venture or other entity. Section 4.4 Authorization; Binding Agreement. The Company has the full corporate power and authority to execute and deliver this Agreement and, subject to adoption of this Agreement by the stockholders of the Company in accordance with the DGCL, the certificate of incorporation and by-laws of the Company, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, subject to the adoption of this Agreement by the stockholders of the Company in accordance with the DGCL and the certificate of incorporation and by-laws of the Company. This Agreement has been duly and validly executed and delivered by the Company and, subject, in the case of the Merger, to the adoption of this Agreement by the stockholders of the Company in accordance with the DGCL and the certificate of incorporation and by-laws of the Company, constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as may be limited by (a) bankruptcy, insolvency, reorganization or other laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 4.5 Noncontravention. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any violation of any provision of the certificate of incorporation or by-laws (or equivalent governing instruments) of the Company or any of its subsidiaries, (b) except as set forth in Section 4.5 of the Disclosure Letter, require any consent, approval or notice under, or conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, acceleration or loss of benefit or result in the creation of any Lien upon the property or assets of the Company or any of its subsidiaries) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, agreement or other instrument or obligation (collectively, "Contracts and Other Agreements") to which the Company or any of its subsidiaries is a party or by which any of them or any portion of their properties or assets may be bound or (c) subject to the approvals, filings and consents referred to in Section 4.6, violate any order, judgment, writ, injunction, determination, award, decree, law, statute, rule or regulation (collectively, "Legal Requirements") applicable to the Company or any of its subsidiaries or any portion of their properties or assets; provided that no representation or warranty is made in the foregoing clauses (b) and (c) with respect to matters that, individually or in the aggregate, will not (x) have a Material Adverse Effect with respect to the Company, (y) impair the ability of the Company to perform its obligations under this Agreement in any material respect or 13 (z) delay in any material respect or prevent the consummation of any of the transactions contemplated by this Agreement. Section 4.6 Governmental Approvals. No consent, approval or authorization of or declaration or filing with any foreign, federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality (each, a "Governmental Entity") on the part of the Company or any of its subsidiaries that has not been obtained or made is required in connection with the execution or delivery by the Company of this Agreement or the consummation by the Company of the transactions contemplated hereby, other than (a) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (b) (1) filings and other applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (2) the filing with the SEC of (A) the Proxy Statement (as defined in Section 4.8), and (B) such reports under Sections 13(a), 13(d), 14(d), 14(e) or 15(d) of the Exchange Act, as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (c) the filing of appropriate documents with the relevant authorities of states other than Delaware in which the Company or any of its subsidiaries is authorized to do business, (d) such filings as may be required in connection with any state or local tax which is attributable to the beneficial ownership of the Company's or its subsidiaries', real property, if any, (e) such filings as may be required by any applicable state securities or "blue sky" laws or state takeover laws, (f) such filings and consents as may be required under any environmental, health or safety law or regulation, or any health care licensure laws, reimbursement authorities and their agents, certificate of need laws and other health care laws and regulations, pertaining to any notification, disclosure or required approval required by the Merger or the transactions contemplated by this Agreement and (g) consents, approvals, authorizations, declarations or filings that, if not obtained or made, will not, individually or in the aggregate, (x) result in a Material Adverse Effect with respect to the Company, (y) impair the ability of the Company to perform its obligations under this Agreement in any material respect or (z) delay in any material respect or prevent the consummation of any of the transactions contemplated by this Agreement. Section 4.7 SEC Filings; Financial Statements; Undisclosed Liabilities . The Company has made all filings required to be made under the Exchange Act with the SEC since December 31, 1996 (the "SEC Filings"). As of their respective dates, the SEC Filings complied as to form in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Filings, and the SEC Filings did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements set forth in the SEC Filings comply as to form in all material respects with 14 applicable accounting requirements and the published rules and regulations of the SEC promulgated under the Securities Act or the Exchange Act, as the case may be, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes to such financial statements) and fairly present in all material respects the consolidated financial position of the Company and its subsidiaries at the respective dates thereof and the consolidated results of operations and cash flows for the respective periods then ended (subject, in the case of unaudited interim financial statements, to exceptions permitted by Form 10-Q under the Exchange Act and to normal year-end adjustments). As of March 31, 1997, neither the Company nor any of its subsidiaries had, and since such date neither the Company nor any of its subsidiaries has incurred, any liabilities of any nature, whether accrued, absolute, contingent or otherwise, whether due or to become due that are required to be recorded or reflected on a consolidated balance sheet of the Company under generally accepted accounting principles, except as reflected or reserved against or disclosed in the financial statements of the Company included in the Filed SEC Filings (as defined in Section 4.9) or as otherwise disclosed to Parent on or prior to the date hereof. Section 4.8 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the proxy statement relating to the adoption of this agreement by the Company's stockholders (the "Proxy Statement") or (iv) the information to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement"), will, in the case of the Offer Documents and the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the holders, or, in the case of the Proxy Statement, at the date the Proxy Statement is first mailed to the Company's stockholders and at the time of the meeting of the Company's stockholders held to vote on approval and adoption of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Merger Sub in writing specifically for inclusion or incorporation by reference therein. The Schedule 14D-9, the Proxy Statement and the Information Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Merger Sub in writing specifically for inclusion or incorporation by reference therein or as set forth in any of Guarantor's (as defined in Section 9.1) SEC publicly available filings with the SEC. 15 Section 4.9 Absence of Certain Changes or Events. Except as disclosed in the SEC Filings filed and publicly available prior to the date hereof (the "Filed SEC Filings") since December 31, 1996, the Company and its subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice and as of the date hereof there has not been (i) any condition, event or occurrence that, individually or in the aggregate, has resulted in a Material Adverse Effect with respect to the Company, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital stock, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) except as reflected in Section 4.2 of the Disclosure Letter and except as disclosed in this Agreement or as set forth in Section 4.9 of the Disclosure Letter, (x) any granting by the Company or any of its subsidiaries to any executive officer or other key employee of the Company or any of its subsidiaries of any increase in compensation, except for normal increases in the ordinary course of business consistent with past practice or as required under employment agreements in effect as of December 31, 1996, (y) any granting by the Company or any of its subsidiaries to any such executive officer of any increase in severance or termination pay, except as was required under any employment, severance or termination agreements in effect as of December 31, 1996 or (z) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such executive officer except in the ordinary course of business consistent with past practice, (v) any damage, destruction or loss, whether or not covered by insurance, that has had or will have a Material Adverse Effect with respect to the Company or (vi) except insofar as may have been disclosed in the Filed SEC Filings or required by a change in generally accepted accounting principles, any change in accounting methods, principles or practices except as required by generally accepted accounting principles. Section 4.10 Finders and Investment Bankers. Neither the Company nor any of its officers or directors has employed any investment banker, business consultant, financial advisor, broker or finder in connection with the transactions contemplated by this Agreement, except for Schroder Wertheim & Co. Incorporated ("Schroder") and Smith Barney (the fees of which, in each case, will be paid by the Company), or incurred any liability for any investment banking, business consultancy, financial advisory, brokerage or finders' fees or commissions in connection with the transactions contemplated hereby, except for fees payable to Schroder and Smith Barney. The Company has provided Parent with a true and correct copy of the fee letter between the Company and each of Smith Barney and Schroder. Section 4.11 Voting Requirement. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock in favor of adoption of this Agreement and the Merger is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions 16 contemplated hereby under any applicable law, rule or regulation or pursuant to the requirements of the Company's certificate of incorporation or by-laws. Section 4.12 Litigation. Except as disclosed in the Filed SEC Filings or in Section 4.12 of the Disclosure Letter, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries that, individually or in the aggregate, will have a Material Adverse Effect with respect to the Company (it being understood that this representation shall not include any litigation which might result in an order, injunction or decree of the nature described in paragraph (a) of Exhibit A), nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having any such effect. Section 4.13 Taxes. The Company and any consolidated, combined, unitary or aggregate group for tax purposes of which the Company is or has been a member has timely filed all material Tax Returns required to be filed by it and has paid, or has set up an adequate reserve for the payment of, all Taxes required to be paid as shown on such returns, and the most recent financial statements contained in the SEC Filings reflect an adequate reserve for all Taxes payable by the Company and each of its subsidiaries accrued through the date of such financial statements whether or not shown as being due on any returns. All material Taxes that the Company and its subsidiaries are required by law to withhold or to collect for payment have been duly withheld and collected, and have been paid or accrued. The unpaid Taxes, including any contingent tax liabilities and net deferred tax liabilities, of the Company and each of its subsidiaries which have accrued as of the date of the most recent financial statements contained in the SEC Filings do not materially exceed the reserve for accrued tax liability set forth or included in such financial statements. Neither the Company nor any of its subsidiaries has been notified that any Tax Returns of the Company or its subsidiaries are currently under audit by the Internal Revenue Service (the "IRS") or any state or local tax agency and no action, suit, investigation, claim or assessment is pending or proposed with respect to any material amount of Taxes of the Company or any of its subsidiaries. No agreements have been made by the Company or its subsidiaries for the extension of time or the waiver of the statute of limitations for the assessment or payment of any federal, state or local Taxes. No material claim for unpaid Taxes has become a lien or encumbrance of any kind against the property of the Company or any of its subsidiaries or is being asserted against the Company or any of its subsidiaries. As used herein, "Taxes" shall mean any taxes of any kind, including but not limited to those on or measured by or referred to as income, gross receipts, capital, sale, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign. As used herein, "Tax Return" shall 17 mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. Section 4.14 Compliance with Laws. Except as set forth in Section 4.14 of the Disclosure Letter or in the SEC filings, neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of, any law, rule, regulation, order, judgment or decree applicable to the Company or any subsidiary or by which any property or asset of the Company or any subsidiary is bound or affected, except for any such conflicts, defaults or violations that would not in the aggregate have a Material Adverse Effect with respect to the Company. Except as set forth in Schedule 4.14 of the Disclosure Letter or in the SEC filings, the Company and its subsidiaries have all permits, licenses, authorizations, consents, approvals and franchises from governmental agencies required to conduct their businesses as now being conducted (the "Company Permits"), except for such permits, licenses, authorizations, consents, approvals and franchises the absence of which would not in the aggregate have a Material Adverse Effect with respect to the Company. Except as set forth in Section 4.14 of the Disclosure Letter or in the SEC filings, the Company and its subsidiaries are in compliance with the terms of the Company Permits, except where the failure so to comply would not in the aggregate have a Material Adverse Effect with respect to the Company. Section 4.15 Title to Properties. The Company and its subsidiaries have good, valid and marketable title to the properties and assets reflected on the most recent consolidated balance sheet included in the SEC Filings (the "Balance Sheet") (other than properties and assets disposed of in the ordinary course of business since the date of the Balance Sheet), and all such properties and assets are free and clear of any Liens, except as described in the Filed SEC Filings and the financial statements included therein or in Section 4.3 or 4.15 of the Disclosure Letter, liens for current taxes not yet due and other than Liens or title imperfections that will not have a Material Adverse Effect with respect to the Company. Section 4.16 Other Agreements. Except as set forth in Section 4.16 of the Disclosure Letter , neither the Company nor any of its subsidiaries is in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party where such default will have a Material Adverse Effect with respect to the Company. Section 4.17 Employee Benefit Plans. (a) The Company and each of its subsidiaries have complied, and currently are in compliance, in all material respects with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and all other applicable laws with respect to each material compensation or benefit plan, agreement, policy, practice, program or arrangement (whether or not subject to ERISA) maintained by the 18 Company or any of its subsidiaries for the benefit of any employee, former employee, independent contractor or director of the Company and its subsidiaries (including, without limitation, any employment agreements or any pension, savings, profit-sharing, bonus, medical, insurance, disability, severance, equity-based or deferred compensation plans) (collectively, the "Plans"). (b) The Company has provided or made available a current, accurate and complete copy of each Plan to Parent and, to the extent applicable to the Plans, (i) copies of any funding instruments, (ii) summary plan descriptions and (iii) Forms 5500 for the last three years. (c) Each of the Plans that is intended to qualify under Section 401(a) of the Code has received, or has filed for, a favorable determination letter from the IRS ruling that the Plan, does so qualify and that the trust is exempt from taxation pursuant to Section 501(a) of the Code. (d) Except as set forth in Section 4.17(d) of the Disclosure Letter, neither the Company nor any of its subsidiaries has within the past 5 years maintained, adopted or established, contributed or been required to contribute to, or otherwise participated in or been required to participate in, any employee benefit plan or other program or arrangement subject to Title IV of ERISA (including, without limitation, a "multi-employer plan" (as defined in Section 3(37) of ERISA) and a defined benefit plan (as defined in Section 3(35) of ERISA)). (e) No Plan, other than a Plan which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides any material amount of health or medical benefits (whether or not insured), with respect to current or former employees of the Company beyond their retirement or other termination of service with the Company (other than (i) coverage mandated by applicable law, (ii) benefits the full cost of which is borne by the current or former employee (or his or her beneficiary) or (iii) benefits pursuant to employment agreements or other arrangements disclosed pursuant to this Agreement). (f) Except as set forth in Section 4.17(f) of the Disclosure Letter, neither the Company nor its subsidiaries has incurred any withdrawal liability with respect to any Plan that is a multiemployer plan (within the meaning of Section 3(37) of ERISA) which would have a Material Adverse Effect with respect to the Company. (g) No reportable event (within the meaning of Section 4043 of ERISA) (other than an event for which the 30-day notice period is waived) or prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) has occurred with respect to any Plan that will have a Material Adverse Effect with respect to the Company. (h) There are no pending or, to the knowledge of the Company, threatened actions, claims or lawsuits by any individuals or entities with respect to 19 any Plan (other than for routine benefit claims) that will have a Material Adverse Effect with respect to the Company. (i) Except as set forth in Section 4.17(i) of the Disclosure Letter, no payments or benefits under any Plan are triggered (in whole or in part) solely as a result of the transactions contemplated by this Agreement that will have a Material Adverse Effect with respect to the Company. (j) No Plan provides for any stock option that is exercisable into the stock of any of the subsidiaries of the Company. Section 4.18 Insurance. The Company maintains, and has maintained, without interruption, during the past three years, policies or binders of insurance covering such risks, and events, including personal injury, property damage and general liability, in amounts the Company reasonably believes adequate for its business and operations. Section 4.19 Environmental Matters. (a) Except as set forth in the Filed SEC Filings, (i) the assets, properties, businesses and operations of the Company and its subsidiaries are and have been in compliance with applicable Environmental Laws (as defined below), except for such non-compliance which has not had and will not have a Material Adverse Effect with respect to the Company); (ii) the Company and its subsidiaries have obtained and, as currently operating, are in compliance with all Company Permits necessary under any Environmental Law for the conduct of the business and operations of the Company and its subsidiaries in the manner now conducted except for such non-compliance which has not had and will not have a Material Adverse Effect with respect to the Company; (iii) all Hazardous Substances generated at or in connection with the real properties and operation of the Company have been transported and otherwise handled, treated and disposed of in compliance with all applicable Environmental Laws and in a manner that does not result in liability under Environmental Laws, except for noncompliance or liability which has not had and will not have a Material Adverse Effect with respect to the Company, (iv) no Hazardous Substances have been disposed of or otherwise released, handled or stored by the Company on the real properties on which the Company's business is conducted or elsewhere in violation of applicable Environmental Laws or in a manner that would result in liability under applicable Environmental Laws which will have a Material Adverse Effect with respect to the Company and (v) neither the Company nor any of its subsidiaries nor any of their respective assets, properties, businesses or operations has received or is subject to any outstanding order, decree, judgment, complaint, agreement, claim, citation, notice, or to the knowledge of the Company, any investigation, inquiry or proceeding indicating that the Company or any of its subsidiaries is or may be (a) liable for a violation of any Environmental Law or 20 (b) liable for any Environmental Liabilities and Costs (including, without limitation, any such Environmental Liabilities or Costs incurred in connection with being designated as a "potentially responsible party" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act or any analogous state law), where in each case such liability would have a Material Adverse Effect with respect to the Company. (b) For purposes of this Agreement, the terms below shall have the following meanings: "Environmental Law" means any law (including, without limitation, common law), regulation, ordinance, guideline, code, decree, judgment, order, permit or authorization or other legally enforceable requirement of any Governmental Authority relating to worker or public safety and the indoor and outdoor environment, including, without limitation, pollution, contamination, Hazardous Substances, cleanup, regulation and protection of the air, water or soils in the indoor or outdoor environment; and "Environmental Liabilities and Costs" means all damages, penalties, obligations or clean-up costs assessed or levied pursuant to any Environmental Law; "Hazardous Substances" means petroleum products, asbestos, radioactive material, or hazardous or toxic substances or wastes as defined or regulated under any Environmental Law. