GENESIS HEALTH VENTURES INC /PA, 424B4, 1996-05-23

GENESIS HEALTH VENTURES INC /PA
424B4, 1996-05-23
SKILLED NURSING CARE FACILITIES

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<PAGE>

Filed pursuant to Rule 424(b)(4)
Registration No. 333-4132

PROSPECTUS

6,500,000 SHARES

(LOGO) GENESIS HEALTH VENTURES(sm)

COMMON STOCK
------

All of the 6,500,000 shares of common stock, par value $.02 per share (the
"Common Stock"), of Genesis Health Ventures, Inc. ("Genesis" or the
"Company") offered hereby (the "Offering") are being sold by the Company.

The Common Stock of the Company is traded on the New York Stock Exchange
under the symbol "GHV." On May 22, 1996, the last sale price of the Common
Stock as reported on the New York Stock Exchange was $32-1/2 per share.

See "Risk Factors" beginning on page 6 of this Prospectus for certain
information that should be considered by prospective purchasers of the
securities offered hereby.
------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- ------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- ------------------------------------------------------------------------------
Per Share .... $32.50 $1.38 $31.12
- ------------------------------------------------------------------------------
Total (3) .... $211,250,000 $8,970,000 $202,280,000
==============================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters an option exercisable within 30
days after the date hereof to purchase up to 975,000 additional shares,
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $242,937,500, $10,315,500 and $232,622,000, respectively.
See "Underwriting."

------

The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them,
subject to approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New
York, New York, on or about May 29, 1996.

------

Merrill Lynch & Co.
Alex. Brown & Sons
INCORPORATED
Montgomery Securities
------

The date of this Prospectus is May 22, 1996.

<PAGE>

(LOGO) GENESIS ELDER CARE(sm)

Our businesses

(LOGO) GENESIS ELDER CARE(sm)
Network Services

(LOGO) GENESIS ELDER CARE(sm)
Physician Services

(LOGO) GENESIS ELDER CARE(sm)
Rehabilitation Services

(LOGO) GENESIS ELDER CARE(sm)
Home Care Services

(LOGO) GENESIS ELDER CARE(sm)

Centers

(LOGO) (LOGO)

Genesis ElderCare is a coordinated
approach to care for the elderly that
allows each older American to define
and live a full life with the greatest
independence possible.

<PAGE>

Below is a map which shows the five geogrphic markets that the Company
principally serves and indicates for each market the population over 65 and the
number of the Company's eldercare center beds, physicians, rehabilitation
therapists, pharmacy/medical supply beds served and home healthcare visits.

<TABLE>
<CAPTION>
Genesis ElderCare(sm) Networks
==================================================================================================================================

<S> <C> <C> <C> <C>
- ------------------------------------------- -------------------------------------------
Baltimore/Washington(a) MA/CT/NH
- ----------------------- -------------------------------------------
Population over 65: 590,846 Population over 65: 763,657
Eldercare Center Beds 3,642 Eldercare Center Beds 3,598
Physicians 14 Physicians 11
Rehabilitation Therapists 404 Rehabilitation Therapists 147
Pharmacy/Medical Supply Beds Served 11,112 Pharmacy/Medical Supply Beds Served 6,921
Home Healthcare Visits(b) 29,700
- ------------------------------------------- -------------------------------------------

-------------------------------------------
Eastern Pennsylvania/
Delaware Valley
[MAP APPEARS HERE] -------------------------------------------
Population over 65: 719,044
Eldercare Center Beds 2,884
Physicians 9
- ------------------------------------------ Rehabilitation Therapists 275
Central Florida Pharmacy/Medical Supply Beds Serverd 9,393
- --------------- Home Healthcare Visits(b) 20,800
Population over 65: 917,569 -------------------------------------------
Eldercare Center Beds 2,341
Physicians 4 -------------------------------------------
Rehabilitation Therapists 186 South Delaware/
Pharmacy/Medical Supply Beds Served 1,551 Eastern Maryland (a)
- ------------------------------------------ -------------------------------------------
Population over 65: 78,802
Eldercare Center Beds 1,713
Physicians 21
Rehabilitation Therapists 59
Pharmacy/Medical Supply Beds Served 2,243
--------------------------------------------
-----------
(a) VNA in Baltimore home healthcare visits are not included.
(b) Home healthcare visits are annualized based upon the quarter ended December 31, 1995.

- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by
reference to, and should be read in conjunction with, the more detailed
information and Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus or incorporated by reference
herein. Unless otherwise indicated, all information in the Prospectus (i)
reflects a three for two stock dividend on the Common Stock effective March
29, 1996 and (ii) assumes that the Underwriters' overallotment option is not
exercised. As used herein, unless the context otherwise requires, "Genesis"
or the "Company" refers to Genesis Health Ventures, Inc. and its
subsidiaries.

THE COMPANY

Genesis is a leading provider of healthcare and support services to the
elderly. The Company has developed the Genesis ElderCare(SM) 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
60,000 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
107 eldercare centers with approximately 14,300 beds; 10 primary care
physician clinics; approximately 60 physicians, physician assistants and
nurse practitioners; nine institutional pharmacies and five medical supply
distribution centers serving over 32,000 beds; certified rehabilitation
agencies providing services through approximately 265 contracts; and seven
home healthcare agencies. Genesis has concentrated its eldercare networks in
five geographic regions in order to achieve operating efficiencies, economies
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.

Genesis eldercare services focus on the central medical and physical
issues facing the more medically demanding elderly. By integrating the
talents of physicians with case management, comprehensive discharge planning
and, where necessary, home support services, the Company provides
cost-effective care management to achieve superior outcomes and return
customers to the community. The Company believes that its orientation toward
achieving improved customer outcomes through its eldercare networks has
resulted in increased utilization of specialty medical services, high
occupancy of available beds, enhanced quality payor mix and a broader base of
repeat customers. Specialty medical services revenues have increased at a
compound annual rate of 37% from the fiscal year ended September 30, 1990 to
the fiscal year ended September 30, 1995 and comprise 40% of the Company's
revenues for the six month period ended March 31, 1996. Specialty medical
services typically generate higher profit margins than basic healthcare
services and are less capital intensive.

The Company's growth strategy is to enhance its existing eldercare
networks, establish new eldercare networks in markets it deems attractive and
broaden its array of high margin specialty medical services through internal
development and selected acquisitions. Consistent with its strategy, the
Company has made selected acquisitions of eldercare centers and
rehabilitation, pharmacy, physician services and home healthcare companies.

The Company's long-term strategy is to provide comprehensive eldercare
services, in collaboration with other providers, on a prepaid basis in a
managed care environment. The Company has undertaken several initiatives to
position itself to compete in a managed care environment. These initiatives
include: (i) establishing a managed care division to pursue and administer
contracts with managed care organizations, develop clinical care protocols
and monitor the delivery and utilization of medical care; (ii) developing a
clinical administration and healthcare management information system to
monitor and measure clinical and patient-outcome data; (iii) establishing the
Genesis ElderCare brand name to increase awareness of the Company's eldercare
services in the healthcare market; (iv) seeking strategic alliances with
other healthcare providers to broaden the Company's continuum of care; and
(v) creating an independent eldercare advisory board to formulate new and
innovative approaches in the delivery of care.

3
<PAGE>

RECENT DEVELOPMENTS

NATIONAL HEALTH TRANSACTION

In May 1996, the Company agreed to acquire National Health Care
Affiliates, Inc. and certain related entities (collectively, "National
Health") for total consideration of approximately $133,600,000 (the "National
Health Transaction"). National Health owns or leases 17 eldercare centers in
Florida, Virginia and Connecticut with a total of 2,519 beds and provides
enteral nutrition and rehabilitation therapy services to its eldercare
centers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Transactions."

NEIGHBORCARE TRANSACTION

In April 1996, the Company agreed to acquire the pharmacy healthcare
services businesses of NeighborCare Pharmacies, Inc. and certain related
entities (collectively, "NeighborCare") for total consideration of
approximately $57,250,000 (the "NeighborCare Transaction"). Based in
Baltimore, Maryland, NeighborCare operates institutional and retail pharmacy
and infusion therapy businesses. The transaction is expected to close in the
second calendar quarter of 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Transactions."

MCKERLEY TRANSACTION

In November 1995, the Company acquired McKerley Health Care Centers, Inc.
and certain related entities (collectively, "McKerley") for total
consideration of approximately $68,700,000 (the "McKerley Transaction").
McKerley owns or leases 15 eldercare centers in New Hampshire and Vermont
with a total of 1,535 beds and operates a home healthcare business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Transactions."

THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered. ........................ 6,500,000 shares
Common Stock Outstanding after the Offering .. 30,955,470 shares (1)
Repayment of indebtedness and
Use of Proceeds .............................. working capital
New York Stock Exchange symbol ............... GHV
</TABLE>

- ------
(1) Based on the number of shares of Common Stock outstanding on April 17,
1996. Does not include outstanding options to purchase 2,441,417 shares
of Common Stock, of which options to purchase 1,345,545 shares were
exercisable on April 17, 1996, or $52,714,000 aggregate principal amount
of the Company's 6% Convertible Senior Subordinated Debentures due 2003
(the "Debentures") which are convertible into 3,490,068 shares of Common
Stock.

RISK FACTORS

See "Risk Factors" beginning on page 6 for a discussion of certain factors
relating to the Common Stock offered hereby.

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended September 30, March 31,
--------------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- --------------------- --------- -------------
Pro Pro
Forma, As Forma, As
Actual Adjusted(1) Actual Actual Adjusted(1)
------ ----------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data
Net revenues .................$171,449 $196,253 $219,809 $388,616 $486,393 $682,360 $228,506 $287,517 $376,358
Income from operations before
depreciation, amortization,
lease expense, interest and
Debenture conversion expense . 30,587 35,597 38,129 69,373 93,253 126,523 41,822 54,697 70,488
Earnings before extraordinary
items and cumulative effect of
change in accounting principle 3,595 7,710 11,909 17,691 25,531 33,943 10,623 13,668 18,775
Net income ...................$ 3,283 $ 7,433 $ 11,909 $ 17,673 $ 23,608 $ 32,020 $ 10,623 $ 13,668 $18,775
======== ======== ======== ======== ========= ========= ========= ========= ========
Per common share data (fully
diluted)(2):
Earnings before extraordinary
items and cumulative effect
of change in accounting
principle and Debenture
conversion expense ......$ 0.39 $ 0.53 $ 0.67 $ 0.84 $ 1.03 $ 1.07 $ 0.44 $ 0.55 $ 0.59
Net income ................. 0.35 0.51 0.67 0.84 0.97 1.02 0.44 0.53 0.57
Weighted average shares of Common
Stock and equivalents ...... 9,234 14,495 17,929 24,820 28,452 35,260 28,369 28,817 35,625
Operating Data
ElderCare Networks:
Average eldercare center beds
in service
Wholly-owned and leased . 4,432 4,719 4,534 7,530 8,268 8,268 8,611
Jointly-owned and managed . 444 769 1,208 4,532 5,158 5,166 5,821
-------- -------- -------- -------- --------- --------- --------
Total .................. 4,876 5,488 5,742 12,062 13,426 13,434 14,430
======== ======== ======== ======== ========= ========= ========
Occupancy percentage in wholly-
owned and leased eldercare
centers ................. 96% 96% 95% 92% 92% 92% 93%
Average length of stay in
wholly- owned and leased
eldercare centers (in days) * 421 350 290 218 221 239
Physicians, physician
assistants and nurse
practitioners ........... 12 12 18 22 41 38 60
Rehabilitation contracts ... 54 100 106 152 232 140 277
Institutional
pharmacies/medical
supplies beds served .... 9,000 19,038 21,838 27,964 31,344 30,426 33,751
Payor mix
Private and other .......... 43% 41% 42% 41% 38% 38% 39%
Medicare ................... 9% 12% 14% 16% 21% 20% 23%
Medicaid ................... 48% 47% 44% 43% 41% 42% 38%
Revenue mix
Basic healthcare services .. 71% 69% 61% 62% 57% 60% 54%
Specialty medical services . 26% 26% 34% 32% 37% 35% 40%
Management services and other 3% 5% 5% 6% 6% 5% 6%
</TABLE>
(Unaudited)
March 31, 1996
------------------------------------------
Pro Forma,
Actual As Adjusted(3)
---------- --------------
Balance Sheet Data
Working capital .. $144,485 $153,363
Total assets ..... 734,076 960,459
Long-term debt ... 392,210 373,870
Shareholders'
equity ........ 269,605 481,377
- ------
(1) Gives effect to the McKerley Transaction, NeighborCare Transaction and
National Health Transaction, as adjusted to reflect the Offering and the
application of the estimated net proceeds therefrom as described under
"Use of Proceeds." See Pro Forma Condensed Consolidated Financial
Information.
(2) Reflects a three for two stock dividend on the Common Stock effective
March 29, 1996.
(3) Gives effect to the NeighborCare Transaction and National Health
Transaction, as adjusted to reflect the Offering and the application of
the estimated net proceeds therefrom as described under "Use of
Proceeds."
* Information unavailable.
5
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" such as statements concerning
Medicare and Medicaid programs and the Company's ability to meet its liquidity
needs and control costs; certain statements contained in "Business" such as
statements concerning strategy, government regulation, Medicare and Medicaid
programs and legal proceedings; certain statements in the Pro Forma Condensed
Consolidated Financial Information, such as certain of the Pro Forma
Adjustments; and other statements contained herein regarding matters that are
not historical facts are forward looking statements (as such term is defined in
the Securities Act of 1933, as amended (the "Securities Act"); and because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward looking statements. Factors that
could cause actual results to differ materially include, but are not limited to,
those discussed herein under "Risk Factors."

RISK FACTORS

Prospective investors should carefully consider the following risk factors
in addition to the other information contained herein before purchasing the
Common Stock offered hereby.

Risk of Adverse Effect of Healthcare Reform. In addition to extensive
existing government healthcare regulation, there are numerous initiatives on
the federal and state levels for comprehensive reforms affecting the payment
for and availability of healthcare services. It is not clear at this time
what proposals, if any, will be adopted, or what effect such proposals would
have on the Company's business. Aspects of certain of these healthcare
proposals, such as reductions in funding of the Medicare and Medicaid
programs, potential changes in reimbursement regulations by the Health Care
Financing Administration ("HCFA"), enhanced pressure to contain healthcare
costs by Medicare, Medicaid and other payors and permitting greater state
flexibility in the administration of Medicaid, could adversely affect the
Company. There can be no assurance that currently proposed or future
healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs or regulations will not
have a material adverse effect on the Company. Concern about the potential
effects of the proposed reform measures has contributed to the volatility of
prices of securities of companies in healthcare and related industries,
including the Company, and may similarly affect the price of the Common Stock
in the future. See "Business -- Government Regulation."

Regulation. The federal government and all states in which the Company
operates regulate various aspects of the Company's business. In particular,
the development and operation of eldercare centers and the provision of
healthcare services are subject to federal, state and local laws relating to
the delivery and adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel, operating policies, fire prevention, rate-setting and
compliance with building codes and environmental laws. Eldercare centers are
subject to periodic inspection by governmental and other authorities to
assure continued compliance with various standards, their continued licensing
under state law, certification under the Medicare and Medicaid programs and
continued participation in the Veterans Administration program and the
ability to participate in other third party programs. The Company is also
subject to inspection regarding record keeping and inventory control. The
failure to obtain or renew any required regulatory approvals or licenses
could adversely affect the continued expansion of the Company and could
prevent it from offering its existing services.

Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain
acquisitions and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditure being undertaken. To the extent
that certificates of need or other similar approvals are required for
expansion of Company operations, either through center acquisitions or
expansion or provision of new services or other changes, such expansion could
be adversely affected by the failure or inability to obtain the necessary
approvals, changes in the standards applicable to such approvals and possible
delays and expenses associated with obtaining such approvals.

6
<PAGE>

federal "Stark legislations" which prohibit, with limited exceptions, the
referral of patients for certain services, including home health services,
physical therapy and occupational therapy, by a physician to entities in
which they have an ownership interest and the federal "anti-kickback law"
which prohibits, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare
and Medicaid patients or the purchasing, leasing, ordering or arranging for
any goods, facility services or items for which payment can be made under
Medicare and Medicaid. The federal government, private insurers and various
state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effort to identify and prosecute
fraudulent and abusive practices. In addition, the federal government has
issued recent fraud alerts concerning double billing, home health services
and the provision of medical supplies to nursing facilities; accordingly,
these areas may come under closer scrutiny by the government. See "Business
- -- Governmental Regulation." Furthermore, some states restrict certain
business relationships between physicians and other providers of healthcare
services. Many states prohibit business corporations from providing, or
holding themselves out as a provider of, medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of
licensure or eligibility to participate in reimbursement programs and civil
and criminal penalties. These laws vary from state to state, are often vague
and have seldom been interpreted by the courts or regulatory agencies. From
time to time, the Company has sought guidance as to the interpretation of
these laws; however, there can be no assurance that such laws will ultimately
be interpreted in a manner consistent with the practices of the Company.