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company as follows: Section 5.1 Organization. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Merger Sub is a newly formed, wholly owned subsidiary of the Parent and, except for activities incident to the acquisition of the Company, Merger Sub has not engaged in any business activities of any type or kind whatsoever. Section 5.2 Authorization; Binding Agreement. Each of Parent and Merger Sub has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution 21 and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of each of Parent and Merger Sub. This Agreement has been duly and validly executed and delivered by each of Parent and Merger Sub and constitutes a legal, valid and binding agreement of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms except as may be limited by (a) bankruptcy, insolvency, reorganization or other laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 5.3 Noncontravention. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any violation of any provision of the certificate of incorporation or by-laws of Parent or Merger Sub, (b) require any consent, approval or notice under, or conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any Contracts and Other Agreements to which Parent or Merger Sub is a party or by which either of them or any portion of their properties or assets may be bound or (c) subject to the matters referred to in clauses (a), (b) and (c) of Section 5.4 below, violate any Legal Requirements applicable to Parent or Merger Sub or any material portion of their properties or assets; provided that no representation or warranty is made in the foregoing clauses (b) and (c) with respect to matters that, individually or in the aggregate, will not have a Material Adverse Effect with respect to Parent. Section 5.4 Governmental Approvals. No consent, approval or authorization of, or declaration or filing with, any Governmental Entity on the part of either Parent or Merger Sub that has not been obtained or made is required in connection with the execution or delivery by Parent or Merger Sub of this Agreement or the consummation by Parent or Merger Sub of the transactions contemplated hereby, other than (a) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (b) (1) filings under the HSR Act, (2) the filing with the SEC of such reports under Sections 13(a), 13(d), 14(d), 14(e) or 15(d) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, and (3) as set forth on Schedule 5.4 and (c) the filing of appropriate documents with the relevant authorities of states other than Delaware in which Parent or any of its subsidiaries is authorized to do business, (d) such filings as may be required in connection with any state or local tax which is attributable to the beneficial ownership of Parent's or its subsidiaries', real property, if any, (e) such filings as may be required by any applicable state securities or "blue sky" laws or state takeover laws, (f) such filings and consents as may be required under any environmental, health or safety law or regulation, or any health care licensure laws, reimbursement authorities and their agents, certificate of need laws 22 and other health care laws and regulations, pertaining to any notification, disclosure or required approval required by the Merger or the transactions contemplated by this Agreement and (g) consents, approvals, authorizations, declarations or filings that, if not obtained or made, will not, individually or in the aggregate, result in a Material Adverse Effect on the Parent or prevent or significantly delay Parent or Merger Sub from consummating the transactions contemplated hereby. Section 5.5 Information Supplied. None of the information supplied or to be supplied in writing by Parent or Merger Sub specifically for inclusion or incorporation by reference in the Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the holders, or, in the case of the Proxy Statement, at the date the Proxy Statement is first mailed to the Company's stockholders or at the time of the meeting of the Company's stockholders held to vote on approval and adoption of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Merger Sub with respect to statements made or incorporated by reference therein based on information supplied in writing by the Company specifically for inclusion or incorporation by reference therein. Section 5.6 Financing. After giving effect to borrowings under Parent's debt financing commitments (the "Debt Financing Commitments"), true and complete copies of which have been provided to the Company, Merger Sub will have sufficient funds available to purchase all the outstanding shares on a fully diluted basis of Common Stock pursuant to the Offer and the Merger, to refinance all indebtedness that will or may become due as a result of the consummation of the Offer or the Merger and to pay all fees and expenses incurred by it or disclosed pursuant to Section 4.10 related to the transactions contemplated by this Agreement. Section 5.7 Fraudulent Transfer Laws. Assuming the Company is not Insolvent (as defined below) prior to the Effective Time, immediately after the Effective Time and after giving effect to any change in the Surviving Corporation's assets and liabilities as a result of the Merger, the Surviving Corporation will not be Insolvent. For purposes hereof, an entity will be deemed to be "Insolvent" if (i) such entity's financial condition is such that either the sum of its debts is greater than the fair value of its assets or the fair saleable value of its assets is less than the amount required to pay its probable liability on existing debts as they mature, (ii) such entity has unreasonably small capital with which to engage in its business or (iii) such entity has incurred liabilities beyond its ability to pay as they become due. The 23 representation and warranty set forth in this Section 5.7 shall be deemed to be made only upon the purchase of shares of Common Stock in the Offer. Section 5.8 Finders and Investment Bankers. Neither Parent or Merger Sub nor any of their respective officers or directors has employed any investment banker, business consultant, financial advisor, broker or finder in connection with the transactions contemplated by this Agreement, except that Guarantor (as defined in Section 9.1) has employed Montgomery Securities, Incorporated ("Montgomery"), or incurred any liability for any investment banking, business consultancy, financial advisory, brokerage or finders' fees or commissions in connection with the transactions contemplated hereby, except for fees payable to Montgomery, all of which fees have been or will be paid by the Guarantor. Section 5.9 Regulatory Approval. Parent is not aware of any existing impediment to the approval of the transactions contemplated hereby by any Governmental Authority whose approval is required to consummate the transactions contemplated hereby. ARTICLE 6 COVENANTS Section 6.1 Conduct of Business of the Company. Except as set forth in Section 6.1 of the Disclosure Letter or contemplated by this Agreement, during the period commencing on the date hereof and ending at the Effective Time, the Company shall, and shall cause each of its subsidiaries to, conduct its operations according to its ordinary course of business consistent with past practice, and the Company shall, and shall cause each of its subsidiaries to, use all reasonable efforts to preserve intact its business organization and to maintain satisfactory relationships with its customers, suppliers and others having material business relationships with it; provided, that it shall not be a breach of this covenant if the Company fails to conduct its operations according to its ordinary course of business consistent with past practice if such deviation results from the limitations set forth in clauses (e) or (g) below. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, prior to the Effective Time, the Company will not and will not permit any or its subsidiaries to, without the prior written consent of the Parent: (a) amend or propose to amend its certificate of incorporation or by-laws (or equivalent governing instruments); (b) authorize for issuance, issue, sell, pledge, deliver or agree or commit to issue, sell, pledge or deliver (whether through the issuance or 24 granting of any options, warrants, calls, subscriptions, stock appreciation rights or other rights or other agreements) or otherwise encumber any capital stock of any class or any securities convertible into or exchangeable for shares of capital stock of any class, other than the issuance of shares of Common Stock issuable upon exercise of Company Stock Options or conversion of 7% Debentures outstanding on the date of this Agreement or pursuant to the Stock Purchase Plan or the Directors Plan (in each of such case, in accordance with the present terms thereof); (c) split, combine or reclassify any of its capital stock or declare, pay or set aside for payment any dividend or other distribution in respect of or substitution for its capital stock, or redeem, purchase or otherwise acquire any shares of its capital stock; (d) except as set forth in Schedule 4.9, increase or establish any compensation or benefit plan, agreement, policy, practice, program or arrangement that would be a Plan (had such plan, agreement, policy, practice, program or arrangement been adopted prior to the date of this Agreement) or otherwise increase in any manner the compensation payable or to become payable by the Company or any of its subsidiaries to any of their respective directors, officers, former employees, or employees, other than in the ordinary course of business consistent with past practice or as required under any existing employment agreement or Plan or this Agreement; (e) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, limited liability company, partnership, joint venture, association or other business organization or division thereof or (y) any assets, outside of the ordinary course of business that in the aggregate is in excess of $10 million; it being understood that the foregoing does not restrict any construction project heretofore identified or commenced by the Company that is not prohibited by Section 6.1(h) below; (f) sell, lease, license, or otherwise dispose of, or enter into any material contract, commitment, lease or agreement with respect to, any properties or assets (i) that are material to the Company and its subsidiaries taken as a whole and (ii) other than in the ordinary course of business consistent with past practice; (g) (x) incur any long-term indebtedness in excess of the aggregate amount of the Company's consolidated long-term indebtedness outstanding as of June 16, 1997 other than (i) indebtedness not to exceed $10 million at any one time outstanding, the proceeds of which are used to make acquisitions permitted by clause (e) above; provided, that the ratio of the principal amount of the indebtedness incurred to finance such acquisitions to the aggregate pro forma cash flow of the businesses so acquired during the four fiscal quarters preceding such acquisition does 25 not exceed 6:1, and (ii) additional indebtedness not to exceed $10 million on the date shares are purchased in the Offer, and except for intercompany indebtedness between the Company and any of its subsidiaries or between such subsidiaries, or (y) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any direct or indirect subsidiary or joint venture of the Company or to officers and employees of the Company or any of its subsidiaries for travel, business or relocation expenses in the ordinary course of business consistent with past practice; (h) make or agree to make any new capital expenditure or capital expenditures other than in accordance with the Company's 1997 budget previously delivered to Parent; (i) make any tax election or settle or compromise any tax liability that will have a Material Adverse effect with respect to the Company; (j) make any material change to its accounting methods, principles or practices, except as may be required by generally accepted accounting principles; (k) enter into any other agreements, commitments or contracts that are material to the Company and its subsidiaries taken as a whole, other than in the ordinary course of business consistent with past practice, or otherwise make any material change that is adverse to the Company (including by way of termination) in (i) any existing agreement, commitment or arrangement that is material to the Company and its subsidiaries taken as a whole or (ii) the conduct of the business or operations of the Company and its subsidiaries; or (l) agree, commit or arrange to do any of the foregoing. Section 6.2 Stockholder Approval; Proxy Statement. Following the purchase of shares of Common Stock pursuant to the Offer, the Company shall take all action necessary in accordance with applicable law to convene a meeting of its stockholders as promptly as practicable to consider and vote upon this Agreement and the transactions contemplated hereby. The Company shall, through its Board of Directors (the "Board"), recommend that the Company's stockholders vote in favor of the adoption of this Agreement and the transactions contemplated hereby, subject to the Board's fiduciary duty under applicable law. As soon as practicable, following the purchase of shares of Common Stock pursuant to the Offer, the Company shall prepare and file with the SEC under the Exchange Act the Proxy Statement and shall use its reasonable best efforts to cause the Proxy Statement to be mailed to stockholders of the Company as promptly as practicable after such filing. At the meeting of the Company's stockholders, the Parent shall cause all Parent Shares to be 26 voted in favor of the adoption of this Agreement and the transactions contemplated hereby. Section 6.3 Access and Information. Between the date of this Agreement and the Effective Time, the Company shall, and shall cause its subsidiaries to, afford the Parent and its authorized representatives (including its accountants, financial advisors and legal counsel) reasonable access during normal business hours to all of the properties, personnel, Contracts and Other Agreements, books and records of the Company and its subsidiaries and shall promptly deliver or make available to the Parent (a) a copy of each report, schedule and other document filed by the Company pursuant to the requirements of federal or state securities laws and (b) all other information concerning the business, properties, assets and personnel of the Company and its subsidiaries as the Parent may from time to time reasonably request. The terms of the Confidentiality Agreements (the "Confidentiality Agreements") between the Company and Parent are incorporated herein by reference and shall remain in full force and effect. Section 6.4 No Solicitation. The Company, its subsidiaries and their respective officers, directors, employees, representatives and advisors shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any Acquisition Proposal; provided that following the cessation of any such discussions or negotiations, future discussions or negotiations with any such parties shall be governed solely by the provision of this Section 6.4 other than this sentence. Except pursuant to this Agreement, neither the Company or any of its subsidiaries, nor any of their respective officers, directors, employees or representatives or advisors, shall, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than Parent and Merger Sub or any affiliate, associate or designee of Parent or Merger Sub) concerning any proposal (an "Acquisition Proposal") for an acquisition of all or any substantial part of the business and properties or capital stock of the Company and its subsidiaries taken as a whole, directly or indirectly, whether by merger, consolidation, share exchange, tender offer, purchase of assets or shares of capital stock or otherwise (an "Acquisition Transaction"). Notwithstanding the foregoing, (a) the Board may take, and disclose to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender offer for shares of capital stock of the Company; provided, that the Board shall not recommend that the stockholders of the Company tender their shares in connection with any such tender offer unless the Board shall have determined in good faith, after consultation with outside counsel that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law; (b) the Company may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any person or group pursuant to customary confidentiality agreements, and may participate in discussions and negotiate with such person or 27 group concerning any Acquisition Proposal, if such person or group has submitted a written Acquisition Proposal to the Board and the Board determines in its good faith judgment, after consultation with outside counsel that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law; and (c) the Company may take the actions described in Section 8.1(c). The Board shall notify Parent immediately if any such Acquisition Proposal is made and shall in such notice, indicate in reasonable detail the identity of the offeror and the terms and conditions of such proposal and, subject to the fiduciary duties of the Board of Directors under applicable law, shall keep Parent promptly advised of all developments which could reasonably be expected to culminate in the Board of Directors withdrawing, modifying or amending its recommendation of the Merger and the other transactions contemplated by this Agreement. The Company agrees not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party, unless the Board shall have determined in good faith, that failing to release such third party or waive such provisions would constitute a breach of the fiduciary duties of the Board of Directors under applicable law. Section 6.5 Reasonable Efforts; Additional Actions. (a) Upon the terms and subject to the conditions of this Agreement, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all action, and to do or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by, and in connection with, this Agreement, including using all reasonable efforts to (i) obtain all consents, amendments to or waivers under the terms of any of the Company's contractual arrangements required by the transactions contemplated by this Agreement (other than Agreements relating to its long term debt, consents, amendments or waivers the failure of which to obtain will not, individually or in the aggregate, (x) have a Material Adverse Effect with respect to the Company, (y) impair the ability of the Company to perform its obligations under this Agreement in any material respect or (z) delay in any material respect or prevent the consummation of any of the transactions contemplated by this Agreement), (ii) effect promptly all necessary or appropriate registrations and filings with Governmental Entities, including, without limitation, filings and submissions pursuant to the HSR Act, the Exchange Act, the DGCL and state and federal licensing authorities, (iii) defend any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby and (iv) fulfill or cause the fulfillment of the conditions to Closing set forth in Article 7. In