Payment by Third Party Payors. For the years ended September 30, 1994 and
1995, and the six months ended March 31, 1996, respectively, the Company
derived approximately 41%, 38% and 39% of its patient service revenue from
private pay sources, 16%, 21% and 23% from Medicare and 43%, 41% and 38% from
various state Medicaid agencies. Both governmental and private third party
payors have employed cost containment measures designed to limit payments
made to healthcare providers such as the Company. Those measures include the
adoption of initial and continuing recipient eligibility criteria which may
limit payment for services, the adoption of coverage and duration criteria
which limit the services which will be reimbursed and the establishment of
payment ceilings which set the maximum reimbursement that a provider may
receive for services. Furthermore, government payment programs are subject to
statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially increase or decrease the rate of program payments to the Company
for its services. There can be no assurance that payments under governmental
and private third party payor programs will remain at levels comparable to
present levels or will, in the future, be sufficient to cover the costs
allocable to patients eligible for reimbursement pursuant to such programs.
In addition, there can be no assurance that centers owned, leased or managed
by the Company, or the provision of services and supplies by the Company, now
or in the future will initially meet or continue to meet the requirements for
participation in such programs. The Company could be adversely affected by
the continuing efforts of governmental and private third party payors to
contain the amount of reimbursement for healthcare services. In an attempt to
limit the federal budget deficit, there have been, and the Company expects
that there will continue to be, a number of proposals to limit Medicare and
Medicaid reimbursement for healthcare services. In certain states there have
been proposals to eliminate the distinction in Medicaid payment for skilled
versus intermediate care services and to establish a case mix prospective
payment system pursuant to which the payment to a facility for a patient is
based upon the patient's condition and need for services. The Company cannot
at this time predict whether any of these proposals will be adopted or, if
adopted and implemented, what effect, if any, such proposals will have on the
Company. In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures or the assumption by
healthcare providers of all or a portion of the financial risk through
prepaid capitation arrangements. Efforts to impose reduced allowances,
greater discounts and more stringent cost controls by government and other
payors are expected to continue. See "Business -- Revenue Sources."

Competition. The healthcare industry is highly competitive. The Company
competes with a variety of other companies in providing eldercare services.
Certain competing companies have greater financial and other resources and
may be more established in their respective communities than the Company.
Competing companies may offer newer or different centers or services than the
Company and may thereby attract the Company's customers who are either
presently residents of its eldercare centers or are otherwise receiving its
eldercare services. See "Business -- Competition."

7
<PAGE>

Risks Associated with Proposed Acquisitions and Acquisition Strategy. The
Company has recently completed several acquisitions of eldercare businesses.
The Company also has entered into agreements for the National Health
Transaction and NeighborCare Transaction and intends to pursue additional
acquisitions in the future. Consummation of each of the National Health
Transaction and NeighborCare Transaction is subject to certain conditions;
accordingly, there can be no assurance that the transactions will be
completed. Furthermore, there can be no assurance that the Company will be
able to realize expected operating and economic efficiencies from its recent
acquisitions, from the National Health Transaction and NeighborCare
Transaction or from any future acquisitions or that such acquisitions will
not adversely affect the Company's results of operations or financial
condition. In addition, there can be no assurance that the Company will be
able to locate suitable acquisition candidates in the future, consummate
acquisitions on favorable terms or successfully integrate newly acquired
businesses with the Company's operations. The consummation of acquisitions
will result in the incurrence or assumption by the Company of additional
indebtedness.

8
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of 6,500,000 shares of the
Common Stock offered hereby are estimated to be $201,780,000 ($232,122,000
assuming the exercise in full of the Underwriters' over-allotment option), after
deducting estimated offering expenses and the underwriting discount. The Company
expects to use approximately $167,000,000 of the net proceeds from the Offering
to repay indebtedness under its bank credit facilities which currently bear
interest at a weighted average annual rate of approximately 6.8%. The remaining
proceeds will be used for working capital. Certain of such indebtedness was
incurred to fund certain of the transactions described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Transactions." In addition, the Company expects that it will fund the
NeighborCare Transaction and the National Health Transaction from funds borrowed
under such credit facilities and working capital. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain
Transactions."

CAPITALIZATION

The following table sets forth the capitalization of the Company: (i) as
of March 31, 1996; (ii) on a pro forma basis to give effect to the
NeighborCare Transaction and National Health Transaction; and (iii) as
adjusted to give effect to the Offering and the application of the estimated
net proceeds therefrom as described in "Use of Proceeds."

<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------
Pro Pro Forma,
Actual Forma As Adjusted
---------- ---------- -------------
(In thousands)
<S> <C> <C> <C>
Current installment of long-term debt .......................... $ 2,438 $ 2,438 $ 2,438
========== ========== =============
Long-term debt, less current maturities:
Senior long-term debt ........................................ $219,774 $403,214 $201,434
9 3/4 % Senior Subordinated Notes due 2005 (1) ............... 119,722 119,722 119,722
6% Convertible Senior Subordinated Debentures due 2003 ....... 52,714 52,714 52,714
---------- ---------- -------------
Total long-term debt ....................................... 392,210 575,650 373,870
Shareholders' equity:
Common stock, $.02 par value, 60,000,000 shares authorized;
24,494,572 shares issued and 24,448,971 shares outstanding,
actual; 24,882,264 shares issued and 24,756,663 shares
outstanding, pro forma; and 31,302,264 shares issued and
31,256,663 shares outstanding, pro forma, as adjusted (2)... 331 337 467
Additional paid-in capital ................................... 190,280 200,274 401,924
Retained earnings ............................................ 79,237 79,237 79,237
Treasury stock, at cost, 45,601 shares ....................... (243) (243) (243)
---------- ---------- -------------
Total shareholders' equity ................................. 269,605 279,605 481,385
---------- ---------- -------------
Total capitalization ...................................... $661,815 $855,255 $855,255
========== ========== =============
</TABLE>

- ------
(1) Net of remaining original issue discount of $277,500.
(2) Assuming an average closing price of $32.50 per share for the period
prior to the closing of the NeighborCare Transaction.

9
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the New York Stock Exchange under the symbol
"GHV." The following table indicates the high and low sale prices per share,
as reported on the New York Stock Exchange, for the calendar periods
indicated and reflects a three for two stock dividend on the Common Stock
effective March 29, 1996.

<TABLE>
<CAPTION>
Calendar Year High Low
------------- --------- ---------
<S> <C> <C>
1994
First Quarter ................. $19.25 $14.59
Second Quarter ................ 18.83 14.50
Third Quarter ................. 19.17 15.50
Fourth Quarter ................ 20.33 17.00

1995
First Quarter ................. 21.67 19.00
Second Quarter ................ 21.33 17.33
Third Quarter ................. 24.83 18.16
Fourth Quarter. ............... 23.66 19.00

1996
First Quarter ................. 29.75 23.13
Second Quarter (through May 22,
1996) ....................... 33.75 27.13

</TABLE>

On May 22, 1996, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $32.50 per share.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its Common
Stock since its inception and does not anticipate declaring any such
dividends on its Common Stock in the foreseeable future. The Company intends
to retain earnings, if any, to provide for the operation and expansion of its
business. The declaration of dividends on the Common Stock will depend, among
other factors, upon future earnings, the operating and financial condition of
the Company, its capital requirements and general business conditions.
Certain credit agreements to which the Company is a party place restrictions
on payment by the Company of cash dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 4 of Notes to Consolidated Financial Statements
of the Company.

10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for each of the
fiscal years in the five-year period ended September 30, 1995 and as of
September 30, 1995 have been derived from the Company's audited Consolidated
Financial Statements, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected consolidated financial
data presented below for the six months ended March 31, 1995 and 1996 and as
of March 31, 1996 have been derived from the unaudited Condensed Consolidated
Financial Statements of the Company and, in the opinion of the Company,
reflect and include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of the Company for such periods. The results of
operations for the six months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for a full fiscal year. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Consolidated Financial Statements of
the Company and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues:
Basic healthcare services ........ $ 121,854 $ 134,763 $ 133,370 $ 240,264 $ 278,121 $ 136,372 $ 155,260
Specialty medical services ....... 43,726 52,254 75,227 125,718 180,327 80,145 115,001
Management services and other .... 5,869 9,236 11,212 22,634 27,945 11,989 17,256
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total net revenues .............. 171,449 196,253 219,809 388,616 486,393 228,506 287,517
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations before
depreciation, amortization, lease
expense, interest and Debenture
conversion expense ............... 30,587 35,597 38,129 69,373 93,253 41,822 54,697
Depreciation and amortization ....... 6,258 7,239 7,157 14,982 18,793 8,984 11,235
Lease expense ....................... 7,460 7,207 7,026 11,376 13,798 6,730 7,861
Interest expense, net ............... 11,072 8,708 5,042 15,305 20,366 9,393 12,979
Debenture conversion expense ........ -- -- -- -- -- -- 1,090
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes and
extraordinary items and cumulative
effect of change in accounting
principle ........................ 5,798 12,443 18,903 27,710 40,296 16,715 21,532
Earnings before extraordinary items and
cumulative effect of change in
accounting principle ............. 3,595 7,710 11,909 17,691 25,531 10,623 13,668
Net income .......................... 3,283 7,433 11,909 17,673 23,608 10,623 13,668
Preferred stock dividend ............ 441 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders ..................... $ 2,842 $ 7,433 $ 11,909 $ 17,673 $ 23,608 $ 10,623 $ 13,668
========== ========== ========== ========== ========== ========== ==========
Per common share data (fully diluted)(1)
Earnings before extraordinary items,
cumulative effect of change in
accounting principle and Debenture
conversion expense ............... $0.39 $0.53 $0.67 $0.84 (2) $1.03 (2) $0.44 (2) $0.55 (2)
Debenture conversion expense ........ -- -- -- -- -- -- (0.02)(3)
Net income .......................... $0.35 $0.51 $0.67 $0.84 (2) $0.97 (2) $0.44 (2) $0.53 (2)
Weighted average shares of common stock
and equivalents. ................. 9,233,902 14,494,575 17,928,522 24,819,711 28,452,436 28,369,497 28,816,719
</TABLE>
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------- March 31,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------- ----------
(In thousands)
Balance Sheet Data: .
<S> <C> <C> <C> <C> <C> <C>
Working capital .....$ 14,689 $ 31,986 $ 50,081 $ 66,854 $134,114 $144,485
Total assets ........ 173,220 188,677 236,978 511,698 600,389 734,076
Long-term debt ...... 89,777 80,170 83,842 250,807 308,052 392,210
Shareholders' equity . 52,340 82,703 125,348 195,466 221,547 269,605

- ------
(1) Reflects a three for two stock dividend on the Common Stock effective March 29, 1996.
(2) Includes the assumed conversion of the 6% Convertible Senior Subordinated Debentures due 2003 (the "Debentures")
which were issued November 30, 1993.
(3) In connection with an early conversion of the Debentures, the Company paid approximately $1,090,000 ($687,000 after tax)
representing the prepayment of interest to converting Debenture holders.
</TABLE>

11
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Since the Company began operations in July 1985, it has focused its
efforts on providing an expanding array of specialty medical services to
elderly customers. The delivery of these services was originally concentrated
in the eldercare centers owned and leased by the Company, but now also
includes managed eldercare centers, independent healthcare facilities,
outpatient clinics and home healthcare.

The Company generates revenues from three sources: basic healthcare
services, specialty medical services and management services and other. The
Company includes in basic healthcare services revenues all room and board
charges for its eldercare customers at its owned and leased eldercare
centers. Specialty medical services include all revenues from providing
rehabilitation therapies, institutional pharmacy and medical supply services,
subacute care programs, home healthcare, physician services, and other
specialized services. Management services and other include fees earned for
management of eldercare centers.

Genesis delivers its services through three divisions. The largest, in
terms of revenues, is Genesis Health Centers, which at March 31, 1996
included 68 owned and leased eldercare centers. The second, Genesis Health
Services, provides specialty medical services to all centers owned, leased or
managed by Genesis as well as to over 500 independent healthcare providers.
The third, Genesis Management Resources, Inc., manages 39 eldercare centers.

CERTAIN TRANSACTIONS

In May 1996, the Company agreed to acquire the outstanding stock and
partnership interests of National Health for total consideration of
approximately $133,600,000, including assumed debt. The transaction is
expected to close in the second calendar quarter of 1996 and is subject to
normal regulatory approvals and certain third party consents. The
consideration will be comprised of approximately $79,400,000 in cash and the
assumption of approximately $54,200,000 of indebtedness. Genesis intends to
repay all but approximately $18,000,000 of the assumed indebtedness
concurrently with the closing of the transaction. The cash portion of the
purchase price and repayment of indebtedness will be financed by borrowings
under the Company's bank credit facilities. National Health owns six
eldercare centers in Florida with 863 beds, leases four eldercare centers in
Florida with 368 beds, owns six eldercare centers in Virginia with 1,168 beds
and leases one eldercare center in Connecticut with 120 beds. National Health
also provides enteral nutrition and rehabilitation therapy services to the
eldercare centers which it owns and leases. In addition, National Health
manages four eldercare centers in Colorado with 283 beds pursuant to an
agreement which expires in October 1997. Certain businesses, including home
healthcare, infusion therapy and assisted living facilities in New York
State, which are currently owned by National Health will not be acquired by
Genesis as part of the transaction.

In April 1996, the Company agreed to acquire the outstanding stock of
NeighborCare, a privately-held institutional pharmacy, infusion therapy and
retail pharmacy business based in Baltimore, Maryland for approximately
$57,250,000, including assumed debt. The transaction is expected to close in
the second calendar quarter of 1996 and is subject to normal regulatory
approvals. The consideration will be comprised of $29,250,000 in cash, the
issuance of $10,000,000 in the Common Stock and the assumption of
NeighborCare debt of approximately $18,000,000. Genesis intends to repay
substantially all of the assumed bank indebtedness concurrently with the
closing of the transaction. The cash portion of the purchase price and
repayment of debt will be financed by borrowings under the Company's bank
credit facilities. The number of shares issued will be based on the average
closing price of the Common Stock for a period prior to the closing of the
transaction.

In March 1996, the Company acquired for total consideration of
approximately $31,900,000, including the payment of assumed debt, the
remaining approximately 71% joint venture interests of four eldercare centers
in Maryland and the remaining 50% joint venture interest of an eldercare
center in Florida (the "Partnership Interest Purchase") which had been
acquired as part of the Meridian Transaction described below.

12
<PAGE>

In March 1996, the Company entered into a strategic alliance with Doctors
Community Hospital, a 250- bed acute care hospital in Maryland, pursuant to
which the Company sold to an affiliate of the hospital a 51% interest in
Magnolia Gardens Center, a 104-bed eldercare center for approximately
$2,900,000. As part of this transaction, the Company entered into a long-term
agreement to manage the center.

In March 1996, the Company sold four eldercare centers and a pharmacy in
Indiana for approximately $22,250,000 (the "Indiana Transaction"). The
properties were acquired as part of the Meridian Transaction described below.

In January 1996, the Company acquired the speech therapy, occupational
therapy and physical therapy services businesses of Medical and Rehab Support
Services, Inc., Professional Rehabilitation Network, Inc. and Healthcare
Rehab Services, Inc. (collectively, "Therapy Companies") for approximately
$9,300,000. The Therapy Companies provide these services in the Company's
Baltimore/Maryland/ Washington, D.C. market. The acquisition was financed
with borrowings under the Company's bank credit facilities.

Prior to January 1, 1996, the Company provided management, development and
marketing services to life care communities operated by Adult Community Total
Services, Inc. ("ACTS"), a Pennsylvania non-profit corporation, pursuant to a
management agreement which was to expire in April 1998. Effective January 1,
1996, Genesis restructured its relationship with ACTS. Under the revised
arrangement, Genesis was paid a $2,000,000 restructuring fee and will no
longer manage the ACTS life care communities. Genesis will continue to
provide development services for a fee in an amount equal to five percent of
the total cost of developing and completing facilities developed by ACTS. The
development portion of the contract has been extended to December 2002 and
Genesis is guaranteed a minimum annual development fee of approximately
$1,500,000 per year. Genesis also continues to provide certain ancillary
services to the ACTS communities.

In December 1995, the Company acquired substantially all of the assets of
Franklin Nursing Home, Inc. ("Franklin") for approximately $3,600,000.
Franklin operated a 250-bed long-term care facility located in Greenfield,
Massachusetts. The acquisition was financed with borrowings under the
Company's bank credit facilities.

In November 1995, the Company acquired McKerley Health Care Centers, Inc.
and certain related entities (collectively, "McKerley") for total
consideration of approximately $68,700,000. The transaction also provides for
up to an additional $6,000,000 of contingent consideration payable upon the
achievement of certain financial objectives through October 1997. McKerley
owns or leases 15 eldercare centers in New Hampshire and Vermont with a total
of 1,535 beds and operates a home healthcare business. The acquisition was
financed with borrowings under the Company's bank credit facilities.

In September 1995, the Company sold, and simultaneously entered into a
three-year contract to manage, five eldercare centers totaling 606 beds to
the AGE Institute of Massachusetts ("AIMASS") for $19,570,000 (the "AIMASS
Transaction").

In August 1995, the Company entered into a software license agreement for
a clinical operating system with Health Data Systems, Inc. The total
commitment under the license agreement is $12,000,000. The Company has
estimated the cost to install the system and related hardware, not including
amounts paid for the software license, to be approximately $18,000,000.

In June 1995, the Company acquired Eastern Medical Supplies, Inc. and its
affiliate Eastern Rehab Services, Inc. (collectively, "Eastern Medical") for
approximately $2,000,000. Eastern Medical sells and leases home medical
equipment, respiratory products and services and rehabilitation equipment to
patients at home throughout Maryland. The purchase was financed with
borrowings under the Company's bank credit facility.

In April 1995, the Company acquired TherapyCare Systems, L.P.
("TherapyCare") for approximately $7,000,000. TherapyCare provides physical
therapy, occupational therapy and speech therapy to 73 long-term care centers
throughout Pennsylvania. The purchase was financed with borrowings under the
Company's bank credit facility.

In March 1995, a joint venture in which the Company is a 55% partner
acquired Delta Drug, Inc. ("Delta Drug") for approximately $1,700,000. Delta
Drug, an institutional pharmacy company located in Providence, Rhode Island,
serves over 2,000 long-term care beds. The Company's portion of the purchase
price was financed with borrowings under the Company's bank credit facility.

13
<PAGE>

In November 1993, Genesis completed its acquisition of substantially all
of the assets of Meridian, Inc., Meridian Healthcare, Inc. and their
affiliated entities (collectively, "Meridian"). As a result of the
transaction (the "Meridian Transaction"), Genesis owned, leased or managed an
additional 36 eldercare centers. Of these 36 centers, 15 were wholly-owned,
six were jointly-owned, seven were leased and eight were managed. Genesis
also acquired certain of the other Meridian businesses, including the
institutional pharmacy, qualified group purchasing business and
rehabilitation therapy business and manages one additional retirement
community. As part of the Meridian Transaction, Genesis entered into
agreements to lease and operate, for ten years with a five year renewal
option, seven eldercare centers that continue to be owned by certain
shareholders of Meridian (the "Leased Centers") and obtained the option (the
"Option") to purchase the Leased Centers after the expiration of the lease.
The assets acquired in the Meridian Transaction are located primarily within
four of the Company's five geographic markets.

SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995

The Company's total net revenues for the six months ended March 31, 1996
were $287,517,000 compared to $228,506,000 for the six months ended March 31,
1995, an increase of $59,011,000 or 26%. Basic healthcare services increased
$18,888,000, or 14%, which is primarily due to the acquisition of McKerley,
the Partnership Interest Purchase, a shift in payor mix from Medicaid to
Medicare and rate increases; the increase was partially offset by the AIMASS
Transaction and the Indiana Transaction. Specialty medical services revenue
increased $34,856,000 or 43%, of which approximately $14,520,000 is due to
acquisitions of specialty medical businesses, including the Therapy Companies,
approximately $2,199,000 is due to the commencement of pharmacy, medical
supply and rehabilitation therapy businesses in Florida, with the remainder
due to other volume growth in the institutional pharmacy, medical supply and
contract therapy divisions. Specialty medical services revenue per patient day
in the health centers division increased 23% to $28.51 in the six months ended
March 31, 1996 as compared to $23.18 for the same period in the prior year due
primarily to treatment of higher acuity patients. Management services and
other income increased $5,267,000 or 44% including a non-recurring net gain of
approximately $2,700,000 primarily resulting from the Indiana Transaction; the
remainder of the increase was primarily due to the sale of a majority interest
in one eldercare center in Maryland, and new management contracts with six
eldercare centers (primarily as a result of the AIMASS Transaction) and an
eldercare center and hospital-based subacute unit (as a result of the Magnolia
Gardens Transaction).

The Company's operating expenses before Debenture conversion expense,
depreciation, amortization and lease expense were $232,820,000 in the six
months ended March 31, 1996 compared to $186,684,000 in the comparable prior
period, an increase of $46,136,000 or 25%. The increase was primarily due to
the acquisition of McKerley, an increase in cost of goods sold related to
increased specialty medical services revenues, and inflationary wage and
benefit increases.

In the three months ended December 31, 1995, the Company converted
approximately $33,500,000 of its 6% Convertible Senior Subordinated
Debentures due 2003 (the "Debentures"). In connection with the early
conversion of the Debentures, the Company paid approximately $1,100,000
representing the prepayment of interest to converting Debenture holders. The
non-recurring cash payment is presented as Debenture conversion expense in
the results of operations for the six months ended March 31, 1996.

Interest expense increased $3,586,000 or 38%. This increase reflects
increased debt levels used to fund acquisitions and operations and a higher
average prevailing interest rate due to the issuance of $120,000,000 of 9 3/4
% Senior Subordinated Notes due 2005 (the "Notes").

FISCAL 1995 COMPARED TO FISCAL 1994

The Company's total net revenues for the fiscal year ended September 30,
1995 ("Fiscal 1995") were $486,393,000 compared to $388,616,000 for the
fiscal year ended September 30, 1994 ("Fiscal 1994"), an increase of
$97,777,000 or 25%. Basic healthcare services increased $37,857,000 or 16% of
which approximately $20,500,000 is due to the Meridian Transaction included
in the entire period in Fiscal 1995 as compared to ten months in Fiscal 1994,
approximately $3,400,000 is due to two centers which were leased in

14
<PAGE>

Fiscal 1995 that were managed for a part of Fiscal 1994 and the remaining
increase is due to providing care to higher acuity customers and to rate
increases. Specialty medical services revenue increased $54,609,000 or 43% of
which approximately $6,000,000 is due to the Meridian Transaction,
approximately $13,000,000 is due to acquisitions during Fiscal 1995 and the
remainder is due to other volume growth in the institutional pharmacy,
medical supply and contract therapy divisions and increased acuity in the
eldercare centers division. Specialty medical service revenue per patient day
in the health centers division increased 41% to $25.06 in Fiscal 1995
compared to $17.80 in Fiscal 1994 primarily due to treatment of higher acuity
patients. Management services and other income increased $5,311,000 or 23%.
This increase is primarily due to the management contracts and other
unrelated businesses acquired in the Meridian Transaction as well as
inflationary rate increases. The number of eldercare centers under management
contracts increased from 31 at September 30, 1994 to 35 at September 30,
1995.

The Company's operating expenses before depreciation, amortization, lease
expense and interest expense were $393,139,000 for Fiscal 1995 compared to
$319,243,000 for Fiscal 1994, an increase of $73,896,000 or 23%. Salaries,
wages and benefits increased $45,076,000 or 23% of which approximately
$14,500,000 relates to the Meridian Transaction, approximately $3,100,000
related to two centers leased in Fiscal 1995 that were managed for a part of
Fiscal 1994 and the remainder is due to the impact of acquisitions and growth
in the institutional pharmacy, medical supply and contract therapy divisions.

Other operating expenses increased $28,885,000 or 26% of which
approximately $8,500,000 is due to the Meridian Transaction and the remainder
is due to increased sales in the pharmacy and medical supply divisions.

Interest expense increased $5,061,000 or 33%. This increase in interest
expense was due to increased debt used to finance the Meridian Transaction
outstanding for the entire period of Fiscal 1995 compared to ten months in
the prior year, borrowings under the revolving credit agreement and a higher
average interest rate due to the issuance of the Notes in June 1995.

Depreciation and amortization expense increased from $14,982,000 in Fiscal
1994 to $18,793,000 in Fiscal 1995 primarily due to the Meridian Transaction.

Lease expense increased from $11,376,000 in Fiscal 1994 to $13,798,000 in
Fiscal 1995 of which $1,000,000 is related to the Meridian Transaction,
$500,000 is due to two centers that were leased in Fiscal 1995 that were
managed for a part of Fiscal 1994 and the remainder is due to new leases as a
result of growth of the eldercare services division and inflationary rate
increases.

In connection with the early repayment of debt and the restructuring and
amendment of its bank credit facility, the Company recorded an extraordinary
loss of approximately $1,923,000 to write off unamortized, deferred financing
fees.

FISCAL 1994 COMPARED TO FISCAL 1993

The Company's total net revenues for Fiscal 1994 were $388,616,000
compared to $219,809,000 for the fiscal year ended September 30, 1993
("Fiscal 1993"), an increase of $168,807,000 or 76.8%. Basic healthcare
services increased $106,894,000 or 80.1% of which approximately $97,600,000
was due to the Meridian Transaction and the remainder was due to providing
care to higher acuity customers and to rate increases. Specialty medical
service revenue increased $50,491,000 or 67.1%. Of this increase,
approximately $32,000,000 related to the Meridian Transaction, $13,200,000
related to increased sales to independent customers and a full year of
operations for a medical supply company acquired in Fiscal 1993, and
$5,300,000 related to intensity and rate increases. Management services and
other income increased $11,422,000 or 101.9%. This increase is primarily
attributable to management services contracts acquired in connection with the
Meridian Transaction which accounted for approximately $4,100,000,
approximately $2,700,000 of revenue associated with a qualified group
purchasing business and other unrelated operations acquired in the Meridian
Transaction, and the remainder is attributable to rate increases and a full
year of revenue related to management contracts entered into in Fiscal 1993.
The number of eldercare centers under management contracts increased from 24
at September 30, 1993 to 31 at September 30, 1994.

15
<PAGE>

The Company's operating expenses before depreciation, amortization, lease
expense and interest expense were $319,243,000 for Fiscal 1994 compared to
$181,680,000 for Fiscal 1993, an increase of $137,563,000 or 75.7%. Salaries,
wages and benefits increased $80,241,000 or 71.5% of which approximately
$66,400,000 was due to the Meridian Transaction and the remainder is related
to other additional full-time equivalent personnel and increases in wages,
incentive compensation accruals, workers' compensation and other payroll
related benefits.

Other operating expenses increased $47,268,000 or 76.5% of which
approximately $42,000,000 was related to the Meridian Transaction and
$5,200,000 was due to an increase in cost of goods sold related to increased
sales of specialty medical services.

Interest expense increased $10,263,000 due to additional indebtedness of
approximately $205,000,000 incurred in connection with the Meridian
Transaction. This increase was partially offset by the June 1994 equity
offering of 3,219,000 shares of Common Stock resulting in net proceeds of
approximately $51,700,000 which was used to repay debt incurred in the
Meridian Transaction.

Depreciation and amortization expense increased $7,825,000 which consists
of approximately $4,700,000 related to the additional depreciation expense
associated with the assets acquired in the Meridian Transaction, $1,800,000
of goodwill amortization and approximately $500,000 of amortization from
deferred financing fees.

Lease expense increased from $7,026,000 in Fiscal 1993 to $11,376,000 in
Fiscal 1994 due primarily to the lease agreements entered into in connection
with the Meridian Transaction.

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased to $144,485,000 at March 31, 1996 from
$134,114,000 at September 30, 1995. Accounts receivable increased to
$120,874,000 at March 31, 1996 from $101,124,000 at September 30, 1995.
Approximately $4,800,000 of this increase relates to the acquisition of
McKerley, approximately $3,000,000 relates to the acquisition of the Therapy
Companies, approximately $3,800,000 relates to the Partnership Interest
Purchase while the remaining $8,150,000 relates primarily to the continuing
shift in business mix to specialty medical services including the specialty
medical businesses acquired during fiscal 1995. Days of revenue in accounts
receivable decreased from 72 to 71 during this period. The Company's cash
flow from operations for the six months ended March 31, 1996 was $7,652,000
compared to $5,998,000 for the six months ended March 31, 1995.

Investing activities for the year ended September 30, 1995 include
$24,719,000 of capital expenditures primarily related to improvements and
expansion of eldercare centers, acquisition and construction of pharmacy and
medical supply distribution sites and investment in data processing hardware
and software.

In the quarter ended December 31, 1995, the Company converted
approximately $33,500,000 of Debentures. In connection with the early
conversion of the Debentures, the Company paid approximately $1,100,000
representing the prepayment of interest to converting Debenture holders. The
conversion of a portion of the outstanding Debentures improves the Company's
leverage and provides the Company with the ability to borrow under its
revolving credit facilities at lower rates.

In November 1995, the Company received in cash approximately $18,000,000
in connection with the AIMASS Transaction. The Company used the proceeds from
the sale to repay a portion of the revolving credit facilities. In March
1996, the Company received in cash approximately $22,250,000 in connection
with the Indiana Transaction. The Company used the net proceeds from the sale
to repay a portion of its bank credit facilities.

16
<PAGE>

amortization payable quarterly. At March 31, 1996, $73,700,000 was
outstanding under the revolving credit facility and $100,000,000 was
outstanding under the acquisition credit facility. The credit facilities are
secured by the stock of the Company's subsidiaries and first priority liens
on the Company's accounts receivable, inventory and all other personal
property.

In June 1995, the Company completed an offering of $120,000,000 of 9 3/4%
Senior Subordinated Notes due 2005 (the "Notes"). The Company used
$100,000,000 of the net proceeds of the Notes offering to repay in full the
term loan component of its bank credit facility and the remaining proceeds to
repay a part of the revolving portion of the credit facility.

In June 1994, the Company completed an offering of 3,264,457 shares of
Common Stock at $17.00 per share, of which 3,219,457 were offered by the
Company. The net proceeds to the Company of approximately $51,700,000 were
used to repay a portion of the indebtedness incurred in the Meridian
Transaction.

Certain of the Company's outstanding loans contain covenants which,
without the prior consent of the lenders, limit certain activities of the
Company. Such covenants contain limitations relating to the merger or
consolidation of the Company and the Company's ability to secure
indebtedness, make guarantees, grant security interests and declare
dividends. In addition, the Company must maintain certain minimum levels of
tangible net worth, interest coverage and debt service coverage, and must
maintain certain liabilities to net worth and working capital ratios. Under
these loans, the Company is restricted from paying cash dividends on the
Common Stock, unless certain conditions are met. The Company has not declared
or paid any cash dividends on its Common Stock since its inception.

Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made
under the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Implementation of the
Company's strategy to expand specialty medical services to independent
providers should reduce the impact of changes in the Medicare and Medicaid
reimbursement programs on the Company as a whole. Within the statutory
framework of the Medicare and Medicaid programs, there are substantial areas
subject to administrative rulings and interpretations which may further
affect payments made under those programs. Further, the federal and state
governments may reduce the funds available under those programs in the future
or require more stringent utilization and quality reviews of eldercare
centers. See "Risk Factors -- Regulation."

The Company believes that its liquidity needs can be met by expected
operating cash flow and availability of borrowings under its credit
facilities. At May 10, 1996, $169,900,000 was outstanding under the credit
facilities, and approximately $116,900,000 was available under the facilities
as a result of $13,200,000 in outstanding letters of credit issued under the
credit facilities.

SEASONALITY

The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing
of Medicaid rate increases, seasonal census cycles and the number of calendar
days in a given quarter.

IMPACT OF INFLATION

The healthcare industry is labor intensive. Wages and other labor costs
are especially sensitive to inflation and marketplace labor shortages. To
date, the Company has offset its increased operating costs by increasing
charges for its services and expanding its services. Genesis has also
implemented cost control measures to limit increases in operating costs and
expenses but cannot predict its ability to control such operating cost
increases in the future.

17
<PAGE>

BUSINESS

GENERAL

Genesis is a leading provider of healthcare and support services to the
elderly. The Company has developed the Genesis ElderCare(SM) 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
60,000 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
107 eldercare centers with approximately 14,300 beds; 10 primary care
physician clinics; approximately 60 physicians, physician assistants and
nurse practitioners; nine institutional pharmacies and five medical supply
distribution centers serving over 32,000 beds; certified rehabilitation
agencies providing services through 267 contracts; and seven home healthcare
agencies. Genesis has concentrated its eldercare networks in five geographic
regions in order to achieve operating efficiencies, economies 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.

The Company was incorporated in May 1985 as a Pennsylvania corporation.
The Company's principal executive offices are located at 148 West State
Street, Kennett Square, Pennsylvania 19348 and its telephone number at that
location is (610) 444-6350.

18
<PAGE>

BASIC HEALTHCARE SERVICES

Genesis operates 107 eldercare centers (48 wholly-owned, three
jointly-owned, 20 leased and 36 managed) located in 12 states. The centers
offer three levels of care for their customers: skilled, intermediate and
personal. Skilled care provides 24-hour per day professional services of a
registered nurse; intermediate care provides less intensive nursing care; and
personal care provides for the needs of customers requiring minimal
supervision and assistance. Each eldercare center is supervised by a licensed
healthcare administrator and employs a Medical Director to supervise the
delivery of healthcare services to residents and a Director of Nursing to
supervise the nursing staff. The Company maintains a corporate quality
assurance program to ensure regulatory compliance and to enhance the standard
of care provided in each center.

In addition to programs to meet the healthcare needs of its customers, all
Genesis eldercare centers offer a variety of quality of life programs. These
include the Intergenerational Learning Program that enables residents to
function both as students and as instructors in programs with community
schools, as well as The Magic Mix Program that provides a supervised setting
in which children of working parents can interact with residents of the
centers after school. These programs have received recognition at both local
and national levels.

In eight of its eldercare centers, the Company operates Genesis ElderCare
Focus programs which are dedicated to meeting the special medical, emotional
and psychological needs of Alzheimer's patients. The Focus programs were
developed in conjunction with the Dementia Research Clinic at the Johns
Hopkins University School of Medicine. These units provide an environment
that is designed or modified to assist those with cognitive loss. Clinical
experts have experienced significant success and produced benefits to
customers served in both Alzheimer's day services and dedicated residential
units.

The following table sets forth, for the periods indicated, information
regarding the Company's average number of beds and average occupancy levels
at its eldercare centers.

<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------ -----------------
1993 1994 1995 1995 1996
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Average Beds in Service
Wholly-owned and Leased Centers ........ 4,534 7,530 8,268 8,268 8,611
Jointly-owned and Managed Centers . .... 1,208 4,532 5,158 5,166 5,821

Occupancy Based on Average Beds in Service
Wholly-owned and Leased Centers ........ 95% 92% 92% 92% 93%
Jointly-owned and Managed Centers ...... 94% 93% 95% 95% 94%

</TABLE>

SPECIALTY MEDICAL SERVICES

The Company emphasizes the delivery of specialty medical services which
typically requires smaller capital investment and generates higher profit
margins than providing basic healthcare services. The Company provides the
specialty medical services described below.

Institutional Pharmacy and Medical Supply Services. The Company provides
pharmacy and other services including infusion therapy and medical supplies
and equipment to eldercare centers it operates, as well as to independent
healthcare providers by contract. The pharmacy services provided in these
settings are tailored to meet the needs of the institutional customer. These
services include highly specialized packaging and dispensing systems,
computerized medical records processing and 24-hour emergency services. The
Company's institutional pharmacy and medical supply services were developed
to provide the products and support services required in the healthcare
market. Institutional pharmacy services are designed to help assure quality
of care and to control costs at the facilities served. Medical supply
services are designed to assure availability and control through maintenance
of a comprehensive inventory, extensive delivery services and special
ordering and tracking systems. The Company also provides pharmacy consulting
services to assure proper and effective drug therapy. The Company provides
these services through nine pharmacies (of which three are jointly-owned) and
five distribution centers located in its various market areas. Approximately
76% of the sales attributable to pharmacy operations in Fiscal 1995 were
generated through external contracts with independent healthcare providers
with the balance attributable to centers operated by the Company.