connection with and without limiting the foregoing, the Company and its Board of Directors shall (x) take all action necessary to ensure that no state takeover statute or similar statute or regulation (including, without limitation, Section 203 of the DGCL) is or becomes applicable to the Offer, the Merger, this Agreement or any of the other transactions 28 contemplated by this Agreement or the Voting Agreement and (y) if any state takeover statute or similar statute or regulation becomes applicable to the Offer, the Merger, this Agreement or any other transaction contemplated by this Agreement or the Voting Agreement, take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated by this Agreement and the Voting Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger, this Agreement and the other transactions contemplated by this Agreement and the Voting Agreement. Notwithstanding the foregoing, the Board of Directors of the Company shall not be prohibited from taking any action permitted by the terms of this Agreement. (b) If, at any time after the Effective Time, the Surviving Corporation shall determine or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation the right, title or interest in, to or under any of the rights, properties or assets of either of the Constituent Corporations acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of the Constituent Corporations or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of the Constituent Corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement. (c) In furtherance and without limiting the above provisions, each of the Company and Parent shall as promptly as practicable following the execution and delivery of this Agreement, but not later than 10 days following the commencement of the Offer, file with the United States Federal Trade Commission (the "FTC") and the United States Department of Justice ("DOJ") the notification and report form, if any, required for the transactions contemplated hereby and any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act. Each of the Company and Parent shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission which is necessary under the HSR Act. The Company and Parent shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request. Each of Parent and the Company shall use all reasonable efforts to obtain any clearance required under the HSR Act for, and 29 to provide assistance to the other in any antitrust proceedings related to, the consummation of the transactions contemplated by this Agreement. (d) Parent agrees to cause to be filed as promptly as practicable and in no event later than July 15, 1997, all other applications and notices ("Applications") required to be filed with Governmental Authorities in order to consummate the Offer and the Merger, and to pursue diligently the approval of such Applications. Section 6.6. Notification of Certain Matters. The Company shall give notice to Parent, and Parent and Merger Sub shall give notice to the Company, promptly upon becoming aware of (a) any occurrence, or failure to occur, of any event, which occurrence or failure to occur has caused or will cause any representation or warranty in this Agreement to be untrue or inaccurate in any material respect at any time after the date hereof and prior to the Effective Time and (b) any material failure on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided that the delivery of any notice pursuant to this Section 6.6 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 6.7. Public Announcements. The initial press release or releases with respect to the transactions contemplated by this Agreement shall be in the form agreed to by Parent and the Company. Thereafter, for as long as this Agreement is in effect, Parent and Merger Sub, on the one hand, and the Company, on the other hand, shall not, and shall cause their subsidiaries and affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Offer, the Merger, this Agreement or the other transactions contemplated hereby without the consent of the other (which shall not be unreasonably withheld or delayed), except where such release or announcement is required by applicable law or pursuant to any listing agreement with, or the rules or regulations of, any securities exchange or any other regulatory requirement. Parent and Merger Sub acknowledge and accept that, promptly after the execution and delivery of this Agreement, the Company will file with the SEC a Current Report on Form 8-K, reporting such event and including a copy of this Agreement as an exhibit thereto. Section 6.8 Indemnification and Insurance. (a) Merger Sub agrees that all rights to indemnification existing in favor of the present or former directors, officers, and employees of the Company (as such) or any of its subsidiaries or present or former directors of the Company or any of its subsidiaries serving or who served at the Company's or any of its subsidiaries' request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, as provided in the Company's certificate of incorporation or by-laws, or the articles of incorporation, by-laws or similar documents of any of the Company's subsidiaries and the indemnification agreements with such present and 30 former directors, officers and employees as in effect as of the date hereof with respect to matters occurring at or prior to the Effective Time shall survive the Merger and shall continue in full force and effect and without modification (other than modifications following the Merger which would enlarge the indemnification rights) for a period of not less than the statutes of limitations applicable to such matters, and the Surviving Corporation shall comply fully with its obligations hereunder and thereunder. Without limiting the foregoing, the Company shall, and after the Effective Time, the Surviving Corporation shall periodically advance reasonably incurred expenses as so incurred with respect to the foregoing (including with respect to any action to enforce rights to indemnification or the advancement of expenses) to the fullest extent permitted under applicable law; provided, however, that the person to whom the expenses are advanced provides an undertaking (without delivering a bond or other security) to repay such advance if it is ultimately determined that such person is not entitled to indemnification. (b) For a period of six (6) years after the Effective Time, the Surviving Corporation shall maintain officers' and directors' liability insurance and fiduciary liability insurance covering the persons described in paragraph (a) of this Section 6.8 (whether or not they are entitled to indemnification thereunder) who are currently covered by the Company's existing officers' and directors' or fiduciary liability insurance policies on terms no less advantageous to such indemnified parties than such existing insurance. (c) The Surviving Corporation shall indemnify and hold harmless (and shall advance expenses to), to the fullest extent permitted under applicable law, each director, officer, employee, fiduciary and agent of the Company or any subsidiary of the Company including, without limitation, officers and directors, serving as such on the date hereof against any costs and expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation relating to any of the transactions contemplated hereby, and in the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Surviving Corporation shall pay the reasonable fees and expenses of counsel selected by the indemnified parties, promptly as statements therefor are received and (ii) the parties hereto will cooperate in the defense of any such matter; provided, however, that the Surviving Corporation shall not be liable for any settlement effected without its prior written consent, which consent shall not unreasonably be withheld. (d) The Surviving Corporation shall pay all reasonable costs and expenses, including attorneys' fees, that may be incurred by and indemnified parties in enforcing the indemnity and other obligations provided for in this Section 6.8. 31 (e) In the event the Surviving Corporation or any of its respective successors or assigns (i) consolidates with or merges into any other person and is not the continuing ro surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, proper provisions shall be made so that the successors and assigns of the Surviving Corporation assumes the obligations set forth in this Section 6.8. (f) This Section 6.8, which shall survive the consummation of the Merger at the Effective Time and shall continue for the periods specified herein, is intended to benefit the Company, the Surviving Corporation, and any person or entity referenced in this Section 6.8 or indemnified hereunder each of whom may enforce the provisions of this Section 6.8 (whether or not parties to this Agreement). Section 6.9 Indemnification of Brokerage. Parent and Merger Sub, on the one hand, and the Company, on the other hand, each agree to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf on Parent or Merger Sub or any of their affiliates, on the one hand, or by the Company or any of its affiliates, on the other hand, and to bear the cost of legal expenses incurred in defending any such claim or demand. Section 6.10 Directors. Promptly upon the acceptance for payment of, and payment for, such number of shares of Common Stock by Merger Sub pursuant to the Offer as satisfies the Minimum Condition (the "Majority Acquisition"), and from time to time thereafter, Merger Sub shall be entitled to designate such number of directors on the Board of Directors of the Company, subject to compliance with Section 14(f) of the Exchange Act, as shall represent a percentage of the Board of Directors equal to the percentage of the outstanding shares of Common Stock owned by Merger Sub; provided that, from the Majority Acquisition until the Effective Time, at least two persons who are directors of the Company on the date hereof shall be directors of the Company (the "Continuing Directors"); and provided further that, if the number of Continuing Directors shall be reduced below two for any reason whatsoever, any remaining Continuing Directors shall be entitled to designate a person to fill such vacancy as a Continuing Director for purposes of this Agreement or, if no Continuing Directors then remain, the other directors shall designate two persons to fill such vacancies who shall not be officers, directors, stockholders or affiliates of Parent, Merger Sub or the Company, and such persons shall be deemed to be Continuing Directors for purposes of this Agreement. The Company and its Board of Directors shall, at such time, take all such action needed to cause Merger Sub's designees to be appointed to the Company's Board of Directors, including either increasing the size of the Board of Directors or securing the resignations of incumbent directors or both. At such times, the Company will use its reasonable best efforts to cause persons designated by Merger Sub to constitute the 32 same percentages as is on the board of (i) each committee of the Board of Directors; (ii) each board of directors of each subsidiary of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. Subject to applicable law, the Company shall promptly take all action requested by Parent necessary to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder not later than ten days prior to the scheduled Expiration Date of the Offer, and the Company agrees to make such mailing with the mailing of the Schedule 14D-9 (provided that Merger Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Merger Sub's designees). Section 6.11 Company Debt. Parent acknowledges that following the Effective Time the Surviving Corporation will be required to comply with (i) the terms of all debt of the Company and its subsidiaries which, as a result of the transactions contemplated by this Agreement, are terminated, accelerated or otherwise become due or become subject to termination or acceleration, and (ii) the provisions of agreements governing debt of the Company which is not subject to termination or acceleration as a result of the transactions contemplated hereby, including, without limitation: (a) the Indenture between the Company and United Jersey Bank, as Trustee (the "Indenture"), dated as of November 18, 1992, including without limitation, Section 3.15 of the Indenture, and shall not permit the Surviving Corporation to take any action that would violate or conflict with the terms of the Indenture. Parent shall cause the Surviving Corporation to provide such notices to holders of the Company's 12.50% Senior Subordinated Notes due 2002 (the "12.50% Notes") as required by Section 3.15 of the Indenture and to enter into such supplemental indentures and deliver such certificates and opinions as may be required under the Indenture; and (b) the Fiscal Agency Agreement between the Company and The Chase Manhattan Bank, N.A. as fiscal agent (the "Fiscal Agency Agreement"), dated March 16, 1995, and the 7% Debentures. Parent shall cause the Surviving Corporation to take all such actions as are required by Section 15 of the Fiscal Agency Agreement and Section 6 of the 7% Debentures including providing such notice to the Fiscal Agent as is required therein and to enter into such supplemental indentures and deliver such certificates and opinions as may be required under the Indenture. Section 6.12 Employee Matters. (a) Parent agrees to cause the Surviving Corporation to comply in all respects with the change of control provisions of the employment agreements of each of Moshael J. Straus, Daniel E. Straus, Stephen R. Baker, Andrew Horowitz, Alan D. Solomont and Susan S. Bailis. 33 Without limiting the foregoing, all amounts payable upon such change in control shall be paid in cash immediately following the Majority Acquisition. (b) (A) Parent agrees to pay or to cause the Surviving Corporation to pay, in either case upon the terms and subject to the conditions set forth in this Section 6.12(b), to each of the employees of the Company identified in Section 6.12(b) of the Disclosure Letter (the "Affected Employees") an amount (the "Accrued Bonus Payment") equal to such Affected Employee's annual bonus (which amount is set forth opposite such Affected Employee's name in Section 6.12(b) under the heading "Annual Bonus" of the Disclosure Letter; provided, that such amounts may be changed by the Company after the date hereof upon notice to Parent if the aggregate Accrued Bonus Payment (as reduced by the Accrued Bonus Payment of any Affected Employee whose employment is terminated prior to the Effective Time) would not increase as a result of such change) multiplied by a fraction, the numerator of which is the number of days that have elapsed from December 31, 1996 (or the date of hire of the Affected Employee, if later) until the Effective Time and the denominator of which is 365; provided, that if any such Employee (other than the persons referred to in Section 6.12(a)) terminates his or her employment other than for Good Reason to Terminate (as defined below) prior to December 31, 1997, the numerator shall be the lesser of 181 and the number of days that have elapsed from the date of hire of the Affected Employee until June 30, 1997. (B) Payment of each Affected Employee's Accrued Bonus Payment shall be payable upon the earlier to occur of (i) the termination following the purchase of shares of Common Stock pursuant to the Offer of such Affected Employee's employment, (ii) the occurrence of an event that constitutes Good Reason to Terminate and (iii) not later than February 15, 1998, if the Affected Employee is employed by the Surviving Corporation or any of its subsidiaries on December 31, 1997. (C) Parent agrees that at or prior to the Effective Time, it will deposit, or cause to be deposited, in a segregated bank account an amount equal to the aggregate Accrued Bonus Payment as of the Effective Time. (c) Parent agrees that the Surviving Corporation shall make severance payments to each of the Company's corporate and non-facility employees and non-ancillary employees identified in Section 6.12(c) of the Disclosure Letter (which does not include any person identified in Section 6.12(a) above), on the date of termination of any such employee by the Surviving Corporation or its subsidiary (other than a termination for Cause (as defined below)), as the case may be, or by such employee following the occurrence of an event that constitutes Good Reason to Terminate, in an amount equal to the amount set forth opposite such person's name in Section 6.12(c) of the Disclosure Letter. Prior to the date that is eighteen months after the Effective Time, Parent agrees that the Surviving Corporation shall not, and 34 shall not permit its subsidiaries to, terminate any such employees on less than 90 days prior written notice (a "Notice of Termination") of such termination. Notwithstanding the foregoing, no employee shall be entitled to the severance payment described in this Section 6.12(c) if such employee receives a Notice of Termination or is terminated by the Company or voluntarily resigns at any time prior to the purchase of Common Stock pursuant to the Offer or on a date that is after the date that is eighteen months after the Effective Time. For purposes of this Agreement, "Cause" means conviction of a felony or a crime involving personal dishonesty or theft or misappropriation of the property of the Surviving Corporation or its subsidiaries. (d) For purposes hereof, "Good Reason to Terminate" shall be deemed to occur if Parent, the Surviving Corporation or any of their subsidiaries or affiliates shall (i) take any action which substantially reduces an Affected Employee's title, duties, responsibilities, salary, or, unless such change affects all employees of the Surviving Corporation or its subsidiaries at a comparable level of seniority and responsibility, benefits, or (ii) require the Affected Employee to relocate permanently in excess of 25 miles from the Affected Employees' primary place of business. (e) Notwithstanding anything to the contrary contained herein or in any other document, agreement or instrument, if any person is terminated by the Company (other than for Cause) following the purchase of shares of Common Stock pursuant to the Offer but prior to the Effective Time, all Company Stock Options held by any such person shall be treated as provided in Section 3.1(d) hereof. ARTICLE 7 CONDITIONS Section 7.1 Conditions to Each Party's Obligations. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) This Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with applicable law; (b) No Legal Requirements (including, without limitation, any temporary restraining order or preliminary injunction) shall have been enacted, entered, promulgated, issued or enforced by any court or Governmental Entity, and no other legal restraint or prohibition shall be in effect, that prohibits or prevents the consummation of the Merger; provided, that the party or parties invoking this condition shall use reasonable efforts to have any such Legal Requirement vacated or removed; and 35 (c) Any waiting period applicable to the Merger under the HSR Act shall have expired or been terminated. ARTICLE 8 TERMINATION Section 8.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time, whether before or after adoption by the stockholders of the Company: (a) By the mutual written consent of Parent, Merger Sub and the Company (but only by action of the Continuing Directors after the purchase of Common Stock pursuant to the Offer); (b) By Parent, Merger Sub or the Company (but only by action of the Continuing Directors after the purchase of Common Stock pursuant to the Offer): (i) if a court of competent jurisdiction or other Governmental Entity of the United States shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such Order or other action shall have become final and nonappealable; or (ii) (x) as a result of the failure, occurrence or existence of any of the conditions set forth in Exhibit A (1) Merger Sub shall have failed to commence the Offer within five business days following the date of this Agreement or (2) the Offer shall have terminated or expired in accordance with its terms without Merger Sub having accepted for payment any shares of Common Stock pursuant to the Offer or (y) Merger Sub shall not have accepted for payment any shares of Common Stock pursuant to the Offer by September 15, 1997 provided, that such date may be extended at the option of Parent to October 15, 1997, but only if Parent is and has been diligently pursuing approval of the Applications with the relevant Governmental Authorities; provided, further, however, that the passage of the period referred to in clause (y) shall be tolled for any part thereof (but not exceeding 30 calendar days in the aggregate) during which any party shall be subject to a non-final order, decree, ruling or action restraining, enjoining or otherwise prohibiting the purchase of shares of Common Stock pursuant to the Offer or the consummation of the Merger; and provided further that the right to terminate this Agreement pursuant to this Section 8.1(b)(ii) shall not be available to any party whose willful breach of its representations and 36 warranties contained herein or whose failure to perform any of its obligations under this Agreement results in the failure, occurrence or existence of any such condition; (c) By the Company if the Company receives an Acquisition Proposal in writing from any person or group (i) that the Board determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (ii) as a result of which, the Board determines in good faith, after consultation with outside counsel, that it is obligated by its fiduciary duty under applicable law to terminate this Agreement; provided, that such termination pursuant to this clause (c) shall not be effective until the Company has made payment of the full fee and expense reimbursement required by Section 8.2; (d) By Parent or Merger Sub prior to the purchase of shares of Common Stock pursuant to the Offer in the event of a material breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement which has not been cured within 15 days after the giving of written notice to the Company; (e) By the Company, if Parent or Merger Sub shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which failure to perform has not been cured within 15 days after the giving of written notice to Parent or Merger Sub; (f) By Parent, if, prior to the purchase of Common Stock in the Offer, the Company shall have (1) withdrawn, modified or amended in any respect adverse to Parent or Merger Sub its approval or recommendation of this Agreement or any of the transactions contemplated herein (2) failed to include in the Proxy Statement or Information Statement such recommendation, (3) recommended any Acquisition Proposal or Acquisition Transaction from or with a person other than Parent or any of its subsidiaries or (4) resolved to do any of the foregoing; (g) By Parent, if, prior to the purchase of Common Stock in the Offer (i) an Acquisition Proposal that is publicly disclosed shall have been commenced, publicly proposed or communicated to the Company which contains a proposal as to price (without regard to the specificity of such price proposal) and (ii) the Company shall not have rejected such proposal within 10 business days of its receipt or the date its existence first becomes publicly disclosed, if sooner; (h) By Parent, if (i) any person or group (as defined in Section 13(d)(2) of the Exchange Act) (other than Guarantor, Parent, Merger Sub or any of its or their affiliates) shall have become, or shall have made a proposal seeking to become, after the date hereof the beneficial owner (as defined in Rule 13d-3 37 promulgated under the Exchange Act) of at least 35% of outstanding Common Stock, other than acquisitions of securities for bona fide arbitrage purposes only, and other than acquisition of beneficial ownership solely as a result of a person having discretionary authority to vote or dispose of shares in an investment advisory or similar capacity or shall have made a proposal to acquire, directly or indirectly, all or substantially all of the consolidated assets of the Company and its subsidiaries and (ii) following public announcement of such person or group becoming such beneficial owner or proposing such beneficial ownership or acquisition, at the next scheduled expiration of the Offer all conditions to the Offer (other than the Minimum Condition) shall have been satisfied or waived; and (i) By the Company, if Parent shall not have delivered the letter of credit referred to in Section 9.4 by June 25, 1997. Section 8.2 Fees and Expenses. (a) If: (1) the Company terminates this Agreement pursuant to 8.1(c); (2) the Company terminates this Agreement pursuant to Section 8.1(b)(ii) hereof and at such time Parent would have been permitted to terminate this Agreement under Section 8.1(f) or (g) hereof; (3) Parent terminates this Agreement pursuant to Section 8.1(f) or (g) hereof; or (4) Parent terminates this Agreement pursuant to Section 8.1(d) or (h) and (in the case of clause (4) only) within one year of such termination the Company shall have consummated, or have entered into a definitive agreement with respect to, an Acquisition Transaction pursuant to which the holders of the Common Stock have received or will receive consideration (including the value of any retained equity) equal to or greater than the Merger Consideration, then the Company shall pay to Parent, within one business day following (in the case of clauses (1), (2) and (3)) such termination and, in the case of clause (4), such consummation or entering into of a definitive agreement, a fee, in cash, of $25 million, provided, however, that the Company in no event shall be obligated to pay more than one such fee and the amount of fees paid under Section 8.2(a) and the amount of expense reimbursement paid under Section 8.2(b) shall not exceed $25 million. (b) Upon the termination of this Agreement under circumstances in which the Company shall be obligated to pay a fee pursuant to Section 8.2(a), then the Company shall reimburse Parent and Guarantor (not later than one business day after submission of statements therefor) for all actual documented out-of-pocket expenses incurred by or on behalf of any of them or their affiliates in connection with the Offer and the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, fees and disbursements payable to financing sources, investment bankers, counsel to Purchaser, Parent, the Guarantor or any of the foregoing, and accountants) ("expenses"). In all cases, the total amount of fees paid under Section 8.2(a) and reimbursement of expenses under 38 this Section 8.2(b) shall not exceed $25 million. Upon termination of this Agreement pursuant to Section 8.1(d), the Company shall reimburse Parent (not later than one business day after submission of statements therefor) for expenses, which reimbursement shall in no event exceed $12 million. Section 8.3. Procedure for and Effect of Termination . In the event that this Agreement is terminated and the Merger is abandoned by the Parent or the Merger Sub, on the one hand, or by the Company, on the other hand, pursuant to Section 8.1, written notice of such termination and abandonment shall forthwith be given to the other parties and this Agreement shall terminate and the Merger shall be abandoned without any further action. If this Agreement is terminated as provided herein, no party hereto shall have any liability or further obligation to any other party under the terms of this Agreement except with respect to the willful breach by any party hereto and except that the provisions of this Section 8.3, Section 8.2, Section 6.9, Article 9 and the final sentence of Section 6.3 shall survive the termination of this Agreement. ARTICLE 9 GUARANTY Section 9.1 Guaranty. Genesis Health Ventures, Inc., a Pennsylvania corporation (the "Guarantor"), hereby unconditionally and irrevocably guarantees, as a primary obligor and not as surety, to the Company, the due and punctual observance, performance and discharge of each obligation of Parent and Merger Sub contained in this Agreement and the Voting Agreement. Parent and Merger Sub are hereinafter referred to as an "Obligor" with respect to this Agreement and the Voting Agreement, respectively, and, collectively, as "Obligors." This Agreement and the Voting Agreement are hereinafter each referred to as a "Guaranteed Agreement" and, collectively, as the "Guaranteed Agreements." Obligations of the Obligors guaranteed in this Section 9.1 are hereinafter referred to as the "Obligations." The Guarantor agrees that if either or both its Obligors shall fail to observe, perform or discharge any Obligation, in accordance with the terms of a Guaranteed Agreement, the Guarantor shall promptly itself, observe, perform or discharge such Obligation, or cause the respective Obligor to observe, perform or discharge such Obligation, in all cases as if and to the extent that Guarantor was the primary obligor with respect to such Obligation, and shall pay any and all actual damages that may be incurred or suffered by the Company in consequence thereof, and any and all costs and expenses, including, without limitation, attorneys' fees and 39 expenses, that may be incurred by the Company in collecting such Obligation and/or in preserving or enforcing any rights under this Guaranty or under the Obligations. In all events, the obligations of Guarantor under this Guaranty shall be subject to the limitation set forth in Section 9.4. Section 9.2 Absolute Guaranty. The liability of the Guarantor under this Guaranty with respect to each and all of the Obligations shall be absolute and unconditional, irrespective of any waiver of, amendment to, modification of, consent or departure from, the Guaranteed Agreements, including, without limitation, any waiver or consent involving a change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations. Section 9.3. Continuing Guaranty. This Guaranty is a guaranty of payment, performance and compliance and not of collection. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until all of the Obligations, including, without limitation, all amounts payable under this Guaranty, have been indefeasibly paid, observed, performed or discharged in full, (b) be binding upon the Guarantor and its successors, (c) inure to the benefit of and be enforceable by the Guaranteed Parties and their successors, (d) be binding upon and against the Guarantor without regard to the validity or enforceability of the Guaranteed Agreements or any insolvency, bankruptcy or reorganization of the Obligors or otherwise, and (e) continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Company upon the insolvency, bankruptcy or reorganization of any of the Obligors or otherwise, all as though such payment had not been made. Section 9.4 Limitation. Notwithstanding anything to the contrary set forth herein, in consideration of the substantial time and expense invested by the Company in the transactions contemplated by this Agreement and the loss of opportunities otherwise available to the Company as a result thereof, if, at any scheduled expiration of the Offer occurring after August 15, 1997 on which each of the conditions set forth in clauses (a) through (g) on Exhibit A (as well as the HSR Act condition set forth in clause (ii) of the first sentence of the introductory paragraph of Exhibit A) has been satisfied or waived, Parent shall not have satisfied or waived the condition set forth in clause (iii) of the first sentence of the introductory paragraph of Exhibit A and this Agreement is thereafter terminated, then the Guarantor shall pay to the Company $30,000,000, in cash in immediately available funds. Subject to the next sentence, upon making such payment none of Parent, Merger Sub, the Guarantor or any of their affiliates shall have any further liability with respect to the failure to complete the transactions contemplated by this Agreement. The limitation set forth in this Section 9.4 shall not apply if Parent or Merger Sub shall breach this Agreement (which breach remains unremedied after 5 days notice thereof to Parent or Merger 40 Sub) or if the Guarantor, Parent or Merger Sub fail to use reasonable best efforts to obtain such financing. (b) Guarantor shall deliver to the Company a clean, irrevocable letter of credit for $30,000,000, drawn on Mellon Bank, N.A., in form reasonably acceptable the Company to secure its obligation to pay the amount as set forth in Section 9.4(a). Guarantor will use its reasonable best efforts to deliver such letter of credit prior to commencement of the Offer, but in all events shall deliver the same not later than June 25, 1997. The Company agrees that a letter of credit that provides for a draw only against a certificate of an executive officer of the Company to the effect that the requirements of Section 9.4(a) have been met will be satisfactory to the Company. (c) Parent, Merger Sub and the Guarantor shall keep the Company reasonably informed respecting the financing arrangements referred to in Section 5.6 and will promptly notify the Company if their financing sources indicate that they do not wish to proceed with such financing. Section 9.5 Representations and Warranties. The Guarantor represents and warrants to the Company that (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Pennsylvania, and has the full right and power to execute and deliver this Guaranty and to perform fully its obligations hereunder, (b) the execution and delivery by it of this Guaranty and the consummation of the transactions contemplated hereby and by the Guaranteed Agreements have been duly authorized by all necessary action on behalf of the Guarantor and (c) this Guaranty has been duly executed and delivered by the Guarantor and is the valid and binding obligation of the Guarantor enforceable in accordance with its terms. ARTICLE 10 MISCELLANEOUS Section 10.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings ascribed to them in this Section 10.1: (a) "affiliate," with respect to any person, shall mean any person controlling, controlled by or under common control with such person; (b) "knowledge," with respect to the Company, shall mean the actual knowledge of any executive officer or director of the Company; 41 (c) "Material Adverse Effect," with respect to any person, shall mean a material adverse effect on the business, assets, properties, financial condition or results of operations of such person and its subsidiaries taken as a whole; (d) "person" shall mean and include an individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof; and (e) "subsidiary," with respect to any person, shall mean any corporation 50% or more of the outstanding voting power of which, or any partnership, joint venture, limited liability company or other entity 50% or more of the total equity interest of which, is directly or indirectly owned by such person. For purposes of this Agreement, all references to "subsidiaries" of a person shall be deemed to mean "subsidiary" if such person has only one subsidiary. Section 10.2. Amendment and Modification . Subject to applicable law, this Agreement may be amended, modified or supplemented only by a written agreement signed by each of the parties hereto at any time prior to the Effective Time with respect to any of the terms contained herein; provided, however, that after this Agreement is adopted by the Company's stockholders pursuant to Section 6.2, no such amendment or modification shall (a) alter or change the amount or kind of the consideration to be delivered to the stockholders of the Company, (b) alter or change any term of the certificate of incorporation of the Surviving Corporation or (c) alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the stockholders of the Company. If Merger Sub's designees are appointed or elected to the Board of Directors of the Company as provided in Section 6.10, after the acceptance for payment of shares of the Common Stock pursuant to the Offer and prior to the Effective Time, the affirmative vote of a majority of the Continuing Directors of the Company shall be required by the Company to (i) amend or terminate this Agreement by the Company, (ii) exercise or waive any of the Company's rights or remedies under this Agreement, (iii) extend the time for performance of Parent's and Merger Sub's respective obligations under this Agreement, (iv) take any action to amend or otherwise modify the Company's certificate of incorporation or by-laws or (v) take any action that would adversely affect the rights of the holders of Common Stock or the holders of Company Stock Options with respect to the transactions contemplated hereby. Section 10.3. Waiver of Compliance; Consents . Any failure of Parent or Merger Sub, on the one hand, or the Company, on the other hand, to comply with any obligation, covenant, agreement or condition herein may, subject to Section 10.2, be waived by Parent, Merger Sub or the Company, respectively, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition 42 shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 10.3 and in Section 10.2. Section 10.4 Survival. The respective representations and warranties of Parent, Merger Sub and the Company contained herein shall not survive the Closing hereunder. Section 10.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or by telecopier (with a confirmed receipt thereof), and on the next business day when sent by overnight courier service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Merger Sub, to: Waltz Corp. 65 East 55th Street New York, New York 10022 Attention: James L. Singleton Telecopier: (212) 705-0199 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: William E. Curbow Telecopier: (212) 455-2502 (b) if to Guarantor, to: Genesis Health Ventures, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telecopier: (610) 444-7483 43 with a copy to: Blank, Rome, Comiskey & McCauley 1200 Four Penn Center Plaza Philadelphia, Pennsylvania 19103 Attention: Stephen E. Luongo Telecopier: (215) 569-5555 (c) if to the Company, to: The Multicare Companies, Inc. 411 Hackensack Avenue Hackensack, New Jersey 07061 Attention: Daniel E. Straus Telecopier: (201) 488-8734 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Carl L. Reisner Telecopier: (212) 757-3990 Section 10.6 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Section 10.7 Expenses. Except as otherwise provided herein, whether or not the Merger is consummated, all fees, charges and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, charges or expenses. Section 10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 44 Section 10.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 10.10 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. Section 10.11 Entire Agreement. This Agreement (including the schedules, exhibits, documents or instruments referred to herein) and the Confidentiality Agreement embody the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties, or between any of them, with respect to the subject matter hereof and thereof. Section 10.12 No Third Party Beneficiaries. Except as expressly provided in Sections 6.8 and 6.12, this Agreement is not intended to, and does not, create any rights or benefits of any party other than the parties hereto. IN WITNESS WHEREOF, the Parent, the Merger Sub and the Company have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. WALTZ CORP. By /S/ Karl I. Peterson -------------------------------------- Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer WALTZ ACQUISITION CORP. By /S/ Karl I. Peterson -------------------------------------- Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer THE MULTICARE COMPANIES, INC. By /S/ Daniel E. Straus -------------------------------------- Name: Daniel E. Straus Title: President and Co-Chief Executive Officer Solely for Purposes of Article 9: GENESIS HEALTH VENTURES, INC. By /S/ Michael R. Walker -------------------------------------- Name: Michael R. Walker Title: Chairman and Chief Executive Officer EXHIBIT A Conditions of the Offer Notwithstanding any other term of the Offer or this Agreement, Merger Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered shares of Common Stock after the termination or withdrawal of the Offer), to pay for any shares of Common Stock tendered pursuant to the Offer unless, (i) there shall have been validly tendered and not properly withdrawn prior to the expiration of the Offer such number of shares of Common Stock which would constitute, on a fully diluted basis, a majority of the Company's voting power on the date of purchase of all securities of the Company entitled to vote generally in the election of directors or in a merger (the "Minimum Condition"), (ii) any waiting period under the HSR Act applicable to the purchase of shares of Common Stock pursuant to the Offer shall have expired or been terminated and (iii) Merger Sub shall have received the proceeds of the financing pursuant to the Debt Financing Commitments. Furthermore, notwithstanding any other term of the Offer or this Agreement, Merger Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Common Stock not theretofore accepted for payment or paid for, and (subject to Section 1.1(a) and Section 6.5(a) of this Agreement) may terminate the Offer if, at any time on or after the date of this Agreement and before the acceptance of such shares for payment or the payment therefor, any of the following conditions exists (other than as a result of any action or inaction of Parent or any of its subsidiaries which constitutes a breach of this Agreement): (a) there shall have been any action or proceeding brought by any Governmental Authority before any federal or state court, or any other or preliminary or permanent injunction entered in any action or proceeding before any federal or state court or governmental, administrative or regulatory authority or agency, located or having jurisdiction within the United States, or any statute, rule, regulation, or legislation, enacted, promulgated or issued by any Governmental Authority located or having jurisdiction within the United States, which has or would reasonably be expected to have the effect of: (i) making illegal, or otherwise restraining or prohibiting or making materially more costly the making of the Offer, the acceptance for payment