19
<PAGE>

Rehabilitation Therapy. The Company provides an extensive range of
rehabilitation therapy services, including speech pathology, physical therapy
and occupational therapy through seven certified rehabilitation agencies in
all five of its market concentrations. These services are provided by over
1,000 licensed rehabilitation therapists and assistants employed by Genesis
to substantially all of the eldercare centers the Company operates, as well
as by contract to healthcare facilities operated by others.

Subacute Care Programs. The Company has established and actively markets
programs for elderly and other customers who require subacute levels of
medical care. These programs include ventilator care, intravenous therapy,
post-surgical recovery, respiratory management, orthopedic or neurological
rehabilitation, terminal care and various forms of coma, pain and wound
management. Private insurance companies and other third party payors,
including certain state Medicaid programs, have recognized that treating
customers requiring subacute medical care in centers such as those operated
by Genesis is a cost-effective alternative to treatment in an acute care
hospital. The Company provides such care at rates that the Company believes
are substantially below the rates typically charged by acute care hospitals
for comparable services.

Physician Services. The Company employs or has consulting arrangements
with approximately 60 physicians, physician assistants and nurse
practitioners to provide physician services at certain of its eldercare
centers. These physicians, physician assistants and nurse practitioners
provide a range of services, including direct patient care, the design and
administration of clinical programs, such as the Company's subacute care
program, as well as traditional medical director and utilization review
services. The Company compensates these employees and consultants for
services rendered and, where appropriate, bills directly for such services.
The Company believes that the involvement of these physicians in the
Company's eldercare centers provides a significant competitive advantage.
These physicians direct the operations of 10 free-standing physician clinics,
as well as Functional Evaluation and Treatment Units in 16 of its eldercare
centers. The purpose of each of these units is to provide a comprehensive
assessment and treatment plan for all new admissions to the center. The
process is directed by a physician specializing in gerontology and involves
an intensive evaluation in which social service professionals, clinical staff
and the customer and the customer's family participate. The Company believes
that this program reduces average lengths of stay and increases
discharge-to-home rates. The Company also believes the Functional Evaluation
and Treatment Units enhance its reputation for providing quality care and
result in improved occupancy rates, as well as improve its ability to attract
subacute and other high acuity customers.

Home Healthcare Services. The Company provides home healthcare services to
customers in its markets through seven certified home health agencies owned
by the Company. The Company currently provides these services in all of its
geographic markets other than Central Florida and has been granted
Certificates of Need to begin providing services in Central Florida. The
services offered include skilled nursing care, physical, occupational and
speech therapy, medical social services and home health aide services. The
Company's focus is on providing infusion therapy, total parenteral nutrition,
ventilator care and peritoneal dialysis. In June 1994, the Company entered
into a joint venture with six other healthcare providers to purchase the
Visiting Nurses Association in Baltimore ("VNA"), an organization which is
one of the largest providers of home healthcare services in Maryland.
Excluding VNA, the Company provided approximately 25,000 home healthcare
visits in the six months ended March 31, 1996.

MANAGEMENT SERVICES AND OTHER

Management Services. The Company provides management services to 38
eldercare centers (including three jointly-owned centers) pursuant to
management agreements that provide generally for the Company's day-to-day
responsibility for the operation and management of the centers. In turn,
Genesis receives management fees, depending on the agreement, computed as
either an overall fixed fee, a fixed fee per customer, a percentage of net
revenues of the center plus an incentive fee, or a percentage of gross
revenues of the center with some incentive clauses. The various management
agreements, including option periods, terminate between 1996 and 2012.

In March 1996, the Company entered into a strategic alliance with Doctors
Community Hospital, a 250- bed acute hospital in Maryland. As part of this
transaction, the Company entered into a long-term agreement to manage the
hospital's subacute care center.

20
<PAGE>

Prior to January 1, 1996, the Company also provided management,
development and marketing services to 15 life care communities operated by
Adult Community Total Services, Inc. ("ACTS"), a Pennsylvania non- profit
corporation pursuant to a management agreement which was to expire in April
1998. Effective January 1, 1996, Genesis restructured its relationship with
ACTS. Under the revised arrangement, Genesis was paid a $2,000,000
restructuring fee and will no longer manage the ACTS life care communities.
Genesis will continue to provide development services for a fee in an amount
equal to five percent of the total cost of developing and completing
facilities developed by ACTS. The development portion of the contract has
been extended to December 2002 and Genesis is guaranteed a minimum annual
development fee of $1,500,000 per year. Genesis also continues to provide
certain ancillary services to the ACTS communities.

Group Purchasing. The Company's subsidiary, The Tidewater Healthcare
Shared Services Group, Inc. ("Tidewater"), is one of the largest group
purchasing companies in the mid-Atlantic region. Tidewater provides
purchasing and shared service programs specially designed to meet the needs
of eldercare centers and other long-term care facilities. Tidewater's
services are contracted to approximately 1,200 members with over 141,000 beds
in 25 states and the District of Columbia.

MANAGED CARE INITIATIVES

The Company has undertaken several initiatives to position itself to
compete effectively on a prepaid basis in a managed care environment. In
January 1995, the Company established a Managed Care division which currently
consists of 55 employees. The Managed Care division is responsible for
pursuing and administering contracts with managed care organizations,
developing clinical care protocol and monitoring the delivery and utilization
of medical care. The Company has begun to develop a clinical administration
and healthcare management information system to monitor and measure clinical
and patient outcome data for use by healthcare providers and the Company. The
Company is also seeking strategic alliances with selected providers in order
to further the continuum of care, increase market share and customer
acceptance and create strategic affiliations for negotiating with payors in a
managed care environment. In addition to these initiatives, the Company has
consolidated its core business under the Genesis ElderCare(SM) brand name in
an effort to increase the Company's visibility among current and potential
customers, payors and other healthcare providers. The Company has also
created an independent eldercare advisory board composed of individuals with
distinguished credentials in geriatric care to formulate new and innovative
approaches in the delivery of care.

CENTERS

The following table provides information by state regarding the eldercare
centers owned, leased and managed by the Company as of March 31, 1996.

<TABLE>
<CAPTION>
Wholly-Owned Jointly-Owned Leased Centers Managed Centers Total
---------------------- --------------------- ------------------ ------------------- ------------------
Centers Beds Centers Beds Centers Beds Centers Beds Centers Beds
--------- ------- --------- ------ --------- ------- --------- ------- --------- -------
Massachusetts . 8 1,092 -- -- -- -- 5 606 13 1,698
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Hampshire . 7 651 -- -- 6 608 -- -- 13 1,259
Connecticut. .. 4 615 -- -- -- -- -- -- 4 615
Vermont. ...... 2 256 -- -- -- -- -- -- 2 256
Pennsylvania .. 6 789 1 105 -- -- 8 1,082 15 1,976
New Jersey .... 1 180 -- -- 2 404 3 396 6 980
Delaware ...... 4 504 -- -- -- -- 1 99 5 603
Maryland ...... 12 1,958 2 206 9 1,326 4 706 27 4,196
Virginia ...... -- -- -- -- 1 240 -- -- 1 240
Florida ....... 4 598 -- -- -- -- 13 1,404 17 2,002
West Virginia . -- -- -- -- 2 180 -- -- 2 180
North Carolina . -- -- -- -- -- -- 2 340 2 340
--------- ------- --------- ------ --------- ------- --------- ------- --------- -------
Total ....... 48 6,643 3 311 20 2,758 36 4,633 107 14,345
========= ======= ========= ====== ========= ======= ========= ======= ========= =======
</TABLE>

REVENUE SOURCES

The Company derives its basic healthcare and specialty medical revenue
from private pay sources, state Medicaid programs and Medicare. The Company
classifies payments from persons or entities other than the

21
<PAGE>

government as private pay and other revenue. The private pay and other
classification also includes revenues from commercial insurers, health
maintenance organizations and other charge-based payment sources. Blue Cross
and Veterans Administration payments are included in private pay and other
revenues and are made pursuant to renewable contracts negotiated with these
payors.

Medicare is a federally funded and administered health insurance program
that consists of Parts A and B. Participation in Part B is voluntary and is
funded in part through the payment of premiums. Benefits under Part A include
inpatient hospital services, skilled nursing in an eldercare center and
medical services such as physical, speech and occupational therapy, certain
pharmaceuticals and medical supplies. Part B provides coverage for physician
services. Part B also reimburses for medical services with the exception of
pharmaceutical services. Medicare benefits are not available for intermediate
and custodial levels of care; however, medical and physician services
furnished to such patients may be reimbursable under Part B. Under the Part A
reimbursement methodology, each eldercare center receives an interim payment
during the year which is adjusted to reflect actual allowable direct and
indirect costs of services based on the submission of a cost report at the
end of each year. For services not billed through each eldercare center, the
Company's specialty medical operations bill Medicare directly for nutritional
support services, infusion therapy, certain medical supplies and equipment,
physician services and certain therapy services as provided. Medicare
payments for these services may be based on reasonable cost charges or a
fixed-fee schedule determined by Medicare.

Medicaid is the state administered reimbursement program that covers both
skilled and intermediate long- term care. Although Medicaid programs vary
from state to state, typically they provide for payment for services
including nursing facility services, physician's services, therapy services
and prescription drugs, up to established ceilings, at rates based upon cost
reimbursement principles. Reimbursement rates are typically determined by the
state from cost reports filed annually by each center, on a prospective or
retrospective basis. In a prospective system, a rate is calculated from
historical data and updated using an inflation index. The resulting
prospective rate is final, but in some cases may be adjusted pursuant to an
audit. In this type of payment system, center cost increases during the rate
year do not affect payment levels in that year. In a retrospective system,
final rates are based on reimbursable costs for that year. An interim rate is
calculated from previously filed cost reports, and may include an inflation
factor to account for the time lag between the final cost report settlement
and the rate period. Consequently, center cost increases during any year may
affect revenues in that year. Certain states are scheduled to convert, or
have recently converted, from a retrospective system, which generally
recognizes only two or three levels of care, to a case mix prospective
pricing system, pursuant to which payment to a center for patient services
directly considers the individual patient's condition and need for services.
The effect, if any, of such a payment system on the Company is unclear. The
Company employs specialists in reimbursement at the corporate level to
monitor both Medicaid and Medicare regulatory developments to comply with all
reporting requirements and to insure appropriate payments.

The following table reflects the allocation of customer service revenues
among these sources of revenue.

<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
Private pay and other. .... 43% 41% 42% 41% 38% 38% 39%
<S> <C> <C> <C> <C> <C> <C> <C>
Medicaid .................. 48 47 44 43 41 42 38
Medicare .................. 9 12 14 16 21 20 23
-------- -------- -------- -------- -------- -------- --------
Total ................... 100% 100% 100% 100% 100% 100% 100%
======== ======== ======== ======== ======== ======== ========
</TABLE>

MARKETING

Marketing for eldercare centers is focused at the local level and is
conducted primarily by the center administrator and its admissions director
who call on referral sources such as doctors, hospitals, hospital discharge
planners, churches and various community organizations. Besides actively
soliciting admissions from these sources, the Company's marketing objective
is to maintain public awareness of the eldercare center and its capabilities.
The Company takes advantage of its regional concentrations in its marketing
efforts, where appropriate, through consolidated marketing programs which
benefit more than one center.

22
<PAGE>

Genesis markets specialty medical services to its managed eldercare
centers, as well as to independent healthcare providers, in addition to
providing such services to its owned and leased eldercare centers. The
Company markets its rehabilitation therapy and institutional pharmacy and
medical supply services through a direct sales force which primarily calls on
eldercare centers, hospitals, clinics and home health agencies. The corporate
business development department, through regional managers, markets the
Company's subacute program directly to insurance companies, managed care
organizations and other third party payors. In addition, the marketing
department supports the eldercare centers in developing promotional materials
and literature focusing on the Company's philosophy of care, services
provided and quality clinical standards. See "Governmental Regulation" below
for a discussion of the federal and state laws which limit financial and
other arrangements between healthcare providers.

In February 1996, the Company announced a consolidation of its core
business under the name Genesis ElderCare(SM). The Genesis ElderCare logo and
trademark have been featured in a series of print advertisements in
publications serving the regional markets in which the Company operates. The
Company's marketing of Genesis ElderCare is aimed at increasing awareness
among decision makers in key professional and business audiences. The Company
is using advertising to promote its brand name in trade, professional and
business publications and to promote services directly to consumers.

PERSONNEL

At March 31, 1996, Genesis employed over 19,000 people, including
approximately 13,000 full-time and 6,000 part-time employees. Approximately
24% of these employees are physicians and nursing and professional staff.

The Company currently has collective bargaining agreements which relate to
14 facilities including eight managed eldercare centers. The agreements
expire in July 1996 and 1999 and cover approximately 970 employees. The
Company believes that its relationship with its employees is generally good.

EMPLOYEE TRAINING AND DEVELOPMENT

Genesis believes that nursing and professional staff retention and
development has been and continues to be a critical factor in the successful
operation of the Company. In response to this challenge, a compensation
program which provides for annual merit reviews as well as financial and
quality of care incentives has been implemented to promote center staff
motivation and productivity and to reduce turnover rates. Management believes
that the Company's wage rates for professional nursing staff are commensurate
with market rates. The Company also provides employee benefit programs which
management believes, as a package, exceed industry standards. The Company has
not experienced any significant difficulty in attracting or retaining
qualified personnel.

In addition, Genesis has established an internal training and development
program for both nurse assistants and nurses. Employee training is emphasized
by the Company through a variety of in-house programs as well as a tuition
reimbursement program. The Company has established, company-wide, the Genesis
Nursing Assistant Specialist Program. This program is offered on a joint
basis with community colleges. Classes are held on the employees' time, last
for approximately six months and provide advanced instruction in nursing
care. The Company pays the tuition. When all of the requirements for class
participation have been met through attendance, discussion and examinations,
the nurse aide graduates and is awarded the title of Nursing Assistant
Specialist and receives a salary adjustment. The Company has maintained a
retention rate of 75% since 1988 of the nurses aide graduates. Over 1,300
nurse aides have graduated from the Genesis Nursing Assistant Specialist
Program and received an increase in salary. As the nurse aide continues
through the career ladder, the Company continues to provide incentives. At
the next level, Senior Nursing Assistant Specialist, the employee receives
another increase in salary and additional tuition reimbursement of up to
$2,250 toward becoming a Licensed Practical Nurse ("LPN") or Registered Nurse
("RN") and at the Senior Nursing Assistant Specialist Coordinator level,
tuition reimbursement increases to a maximum of $3,000 per year towards a
nursing degree.

The Company began a junior level management and leadership training
program in 1990 referred to as the Pilot Light Program. The target audience
for this training is RN's and LPN's occupying charge nurse positions within
our nursing centers as well as junior level managers throughout the Genesis
networks. Over 475 participants have graduated from this program.

23
<PAGE>

In addition, a flexible RN associate degree program has been established
to meet the needs of those employees who cannot attend nursing school on a
full-time basis. The program is conducted jointly with local community
colleges and Regents College in New York. The program combines self-study,
flexible class scheduling, mentoring and tutoring by Genesis professional
nursing staff. This format allows for a self-paced RN degree. Currently,
there are approximately 18 Genesis employees enrolled in this program, which
the Company believes is the first of its kind in the United States.

GOVERNMENTAL REGULATION

The federal government and all states in which the Company operates
regulate various aspects of the Company's business. The Company's eldercare
centers are subject to certain federal statutes and regulations and to
statutory and regulatory licensing requirements by state and local
authorities. All Genesis eldercare centers are currently so licensed. In
addition, eldercare centers are subject to various local building codes and
other ordinances.

All of the Company's eldercare centers and healthcare services, to the
extent required, are licensed under applicable law. All eldercare centers and
healthcare services, or practitioners providing the services therein, are
certified or approved as providers under one or more of the Medicaid,
Medicare or Veterans Administration programs. Licensing, certification and
other applicable standards vary from jurisdiction to jurisdiction and are
revised periodically. State and local agencies survey all eldercare centers
on a regular basis to determine whether such centers are in compliance with
governmental operating and health standards and conditions for participation
in government sponsored third party payor programs. The Company believes that
its centers are in substantial compliance with the various Medicare and
Medicaid regulatory requirements applicable to them. However, in the ordinary
course of its business, the Company receives notices of deficiencies for
failure to comply with various regulatory requirements. Genesis reviews such
notices and takes appropriate corrective action. In most cases, Genesis and
the reviewing agency will agree upon the measures to be taken to bring the
center into compliance with regulatory requirements. In some cases or upon
repeat violations, the reviewing agency may take various adverse actions
against a center, including the imposition of fines, temporary suspension of
admission of new patients to the center, suspension or decertification from
participation in the Medicare or Medicaid programs and, in extreme
circumstances, revocation of a center's license. These actions may adversely
affect the eldercare centers' ability to continue to operate, the ability of
the Company to provide certain services, and eligibility to participate in
the Medicare, Medicaid or Veterans Administration programs or to receive
payments from other payors. Additionally, actions taken against one center
may subject other centers under common control or ownership to adverse
measures, including loss of licensure or eligibility to participate in
Medicare and Medicaid programs. Certain of the Company's centers have
received notices in the past from state agencies that, as a result of certain
alleged deficiencies, the agency was taking steps to decertify the centers
from participation in Medicare and Medicaid programs. In all cases, such
deficiencies were remedied before any centers were decertified.