of, payment for, or ownership, directly or indirectly, of some of or all of the shares of Common Stock by Parent or Merger Sub, the consummation of any of the transactions contemplated by the Merger Agreement or materially delaying the Merger; (ii) prohibiting or materially limiting the ownership or operation by the Company or any of its subsidiaries, or by Parent, Merger Sub or any of Parent's subsidiaries or Guarantor or any of its subsidiaries of all or any material portion of the business or assets of the Company or any of its material subsidiaries or Parent or any of its material subsidiaries, or compelling Merger Sub, Parent or any of Parent's subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its material subsidiaries or Parent or any of its material subsidiaries, as a result of the transactions contemplated by the Offer or the Merger Agreement; (iii) imposing or confirming limitations on the ability of Merger Sub, Parent or any of Parent's subsidiaries effectively to acquire or hold or to exercise full rights of ownership of shares of Common Stock, including, without limitation, the right to vote any shares of Common Stock acquired or owned by Parent or Merger Sub or any of Parent's subsidiaries on all matters properly presented to the stockholders of the Company, including, without limitation, the adoption and approval of the Merger Agreement and the Merger or the right to vote any shares of capital stock of any subsidiary (other than immaterial subsidiaries) directly or indirectly owned by the Company; or (iv) requiring divestiture by Parent or Merger Sub, directly or indirectly, of any shares of Common Stock; (b) after the date of this Agreement, there shall have occurred any event, or Merger Sub shall have become aware of any fact, in either case, that will have a Material Adverse Effect with respect to the Company, except for changes resulting from or arising out of the Offer; (c) any of the representation and warranties of the Company set forth in this Agreement (without giving effect to any qualification regarding materiality) shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of determination; (d) the Company shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under this Agreement; (e) this Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (f) there shall have occurred (i) any general suspension of, or limitation of prices for, trading on the NYSE, AMEX, Nasdaq National Market, (ii) any declaration of banking moratorium or suspension or payment in respect of banks in the United States, (iii) any material limitation whether or not mandatory by a Government Entity on, or any other event that would limit, the extension of credit by banks or other lending institutions, (iv) any commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States having a significant adverse effect on the functionality of financial markets in the United States or (v) in the case of any of the foregoing, existing at time of the commencement of the Offer, a material acceleration or worsening thereof; (g) any material approval, permit, authorization, consent or waiting period of any Governmental Authority applicable to the purchase of shares of Common Stock pursuant to the Offer or the Merger or the ownership or operation by the Company or any of its subsidiaries, or by Parent or any of its subsidiaries or by the Guarantor or any of its subsidiaries of all or any material portion of the business or assets of the Company or any of its subsidiaries shall not have been obtained or satisfied on terms satisfactory to the Parent in its reasonable discretion; which, in the reasonable judgment of Merger Sub in any case and regardless of circumstances, makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Common Stock or to proceed with the Merger. Notwithstanding anything contained herein, no condition involving (i) performance of agreements by the Company or (ii) the accuracy of representations and warranties made by the Company, shall be deemed not fulfilled, and Parent and Merger Sub shall not be entitled to fail to accept shares of Common Stock for payment or terminate the Offer on such basis, if the respects in which such agreements have not been performed or the representations and warranties are inaccurate (without giving effect to any qualification regarding materiality), in the aggregate, are not materially adverse to the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. The foregoing conditions are for the sole benefit of Merger Sub and Parent and may, subject to the terms of this Agreement, be waived by Merger Sub and Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. EX-11 15 EXHIBIT 11(C2) EXHIBIT 11(c)(2) TENDER AGREEMENT AND IRREVOCABLE PROXY AGREEMENT, dated as of June 16, 1997, among WALTZ CORP., a Delaware corporation ("Parent"), WALTZ ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Moshael J. Straus (the "Stockholder"). Parent, Merger Sub and The Multicare Companies, Inc., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub is merging with and into the Company and the Company will survive as a wholly-owned subsidiary of Parent (the "Merger"). WHEREAS, as of the date hereof, Stockholder is the record and beneficial owner of, and has the right to vote and dispose of, the number of shares of Common Stock set forth on the signature page hereto; WHEREAS, as an inducement and a condition to its entering into the Merger Agreement and incurring the obligations set forth therein, including the Offer and the Merger, Parent has required that Stockholder enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein and in the Merger Agreement, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Certain Definitions. Capitalized terms used and not defined herein have the respectively meanings ascribed to them in the Merger Agreement. In addition, for purposes of this Agreement: "AFFILIATE" means, with respect to any specified Person, any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. For purposes of this Agreement, with respect to Stockholder, "AFFILIATE" shall not include the Company and the Persons that directly, or indirectly through one or more intermediaries, are controlled by the Company. "BENEFICIALLY OWNED" or "BENEFICIAL OWNERSHIP" with respect to any securities means having "BENEFICIAL OWNERSHIP" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all Affiliates of such Person and all other persons with whom such Person would 2 constitute a "GROUP" within the meaning of Section 13(d) of the Exchange Act and the rules promulgated thereunder. "OWNED SHARES" means the shares of Common Stock Beneficially Owned by Stockholder on the date hereof, together with any other shares of Common Stock, or any other securities of the Company entitled, or which may be entitled, to vote generally in the election of directors and any other shares of Common Stock or such other securities which may hereafter be Beneficially Owned by Stockholder (including upon exercises of options or otherwise). "PERSON" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. "REPRESENTATIVE" means, with respect to any Person, such Person's officers, directors, employees, agents and representatives (including any investment banker, financial advisor, agent, representative or expert retained by or acting on behalf of such Person or its subsidiaries). "TRANSFER" means, with respect to a security, the sale, transfer, pledge, hypothecation, encumbrance, assignment or disposition of such security or the Beneficial Ownership thereof, the offer to make such a sale, transfer or other disposition, and each option, agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing. As a verb, "TRANSFER" shall have a correlative meaning. 2. Tender of Shares. Stockholder hereby agrees to validly tender (or cause the record owner thereof) and not withdraw, pursuant to and in accordance with the terms of the Offer, all Owned Shares. Stockholder hereby acknowledges and agrees that Merger Sub's obligation to accept for payment and pay for shares of Common Stock in the Offer, including any Owned Shares tendered by Stockholder, is subject to the terms and conditions of the Offer. The parties agree that Stockholder will, for all Owned Shares tendered by Stockholder in the Offer and accepted for payment by Merger Sub, receive a price per Owned Share equal to $28.00, or such higher per share consideration paid to other stockholders who have tendered into the Offer. 3. Voting of Owned Shares; Proxy; Other Covenants. (a) Stockholder hereby agrees that during the period commencing on the date hereof and continuing until the earlier of (x) the consummation of the Offer and (y) the termination of this Agreement (such period being referred to as the "VOTING PERIOD"), at any meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the Company's stockholders, however called, or in connection with any written consent of the Company's stockholders, subject to the absence of a preliminary or permanent injunction or other requirement under applicable law by any United States federal, state or foreign court barring such action, Stockholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of the 3 Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the Merger and the terms thereof and each of the other actions contemplated by the Merger Agreement and this agreement and any actions required in furtherance thereof and hereof; (ii) against any action or agreement that would impede, interfere with, or prevent the Offer or the Merger; and (iii) except as otherwise agreed to in writing in advance by the Parent, against the following actions (other than the Offer, the Merger and the transactions contemplated by the Merger Agreement and this Agreement): (I) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its subsidiaries (including any transaction contemplated by an Acquisition Proposal); (II) any sale, lease or transfer of a material amount of the assets or business of the Company or its subsidiaries, or any reorganization, restructuring, recapitalization, special dividend, dissolution, liquidation or winding up of the Company or its subsidiaries; (III) any change in the present capitalization of the Company including any proposal to sell any material equity interest in the Company or any amendment of the certificate of incorporation of the Company and (IV) against an election of new members of the Board of Directors of the Company except where the vote is cast in favor of the nominees of a majority of the existing directors of the Company. Stockholder shall not enter into any agreement, arrangement or understanding with any Person the effect of which would be inconsistent or violative of the provisions and agreements contained in this Section 3(a). (b) IRREVOCABLE PROXY. STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS MERGER SUB AND ANY DESIGNEE OF MERGER SUB, EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE OWNED SHARES OF STOCKHOLDER AS INDICATED IN SECTION 3(a) ABOVE. STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY STOCKHOLDER WITH RESPECT TO STOCKHOLDER'S OWNED SHARES. (c) Stockholder Capacity. Stockholder is making this Agreement solely in his capacity as the owner of the Owned Shares and not in his capacity as a director or officer, and the agreements set forth in this Section 2 or 3 shall in no way restrict Stockholder in the exercise of his fiduciary duties as a director and officer of the Company, which, in the case of Section 3(d), such duties will be exercised only in accordance with the instructions of the Company's Board of Directors acting in compliance with the requirements of Section 6.4 of the Merger Agreement. Stockholder signs solely in his or her capacity as the record and Beneficial Owner of the Owned Shares. (d) Stockholder shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect 4 to any Acquisition Proposal. The Stockholder shall not, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than Parent and Merger Sub or any affiliate, associate or designee of Parent or Merger Sub) concerning any proposal (an "Acquisition Proposal") for an acquisition of all or any substantial part of the business and properties or capital stock of the Company and its subsidiaries taken as a whole, directly or indirectly, whether by merger, consolidation, share exchange, tender offer, purchase of assets or shares of capital stock or otherwise (an "Acquisition Transaction"). 4. Restrictions on Transfer, Other Proxies. Stockholder shall not, until the termination of this Agreement, directly or indirectly; (i) expect as provided in Section 2 hereof, Transfer to any Person any or all Owned Shares; or (ii) except as provided in Section 3(b), grant any proxies or powers of attorney, deposit any Owned Shares into a voting trust or enter into a voting agreement, understanding or arrangement with respect to such Owned Shares. Notwithstanding anything to the contrary provided in this Agreement, Stockholder shall have the right to Transfer Owned Shares (i) to any Family Member, (ii) to the trustee or trustees of a trust solely (except for remote contingent interests) for the benefit of Stockholder and/or one or more Family Members, (iii) to a foundation created or established by Stockholder, (iv) to a corporation of which Stockholder and/or any Family Members owns all of the outstanding capital stock, (v) to a partnership of which Stockholder and/or any Family Members owns all of the partnership interests, (vi) to the executor, administrator or personal representative of the estate of Stockholder, (vii) to any guardian, trustee or conservator appointed with respect to the assets of Stockholder or (viii) by operation of law; provided, that in the case of any Transfer pursuant to clauses (i) through (vii), the transferee shall execute an agreement to be bound by the terms of this Agreement, or terms substantially identical thereto. "Family Member" shall have the meaning ascribed to "Related Parties" under Section 672(c) of the Internal Revenue Code of 1986, as amended. 5. Representations and Warranties of Stockholder. Stockholder hereby represents and warrants to the Parent and Merger Sub as follows: (a) Stockholder has all necessary power and authority and legal capacity to execute and deliver this Agreement and perform his obligations hereunder. No other proceedings or actions on the part of Stockholder are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Stockholder and constitutes the valid and binding agreement of Stockholder, enforceable against Stockholder in accordance with its terms except (i) to the extent limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights and (ii) the remedy of specified performance and injunctive and other 5 forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) Stockholder is the record holder and Beneficial Owner of the Owned Shares which, as of the date hereof, are set forth on the signature page hereto. Stockholder has good and marketable title to all of the Owned Shares, free and clear of all liens, claims, options, proxies, voting agreements, security interests, charges and encumbrances. The Owned Shares constitute all of the capital stock of the Company Beneficially Owned by Stockholder, and except for not more than 150,000 shares of Common Stock owned by a foundation referred to in clause (iii) of Section 4, the Owned Shares and shares of Common Stock issuable upon exercise of options held by Stockholder, neither Stockholder nor any of his Affiliates Beneficially Owns or has any right to acquire (whether currently, upon lapse of time, following the satisfaction of any conditions, upon the occurrence of any event or any combination of the foregoing) any shares of Common Stock or any securities convertible into Common Stock. Except as provided in Section 3(b) hereof and the up to 150,000 shares of Common Stock referred to in this Section 5(c), Stockholder has sole power to vote and to dispose of the Owned Shares. (d) Stockholder understands and acknowledges that Parent is entering into, and causing the Merger Sub to enter into, the Merger Agreement, and is incurring the obligations set forth therein, in reliance upon Stockholder's execution and delivery of this Agreement. (e) None of the execution and delivery of this Agreement by Stockholder the consummation by Stockholder of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof shall (A) conflict with or result in any breach of the certificate of incorporation or by-laws of the Company, or (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Stockholder is a party or by which the Stockholder or any of his properties or assets may be bound, or violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to the Stockholder or any of his properties or assets. 6. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub hereby represent, warrant and covenant to Stockholder as follows: (a) Parent and Merger Sub each is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, and each of them is in good standing under the laws of its jurisdiction of incorporation. Each of Parent and Merger Sub have all necessary corporate power and authority to 6 execute and deliver this Agreement and perform their respective obligations hereunder. The execution and delivery by Parent and Merger Sub of this Agreement and the performance by Parent and Merger Sub of their respective obligations hereunder have been duly and validly authorized by the Board of Directors of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and constitutes a valid and binding agreement of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms except (i) to the extent limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) None of the execution and delivery of this Agreement by Parent or Merger Sub, the consummation by Parent or Merger Sub of the transactions contemplated hereby or compliance by Parent or Merger Sub with any of the provisions hereof shall (A) conflict with or result in any breach of the certificate of incorporation or by-laws of Parent or Merger Sub, or (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any of their respective properties or assets may be bound, or violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to Parent or Merger Sub or any of their respective properties or assets. 7. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 8. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate upon the earlier of (a) the date upon which the Parent shall have purchased and paid for all of the Owned Shares of Stockholder in accordance with the Offer, (b) the date on which the Merger Agreement is terminated under such circumstances in which Parent is not and will not be entitled to a payment pursuant to Section 8.2 of the Merger Agreement and (c) May 31, 1998. 7 9. Miscellaneous. (a) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Stockholder agrees that this Agreement and the respective rights and obligations of Stockholder hereunder shall attach to any shares of Common Stock, and any securities convertible into such shares, that may become Beneficially Owned by Stockholder. (c) Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (d) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors, personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall (except as required by the proviso to Section 4) be assigned by either party (whether by operation of law or otherwise) without the prior written consent of the other party; provided, that Parent and Merger Sub may assign their rights and obligations hereunder to any assignee of such parties' rights and obligations under the Merger Agreement. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. (e) This Agreement may not be amended, changed, supplemented, or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by each of the parties hereto. The parties may waive compliance by the other parties hereto with any representation, agreement or condition otherwise required to be complied with by such other party hereunder, but any such waiver shall be effective only if in writing executed by the waiving party. (f) All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed at the address for such party set forth in Section 10.5 of the Merger Agreement and at the following address if to the Stockholder. If to Stockholder, to Stockholder's address or facsimile number set forth on the signature page hereto; 8 Copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Telecopy: (212) 757-3990 Attn: Carl L. Reisner, Esq. or to such other address or facsimile number as the Person to whom notice is given shall have previously furnished to the others in writing in the manner set forth above. (g) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without affecting the validity or enforceability of the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. (h) Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (a) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (b) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement. (i) All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF 9 DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF OR OF ANY OTHER JURISDICTION. (k) The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. "Include," "includes," and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. (l) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, Parent, Merger Sub and Stockholder have caused this Agreement to be duly executed as of the day and year first above written. WALTZ CORP. By: /s/ Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer WALTZ ACQUISITION CORP. By: /s/ Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer /s/ Moshael J. Straus Stockholder Address: 411 Hackensack Avenue Hackensack, New Jersey 07601 Owned Shares: 7,006,983 EX-11 16 EXHIBIT 11(C3) Exhibit 11(c)(3) TENDER AGREEMENT AND IRREVOCABLE PROXY AGREEMENT, dated as of June 16, 1997, among WALTZ CORP., a Delaware corporation ("Parent"), WALTZ ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Daniel E. Straus (the "Stockholder"). Parent, Merger Sub and The Multicare Companies, Inc., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub is merging with and into the Company and the Company will survive as a wholly-owned subsidiary of Parent (the "Merger"). WHEREAS, as of the date hereof, Stockholder is the record and beneficial owner of, and has the right to vote and dispose of, the number of shares of Common Stock set forth on the signature page hereto; WHEREAS, as an inducement and a condition to its entering into the Merger Agreement and incurring the obligations set forth therein, including the Offer and the Merger, Parent has required that Stockholder enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein and in the Merger Agreement, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Certain Definitions. Capitalized terms used and not defined herein have the respectively meanings ascribed to them in the Merger Agreement. In addition, for purposes of this Agreement: "AFFILIATE" means, with respect to any specified Person, any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. For purposes of this Agreement, with respect to Stockholder, "AFFILIATE" shall not include the Company and the Persons that directly, or indirectly through one or more intermediaries, are controlled by the Company. "BENEFICIALLY OWNED" or "BENEFICIAL OWNERSHIP" with respect to any securities means having "BENEFICIAL OWNERSHIP" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all Affiliates of such Person and all other persons with whom such Person would 2 constitute a "GROUP" within the meaning of Section 13(d) of the Exchange Act and the rules promulgated thereunder. "OWNED SHARES" means the shares of Common Stock Beneficially Owned by Stockholder on the date hereof, together with any other shares of Common Stock, or any other securities of the Company entitled, or which may be entitled, to vote generally in the election of directors and any other shares of Common Stock or such other securities which may hereafter be Beneficially Owned by Stockholder (including upon exercises of options or otherwise). "PERSON" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. "REPRESENTATIVE" means, with respect to any Person, such Person's officers, directors, employees, agents and representatives (including any investment banker, financial advisor, agent, representative or expert retained by or acting on behalf of such Person or its subsidiaries). "TRANSFER" means, with respect to a security, the sale, transfer, pledge, hypothecation, encumbrance, assignment or disposition of such security or the Beneficial Ownership thereof, the offer to make such a sale, transfer or other disposition, and each option, agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing. As a verb, "TRANSFER" shall have a correlative meaning. 2. Tender of Shares. Stockholder hereby agrees to validly tender (or cause the record owner thereof) and not withdraw, pursuant to and in accordance with the terms of the Offer, all Owned Shares. Stockholder hereby acknowledges and agrees that Merger Sub's obligation to accept for payment and pay for shares of Common Stock in the Offer, including any Owned Shares tendered by Stockholder, is subject to the terms and conditions of the Offer. The parties agree that Stockholder will, for all Owned Shares tendered by Stockholder in the Offer and accepted for payment by Merger Sub, receive a price per Owned Share equal to $28.00, or such higher per share consideration paid to other stockholders who have tendered into the Offer. 3. Voting of Owned Shares; Proxy; Other Covenants. (a) Stockholder hereby agrees that during the period commencing on the date hereof and continuing until the earlier of (x) the consummation of the Offer and (y) the termination of this Agreement (such period being referred to as the "VOTING PERIOD"), at any meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the Company's stockholders, however called, or in connection with any written consent of the Company's stockholders, subject to the absence of a preliminary or permanent injunction or other requirement under applicable law by any United States federal, state or foreign court barring such action, Stockholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of the 3 Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the Merger and the terms thereof and each of the other actions contemplated by the Merger Agreement and this agreement and any actions required in furtherance thereof and hereof; (ii) against any action or agreement that would impede, interfere with, or prevent the Offer or the Merger; and (iii) except as otherwise agreed to in writing in advance by the Parent, against the following actions (other than the Offer, the Merger and the transactions contemplated by the Merger Agreement and this Agreement): (I) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its subsidiaries (including any transaction contemplated by an Acquisition Proposal); (II) any sale, lease or transfer of a material amount of the assets or business of the Company or its subsidiaries, or any reorganization, restructuring, recapitalization, special dividend, dissolution, liquidation or winding up of the Company or its subsidiaries; (III) any change in the present capitalization of the Company including any proposal to sell any material equity interest in the Company or any amendment of the certificate of incorporation of the Company and (IV) against an election of new members of the Board of Directors of the Company except where the vote is cast in favor of the nominees of a majority of the existing directors of the Company. Stockholder shall not enter into any agreement, arrangement or understanding with any Person the effect of which would be inconsistent or violative of the provisions and agreements contained in this Section 3(a). (b) IRREVOCABLE PROXY. STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS MERGER SUB AND ANY DESIGNEE OF MERGER SUB, EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE OWNED SHARES OF STOCKHOLDER AS INDICATED IN SECTION 3(a) ABOVE. STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY STOCKHOLDER WITH RESPECT TO STOCKHOLDER'S OWNED SHARES. (c) Stockholder Capacity. Stockholder is making this Agreement solely in his capacity as the owner of the Owned Shares and not in his capacity as a director or officer, and the agreements set forth in this Section 2 or 3 shall in no way restrict Stockholder in the exercise of his fiduciary duties as a director and officer of the Company, which, in the case of Section 3(d), such duties will be exercised only in accordance with the instructions of the Company's Board of Directors acting in compliance with the requirements of Section 6.4 of the Merger Agreement. Stockholder signs solely in his or her capacity as the record and Beneficial Owner of the Owned Shares. (d) Stockholder shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect 4 to any Acquisition Proposal. The Stockholder shall not, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than Parent and Merger Sub or any affiliate, associate or designee of Parent or Merger Sub) concerning any proposal (an "Acquisition Proposal") for an acquisition of all or any substantial part of the business and properties or capital stock of the Company and its subsidiaries taken as a whole, directly or indirectly, whether by merger, consolidation, share exchange, tender offer, purchase of assets or shares of capital stock or otherwise (an "Acquisition Transaction"). 4. Restrictions on Transfer, Other Proxies. Stockholder shall not, until the termination of this Agreement, directly or indirectly; (i) expect as provided in Section 2 hereof, Transfer to any Person any or all Owned Shares; or (ii) except as provided in Section 3(b), grant any proxies or powers of attorney, deposit any Owned Shares into a voting trust or enter into a voting agreement, understanding or arrangement with respect to such Owned Shares. Notwithstanding anything to the contrary provided in this Agreement, Stockholder shall have the right to Transfer Owned Shares (i) to any Family Member, (ii) to the trustee or trustees of a trust solely (except for remote contingent interests) for the benefit of Stockholder and/or one or more Family Members, (iii) to a foundation created or established by Stockholder, (iv) to a corporation of which Stockholder and/or any Family Members owns all of the outstanding capital stock, (v) to a partnership of which Stockholder and/or any Family Members owns all of the partnership interests, (vi) to the executor, administrator or personal representative of the estate of Stockholder, (vii) to any guardian, trustee or conservator appointed with respect to the assets of Stockholder or (viii) by operation of law; provided, that in the case of any Transfer pursuant to clauses (i) through (vii), the transferee shall execute an agreement to be bound by the terms of this Agreement, or terms substantially identical thereto. "Family Member" shall have the meaning ascribed to "Related Parties" under Section 672(c) of the Internal Revenue Code of 1986, as amended. 5. Representations and Warranties of Stockholder. Stockholder hereby represents and warrants to the Parent and Merger Sub as follows: (a) Stockholder has all necessary power and authority and legal capacity to execute and deliver this Agreement and perform his obligations hereunder. No other proceedings or actions on the part of Stockholder are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Stockholder and constitutes the valid and binding agreement of Stockholder, enforceable against Stockholder in accordance with its terms except (i) to the extent limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights and (ii) the remedy of specified performance and injunctive and other 5 forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) Stockholder is the record holder and Beneficial Owner of the Owned Shares which, as of the date hereof, are set forth on the signature page hereto. Stockholder has good and marketable title to all of the Owned Shares, free and clear of all liens, claims, options, proxies, voting agreements, security interests, charges and encumbrances. The Owned Shares constitute all of the capital stock of the Company Beneficially Owned by Stockholder, and except for not more than 150,000 shares of Common Stock owned by a foundation referred to in clause (iii) of Section 4, the Owned Shares and shares of Common Stock issuable upon exercise of options held by Stockholder, neither Stockholder nor any of his Affiliates Beneficially Owns or has any right to acquire (whether currently, upon lapse of time, following the satisfaction of any conditions, upon the occurrence of any event or any combination of the foregoing) any shares of Common Stock or any securities convertible into Common Stock. Except as provided in Section 3(b) hereof and the up to 150,000 shares of Common Stock referred to in this Section 5(c), Stockholder has sole power to vote and to dispose of the Owned Shares. (d) Stockholder understands and acknowledges that Parent is entering into, and causing the Merger Sub to enter into, the Merger Agreement, and is incurring the obligations set forth therein, in reliance upon Stockholder's execution and delivery of this Agreement. (e) None of the execution and delivery of this Agreement by Stockholder the consummation by Stockholder of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof shall (A) conflict with or result in any breach of the certificate of incorporation or by-laws of the Company, or (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Stockholder is a party or by which the Stockholder or any of his properties or assets may be bound, or violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to the Stockholder or any of his properties or assets. 6. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub hereby represent, warrant and covenant to Stockholder as follows: (a) Parent and Merger Sub each is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, and each of them is in good standing under the laws of its jurisdiction of incorporation. Each of Parent and Merger Sub have all necessary corporate power and authority to 6 execute and deliver this Agreement and perform their respective obligations hereunder. The execution and delivery by Parent and Merger Sub of this Agreement and the performance by Parent and Merger Sub of their respective obligations hereunder have been duly and validly authorized by the Board of Directors of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and constitutes a valid and binding agreement of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms except (i) to the extent limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) None of the execution and delivery of this Agreement by Parent or Merger Sub, the consummation by Parent or Merger Sub of the transactions contemplated hereby or compliance by Parent or Merger Sub with any of the provisions hereof shall (A) conflict with or result in any breach of the certificate of incorporation or by-laws of Parent or Merger Sub, or (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any of their respective properties or assets may be bound, or violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to Parent or Merger Sub or any of their respective properties or assets. 7. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 8. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate upon the earlier of (a) the date upon which the Parent shall have purchased and paid for all of the Owned Shares of Stockholder in accordance with the Offer, (b) the date on which the Merger Agreement is terminated under such circumstances in which Parent is not and will not be entitled to a payment pursuant to Section 8.2 of the Merger Agreement and (c) May 31, 1998. 7 9. Miscellaneous. (a) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Stockholder agrees that this Agreement and the respective rights and obligations of Stockholder hereunder shall attach to any shares of Common Stock, and any securities convertible into such shares, that may become Beneficially Owned by Stockholder. (c) Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (d) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors, personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall (except as required by the proviso to Section 4) be assigned by either party (whether by operation of law or otherwise) without the prior written consent of the other party; provided, that Parent and Merger Sub may assign their rights and obligations hereunder to any assignee of such parties' rights and obligations under the Merger Agreement. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. (e) This Agreement may not be amended, changed, supplemented, or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by each of the parties hereto. The parties may waive compliance by the other parties hereto with any representation, agreement or condition otherwise required to be complied with by such other party hereunder, but any such waiver shall be effective only if in writing executed by the waiving party. (f) All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) transmitter's confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand or (c) the expiration of five business days after the day when mailed by certified or registered mail, postage prepaid, addressed at the address for such party set forth in Section 10.5 of the Merger Agreement and at the following address if to the Stockholder. If to Stockholder, to Stockholder's address or facsimile number set forth on the signature page hereto; 8 Copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Telecopy: (212) 757-3990 Attn: Carl L. Reisner, Esq. or to such other address or facsimile number as the Person to whom notice is given shall have previously furnished to the others in writing in the manner set forth above. (g) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without affecting the validity or enforceability of the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. (h) Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (a) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (b) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement. (i) All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF 9 DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF OR OF ANY OTHER JURISDICTION. (k) The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. "Include," "includes," and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. (l) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, Parent, Merger Sub and Stockholder have caused this Agreement to be duly executed as of the day and year first above written. WALTZ CORP. By: /s/ Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer WALTZ ACQUISITION CORP. By: /s/ Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer /s/ Daniel E. Straus Stockholder Address: 411 Hackensack Avenue Hackensack, New Jersey 07601 Owned Shares: 7,006,983 Doc#:DS4:73830.1 25-060 EX-11 17 EXHIBIT 11(C4) Exhibit 11(c)(4) 1 NONCOMPETITION AND CONSULTING AGREEMENT AGREEMENT, dated as of June 16, 1997, among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation, ("G"), WALTZ CORP., a Delaware ("Parent"), WALTZ ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub") and Moshael J. Straus (the "Consultant"). Parent, Merger Sub, G and THE MULTICARE COMPANIES, INC., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub is merging with and into the Company and the Company will survive as a wholly-owned subsidiary of Parent (the "Merger"). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement. The Consultant is a co-founder of, and is employed as Co-Chief Executive Officer by the Company, and has confidential knowledge of its business and affairs and is considered by Parent to be a key employee of the Company. Parent wishes to secure for itself and the Company following the Merger the services of the Consultant, and to assure itself that the Consultant agrees to certain restrictions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Engagement. Parent hereby irrevocably appoints the Consultant, and the Consultant hereby agrees to be a consultant, for a period of 12 months commencing on the date of the Closing (as defined below) (the "Consulting Term"), to perform such reasonable consulting services as the chief executive officer of Parent shall request, subject to Section 3 below. 2. Effectiveness. This Agreement shall become effective simultaneously with, and subject to, the consummation of the Merger (the "Closing"). The parties acknowledge that until this Agreement becomes effective, the Consultant may remain an officer and director of the Company and will be under no obligation under, and will not be subject to the restrictions of this Agreement. If the Merger Agreement is terminated, this Agreement shall be simultaneously terminated. 3. Duties. During the Consulting Term, the Consultant as an independent contractor shall make himself available upon reasonable notice for such time during regular business hours as shall be reasonably necessary for the business of the Company. Such consulting services shall be rendered in Hackensack, New Jersey. 4. Consideration. (a) As compensation for the Consultant's services hereunder, Parent hereby agrees to pay the Consultant, and the Consultant agrees to accept as full compensation for his services, a consulting fee of $1.5 million per annum payable in immediately available funds at the Closing. In addition, the Consultant shall be reimbursed for all expenses actually incurred by the Consultant in the performance of his duties upon presentation to Parent of expense statements or vouchers or such other supporting information as Parent requires for its senior executives. (b) As consideration for the Consultant's agreement to the restrictive covenants in Section 6 herein (the "Restrictive Covenants"), Parent hereby agrees to pay the Consultant, and the Consultant agrees to accept as full consideration for his agreement to the Restrictive Covenants, (i) the benefits set forth in Section 5 hereof, and (ii) a cash payment in the amount of $1.5 million payable in immediately available funds at the Closing. 