All but four of the Genesis eldercare centers provide skilled nursing
services and are currently certified to receive benefits provided under
Medicare for these services. Additionally, all Genesis eldercare centers are
currently certified to receive benefits under Medicaid. Both initial and
continuing qualifications of an eldercare center to participate in such
programs depend upon many factors including accommodations, equipment,
services, patient care, safety, personnel, physical environment, and adequate
policies, procedures and controls.

Under the various Medicaid programs, the federal government supplements
funds provided by the participating states for medical assistance to
"medically indigent" persons. The programs are administered by the applicable
state welfare or social service agencies. Although Medicaid programs vary
from state to state, traditionally they have provided for the payment of
certain expenses, up to established limits, at rates based generally on cost
reimbursement principles.

All states in which Genesis operates have adopted Certificate of Need or
similar laws which generally require that a state agency approve certain
acquisitions and determine that the need for certain bed additions, new
services, and capital expenditures or other changes exists prior to the
acquisition or addition of beds or services, the implementation of other
changes, or the expenditure of capital. State approvals are generally

24
<PAGE>

issued for a specified maximum expenditure and require implementation of the
proposal within a specified period of time. Failure to obtain the necessary
state approval can result in the inability to provide the service, to operate
the centers, to complete the acquisition, addition or other change, and can
also result in the imposition of sanctions or adverse action on the center's
license and adverse reimbursement action.

The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws
often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the
"anti-kickback" provisions of the federal Medicare and Medicaid programs,
which prohibit, among other things, knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe
or rebate) directly or indirectly in return for or to induce the referral of
an individual to a person for the furnishing or arranging for the furnishing
of any item or service for which payment may be made in whole or in part
under Medicare or Medicaid. These laws also include the "Stark legislations"
which prohibit, with limited exceptions, the referral of patients by
physicians for certain services, including home health services, physical
therapy and occupational therapy, to an entity in which the physician has an
ownership interest. In addition, some states restrict certain business
relationships between physicians and other providers of healthcare services.
Many states prohibit business corporations from providing, or holding
themselves out as a provider of medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of
licensure or eligibility to participate in reimbursement programs and civil
and criminal penalties. These laws vary from state to state, are often vague
and have seldom been interpreted by the courts or regulatory agencies. From
time to time, the Company has sought guidance as to the interpretation of
these laws; however, there can be no assurance that such laws will ultimately
be interpreted in a manner consistent with the practices of the Company.
Although the Company has contractual arrangements with some healthcare
providers to which the Company pays fees for services rendered or products
provided, the Company believes that its practices are not in violation of
these laws. The Company cannot accurately predict whether enforcement
activities will increase or the effect of any such increase on its business.
There have also been a number of recent federal and state legislative and
regulatory initiatives concerning reimbursement under the Medicare and
Medicaid programs. In particular, the federal government has issued recent
fraud alerts concerning double billing, homehealth services and the
provisions of medical suppliers. Accordingly, it is anticipated that these
areas may come under closer scrutiny by the government. The Company cannot
accurately predict the impact of any such initiatives.

COMPETITION

The Company competes with a variety of other companies in providing
healthcare services. Certain competing companies have greater financial and
other resources and may be more established in their respective communities
than the Company. Competing companies may offer newer or different centers or
services than the Company and may thereby attract the Company's customers who
are either presently residents of its eldercare centers or are otherwise
receiving its healthcare services.

The Company operates eldercare centers in 12 states. In each market, the
Company's eldercare centers may compete for customers with rehabilitation
hospitals, subacute units of hospitals, skilled or intermediate nursing
centers and personal care or residential centers which offer comparable
services to those offered by the Company's centers. Certain of these
providers are operated by not-for-profit organizations and similar businesses
which can finance capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. In competing for
customers, a center's local reputation is of paramount importance. Referrals
typically come from acute care hospitals, physicians, religious groups, other
community organizations, health maintenance organizations and the customer's
families and friends. Members of a customer's family generally actively
participate in selecting an eldercare center. Competition for subacute
patients is intense among hospitals with long-term care capability,
rehabilitation hospitals and other specialty providers and is expected to
remain so in the future. Important competitive factors include the reputation
in the community, services offered, the appearance of a center and the cost
of services.

Genesis competes in providing specialty medical services with a variety of
different companies. Generally, this competition is national, regional and
local in nature. The primary competitive factors in the

25
<PAGE>

specialty medical services business are similar to those in the eldercare
center business and include reputation, the quality of clinical services,
responsiveness to patient needs, and the ability to provide support in other
areas such as third party reimbursement, information management and patient
record-keeping.

INSURANCE

Genesis carries property and general liability insurance, professional
liability insurance, and medical malpractice insurance coverage in amounts
deemed adequate by management. However, there can be no assurance that any
current or future claims will not exceed applicable insurance coverage.
Genesis also requires that physicians practicing at its eldercare centers
carry medical malpractice insurance to cover their individual practice.

LEGAL PROCEEDINGS

On May 10, 1996, the Company's agent for service of process in Maryland
received notice that Orem Medical Home Health Care, Inc. and Orem Medical
Corporation (collectively, "Orem") which are engaged in the business of
selling, renting and servicing durable medical equipment and supplies filed
suit in the Circuit Court for Baltimore City on May 2, 1996 against Genesis
and its subsidiary Eastern Medical Supplies, Inc. ("Eastern"). The suit
alleges that Genesis and/or Eastern have interfered with certain contractual
obligations and business relations between Orem and third parties and that
Genesis and/or Eastern have induced such third parties to breach certain
contractual obligations to Orem. The allegations relate to terminated
discussions of a possible acquisition by Genesis of assets of Orem. Orem
seeks compensatory and punitive damages and injunctive relief for such alleged
actions. While the Company has only recently commenced its investigation of
the matter and has not yet responded to the complaint, it believes it has
defenses to the claims, intends to vigorously defend such claims and believes
that any amount paid or accrued with respect to this matter will not have a
material adverse effect on the financial position or results of operations of
the Company. However, there can be no assurance as to the outcome of the suit
and that it will not have a material adverse effect on the financial position
or results of operations of the Company.

26
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of the Company.

<TABLE>
<CAPTION>
Name Age Position
- ------------------------ ----- -------------------------------------------------
Michael R. Walker (1) .. 47 Chairman and Chief Executive Officer
<S> <C> <C>
Richard R. Howard (1). . 47 President, Chief Operating Officer and Director
David C. Barr .......... 46 Executive Vice President
John F. DePodesta ...... 51 Senior Vice President, Law and Public Policy
George V. Hager, Jr. ... 40 Senior Vice President and Chief Financial Officer
Edward B. Romanov, Jr. . 45 Senior Vice President, Development
Louis Swart. ........... 57 Senior Vice President, Managed Operations
Maryann Timon .......... 43 Senior Vice President for Managed Care
Marc D. Rubinger ....... 46 Vice President and Chief Information Officer
Kenneth R. Kuhnle ...... 41 Vice President and Treasurer
Edward J. Boeggeman .... 49 Vice President and Controller
Allen R. Freedman (2) .. 56 Director
Samuel H. Howard (2)(3) . 56 Director
Roger C. Lipitz (2) .... 53 Director
Stephen E. Luongo (3) .. 48 Director
Alan B. Miller (3) ..... 58 Director
Fred F. Nazem (1) ...... 55 Director
</TABLE>

- ------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.

Michael R. Walker is the founder of the Company and has served as Chairman
and Chief Executive Officer of the Company since its inception. In 1981, Mr.
Walker co-founded Health Group Care Centers ("HGCC"). At HGCC, he served as
Chief Financial Officer and, later, as President and Chief Operating Officer.
Prior to its sale in 1985, HGCC operated nursing homes with 4,500 nursing
beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice President and
Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which owned and
operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as the
nursing home division of Hospital Affiliates International. Mr. Walker holds
a Master of Business Administration degree from Temple University and a
Bachelor of Arts in Business Administration from Franklin and Marshall
College. Mr. Walker serves on the Board of Directors of Renal Treatment
Centers, Inc. and the Board of Trustees of Universal Health Realty & Income
Trust.

Richard R. Howard has served as a director of the Company since its
inception and as Chief Operating Officer since June 1986. He joined the
Company in September 1985 as Vice President of Development. Mr. Howard's
background in healthcare includes two years as the Chief Financial Officer of
HGCC. Mr. Howard's experience also includes over ten years with Fidelity
Bank, Philadelphia, Pennsylvania and one year with Equibank, Pittsburgh,
Pennsylvania. Mr. Howard is a graduate of the Wharton School, University of
Pennsylvania, where he received a Bachelor of Science degree in Economics in
1971.

David C. Barr has served as Executive Vice President of the Company since
October 1988. Prior to joining Genesis, Mr. Barr was a principal of a private
consulting firm, Kane Maiwurm Barr, Inc., which provided management
consulting for small and medium-sized firms. Prior to forming this firm, he
served as Executive Vice President of Allegheny Beverage Corporation, a
service conglomerate. During 1984 and 1985, Mr. Barr served with Equibank,
Pittsburgh, Pennsylvania, where he held several positions including Executive
Vice President of Corporate Banking. Mr. Barr graduated in 1972 from the
University of Miami with a Bachelor of Science degree in Accounting.

27
<PAGE>

John F. DePodesta joined the Company as Senior Vice President, Law and
Public Policy in January 1996. Mr. DePodesta was previously a partner and
currently is of-counsel in the law firm of Pepper, Hamilton & Scheetz. Mr.
DePodesta received a Bachelor of Arts degree from Harvard College in 1966 and
his Juris Doctor from the University of Pennsylvania Law School in 1969.
Pepper, Hamilton & Scheetz performs outside legal services for the Company.

George V. Hager, Jr. has served the Company as Senior Vice President and
Chief Financial Officer since February 1994. Mr. Hager joined the Company in
July 1992 as Vice President and Chief Financial Officer. Mr. Hager was
previously partner in charge of the healthcare practice for KPMG Peat Marwick
LLP in the Philadelphia office. Mr. Hager began his career at KPMG Peat
Marwick LLP in 1979 and has over 15 years of experience in the healthcare
industry. Mr. Hager received a Bachelor of Arts degree in Economics from
Dickinson College in 1978 and a Master of Business Administration degree from
Rutgers Graduate School of Management. He is a certified public accountant
and a member of the AICPA and PICPA.

Edward B. Romanov, Jr. has served as Senior Vice President, Development
since May 1992. From June 1990 through April 1, 1995, Mr. Romanov served as a
financial consultant to the Company pursuant to a Consulting and Services
Agreement between the Company and American Community Environments Corporation
of which he is an employee. Mr. Romanov was founder and President of WesTerra
Construction, WesTerra Capital Company and WesTerra Development, through
which Mr. Romanov developed and financed real estate projects. Mr. Romanov
holds both a Master of Business Administration and a Bachelor of Science
degree from Lehigh University.

Louis Swart joined the Company in 1990 and became Senior Vice President,
Managed Operations in 1994. Prior to joining the Company, Mr. Swart
established and was President of Wedgwood Retirement Inns. After selling
Wedgwood in 1988, he became President and Chief Executive Officer of
Retirement Corporation of America, until it was sold in 1990. Mr. Swart
currently serves on the Board of Directors of Sterling Health Care
Corporation, a behavioral medicine hospital group. Mr. Swart is a graduate of
the University of South Africa and completed his graduate work at Texas
Christian University. He is founder and past director of the California
Association of Senior Living Industries and is a member of the National
Association of Senior Living Industries and American Association of Homes for
the Aged.

Maryann Timon has served as Senior Vice President for Managed Care since
May 1996. From January 1995 through May 1996 she served as Corporate Vice
President of the Managed Care Division. Ms. Timon joined the Company in
December 1990 to form and serve as President of a wholly-owned subsidiary,
Healthcare Services Network. Ms. Timon was previously President of Mercy
Ventures, Inc., a five-company healthcare specialty group owned by Mercy
Medical Center in Baltimore, Maryland. Ms. Timon has 25 years of experience
providing eldercare healthcare services. Ms. Timon received an Associate
Degree in Applied Science in Nursing in 1973 from the State University of New
York at Canton, a Bachelor of Science Degree in Nursing in 1976 from the State
University of New York at Utica/Rome and a Master of Gerontological Nursing
Degree in 1978 from the University of Rochester.

Marc D. Rubinger has served as Vice President and Chief Information
Officer since November 1995. Prior to joining the Company, Mr. Rubinger
served as General Manager-Decision Support Systems of Shared Medical Systems.
From 1975 through 1986, Mr. Rubinger was a partner with Ernst & Young in
their national healthcare consulting practice. Mr. Rubinger received a
Bachelor of Arts degree in Bioscience from Binghamton University in 1971 and
a Masters of Health Administration and Planning from The George Washington
University in 1973.

Kenneth R. Kuhnle has served as Vice President and Treasurer of the
Company since February 1990. He joined Genesis in October 1988 as
Reimbursement Director, which includes responsibility for monitoring
government programs as well as third party reimbursement planning and
maximization. Mr. Kuhnle served as Reimbursement Manager for Beverly
Enterprises, owners and operators of long-term care centers, from January
1986 to October 1988 and as Medicare Auditor for Aetna Life Insurance Company
from November 1982 to December 1985. He received a Bachelor of Science degree
in Business Administration from Temple University in 1979. Mr. Kuhnle serves
as President of the Delaware Healthcare Facilities Association and President
of the Worcester chapter of the Massachusetts Federation of Nursing Homes.

28
<PAGE>

Edward J. Boeggeman has served as Vice President and Corporate Controller
of the Company since December 1993. He joined Genesis in January 1993 as
Controller of Genesis Health Centers. Mr. Boeggeman has over twenty years of
experience in the healthcare industry, including four years with KPMG Peat
Marwick LLP from 1979 to 1983. Prior to joining Genesis, he served in various
accounting positions including Assistant Controller, Controller and Vice
President of Financial Affairs at a teaching hospital, academic medical
center and community hospital, all within the Greater Philadelphia area. Mr.
Boeggeman received a Bachelor of Arts degree in Accounting from Villanova
University in 1973 and is a certified public accountant.

Allen R. Freedman has served as a director of the Company since February
1996. Since 1990, Mr. Freedman has served on the executive board of Fortis, a
multinational financial services organization, which is the operating entity
of Fortis AG, based in Belgium, and Fortis AMEV, based in the Netherlands.
Since 1990, he has been Chairman and Chief Executive Officer of Fortis, Inc.
and Chairman of the Board of its principal insurance and investment
affiliates in the United States. These affiliates include American Security
Group; Fortis Benefits Insurance Company; Time Insurance Company; and United
Family Life Insurance Company. Mr. Freedman served as President of Fortis,
Inc. from 1979 to 1990. Mr. Freedman is also a director of Fortis Advisors,
Inc. and Systems and Computer Technology Corporation.

Samuel H. Howard has served as a director of the Company since March 1988.
He is the founder and chairman of Phoenix Healthcare Corporation ("Phoenix
Healthcare") and the founder and President of Phoenix Communications Group,
Inc. ("Phoenix Group") and Phoenix Holdings, Inc. all of which are based in
Nashville, Tennessee. Formed in 1993, Phoenix Healthcare provides management
services for managed care organizations, including health maintenance
organizations serving Tennessee's Medicaid population through the innovative
TennCare program which offers a managed care approach to meeting the
healthcare needs of Tennessee's Medicaid and uninsured populations. In April
1990, Phoenix Group filed a petition under the Federal Bankruptcy laws.
Phoenix Group proposed a plan of reorganization that was approved by the
bankruptcy court in August 1991 and became effective in December 1991. Mr.
Howard's past corporate and operations experience in the healthcare industry
include having served as the Senior Vice President of Public Affairs for
Hospital Corporation of America from August 1981 to January 1990, Vice
President and Treasurer for Hospital Affiliates International ("HAI"), and
Vice President of Finance and Business for Meharry Medical College. In
addition, Mr. Howard was a financial analyst for General Electric and a White
House Fellow with U.S. Ambassador Arthur Goldberg. Mr. Howard is a member of
the Board of Directors of O'Charley's Inc.

Richard R. Howard and Samuel H. Howard are not related.

Roger Lipitz has served as a director of the Company since March 1994.
From January 1994 until January 1996, Mr. Lipitz served on a consulting basis
as Director of Government Relations of the Company. From 1969 until its
acquisition by the Company in 1993, Mr. Lipitz served as Chairman of the
Board of Meridian Healthcare, Inc., a Maryland based long-term care company
which operated over 5,000 beds and related businesses. Mr. Lipitz is a past
president of the American Health Care Association, Health Facilities
Association of Maryland and the National Council of Health Care Services.
Since 1994, he has been Chairman of the Board of Allegis Health Management,
Inc. (formerly known as Global Health Management, Inc.), a privately held
Maryland based long-term care company. Mr. Lipitz is a member of the Board of
Directors of Blue Cross and Blue Shield of Maryland.

Stephen E. Luongo has served as a director of the Company since June 1985.
He currently is a partner in the law firm of Blank Rome Comisky & McCauley.
Blank Rome Comisky & McCauley serves as outside legal counsel for the
Company.

Alan B. Miller has served as a director of the Company since October 1993.
Since 1978, he has been Chairman of the Board, President and Chief Executive
Officer of Universal Health Services, Inc., a Pennsylvania based health
services company. Prior thereto, Mr. Miller was Chairman of the Board,
President and Chief Executive Officer of American Medicorp, Inc. Mr. Miller
is Chairman of the Board of Trustees of Universal Health Realty Income Trust
and a member of the Board of Directors of CDI Corp., GMIS, Inc., and Penn
Mutual Life Insurance Company.

Fred F. Nazem has served as a director of the Company since January 1989.
Since 1981, he has been President of Nazem Inc. and Managing Partner of the
general partner of several Nazem & Company limited partnerships which are
affiliated venture capital funds. Mr. Nazem is a member of the Board of
Directors of Consep, Inc., Tegal Corporation and Oxford Health Plans, Inc. as
well as a number of privately held firms.

29
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth at March 31, 1996, certain information with
respect to the beneficial ownership of Common Stock (i) by each person who is
known by the Company to be the beneficial owner of more than five percent of
the Common Stock, (ii) by each director, (iii) by each of the Company's five
most highly compensated executive officers and (iv) by all directors and
executive officers as a group.

<TABLE>
<CAPTION>
Shares of Percent of
Common Stock Common Stock
Beneficially Owned (1) Owned
-------------------- --------------
<S> <C> <C>
Putnam Investments, Inc. (2)
One Post Office Square
Boston, Massachusetts 02109 ...................... 2,969,041 12.1%
AIM Management Group Inc. (3)
11 Greenway Plaza
Houston, Texas 77046 ............................ 2,342,781 9.6%
Fred F. Nazem (4)
Nazem & Company ..................................
645 Madison Avenue
New York, New York 10022 ......................... 1,619,704 6.6%
Massachusetts Financial Services Company (5)
500 Boylston Street
Boston, Massachusetts 02116 ...................... 1,244,430 5.1%
George D. Bjurman & Associates (6)
10100 Santa Monica Boulevard, Suite 1200
Los Angeles, California 90062 .................... 1,232,127 5.0%
Allen R. Freedman (7) ............................. 4,500 *
Richard R. Howard (8) ............................. 207,826 *
Samuel H. Howard (9) .............................. 26,250 *
Roger C. Lipitz (10) .............................. 9,000 *
Stephen E. Luongo (11) ............................ 36,097 *
Alan B. Miller (12) ............................... 13,500 *
Michael R. Walker (13) ............................ 772,126 3.1%
David C. Barr (14) ................................ 148,200 *
George V. Hager, Jr. (15) ......................... 71,700 *
Louis Swart (16) .................................. 22,800 *
All executive officers and directors as a group
(17 persons)...................................... 3,054,863 12.1%
</TABLE>
- ------
* Less than one percent.

(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission (the "Commission")
and accordingly, may include securities owned by or for, among others,
the spouse, children or certain other relatives of such person as well as
other securities as to which the person has or shares voting or
investment power or has the right to acquire within 60 days after March
31, 1996. The same shares may be beneficially owned by more than one
person. Beneficial ownership may be disclaimed as to certain of the
securities.

(2) Based upon a Schedule 13G, dated January 15, 1996. Consists of 2,505,019
shares beneficially owned by Putnam Investment Management, Inc. and
464,022 shares beneficially owned by The Putnam Advisory Company, Inc.
Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc.,
which are registered investment advisors, are wholly-owned by Putnam
Investments, Inc. Putnam Investments, Inc. is a wholly owned subsidiary
of Marsh & McLennan Companies, Inc.

(3) Based upon a Schedule 13G, dated February 12, 1996.

30
<PAGE>

(4) Consists of 966,724 shares of Common Stock held by Nazem & Company, II
L.P., 630,480 shares of Common Stock held by Nazem & Company, III, L.P.
and 22,500 shares of Common Stock which may be acquired upon the
exercise of stock options.

(5) Based upon a Schedule 13G, dated February 12, 1996.

(6) Based upon a Schedule 13G, dated February 13, 1995. George Andrew
Bjurman and Owen Thomas Barry III, as a result of their ownership in and
positions with George D. Bjurman & Associates, may be deemed to be
indirect beneficial owners of the equity securities held by George D.
Bjurman & Associates.

(7) Consists of 4,500 shares which may be acquired upon the exercise of
stock options. Does not include 63,000 shares which were owned on March
31, 1996 by mutual funds of which Mr. Freedman is a director which have
since been sold.

(8) Includes 46,876 shares of Common Stock held of record by the Retirement
Plan as to which Mr. Howard shares voting power and 89,250 shares which
may be acquired upon the exercise of stock options.

(9) Consists of 26,250 shares which may be acquired upon the exercise of
stock options.

(10) Consists of 9,000 shares which may be acquired upon the exercise of
stock options.

(11) Includes 22,500 shares which may be acquired upon the exercise of stock
options and 331 shares of Common Stock which may be acquired upon the
conversion of Debentures.

(12) Consists of 13,500 shares which may be acquired upon the exercise of
stock options.

(13) Includes 46,876 shares of Common Stock held of record by the Retirement
Plan as to which Mr. Walker shares voting power and 336,000 shares of
Common Stock which may be acquired upon the exercise of stock options.

(14) Includes 125,700 shares which may be acquired upon the exercise of stock
options.

(15) Includes 71,250 shares which may be acquired upon the exercise of stock
options.

(16) Consists of 22,800 shares which may be acquired upon the exercise of
stock options.

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company is currently authorized to issue 60,000,000 shares of Common
Stock, par value $.02 per share. On April 17, 1996, 24,455,471 shares of
Common Stock were issued and outstanding and held of record by 557
shareholders. In addition, on April 17, 1996, options to purchase 2,441,417
shares of Common Stock, at an average exercise price of $17.46 were
outstanding, of which 1,345,545 options are currently exercisable. The
Company has also outstanding $52,714,000 principal amount of Debentures which
are convertible into 3,490,068 shares of Common Stock, subject to adjustment
in certain events.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Subject to the relative rights,
limitations and preferences of the holders of Preferred Stock (defined
below), holders of Common Stock are entitled, among other things, (i) to
share ratably in dividends if, when and as declared by the Board of Directors
out of funds legally available therefor and (ii) in the event of liquidation,
dissolution or winding-up of the Company, to share ratably in the
distribution of assets legally available therefor, after payment of debts and
expenses. The holders of Common Stock have no preemptive rights to subscribe
for additional shares of the Company.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of preferred stock
(the "Preferred Stock"). The Board of Directors has authority to cause the
issuance from time to time of Preferred Stock, and one or more series
thereof, for any proper purpose without further shareholder approval, except
where, because of the particular circumstances under which any of such shares
will be issued, shareholder approval is required by

31
<PAGE>

law. Each series of Preferred Stock is required to be distinctly titled and
consist of the number of shares designated by the Board of Directors. The
Board of Directors is expressly vested with the right to determine, with
respect to the Preferred Stock and each series thereof, (i) whether such
shares shall be granted voting rights, and if so, to what extent and upon
what terms and conditions, (ii) the rate and times at which, and the terms
and conditions on which, dividends (if any) on such shares shall be paid,
(iii) whether such shares shall be granted conversion rights into shares of
other classes (or series of classes) of capital stock of the Company or any
other entity, and if so, upon what terms and conditions, (iv) whether the
Company or the holders of the Preferred Stock shall have the right to redeem
such shares, and if so, upon what terms and conditions, (v) the liquidation
rights (if any) of such shares, including whether such shares shall enjoy
liquidation preference over the Company's Common Stock, and, if so, to what
extent and (vi) the other designations, preferences, qualifications,
restrictions and special and relative rights, if any, attaching to such
shares.

The Board of Directors has established a series of Preferred Stock
designated the Series A Junior Participating Preferred Stock, par value $.01
per share, (the "Series A Preferred Stock") to be issued in connection with
the Rights Plan described below.

RIGHTS PLAN

Holders of Common Stock own, and purchasers of Common Stock in the
Offering will acquire, one right (a "Right") for each share of Common Stock.
The Rights are issued pursuant to a Rights Agreement dated April 20, 1995
between the Company and Mellon Securities Trust Company, as Rights Agent.
Each Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Preferred Stock of the Company at a
price of $165.00 per one one-thousandth of a share of Series A Preferred
Stock, subject to adjustments. The Series A Preferred Stock issuable upon
exercise of the Rights will be non-redeemable and rank junior to all other
series of the Company's Preferred Stock. The dividend, liquidation and voting
rights, and the non-redemption feature, of the Series A Preferred Stock are
designed so that the value of one one-thousandth interest in a share of
Series A Preferred Stock purchasable with each Right will approximate the
value of one share of Common Stock. Each whole share of Series A Preferred
Stock will be entitled to receive a quarterly preferential cumulative
dividend equal to the greater of $1.00 per share or 1,000 times the dividend
declared on the Common Stock. In the event of liquidation, the holders of the
Series A Preferred Stock will be entitled to receive a preferential
liquidation payment equal to the greater of $1,000 per share or 1,000 times
the payment made per share of Common Stock. Each share of Series A Preferred
Stock will have 1,000 votes, voting together with the Common Stock. Finally,
in the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or other property, each share of Series A Preferred
Stock will be entitled to receive 1,000 times the amount received per share
of Common Stock. The Rights become exercisable upon a Distribution Date
defined as the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person")
has acquired beneficial ownership of 15% or more of the outstanding Voting
Shares (as defined in the Rights Agreement) or (ii) 10 business days
following the commencement or announcement of an intention to commence a
tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
Voting Shares. If a person or group were to acquire 15% or more of the Voting
Shares of the Company, each Right then outstanding, other than Rights
beneficially owned by the Acquiring Person which become null and void, will
become a Right to buy that number of Common Shares (or under certain
circumstances the equivalent number of one one-thousandths of a share of the
Series A Preferred Stock) at the time of such acquisition will have a market
value equal to two times the purchase price of the Right. If the Company were
acquired in a merger or other business combination transaction or more than
50% of its consolidated assets or earning power were sold, proper provision
will be made so that each holder of a Right, other than Rights beneficially
owned by a person or group who had acquired 15% or more of the voting shares
of the Company which Rights become null and void, will thereafter have the
right to receive, upon the exercise thereof at the current purchase price of
the Right, that number of shares of Common Stock of the acquiring company
which at the time of such transaction would have a market value equal to two
times the purchase price of the Right. The Rights have no voting or dividend
rights and until

32
<PAGE>

exercisable cannot trade separately from the Common Stock. At any time prior
to the first public announcement that a person or group has become the
beneficial owner of 15% or more of the outstanding Voting Shares, the Board
of Directors may redeem all but not less than the outstanding Rights at a
price of $.001 per Right. The Rights expire on April 20, 2005.

ANTI-TAKEOVER PROVISIONS

The Company is governed by the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL") which provides that the board of directors of a
corporation in discharging its duties, including its response to a potential
merger or takeover, may consider the effect of any action upon employees,
suppliers and customers of the corporation, communities in which offices or
other establishments of the corporation are located and all other pertinent
factors.

In addition, under the BCL, subject to certain exceptions, a business
combination between a Pennsylvania corporation and a person owning 20% or
more of such corporation's voting stock (an "interested person") may be
accomplished only if (i) the business combination is approved by the
corporation's directors prior to the date on which such person acquired 20%
or more of such stock or (ii) the interested person owns shares entitled to
cast at least 80% of the votes all shareholders would be entitled to cast in
an election of directors (excluding shares held by the interested person),
which vote may occur no earlier than three months after the interested person
acquired its 80% ownership, and the consideration received by shareholders in
the business combination satisfies certain minimum conditions, (iii) the
business combination is approved by the affirmative vote of all outstanding
shares of common stock or (iv) the business combination is approved by the
vote of shareholders entitled to cast a majority of the votes that all
shareholders would be entitled to cast in an election of directors (excluding
shares held by the interested person), which vote may occur no earlier than
five years after the interested person became an interested person. A
Pennsylvania corporation may exempt itself from this provision of the BCL by
an amendment to its articles of incorporation that requires shareholder
approval. The Company's Articles of Incorporation ("Articles") do not provide
an exemption from this provision.

The Articles contain certain provisions which may impact upon a person's
decision to implement a takeover of the Company, including the following
provisions: (i) a classified board of directors, with each director having a
three-year term; (ii) a provision providing that certain business
combinations involving the Company, unless approved by at least 75% of the
Board of Directors, shall require the affirmative vote of at least 80% of the
voting stock of the Company; (iii) a provision permitting the Board of
Directors to oppose a tender or other offer for the Company's securities in
light of the fairness of the price, the impact on the Company's constituents,
the reputation of the offeror, the value of the offered securities and any
applicable legal or regulatory issues; (iv) a provision requiring the
affirmative vote of at least 80% of the Company's voting stock to amend its
provisions relating to anti-takeover measures, unless the amendment is
approved by at least 75% of the Board; and (v) the Preferred Stock with
rights to be designated by the Board of Directors.

The overall effect of the foregoing provisions, the Rights Plan and
certain provisions of the Debentures and Notes which grant the holder a
repurchase option upon a change in control of the Company may be to deter a
future tender offer. Shareholders might view such an offer to be in their
best interest should the offer include a substantial premium over the market
price of the Common Stock at that time. In addition, these provisions may
have the effect of assisting the Company's management to retain its position
and place it in a better position to resist changes that the shareholders may
want to make if dissatisfied with the conduct of the Company's business.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

The Company has agreed with certain holders of its Common Stock to
register their Common Stock under the Securities Act under certain
circumstances. These rights to registration cover approximately 2,667,979
beneficially owned shares in the aggregate. Whenever the Company proposes to
register any of its securities under the Securities Act, the Company is
required to give notice to certain persons or entities granted registration
rights of the proposed registration and, subject to certain conditions
including the right of the underwriters to limit the number of shares sold by
the holders if the underwriters reasonably believe such

33
<PAGE>

offers and sales would jeopardize the underwriting or adversely affect the
price of the shares to be sold, to include their shares in such registration.
The holders of approximately 966,724 shares may also require the Company to
file a registration statement under the Securities Act with respect to their
shares. The Company will pay certain registration expenses of certain
registrations requested by the holders of registration rights.

In addition, the Company has agreed to register for resale under the
Securities Act 51% of the shares of Common Stock to be issued in the
NeighborCare Transaction (approximately 307,692 shares assuming an average
closing price of $32.50 per share for the period prior to the closing of the
transaction).

Any sales of substantial amounts of shares in the public market pursuant
to these registration rights might adversely affect prevailing market prices
for the shares.

LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

Pursuant to the Company's Bylaws, no director, as such, is personally
liable for monetary damages for any action taken, or any failure to take any
action, unless the director breaches or fails to perform the duties of his or
her office under Section 1721 of the BCL, and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. These
provisions of the Company's Bylaws, however, do not apply to the
responsibility or liability of a director pursuant to any criminal statute,
or to the liability of a director for the payment of taxes pursuant to local,
Pennsylvania or federal law. These provisions offer persons who serve on the
Board of Directors of the Company protection against awards of monetary
damages for negligence in the performance of their duties.

The Company's Bylaws also provide that the Company shall indemnify its
officers and directors, as such, to the fullest extent permitted by
applicable law against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such officer or director in
connection with any action against such officer or director; provided,
however, that no indemnification shall be provided if a final unappealable
judgment or award establishes that such officer or director engaged in
intentional misconduct from which he derived an improper personal benefit,
for expenses or liabilities which have been paid directly to such person by
an insurance carrier or for amounts paid in settlement of actions without the
written consent of the Board of Directors.

34
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters
named below (the "Underwriters"), the Company has agreed to sell to each of
the Underwriters, and each of the Underwriters severally has agreed to
purchase from the Company, the number of shares of Common Stock set forth
below:

<TABLE>
<CAPTION>
Number of
Underwriter Shares
-------------------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................... 1,580,000
Alex. Brown & Sons Incorporated. ........ 1,575,000
Montgomery Securities ................... 1,575,000
Dillon, Read & Co. Inc. 210,000
Donaldson, Lufkin & Jenrette Securities
Corporation ............................ 210,000
Kleinwort Benson Limited ................. 210,000
Morgan Stanley & Co. Incorporated ........ 210,000
Prudential Securities Incorporated ....... 210,000
Salomon Brothers Inc ..................... 210,000
J.C. Bradford & Co ....................... 210,000
First Albany Corporation ................. 100,000
Wessels, Arnold & Henderson, L.L.C ....... 100,000
Wheat, First Securities, Inc ............. 100,000
-------------
Total ................................... 6,500,000
=============

</TABLE>

Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Alex. Brown & Sons Incorporated and Montgomery Securities are acting as
representatives (the "Representatives") of the several Underwriters.

In the Purchase Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares
of Common Stock offered hereby if any of such shares are purchased. Under
certain circumstances, the commitments of the non-defaulting Underwriters may
be increased.

The Representatives have advised the Company that they propose initially
to offer the shares of Common Stock to the public at the public offering
price of the Common Stock offered hereby, and to certain dealers at such
price less a concession not in excess of $.80 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.10 per
share to certain other dealers. After the Offering, the public offering
price, concession and discount may be changed.

The Company has granted the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
975,000 additional shares of Common Stock to cover over-allotments, if any,
at the public offering price of the Common Stock offered hereby, less the
underwriting discount. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of shares proportionate to such Underwriter's initial
amount reflected in the foregoing table.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.

Without the prior written consent of Merrill Lynch, each of the Company
and the directors and executive officers of the Company have agreed not to,
for a period of 90 days after the date hereof directly or indirectly, offer
to sell, sell, grant any option for the sale of, or otherwise dispose of, any
shares of Common Stock or any securities convertible into or exchangeable
into or exercisable for any such shares (except for shares of Common Stock or
options issued pursuant to (i) reservations, agreements or employee benefit
plans in existence at the date of the Purchase Agreement, (ii) the
NeighborCare Transaction or (iii) the conversion of the Debentures).

35
<PAGE>

The Underwriters have in the past and may in the future provide investment
banking and other related services to the Company and its affiliates in the
ordinary course of business.

LEGAL MATTERS

Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Blank Rome
Comisky & McCauley, Philadelphia, Pennsylvania. Certain legal matters will be
passed upon for the Underwriters by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York. As to matters
of Pennsylvania law, Simpson Thacher & Bartlett will rely on the opinion of
Blank Rome Comisky & McCauley. Stephen Luongo, a partner in Blank Rome
Comisky & McCauley, is the beneficial owner of 36,097 shares of Common Stock
and is a director of the Company. See "Principal Shareholders."