5. Benefits; Office Facilities. Parent agrees that for a period of six months following the Effective Time the Consultant may continue the exclusive use of his and his secretary's office space and office equipment; provided, that the foregoing obligation will be excused if and when the Company ceases to maintain office facilities in Hackensack, New Jersey. Such office space shall include a separate conference room to be shared with the other current Co-Chief Executive Officer of the Company. Parent agrees that the equipment and office furnishings located in the Consultant's office shall be the property of the Consultant. 6. Restrictive Covenants. 6.1 Noncompetition and Consulting Agreement. The Consultant shall not, for a period of one year after the date hereof, in any capacity (including, but not limited to, owner, partner, shareholder, consultant, agent, employee, officer, director or otherwise), directly or indirectly, for his own account or for the benefit of any person, establish, engage in or be connected with any Competitive Business. As used herein, the term "Competitive Business" means any Restricted Business conducted in the Restricted Zone. Restricted Business means institutional pharmacy, rehabilitation services, long-term care services, skilled nursing facilities or assisted living facilities but does not include providing any other goods or services to skilled nursing facilities, assisted living facilities and other health care facilities. The Restricted Zone means any town in Connecticut or Rhode Island in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; any county in Illinois, New Jersey, Ohio, West Virginia or Wisconsin in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; all portions of Massachusetts east of Worcester; all portions of Pennsylvania east of Harrisburg and an area of fifteen miles around any facility located in Virginia or Vermont; but in no event includes any portion of any state other than Connecticut, Rhode Island, Illinois, New Jersey, Ohio, West Virginia, Wisconsin, Massachusetts, Pennsylvania, Virginia, or Wisconsin. In no event shall this Section 6.1 restrict the Consultant from owning interests in, or developing, real estate so long as the Consultant is not operating any Restricted Business. In addition, the Consultant shall not pursue any of the development projects listed on Schedule 6.1 hereto. 6.2 Confidentiality. For a period of three years commencing on the Closing Date, the Consultant shall not, except with the express prior written consent of Parent, directly or indirectly, disclose, communicate or divulge to any Person, or use for the benefit of any Person, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the Company or the business engaged in by the Company including, but not limited to, technical know-how, processes, customers, prospects, costs, designs, marketing methods and strategies, finances and suppliers. The provision of this Section 6.1 shall not apply to any information which at the time of disclosure (i) is generally available to or known to the public (other than as a result of unauthorized disclosure directly or indirectly by the Consultant) or (ii) the Consultant discloses, at the direction and authorization of Parent, or, subject to the remainder of this Section 6.2 as required by law. If the Consultant is required in a judicial, administrative or governmental proceeding to disclose any information which is the subject of the restrictions contained in this Section 6.2, then the Consultant will notify Parent as soon as possible so that Parent may either seek an appropriate protective order or relief, or waive the provisions of this Section 6.2. If, in the absence of such an order, relief or waiver, the Consultant is required, in the written opinion of counsel, to disclose such information to any court, administrative agency or governmental authority, then the Consultant may disclose such information without liability under this Agreement. 6.3 Nonsolicitation of Employees. The Consultant shall not for a period of two years after the date hereof, except with the express written consent of Parent (which shall not be unreasonably withheld or delayed in the case of an employee of the Company or the Surviving Corporation who has received a notice of termination from the Company or the Surviving Corporation, as the case may be) or as is otherwise contemplated by the Merger Agreement, directly or indirectly, whether as an employee, owner, partner, agent, director, officer, shareholder or in any other capacity, for his own account or for the benefit of any Person; (i) solicit, divert or induce any of (1) the Company's employees or (2) the Surviving Corporation's employees to leave or to work for him or any Person with which he is connected; or (ii) hire any of the Company's or the Surviving Corporation's employees and other than the other Co-Chief Executive Officer, the Chief Operating Officer and the Consultant's personal secretary and the other persons who shall be acceptable to Parent and identified on a schedule to be agreed upon prior to the purchase of shares in the Offer. 6.4 Remedies. (a)The parties to this Agreement agree that any breach by the Consultant of the covenants and agreements contained in Sections 6.1 and 6.2 will result in irreparable injury to Merger Sub for which money damages could not adequately compensate Merger Sub. Therefore, in the event of any breach of such Sections, Merger Sub shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining the Consultant and/or any other Person involved therein from continuing such breach. In any action to enforce the provisions of Sections 6.1 or 6.2, the Consultant and/or any other Person involved therein shall expressly waive the defense that any remedy at law is adequate. (b)In the event the Consultant is found by a nonappealable judgment of a court of competent jurisdiction to have violated Section 6.3, in addition to the reasonable fees and expenses of Parent's counsel incurred to enforce such provision, the Consultant shall pay to Parent, as liquidated damages, an amount equal to 200% of the applicable employee's annual compensation (including, without limitation, salary, bonus and benefits) at the time of the violation (the "Liquidated Damages"); provided, that in the event the Consultant is found by such court to have not violated Section 6.3, Parent shall pay to the Consultant the reasonable fees and expenses of counsel incurred by the Consultant to defend such action and any actual damages resulting from Parent's interference with the Consultant's commercial relationships. 6.5 Enforceability. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenants(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. If any covenant or agreement herein is held to be unenforceable because of the area covered, the duration thereof, or the scope thereof, then the court making such determination shall have, for purposes of enforcement in equity, the power to reduce the area and/or duration and/or limit the scope thereof, and the covenant or agreement shall then be enforceable in its reduced form. 6.6 Intent of Parties. Each of the parties hereto recognize and agree that this Agreement is necessary and essential to enable Parent to realize and derive substantial benefits, rights and expectations of the Merger Agreement, that the area and duration of the covenants herein are in all things, under the circumstances of the Merger Agreement, reasonable; and that good and valuable consideration exists for the Consultant's agreeing to be bound by such covenants. 6.7 Definition. As used herein, the term "Person" means any individual, sole proprietorship, joint venture, partnership, corporation, association, joint-stock company, unincorporated organization, cooperative, trust, estate, government (or any branch, subdivision or agency thereof), governmental, administrative or regulatory authority, or any other entity of any kind or nature whatsoever. 7. Additional Agreement. The Consultant agrees to pay to the Surviving Corporation, immediately following the Effective Time, the principal amount of indebtedness, and accrued interest thereon, owed by the Consultant or Health Resources of Cinnaminson, Inc., one of the Company's subsidiaries. 8. Other Provisions. 8.1 All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or by telecopier (with a confirmed receipt thereof), and on the next business day when sent by overnight courier service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Merger Sub, to: Waltz Corp. 65 East 55th Street New York, New York 10022 Attention: James L. Singleton Telecopier: (212) 705-0199 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: William E. Curbow Telecopier: (212) 455-2502 (ii) if to G, to: Genesis Health Ventures, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telecopier: (610) 444-7483 with a copy to: Blank, Rome, Comiskey & McCauley 1200 Four Penn Center Plaza Philadelphia, Pennsylvania 19103 Attention: Stephen E. Luongo Telecopier: (215) 569-5555 (iii) if to the Consultant, to Moshael J. Straus 140 S. Woodland Street Englewood, N.J. 0763 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Carl L. Reisner Telecopy No. (212) 757-3990 8.2 Entire Agreement. This Noncompetition and Consulting Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 8.3 Waivers and Amendments. This Noncompetition and Consulting Agreement may be amended, superseded, canceled, renewed or extended, and the terms 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, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 8.4 Governing Law. This Noncompetition and Consulting Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to choice of law principles. 8.5 Successors and Assigns; Assignment. This Noncompetition and Consulting Agreement is binding upon and shall inure to the benefit of the parties hereto and their respective successors. This Noncompetition and Consulting Agreement, and the Consultant's rights and obligations hereunder, may not be assigned by the Consultant. Parent may assign this Noncompetition and Consulting Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise. 8.6 No Third Party Beneficiaries. This Noncompetition and Consulting Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 8.7 Counterparts. This Noncompetition and Consulting Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto. 8.8 Headings. The headings in this Noncompetition and Consulting Agreement are for reference only and shall not affect the interpretation of this Noncompetition and Consulting Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition and Consulting Agreement as of the date first above written. WALTZ CORP. By: /s/ James L. Singleton Name: James L. Singleton Title: President ans Assistant Secretary WALTZ ACQUISITION CORP. By: /s/Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer GENESIS HEALTH VENTURES, INC. By: /s/ Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer /s/ Moshael J. Straus Moshael J. Straus EX-11 18 EXHIBIT 11(C5) EXHIBIT 11(c)(5) NONCOMPETITION AND CONSULTING AGREEMENT AGREEMENT, dated as of June 16, 1997, among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation, ("G"), WALTZ CORP., a Delaware ("Parent"), WALTZ ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub") and Daniel E. Straus (the "Consultant"). Parent, Merger Sub, G and THE MULTICARE COMPANIES, INC., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub is merging with and into the Company and the Company will survive as a wholly-owned subsidiary of Parent (the "Merger"). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement. The Consultant is a co-founder of, and is employed as Co-Chief Executive Officer by the Company, and has confidential knowledge of its business and affairs and is considered by Parent to be a key employee of the Company. Parent wishes to secure for itself and the Company following the Merger the services of the Consultant, and to assure itself that the Consultant agrees to certain restrictions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Engagement. Parent hereby irrevocably appoints the Consultant, and the Consultant hereby agrees to be a consultant, for a period of 12 months commencing on the date of the Closing (as defined below) (the "Consulting Term"), to perform such reasonable consulting services as the chief executive officer of Parent shall request, subject to Section 3 below. 2. Effectiveness. This Agreement shall become effective simultaneously with, and subject to, the consummation of the Merger (the "Closing"). The parties acknowledge that until this Agreement becomes effective, the Consultant may remain an officer and director of the Company and will be under no obligation under, and will not be subject to the restrictions of this Agreement. If the Merger Agreement is terminated, this Agreement shall be simultaneously terminated. 2 3. Duties. During the Consulting Term, the Consultant as an independent contractor shall make himself available upon reasonable notice for such time during regular business hours as shall be reasonably necessary for the business of the Company. Such consulting services shall be rendered in Hackensack, New Jersey. 4. Consideration. (a) As compensation for the Consultant's services hereunder, Parent hereby agrees to pay the Consultant, and the Consultant agrees to accept as full compensation for his services, a consulting fee of $1.5 million per annum payable in immediately available funds at the Closing. In addition, the Consultant shall be reimbursed for all expenses actually incurred by the Consultant in the performance of his duties upon presentation to Parent of expense statements or vouchers or such other supporting information as Parent requires for its senior executives. (b) As consideration for the Consultant's agreement to the restrictive covenants in Section 6 herein (the "Restrictive Covenants"), Parent hereby agrees to pay the Consultant, and the Consultant agrees to accept as full consideration for his agreement to the Restrictive Covenants, (i) the benefits set forth in Section 5 hereof, and (ii) a cash payment in the amount of $1.5 million payable in immediately available funds at the Closing. 5. Benefits; Office Facilities. Parent agrees that for a period of six months following the Effective Time the Consultant may continue the exclusive use of his and his secretary's office space and office equipment; provided, that the foregoing obligation will be excused if and when the Company ceases to maintain office facilities in Hackensack, New Jersey. Such office space shall include a separate conference room to be shared with the other current Co-Chief Executive Officer of the Company. Parent agrees that the equipment and office furnishings located in the Consultant's office shall be the property of the Consultant. 6. Restrictive Covenants. 6.1 Noncompetition and Consulting Agreement. The Consultant shall not, for a period of one year after the date hereof, in any capacity (including, but not limited to, owner, partner, shareholder, consultant, agent, employee, officer, director or otherwise), directly or indirectly, for his own account or for the benefit of any person, establish, engage in or be connected with any Competitive Business. As used herein, the term "Competitive Business" means any Restricted Business conducted in the Restricted Zone. Restricted Business means institutional pharmacy, rehabilitation services, long-term care services, skilled nursing 3 facilities or assisted living facilities but does not include providing any other goods or services to skilled nursing facilities, assisted living facilities and other health care facilities. The Restricted Zone means any town in Connecticut or Rhode Island in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; any county in Illinois, New Jersey, Ohio, West Virginia or Wisconsin in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; all portions of Massachusetts east of Worcester; all portions of Pennsylvania east of Harrisburg and an area of fifteen miles around any facility located in Virginia or Vermont; but in no event includes any portion of any state other than Connecticut, Rhode Island, Illinois, New Jersey, Ohio, West Virginia, Wisconsin, Massachusetts, Pennsylvania, Virginia, or Wisconsin. In no event shall this Section 6.1 restrict the Consultant from owning interests in, or developing, real estate so long as the Consultant is not operating any Restricted Business. In addition, the Consultant shall not pursue any of the development projects listed on Schedule 6.1 hereto. 6.2 Confidentiality. For a period of three years commencing on the Closing Date, the Consultant shall not, except with the express prior written consent of Parent, directly or indirectly, disclose, communicate or divulge to any Person, or use for the benefit of any Person, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the Company or the business engaged in by the Company including, but not limited to, technical know-how, processes, customers, prospects, costs, designs, marketing methods and strategies, finances and suppliers. The provision of this Section 6.1 shall not apply to any information which at the time of disclosure (i) is generally available to or known to the public (other than as a result of unauthorized disclosure directly or indirectly by the Consultant) or (ii) the Consultant discloses, at the direction and authorization of Parent, or, subject to the remainder of this Section 6.2 as required by law. If the Consultant is required in a judicial, administrative or governmental proceeding to disclose any information which is the subject of the restrictions contained in this Section 6.2, then the Consultant will notify Parent as soon as possible so that Parent may either seek an appropriate protective order or relief, or waive the provisions of this Section 6.2. If, in the absence of such an order, relief or waiver, the Consultant is required, in the written opinion of counsel, to disclose such information to any court, administrative agency or governmental authority, then the Consultant may disclose such information without liability under this Agreement. 6.3 Nonsolicitation of Employees. The Consultant shall not for a period of two years after the date hereof, except with the express written consent of Parent (which shall not be unreasonably withheld or delayed in the case of an employee of the Company or the Surviving Corporation who has received a notice of termination from the Company or the Surviving Corporation, as the case may be) or as is otherwise contemplated by the Merger Agreement, directly or indirectly, whether as an employee, owner, partner, agent, director, officer, shareholder or in any other capacity, for his own account or for the benefit of any Person; (i) solicit, 4 divert or induce any of (1) the Company's employees or (2) the Surviving Corporation's employees to leave or to work for him or any Person with which he is connected; or (ii) hire any of the Company's or the Surviving Corporation's employees and other than the other Co-Chief Executive Officer, the Chief Operating Officer and the Consultant's personal secretary and the other persons who shall be acceptable to Parent and identified on a schedule to be agreed upon prior to the purchase of shares in the Offer. 6.4 Remedies. (a) The parties to this Agreement agree that any breach by the Consultant of the covenants and agreements contained in Sections 6.1 and 6.2 will result in irreparable injury to Merger Sub for which money damages could not adequately compensate Merger Sub. Therefore, in the event of any breach of such Sections, Merger Sub shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining the Consultant and/or any other Person involved therein from continuing such breach. In any action to enforce the provisions of Sections 6.1 or 6.2, the Consultant and/or any other Person involved therein shall expressly waive the defense that any remedy at law is adequate. (b) In the event the Consultant is found by a nonappealable judgment of a court of competent jurisdiction to have violated Section 6.3, in addition to the reasonable fees and expenses of Parent's counsel incurred to enforce such provision, the Consultant shall pay to Parent, as liquidated damages, an amount equal to 200% of the applicable employee's annual compensation (including, without limitation, salary, bonus and benefits) at the time of the violation (the "Liquidated Damages"); provided, that in the event the Consultant is found by such court to have not violated Section 6.3, Parent shall pay to the Consultant the reasonable fees and expenses of counsel incurred by the Consultant to defend such action and any actual damages resulting from Parent's interference with the Consultant's commercial relationships. 6.5 Enforceability. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenants(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. If any covenant or agreement herein is held to be unenforceable because of the area covered, the duration thereof, or the scope thereof, then the court making such determination shall have, for purposes of enforcement in equity, the power to reduce the area and/or duration and/or limit the scope thereof, and the covenant or agreement shall then be enforceable in its reduced form. 6.6 Intent of Parties. Each of the parties hereto recognize and agree that this Agreement is necessary and essential to enable Parent to realize 5 and derive substantial benefits, rights and expectations of the Merger Agreement, that the area and duration of the covenants herein are in all things, under the circumstances of the Merger Agreement, reasonable; and that good and valuable consideration exists for the Consultant's agreeing to be bound by such covenants. 