EXPERTS

The consolidated financial statements of Genesis Health Ventures, Inc. and
subsidiaries as of September 30, 1994 and 1995, and for each of the years in
the three-year period ended September 30, 1995 have been included herein and
in the Registration Statement, and the Meridian Healthcare Group combined
financial statements as of November 30, 1993 and for the 11 month period
ended November 30, 1993 incorporated in this Prospectus by reference to the
Meridian Healthcare Group combined financial statements included in the
Company's Current Report on Form 8-K/A dated November 30, 1993 have been
included herein and incorporated in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein or incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.

The financial statements of McKerley Health Care Centers, Inc. for the
years ended December 31, 1994 and 1993, the financial statements of McKerley
Health Facilities for the years ended December 31, 1994 and 1993, and the
financial statements and other financial information of McKerley Health Care
Center -- Concord Limited Partnership for the period from March 11, 1994 to
December 31, 1994, appearing in Genesis Health Ventures, Inc.'s Current
Report on Form 8-K/A dated April 5, 1996, and the financial statements of
National Health Care Affiliates, Inc. and Related Entities for the year ended
December 31, 1995, appearing in Genesis Health Venture, Inc.'s Current Report
on Form 8-K/A dated May 3, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting
and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621 and 75 Park Place, 14th Floor, New York, New
York 10007. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates.

In addition, the Company's Common Stock, Debentures and Notes are listed
on the New York Stock Exchange. The Company's reports, proxy statements and
other information filed under the Exchange Act may also be inspected and
copied at the offices of the New York Stock Exchange, 120 Broad Street, New
York, New York 10005.

This Prospectus constitutes a part of a Registration Statement filed by
the Company with the Commission under the Securities Act. This Prospectus
omits certain of the information contained in that Registration Statement,
and reference is hereby made to that Registration Statement and the exhibits
filed therewith for further information with respect to the Company and the
Common Stock offered hereby. Any statements

36
<PAGE>

contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents and portions of documents filed by the Company
with the Commission are hereby incorporated by reference into this Prospectus
and made a part hereof: (i) the Annual Report on Form 10-K for the year ended
September 30, 1995; (ii) the Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1995 and March 31, 1996, as amended; (iii) Meridian
Healthcare Group's combined financial statements for the 11 month period ended
November 30, 1993 included in the Current Report on Form 8-K dated November
30, 1993, as amended; (iv) the Current Report on Form 8-K dated November 30,
1995, as amended; (v) the Current Report on Form 8-K dated April 21, 1996;
(vi) the Current Report on Form 8-K dated May 3, 1996, as amended; and (vii)
the Current Report on Form 8-K dated May 8, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be part
of this Prospectus from the date of filing of such documents. Any statement
contained herein or in any document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, except as so modified or superseded.

The Company hereby undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all
of the information that has been incorporated by reference in this Prospectus
(not including exhibits to such information unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates). Written or oral requests for such copies should be
directed to Genesis Health Ventures, Inc., 148 West State Street, Kennett
Square, Pennsylvania 19348, Attention: Investor Relations, telephone (610)
444-6350.

37
<PAGE>

INDEX TO FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Page
--------

<S> <C>

Consolidated Financial Statements

Genesis Health Ventures, Inc. and Subsidiaries

Independent Auditors' Report ...................................................................... F-3

Consolidated Balance Sheets as of September 30, 1994 and 1995 ..................................... F-4

Consolidated Statements of Operations for the years ended September 30, 1993, 1994 and 1995 ....... F-5

Consolidated Statements of Shareholders' Equity for the years ended September 30, 1993, 1994 and 1995 F-6

Consolidated Statements of Cash Flows for the years ended September 30, 1993, 1994 and 1995 ....... F-7

Notes to Consolidated Financial Statements ........................................................ F-8

Unaudited Condensed Consolidated Balance Sheet as of March 31, 1996 ............................... F-18

Unaudited Condensed Consolidated Statements of Operations for the three months and for the
six months ended March 31, 1995 and 1996 ......................................................... F-19

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 1995
and 1996 ......................................................................................... F-20

Notes to Condensed Unaudited Consolidated Financial Statements .................................... F-21

Pro Forma Condensed Consolidated Financial Information

Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended
September 30, 1995 and the six months ended March 31, 1996 ....................................... F-22

Unaudited Pro Forma Condensed Consolidated Balance Sheet at March 31, 1996 ........................ F-29
</TABLE>

F-1
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

F-2
<PAGE>

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Genesis Health Ventures, Inc.:

We have audited the accompanying consolidated balance sheets of Genesis
Health Ventures, Inc. and subsidiaries as of September 30, 1994 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Genesis
Health Ventures, Inc. and subsidiaries as of September 30, 1994 and 1995, and
the results of their operations, and their cash flows for each of the years
in the three-year period ended September 30, 1995 in conformity with
generally accepted accounting principles.

As discussed in Note 8 to the consolidated financial statements, Genesis
Health Ventures, Inc. and subsidiaries adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, in 1994.

KPMG Peat Marwick LLP

Philadelphia, Pennsylvania
November 29, 1995, except for Note 2
which is as of November 30, 1995, and
Note 13 which is as of March 29, 1996

F-3
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, September 30,
1994 1995
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents ........................ $ 3,817,425 $ 10,387,506
Accounts receivable, net of allowance for doubtful
accounts of $4,553,364 in 1994 and $6,178,673
in 1995 ................................... 72,920,814 101,123,573
Other receivables ........................... 22,107,924 36,739,637
Cost report receivables ..................... 12,035,953 26,270,819
Inventory ................................... 6,231,118 9,600,551
Prepaid expenses and other current assets ... 3,038,699 6,934,725
--------------- ---------------
Total current assets ...................... 120,151,933 191,056,811
--------------- ---------------
Property, plant and equipment, net ............... 243,549,782 243,660,567
Funds held by trustee ............................ 1,121,000 1,121,000
Contract rights, net ............................. 3,105,325 2,217,522
Other long-term assets ........................... 41,851,014 49,603,457
Goodwill, net .................................... 101,919,173 112,729,811
--------------- ---------------
Total assets ................................. $511,698,227 $600,389,168
=============== ===============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................ $ 10,709,815 $ 19,401,254
Accrued expenses ............................ 14,251,912 13,951,011
Current installments of long-term debt ...... 9,942,806 2,538,675
Accrued compensation ........................ 14,589,921 13,656,490
Interest .................................... 3,321,236 5,513,003
Income taxes payable ........................ 481,805 1,882,594
--------------- ---------------
Total current liabilities ................. 53,297,495 56,943,027
--------------- ---------------
Long-term debt ................................... 250,806,778 308,052,441
Deferred income taxes ............................ 9,268,272 8,698,272
Deferred gain and other long-term liabilities .... 2,859,522 5,147,891
Shareholders' equity:
Common stock, par $.02, authorized 60,000,000
shares; issued and outstanding 21,829,365 and
21,773,125 at September 30, 1994; 22,081,267
and 22,035,666 at September 30, 1995 ...... 291,057 294,460
Additional paid-in capital .................. 153,573,281 155,927,049
Retained earnings ........................... 41,961,608 65,569,282
Treasury stock, at cost ..................... (359,786) (243,254)
--------------- ---------------
Total shareholders' equity .................. 195,466,160 221,547,537
--------------- ---------------
Total liabilities and shareholders' equity .. $511,698,227 $600,389,168
=============== ===============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net revenues:
Basic healthcare services . $133,370,007 $240,263,861 $278,120,711
Specialty medical services . 75,226,895 125,717,823 180,326,730
Management services and other 11,212,275 22,634,576 27,945,341
-------------- -------------- --------------
Total net revenues ...... 219,809,177 388,616,260 486,392,782
-------------- -------------- --------------
Operating expenses:
Salaries, wages, and benefits 112,293,001 192,533,861 237,610,082
Other operating expenses .. 61,791,025 109,059,421 137,944,784
General corporate expense . 7,595,972 17,649,907 17,584,487
Depreciation and amortization .. 7,157,110 14,982,173 18,792,823
Lease expense .................. 7,026,491 11,376,029 13,798,412
Interest expense, net .......... 5,042,254 15,305,139 20,366,456
-------------- -------------- --------------
Earnings before income taxes,
extraordinary items and
cumulative effect of a change
in accounting principle . 18,903,324 27,709,730 40,295,738
Income taxes ................... 6,994,230 10,018,535 14,764,941
-------------- -------------- --------------
Earnings before extraordinary
items and cumulative effect
of a change in accounting
principle ............... 11,909,094 17,691,195 25,530,797
Extraordinary items, net of tax . -- (552,585) (1,923,123)
Cumulative effect of a change in
accounting principle ......... -- 534,659 --
-------------- -------------- --------------
Net income ................. $ 11,909,094 $ 17,673,269 $ 23,607,674
============== ============== ==============
Per common share data:
Primary:
Earnings before extraordinary
items and cumulative effect
of a change in accounting
principle ............... $ 0.67 $ 0.89 $ 1.13
Net income ................ $ 0.67 $ 0.89 $ 1.05
Weighted average shares of
common stock and equivalents 17,800,200 19,930,828 22,587,035
-------------- -------------- --------------
Fully diluted:
Earnings before extraordinary
items and cumulative effect
of a change in accounting
principle ............... $ 0.67 $ 0.84 $ 1.03
Net income ................ $ 0.67 $ 0.84 $ 0.97
Weighted average shares of
common stock and equivalents 17,928,522 24,819,711 28,452,436
-------------- -------------- --------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
---------- -------------- ------------- ------------ -------------
Balance at September 30,
1992 .................. $206,389 $ 70,576,932 $12,379,245 $(459,786) $ 82,702,780
<S> <C> <C> <C> <C> <C>
Issuance of additional
common stock net of
issuance costs ........ 38,700 30,051,359 -- -- 30,090,059
Exercise of common stock
options and issuance of
stock bonus awards .... 1,856 644,356 -- -- 646,212
1993 net earnings ...... -- -- 11,909,094 -- 11,909,094
---------- -------------- ------------- ------------ -------------
Balance at September 30,
1993 .................. 246,945 101,272,647 24,288,339 (459,786) 125,348,145
========== ============== ============= ============ =============
Issuance of additional
common stock, net of
issuance costs ........ 42,926 51,572,278 -- -- 51,615,204
Issuance of shares from
Treasury .............. -- -- -- 100,000 100,000
Exercise of common stock
options ............... 1,186 728,356 -- -- 729,542
1994 net earnings ...... -- -- 17,673,269 -- 17,673,269
---------- -------------- ------------- ------------ -------------
Balance at September 30,
1994 .................. 291,057 153,573,281 41,961,608 (359,786) 195,466,160
========== ============== ============= ============ =============
Issuance of additional
common stock .......... 486 620,860 -- -- 621,346
Issuance of shares from
Treasury .............. -- -- -- 116,532 116,532
Exercise of common stock
options and issuance of
stock bonus awards .... 2,917 1,732,908 -- -- 1,735,825
1995 net earnings ...... -- -- 23,607,674 -- 23,607,674
---------- -------------- ------------- ------------ -------------
Balance at September 30,
1995 .................. $294,460 $155,927,049 $65,569,282 $(243,254) $221,547,537
========== ============== ============= ============ =============
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------
1993 1994 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 11,909,094 $ 17,673,269 $ 23,607,674
Adjustments to reconcile net income to net cash provided
by operating activities:
Charges (credits) included in operations not requiring
funds: .......................................
Provision for deferred taxes ................. 2,671,000 4,483,022 (1,270,000)
Depreciation and amortization ................ 7,157,110 14,982,173 18,792,823
Amortization of deferred gain ................ (319,073) (319,000) (460,000)
Extraordinary loss ........................... -- 552,585 1,923,123
Cumulative effect of a change in accounting
principle ................................. -- (534,659) --
Changes in assets and liabilities excluding effects
of acquisitions and dispositions:
Increase in accounts receivable .............. (7,633,812) (15,485,474) (25,563,759)
Increase in cost report receivables .......... (2,269,892) (1,769,744) (15,064,866)
Increase in inventory ........................ (680,965) (936,575) (3,176,433)
Increase in prepaid expenses and other current
assets .................................... (2,416,862) (6,705,392) (420,516)
Increase (decrease) in accounts payable and accrued
expenses .................................. (673,355) 4,418,452 7,235,133
Increase in accrued compensation and interest . 159,806 4,558,311 1,258,336
Increase (decrease) in income taxes payable .. (986,268) (353,955) 871,443
-------------- --------------- ---------------
Total adjustments ................................... (4,992,311) 2,889,744 (15,874,716)
-------------- --------------- ---------------
Net cash provided by operating activities .... 6,916,783 20,563,013 7,732,958
-------------- --------------- ---------------
Cash flows from investing activities: ...............
Capital expenditures .............................. (23,151,427) (18,784,116) (24,718,616)
Cash paid net -- acquisitions ..................... (579,000) (214,306,437) (8,194,000)
Other long-term asset additions ................... (11,874,540) (9,224,541) (13,130,338)
(Increase) decrease in funds held by trustee ...... 710,913 (48,781) 25,777
-------------- --------------- ---------------
Net cash used in investing activities .......... (34,894,054) (242,363,875) (46,017,177)
-------------- --------------- ---------------
Cash flows from financing activities:
Net borrowings (repayments) under working capital
revolving credit ............................... 34,644,287 (10,200,000) 30,100,000
Repayment of long-term debt ....................... (92,068,067) (26,059,621) (102,450,468)
Proceeds from issuance of long-term debt .......... 60,828,534 125,000,000 119,700,000
Proceeds from issuance of convertible debentures .. -- 86,250,000 --
Proceeds from issuance of common stock ............ 30,505,275 52,047,896 100,000
Stock issuance costs .............................. (415,216) (432,692) --
Common stock options exercised .................... 576,588 522,542 1,735,825
Debt issuance costs ............................... (3,433,526) (5,050,930) (4,331,057)
-------------- --------------- ---------------
Net cash provided by financing activities ...... 30,637,875 222,077,195 44,854,300
-------------- --------------- ---------------
Net increase in cash and equivalents ................ 2,660,604 276,333 6,570,081
Cash and equivalents:
Beginning of year ................................. 880,488 3,541,092 3,817,425
End of year ....................................... $ 3,541,092 $ 3,817,425 $ 10,387,506
============== =============== ===============
Supplemental disclosure of cash flow information:
Interest paid ..................................... $ 5,455,423 $ 12,085,369 $ 18,174,689
Income taxes paid ................................. $ 5,310,100 $ 5,159,000 $ 13,037,150
============== =============== ===============
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Genesis
Health Ventures, Inc. (the Company) and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

The Company provides a broad range of healthcare services to the geriatric
population, principally within five geographic markets in the eastern United
States. These services include basic healthcare services traditionally
provided in geriatric care facilities; specialty medical services, such as
rehabilitation therapy, institutional pharmacy and medical supply services
and subacute care; and management services to independent geriatric care
providers.

PROPERTY, PLANT AND EQUIPMENT

Land, land improvements, buildings, and equipment are stated at cost.
Subsequent additions are recorded at cost. Depreciation of land improvements,
buildings and equipment is calculated on the straight-line method over their
estimated useful lives that range from three years to 35 years.

Expenditures for maintenance and repairs necessary to maintain property
and equipment in efficient operating condition are charged to operations.
Costs of additions and betterments are capitalized. Interest costs associated
with construction or renovation are capitalized in the period in which they
are incurred.

INVENTORIES

Inventories of drugs and supplies are stated at the lower of cost or
market. Cost is determined primarily on the first-in, first-out (FIFO)
method.

CONTRACTUAL ADJUSTMENTS

Patient revenues are recorded based on standard charges applicable to all
patients. Under Medicare, Medicaid, and other cost-based reimbursement
programs, each facility is reimbursed for services rendered to covered
program patients as determined by reimbursement formulas. The differences
between established billing rates and the amounts reimbursable by the
programs and patient payments are recorded as contractual adjustments and
deducted from revenues.

Retroactively calculated third-party contractual adjustments are accrued
on an estimated basis in the period the related services are rendered.
Revisions to estimated contractual adjustments are recorded based upon audits
by third-party payors, as well as other communications with third-party
payors such as desk reviews, regulation changes and policy statements. These
revisions are made in the year such amounts are determined.

INVESTMENTS

Investments are carried at cost, which approximates fair value, and
interest income is recognized as earned.

DEFERRED FINANCING COSTS

Financing costs have been deferred and are being amortized on a
straight-line basis over the term of the related debt. Net deferred financing
costs included in other long term assets were $8,123,000 and $9,425,000 at
September 30, 1994 and 1995, respectively.

F-8
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

CONTRACT RIGHTS

Contract rights represent the value assigned to a management contract
obtained in conjunction with the Company's acquisition of Genesis Management
Resources, Inc. (formerly, Total Care Systems, Inc.). The contract is with a
company that owns life care communities and provides for a management fee in
exchange for management, marketing and development services provided to the
communities. The Company obtained an independent appraisal with respect to
the assigned value of the contract rights. Contract rights are being
amortized over ninety-four months which represents the term of the related
contract.

GOODWILL

Goodwill represents the excess of the purchase price over the fair market
value of net assets acquired and is amortized on a straight-line basis from
ten to forty years. Accumulated amortization at September 30, 1994 and 1995
was $3,300,000 and $6,200,000, respectively. Goodwill is reviewed for
impairment whenever events or circumstances provide evidence that suggest
that the carrying amount of goodwill may not be recoverable. The Company
assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance can be recovered through projected
undiscounted future cash flows.

INCOME TAXES

Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (Statement 109) was adopted by the Company in 1994. Statement
109 required a change from the deferred method to the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. Under Statement 109, the effect
on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.

Provision is made for deferred income taxes applicable to temporary
differences between financial statement and taxable income.