6.7 Definition. As used herein, the term "Person" means any individual, sole proprietorship, joint venture, partnership, corporation, association, joint-stock company, unincorporated organization, cooperative, trust, estate, government (or any branch, subdivision or agency thereof), governmental, administrative or regulatory authority, or any other entity of any kind or nature whatsoever. 7. Additional Agreement. The Consultant agrees to pay to the Surviving Corporation, immediately following the Effective Time, the principal amount of indebtedness, and accrued interest thereon, owed by the Consultant or Health Resources of Cinnaminson, Inc., one of the Company's subsidiaries. 8. Other Provisions. 8.1 All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or by telecopier (with a confirmed receipt thereof), and on the next business day when sent by overnight courier service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Merger Sub, to: Waltz Corp. 65 East 55th Street New York, New York 10022 Attention: James L. Singleton Telecopier: (212) 705-0199 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: William E. Curbow Telecopier: (212) 455-2502 6 (ii) if to G, to: Genesis Health Ventures, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telecopier: (610) 444-7483 with a copy to: Blank, Rome, Comiskey & McCauley 1200 Four Penn Center Plaza Philadelphia, Pennsylvania 19103 Attention: Stephen E. Luongo Telecopier: (215) 569-5555 (iii) if to the Consultant, to Moshael J. Straus 140 S. Woodland Street Englewood, N.J. 07631 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Carl L. Reisner Telecopy No. (212) 757-3990 8.2 Entire Agreement. This Noncompetition and Consulting Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 8.3 Waivers and Amendments. This Noncompetition and Consulting Agreement may be amended, superseded, canceled, renewed or extended, and the terms 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, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 7 8.4 Governing Law. This Noncompetition and Consulting Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to choice of law principles. 8.5 Successors and Assigns; Assignment. This Noncompetition and Consulting Agreement is binding upon and shall inure to the benefit of the parties hereto and their respective successors. This Noncompetition and Consulting Agreement, and the Consultant's rights and obligations hereunder, may not be assigned by the Consultant. Parent may assign this Noncompetition and Consulting Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise. 8.6 No Third Party Beneficiaries. This Noncompetition and Consulting Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 8.7 Counterparts. This Noncompetition and Consulting Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto. 8.8 Headings. The headings in this Noncompetition and Consulting Agreement are for reference only and shall not affect the interpretation of this Noncompetition and Consulting Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition and Consulting Agreement as of the date first above written. WALTZ CORP. By: /s/ James L. Singleton Name: James L. Singleton Title: President and Assistant Secretary 8 WALTZ ACQUISITION CORP. By: /s/ Karl I. Peterson Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer GENESIS HEALTH VENTURES, INC. By: /s/ Michael R. Walker Name: Michael R. Walker Title: Chairman and Chief Executive Officer /s/ Moshael J. Straus Moshael J. Straus EX-11 19 EXHIBIT 11(C6) EXHIBIT 11(c)(6) NONCOMPETITION AGREEMENT AGREEMENT, dated as of June 16, 1997, among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation, ("G"), WALTZ CORP., a Delaware Corporation ("Parent"), WALTZ ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub") and Stephen R. Baker (the "Covenantor"). Parent, Merger Sub, G and THE MULTICARE COMPANIES, INC., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub is merging with and into the Company and the Company will survive as a wholly-owned subsidiary of Parent (the "Merger"). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement. The Covenantor is employed as the Chief Operating Officer and an Executive Vice President by the Company, and has confidential knowledge of its business and affairs and is considered by Parent to be a key employee of the Company. Parent wishes to assure itself that the Covenantor agrees to certain restrictions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall become effective simultaneously with, and subject to, the consummation of the Merger (the "Closing"). The parties acknowledge that until this Agreement becomes effective, the Covenantor may remain an officer and director of the Company and will not be subject to the restrictions of this Agreement. If the Merger Agreement is terminated, this Agreement shall be simultaneously terminated. 2. Consideration. (a) As consideration for the Covenantor's agreement to the restrictive covenants in Section 4 herein (the "Restrictive Covenants"), Parent hereby agrees to pay the Covenantor, and the Covenantor agrees to accept as full consideration for his agreement to the Restrictive Covenants, (i) the benefits set forth in Section 3 hereof, and (ii) a cash payment in the amount of $500,000, payable in immediately available funds at the Closing. 2 3. Benefits; Office Facilities. Parent agrees that for a period of six months following the Effective Time the Covenantor may continue the exclusive use of his and his secretary's office space and office equipment; provided, that the foregoing obligation will be excused if and when the Company ceases to maintain office facilities in Hackensack, New Jersey. Parent agrees that the equipment and office furnishings located in the Covenantor's office shall be the property of the Covenantor. 4. Restrictive Covenants. 4.1 Noncompetition Agreement. Covenantor shall not, for a period of one year after the date hereof, in any capacity (including, but not limited to, owner, partner, shareholder, consultant, agent, employee, officer, director or otherwise), directly or indirectly, for his own account or for the benefit of any person, establish, engage in or be connected with any Competitive Business. As used herein, the term "Competitive Business" means any Restricted Business conducted in the Restricted Zone. Restricted Business means institutional pharmacy, rehabilitation services, long term care services, skilled nursing facilities or assisted living facilities but does not include providing any other goods or services to skilled nursing facilities, assisted living facilities and other health care facilities. The Restricted Zone means any town in Connecticut or Rhode Island in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; any county in Illinois, New Jersey, Ohio, West Virginia or Wisconsin in which the Company operates a long term care facility and an area of fifteen miles surrounding such facility; all portions of Massachusetts east of Worcester; all portions of Pennsylvania east of Harrisburg and an area of fifteen miles around any facility located in Virginia or Vermont; but in no event includes any portion of any state other than Connecticut, Rhode Island, Illinois, New Jersey, Ohio, West Virginia, Wisconsin, Massachusetts, Pennsylvania, Virginia, or Wisconsin. In no event shall this Section 4.1 restrict the Covenantor from owning interests in, or developing, real estate so long as the Covenantor is not operating any Restricted Business. In addition, Covenantor shall not pursue any of the development projects listed on Schedule 4.1 hereto. 4.2 Confidentiality. For a period of three years commencing on the Closing Date, the Covenantor shall not, except with the express prior written consent of Parent, directly or indirectly, disclose, communicate or divulge to any Person, or use for the benefit of any Person, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the Company or the business engaged in by the Company including, but not limited to, technical know-how, processes, customers, prospects, costs, designs, marketing methods and strategies, finances and suppliers. The provision of this Section 4.1 shall not apply to any information which at the time of disclosure (i) is generally available to or known to the public (other than as a result of unauthorized disclosure directly or indirectly by Covenantor) or (ii) Covenantor discloses, at the direction and authorization of Parent, 3 or, subject to the remainder of this Section 4.1 as required by law. If Covenantor is required in a judicial, administrative or governmental proceeding to disclose any information which is the subject of the restrictions contained in this Section 4.2, then Covenantor will notify Parent as soon as possible so that Parent may either seek an appropriate protective order or relief, or waive the provisions of this Section 4.2. If, in the absence of such an order, relief or waiver, Covenantor is required, in the written opinion of counsel, to disclose such information to any court, administrative agency or governmental authority, then Covenantor may disclose such information without liability under this Agreement. 4.3 Nonsolicitation of Employees. The Covenantor shall not for a period of two years after the date hereof, except with the express written consent of Parent (which shall not be unreasonably withheld or delayed in the case of an employee of the Company or the Surviving Corporation who has received a notice of termination from the Company or the Surviving Corporation, as the case may be) or as is otherwise contemplated by the Merger Agreement, directly or indirectly, whether as an employee, owner, partner, agent, director, officer, shareholder or in any other capacity, for his own account or for the benefit of any Person; (i) solicit, divert or induce any of (1) the Company's employees or (2) the Surviving Corporation's employees to leave or to work for him or any Person with which he is connected; or (ii) hire any of the Company's or the Surviving Corporation's employees and other than the Co-Chief Executive Officers and the Covenantor's personal secretary and other persons who shall be acceptable to Parent and identified on a schedule to be agreed upon prior to the purchase of shares in the Offer. 4.4 Remedies. (a) The parties to this Agreement agree that any breach by Covenantor of the covenants and agreements contained in Sections 4.1 and 4.2 will result in irreparable injury to Merger Sub for which money damages could not adequately compensate Merger Sub. Therefore, in the event of any breach of such Sections, Merger Sub shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Covenantor and/or any other Person involved therein from continuing such breach. In any action to enforce the provisions of Sections 4.1 or 4.2, Covenantor and/or any other Person involved therein shall expressly waive the defense that any remedy at law is adequate. (b) In the event Covenantor is found by a nonappealable judgment of a court of competent jurisdiction to have violated Section 4.3, in addition to the reasonable fees and expenses of Parent's counsel incurred to enforce such provision, Covenantor shall pay to Parent, as liquidated damages, an amount equal to 200% of the applicable employee's annual compensation (including, without limitation, salary, bonus and benefits) at the time of the violation (the "Liquidated Damages"); provided, that in the event Covenantor is found by such court to have not violated Section 4.3, Parent shall pay to Covenantor the reasonable fees and expenses 4 of counsel incurred by Covenantor to defend such action and any actual damages resulting from Parent's interference with Covenantor's commercial relationships. 4.5 Enforceability. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenants(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. If any covenant or agreement herein is held to be unenforceable because of the area covered, the duration thereof, or the scope thereof, then the court making such determination shall have, for purposes of enforcement in equity, the power to reduce the area and/or duration and/or limit the scope thereof, and the covenant or agreement shall then be enforceable in its reduced form. 4.6 Intent of Parties. Each of the parties hereto recognize and agree that this Agreement is necessary and essential to enable Parent to realize and derive substantial benefits, rights and expectations of the Merger Agreement, that the area and duration of the covenants herein are in all things, under the circumstances of the Merger Agreement, reasonable; and that good and valuable consideration exists for Covenantor's agreeing to be bound by such covenants. 4.7 Definition. As used herein, the term "Person" means any individual, sole proprietorship, joint venture, partnership, corporation, association, joint-stock company, unincorporated organization, cooperative, trust, estate, government (or any branch, subdivision or agency thereof), governmental, administrative or regulatory authority, or any other entity of any kind or nature whatsoever. 5. Other Provisions. 5.1 All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or by telecopier (with a confirmed receipt thereof), and on the next business day when sent by overnight courier service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Merger Sub, to: Waltz Corp. 65 East 55th Street New York, New York 10022 Attention: James L. Singleton Telecopier: (212) 705-0199 5 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: William E. Curbow Telecopier: (212) 455-2502 (ii) if to G, to: Genesis Health Ventures, Inc. 148 West State Street Kennett Square, Pennsylvania 19348 Attention: Michael R. Walker Telecopier: (610) 444-7483 with a copy to: Blank, Rome, Comiskey & McCauley 1200 Four Penn Center Plaza Philadelphia, Pennsylvania 19103 Attention: Stephen E. Luongo Telecopier: (215) 569-5555 (iii) if to the Covenantor, to Stephen R. Baker 3508 Belmar Boulevard Neptune, N.J. 07753 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6065 Attention: Carl L. Reisner Telecopy No. (212) 757-3990 5.2 Entire Agreement. This Noncompetition Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 5.3 Waivers and Amendments. This Noncompetition Agreement may be amended, superseded, canceled, renewed or extended, and the 6 terms 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, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 5.4 Governing Law. This Noncompetition Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to choice of law principles. 5.5 Successors and Assigns; Assignment. This Noncompetition Agreement is binding upon and shall inure to the benefit of the parties hereto and their respective successors. This Noncompetition Agreement, and the Covenantor's rights and obligations hereunder, may not be assigned by the Covenantor. Parent may assign this Noncompetition Agreement and its rights, together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its assets or business, whether by merger, consolidation or otherwise. 5.6 No Third Party Beneficiaries. This Noncompetition Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 5.7 Counterparts. This Noncompetition Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto. 7 5.8 Headings. The headings in this Noncompetition Agreement are for reference only and shall not affect the interpretation of this Noncompetition Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition Agreement as of the date first above written. WALTZ CORP. By:/s/Karl I. Peterson ____________________ Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer WALTZ ACQUISITION CORP. By:/s/ Karl I. Peterson _____________________ Name: Karl I. Peterson Title: Vice President, Secretary and Assistant Treasurer GENESIS HEALTH VENTURES, INC. By:/s/ Michael R. Walker _____________________ Name: Michael R. Walker Title: Chairman and Chief Executive Officer /s/ Stephen R. Baker _____________________ Stephen R. Baker EX-11 20 EXHIBIT 11(C7) Exhibit 11(c)(7) GENESIS HEALTH VENTURES, INC. 148 West State Street Kennett Square, Pennsylvania 19348 June 16, 1997 CONFIDENTIAL Straus Associates c/o Daniel Straus 411 Hackensack Avenue Hackensack, NJ 07601 Re: Harrington Court, Colchester, Connecticut Gentlemen: The following confirms an agreement between Genesis Health Ventures, Inc., a Pennsylvania corporation located in Kennett Square, Pennsylvania, or its designee (hereinafter referred to as "Buyer") and Straus Associates, a New York partnership with its principal place of business in Hackensack, New Jersey ( the "Partnership") for Buyer to acquire the land and buildings owned by the Partnership located on Harrington Court, Colchester, County of New London, Connecticut, as more particularly described on Schedule A attached hereto and made a part hereof (collectively, the land, building, fixtures and personalty, being the "Facility"). 1. Structure of Transaction. Buyer will purchase the Facility through an asset purchase. 2. Consideration. In consideration for the Facility, on the Closing Date, Buyer agrees to pay the Partnership Eight Million Four Hundred Thousand Dollars ($8,400,000) (the "Purchase Price") which shall be paid in cash on the Closing Date. 3. Facility Lease. The Facility is subject to that certain Lease, made as of November 14th, 1986, by and between the Partnership and Health Resources of Colchester, Inc., a Connecticut corporation, as amended by those certain Amendments of Lease, made as of November 18, 1992 and December 17, 1993 (collectively, the "Lease"). Buyer agrees that the Lease will be assumed by Buyer on the Closing Date on the same economic Straus Associates June 16, 1997 Page 2 terms existing on the Closing Date; provided, that the amount of annual rent payable to Buyer pursuant to Section 2.1 of the Lease will be fixed to equal the annual debt service payments under the indebtedness described in such section. 4. Access. The Partnership will provide Buyer, its accountants, counsel, and other representatives reasonable access to all the properties, books, contracts and other records of the Facility. 5. Conduct of Business. From the date of this letter until definitive agreements are executed and the transactions described herein are consummated, the Partnership will continue to operate the Facility in the usual, regular and ordinary manner consistent with past practices, and to comply with all applicable laws, rules and regulations. 6. Limited Representations and Warranties. The Partnership hereby represents and warrants to Buyer (i) attached as Exhibit A hereto is a complete and correct copy of the Lease as in effect on the date hereof, (ii) no person has an option to acquire the Facility and (iii) attached as Exhibit B hereto is a summary presentation of the operating results of the Facility for the fiscal years ended December 31, 1995, 1996 and for the fiscal quarter ended March 31, 1997. 7. Conditions. The parties agree that this agreement is subject to the following conditions: (a) Execution by the parties of customary real estate transfer documents at the closing. (b) The parties receiving all necessary governmental and third party licenses, permits, regulatory approvals and consents for the Transaction; (c) The Facility being transferred free and clear of all liens, encumbrances and restrictions, except the Lease and except for other imperfections which do not materially adversely affect the value of the Facility as a skilled nursing facility; (d) Compliance with all laws applicable to the proposed transaction; and (e) Consummation of the Merger (as defined in the Agreement and Plan of Merger (the "Merger Agreement") by and among The Multicare Companies, Inc., Waltz Acquisition Corp. and the other parties who are signatories thereto). Straus Associates June 16, 1997 Page 3 8. Closing. Buyer and the Partnership shall close the transactions described herein contemporaneously with the Effective Time (as defined in the Merger Agreement) (such date, the "Closing Date"). 9. Assignment. Buyer may assign its rights under this agreement to any designee; provided that Buyer shall remain obligated hereunder regardless of any such assignment. 10. Termination. This agreement shall terminate upon the earlier of (a) the Closing Date and (b) the date the Merger Agreement is terminated. Please indicate your acceptance of the terms and conditions of this agreement by executing it in the space provided below, and returning one executed copy to Genesis. Once executed and returned to Genesis, this letter will constitute a binding agreement between the parties. Upon our receipt thereof, Genesis will undertake the preparation of the proposed definitive agreements covering the transactions described herein. Very truly yours, GENESIS HEALTH VENTURES, INC. By: /S/ Michael R. Walker -------------------------------- The foregoing is agreed to by the undersigned. STRAUS ASSOCIATES By: Daniel E. Straus , its general partner ---------------------------------------- ------------------------------------ Name: -----END PRIVACY-ENHANCED MESSAGE-----