EARNINGS PER SHARE

Primary earnings per share is based on the average number of shares of
common stock outstanding during the period and the dilutive effect of stock
options and other common stock equivalents. Fully diluted earnings per share
reflect the conversion of the Convertible Senior Subordinated Debentures as
if such conversion had occurred on the date of issuance and the related
interest expense had not been incurred.

CASH EQUIVALENTS

Short-term investments which have a maturity of ninety days or less at
acquisition are considered cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments is determined by reference to
various market data and other valuation considerations. The fair value of
financial instruments approximates their recorded values.

NEW ACCOUNTING PRONOUNCEMENTS

In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(Statement 121). Statement 121 provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to

F-9
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

assets to be held and used and assets to be disposed of. The Company is
required to adopt Statement 121 for the year ending September 30, 1997. The
Company has not yet quantified the impact, if any, of the adoption of
Statement 121 may have on its consolidated financial statements.

In October, 1995, the FASB issued Statement 123, "Accounting for
Stock-Based Compensation" (Statement 123). Statement 123 allows companies the
option to retain the current accounting approach for recognizing stock-based
expense in the financial statements or to adopt a new accounting method based
on the estimated fair value of employee stock options. Companies that do not
follow the new fair value based method will be required to provide expanded
disclosures in the footnotes. The Company is required to adopt Statement 123
for the year ending September 30, 1997. The Company expects to continue
applying its current accounting approach and upon adoption will present the
required footnote disclosures.

(2) ACQUISITIONS/DISPOSITIONS

On November 30, 1995, subsequent to fiscal year end, the Company acquired
McKerley Health Care Centers, Inc. and related entities (collectively,
"McKerley") for total consideration of approximately $68,700,000. The
transaction also provides for up to an additional $6,000,000 of contingent
consideration payable upon the achievement of certain financial objectives
through October 1997. McKerley owns or leases 15 geriatric care facilities in
New Hampshire and Vermont with a total of 1,535 beds and operates a home
healthcare company. The acquisition was financed with long-term debt.

On September 30, 1995, the Company sold, subject to a three year
management contract, five facilities totaling 606 beds to the AGE Institute
of Massachusetts ("AIMASS") for $19,570,000.

On June 1, 1995, the Company acquired Eastern Medical Supplies, Inc. and
its affiliate Eastern Rehab Services, Inc. (collectively, "Eastern Medical")
for approximately $2,000,000. Eastern Medical sells and leases home medical
equipment, respiratory products and services and rehabilitation equipment to
patients at home throughout Maryland.

On April 1, 1995, the Company acquired TherapyCare Systems, L.P.
("TherapyCare") for approximately $7,000,000. TherapyCare provides physical
therapy, occupational therapy and speech therapy to 73 long-term care
facilities throughout Pennsylvania.

On March 1, 1995, a joint venture in which the Company is a 55% partner
acquired Delta Drug, Inc. ("Delta Drug") for approximately $1,700,000. Delta
Drug, an institutional pharmacy company located in Providence, Rhode Island,
serves over 2,000 long-term care beds.

On November 30, 1993, the Company acquired substantially all of the assets
of Meridian, Inc., Meridian Healthcare, Inc. and their affiliated entities
(Meridian). The purchase price was approximately $205,000,000, which included
approximately $70,000,000 of debt paid prior to the consummation of the
transaction. The transaction (Meridian Transaction) was financed with
approximately $84,000,000 in proceeds from an offering of 6% Convertible
Senior Subordinated Debentures issued in November 1993 and a bank credit
facility. Meridian operated 36 geriatric care facilities and provided
specialty medical and management services in six geographic markets in the
United States. The Company allocated $121,000,000 of the excess purchase
price to tangible assets and recorded approximately $84,000,000 in goodwill
as a result of this transaction.

The following unaudited pro forma statement of operations information
gives effect to the Meridian Transaction described above as though it had
occurred on October 1, 1992, after giving effect to certain adjustments,
including amortization of goodwill, additional depreciation expense,
increased interest expense on debt related to the acquisition and related
income tax effects. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the
acquisition occurred on October 1, 1992.

F-10
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------
1993 1994
---------- ----------
(In thousands except per
share data)
<S> <C> <C>
Pro Forma Statement of Operations Information:
Total net revenues ................................................ $364,266 $416,819
Income before extraordinary items and cumulative effect of an
accounting change ................................................ 14,013 18,143
Net income ........................................................ 14,013 18,125
Primary earnings per share before extraordinary items and cumulative
effect of an accounting change ................................... 0.78 0.91
Fully diluted earnings per share before extraordinary items and
cumulative effect of an accounting change ........................ 0.73 0.85
</TABLE>

(3) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at September 30, 1994 and 1995 consist of
the following:

<TABLE>
<CAPTION>
September 30,
-------------------------------------
1994 1995
-------------- -------------
<S> <C> <C>
Land ............................................. $ 18,357,703 $ 17,606,305
Land improvements ................................ 2,849,424 3,193,296
Buildings ........................................ 222,355,216 219,636,621
Equipment ........................................ 39,966,560 46,196,213
Construction in progress ......................... 3,061,394 8,136,354
------------ ------------
286,590,297 294,768,789
Less accumulated depreciation .................... 43,040,515 51,108,222
------------ ------------
Net property, plant and equipment ................ $243,549,782 $243,660,567
============ ============
</TABLE>

(4) LONG-TERM DEBT

Long-term debt at September 30, 1994 and 1995 was as follows:

<TABLE>
<CAPTION>
September 30,
-------------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Secured--due 1996 to 2014; 7.88% to 12.00%
(weighted average interest rate
1994--6.8%; 1995--8.22%) .......................... $172,958,506 $101,138,191
Unsecured--due 1996 to 2008; 5.5% to 11.00%
(weighted average interest rate 1994--8.3%;
1995-- 9.6%) ...................................... 1,572,492 123,523,700
Convertible Senior Subordinated Debentures due
2003--6% .......................................... 86,250,000 86,250,000
------------ ------------
260,780,998 310,911,891
Less:
Debt discount, net of amortization ............. 31,414 320,775
Current installments and short-term
borrowings .................................. 9,942,806 2,538,675
------------ ------------
$250,806,778 $308,052,441
============ ============
</TABLE>

At September 30, 1995, the Company has approximately $66,500,000 of
floating rate debt based on prime or LIBOR with a weighted average interest
rate of 7.19%. At September 30, 1995, the Company has $244,411,891 of fixed
rate debt with a weighted average interest rate of 8.3%.

On or after November 30, 1996, the Company may redeem the 6% Convertible
Senior Subordinated Debentures (the Debentures) in whole or in part at a
redemption price initially equal to 104.2% of the principal amount and
decreasing annually thereafter. The Debentures are convertible into Common
Stock at the option of the holder at anytime prior to maturity unless
previously redeemed at a conversion price of $15.104 per share.

F-11
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

In connection with financing the Meridian Transaction, the Company
obtained a $200,000,000 bank facility to replace the then existing
$65,000,000 term loan/revolving credit facility. The agreement provided for a
$125,000,000 term loan and a $75,000,000 revolving credit facility which bore
interest at the prime rate plus 1.5% or LIBOR plus 2.5%.

In September 1995, the Company amended and restructured its bank credit
facility to provide for a $200,000,000 revolving credit facility and a
$100,000,000 acquisition credit facility. Both credit facilities bear
interest at a floating rate equal, at the Company's option, to the prime rate
or LIBOR plus 1.25%. Amounts outstanding under the credit facilities in
September 1998 convert to a term loan that provides for equal annual
amortization payable quarterly. At September 30, 1995, $66,500,000 was
outstanding under the revolving credit facility. The credit facilities are
secured by the stock of the Company's subsidiaries and first priority liens
on the Company's accounts receivable, inventory and all other personal
property.

In June 1995, the Company completed an offering of $120,000,000 of 9 3/4 %
Senior Subordinated Notes due 2005 (the Notes). Interest is payable on the
Notes on June 15 and December 15 of each year commencing December 15, 1995.
The Notes are redeemable at the option of the Company in whole or in part, at
any time, on or after June 15, 2000 at a redemption price initially equal to
104.05% of the principal amount and decreasing annually thereafter. The
Company used the net proceeds from the Notes offering to repay a portion of
the bank credit facility.

At September 30, 1995, sinking fund requirements and installments of
long-term debt are as follows:

<TABLE>
<CAPTION>
Year ending Principal
September 30, Amount
- ------------- -------------
<S> <C>
1996 .................................................. $ 2,538,675
1997 .................................................. 2,291,318
1998 .................................................. 3,015,885
1999 .................................................. 18,863,477
2000 .................................................. 18,771,255
Thereafter ............................................ $265,431,281
</TABLE>

In November 1995, the Company entered into two separate interest rate swap
agreements with two financial institutions. The first agreement is for a term
of five years and a notional amount of $15,000,000 whereby the Company will
make quarterly payments at a fixed rate of 5.86% and receive quarterly
payments at a floating rate based on three month LIBOR (5.97% at September
30, 1995). The second agreement is for a term of three years and a notional
amount of $5,000,000 whereby the Company will make quarterly payments based
on a fixed rate of 5.66% and receive quarterly payments at a floating rate
based on three month LIBOR

In November 1995, the Company entered into an interest rate collar
agreement for five years for a notional amount of $10,000,000. The agreement
requires the Company to receive payments when three month LIBOR rate exceeds
6.25% and make payments when the three month LIBOR rate falls below 5.05%.

Interest of $405,118 in 1994 and $457,000 in 1995 was capitalized in
connection with facility renovations.

During 1994 and 1995, the Company recorded an extraordinary loss, net of
tax, of $552,585 and $1,923,123, related to the early retirement of debt.

The Company is restricted from declaring any dividends or authorizing any
other distribution on account of ownership of its capital stock unless
certain conditions are met.

(5) LEASES AND LEASE COMMITMENTS

The Company leases certain facilities and equipment under operating
leases. Future minimum payments for the next five years under operating
leases at September 30, 1995 were as follows:

F-12
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

<TABLE>
<CAPTION>
Year ending Minimum
September 30, payments
- ------------- -------------
<S> <C>
1996 .................................................. $14,835,340
1997 .................................................. 14,298,366
1998 .................................................. 11,083,307
1999 .................................................. 10,568,196
2000 .................................................. 8,504,859
</TABLE>

In connection with the Meridian Transaction, the Company entered into
agreements to lease seven geriatric care facilities for ten years, including
a purchase option, that will continue to be owned by certain of Meridian's
former shareholders. The annual lease payment is $6,000,000. If the Company
exercised its option to purchase the leased facilities, the price at the end
of the lease term would be $59,000,000.

(6) PATIENT SERVICE REVENUE

The distribution of net patient service revenue by class of payor for the
years ended September 30, 1993, 1994 and 1995 was as follows:

<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------
Class of payor 1993 1994 1995
- -------------- -------------- -------------- --------------
Private pay and other . $ 87,122,847 $148,945,566 $175,205,592
<S> <C> <C> <C>
Medicaid ............ 92,885,512 156,893,671 185,611,801
Medicare ............ 28,588,543 60,142,447 97,630,048
-------------- -------------- --------------
$208,596,902 $365,981,684 $458,447,441
============== ============== ==============

</TABLE>

The above revenue amounts are net of third-party contractual allowances of
$46,170,589, $81,544,600 and $98,494,511 in 1993, 1994 and 1995,
respectively.

The Company has recorded cost report receivables from third-party payors
(i.e., Medicare and Medicaid) of approximately $12,036,000 and $26,271,000 at
September 30, 1994 and 1995, respectively. These amounts at September 30,
1995 are due primarily from Massachusetts ($6,900,000), Pennsylvania
($3,600,000) and Medicare ($15,600,000) for the 1987 through 1995 cost
reporting periods.

(7) RELATED PARTY TRANSACTIONS

During 1987, certain directors and officers of the Company formed a
partnership, Salisbury Medical Office Building General Partnership ("SMOB"),
and purchased a building, a pharmacy and a medical center located in
Salisbury, Maryland. The Company has entered into annual lease agreements
with SMOB to lease the building. In Fiscal 1989, the Company entered into a
five-year lease agreement to finance approximately $1,100,000 of equipment
from SMOB. In accordance with the equipment lease agreement, the Company
purchased the equipment at fair market value. The total lease payments and
equipment purchase payments to SMOB for Fiscal 1993, 1994 and 1995 were
$382,000, $420,000 and $198,000, respectively.

In August 1993, the Company guaranteed a loan in the amount of $1,000,000
to Samuel H. Howard which amount was invested by Mr. Howard in Phoenix
Healthcare Corporation. The guarantee is secured by a pledge of Mr. Howard's
stock in Phoenix Healthcare Corporation. In return for such guarantee the
Company received an option to purchase up to 25% of the stock of Phoenix
Healthcare Corporation at a price of $.25 per share, subject to Mr. Howard's
right to purchase the option for $1,000,000 upon release of the guarantee.

In September 1994, Mr. Howard exercised his right to purchase the option
for $1,000,000. The Company received as consideration $150,000 in cash and an
$850,000 note bearing interest at 12% from Mr. Howard. At September 30, 1995,
the balance of the note was $718,000 which was repaid in full subsequent to
year end. Samuel H. Howard, a director of the Company, is the principal
shareholder of Phoenix Healthcare Corporation.

F-13
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

(8) INCOME TAXES

As discussed in Note 1, the Company adopted Statement 109 as of October 1,
1993. The cumulative effect of this change in accounting for income taxes of
$534,659 is determined as of October 1, 1993 and is reported separately in
the consolidated statement of operations for the year ended September 30,
1994. As a result of applying Statement 109, earnings before income taxes for
the years ended September 30, 1995 and 1994 were decreased $390,000 due to
the effects of adjustments for prior purchase business combinations. Prior
years financial statements have not been restated to apply the provisions of
Statement 109.

The Company has provided no valuation allowance for deferred tax assets.
The Company believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred
tax assets.

Total income tax expense for the years ended September 30, 1994 and 1995
was allocated as follows:

<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1994 1995
------------- -------------
<S> <C> <C>
Income from continuing operations . $10,018,536 $14,764,941
Extraordinary item .............. (324,534) (1,129,452)
------------- -------------
Total .......................... $ 9,694,001 $13,635,489
============= =============
</TABLE>

The components of the provision for income taxes for the years ended
September 30, 1993, 1994 and 1995 were as follows:

<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Current:
Federal .. $3,859,230 $ 4,768,513 $13,483,941
State .... 464,000 767,000 2,551,000
------------ ------------- -------------
4,323,230 5,535,513 16,034,941
------------ ------------- -------------
Deferred:
Federal .. 2,603,000 3,973,022 (650,000)
State .... 68,000 510,000 (620,000)
------------ ------------- -------------
2,671,000 4,483,022 (1,270,000)
------------ ------------- -------------
Total ..... $6,994,230 $10,018,535 $14,764,941
============ ============= =============

</TABLE>

Total income tax expense differed from the amounts computed by applying
the U.S. federal income tax rates of 34.75% for 1993 and 35% for 1994 and
1995 to net income before income taxes and extraordinary items as a result of
the following:

<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Computed "expected" tax expense ....................... $6,568,905 $ 9,698,246 $14,103,508
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal tax
benefit............................................ 348,000 830,000 1,255,000
Amortization of goodwill ............................ 260,000 154,000 197,000
Targeted jobs credits ............................... (128,000) (600,000) (528,000)
Other, net .......................................... (54,675) (63,711) (262,567)
------------ ------------- -------------
Total income tax expense .............................. $6,994,230 $10,018,535 $14,764,941
============ ============= =============

</TABLE>

F-14
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

The sources of the differences between consolidated earnings for financial
statement purposes and tax purposes and the tax effects are as follows:

<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------
1993 1994 1995
------------ ------------- --------------
<S> <C> <C> <C>
Excess tax depreciation expense versus book depreciation . $ 311,000 $ 1,007,000 $ 1,064,000
Excess tax gain versus book gain ....................... -- (302,000) (2,879,000)
Accounts receivable allowance for doubtful accounts .... -- (312,000) (221,000)
Amortization of deferred gain on sale and leaseback .... 125,000 128,000 103,000
Targeted jobs credit carryforward ...................... (128,000) 446,000 --
Accrued liabilities and reserves ....................... (58,000) (1,401,000) (280,000)
Goodwill ............................................... -- 3,790,000 920,000
Alternative minimum tax credit ......................... 2,421,000 1,192,000 --
Other .................................................. -- (64,978) 23,000
------------ ------------- --------------
Net deferred tax provision ............................ $2,671,000 $ 4,483,022 $(1,270,000)
============ ============= ==============

</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1994 and 1995 are presented below:

<TABLE>
<CAPTION>
1994 1995
-------------- --------------
Deferred Tax Assets
<S> <C> <C>
Accounts receivable .......... $ 970,000 $ 1,303,000
Accrued compensation ......... 220,000 532,000
Amortization of deferred gain . 440,000 297,000
Goodwill ..................... 4,995,000 4,075,000
Accrued liabilities and reserves 961,000 24,000
Other, net ................... 109,000 --
-------------- --------------
Net deferred tax assets ........ 7,695,000 6,231,000
-------------- --------------
Deferred Tax Liabilities
Goodwill and Contract Rights . (7,061,000) (6,590,000)
Depreciation ................. (9,770,000) (8,272,000)
Other, net ................... (132,000) (67,000)
-------------- --------------
Total deferred tax liability ... (16,963,000) 14,929,000
-------------- --------------
Net deferred liability ......... $ (9,268,000) $(8,698,000)
============== ==============

</TABLE>

(9) STOCK OPTION PLANS

The Company has two stock option plans (the "Employee Plan" and the
"Directors Plan"). Under the Employee Plan, 2,000,000 shares of Common Stock
were reserved for issuance to employees including officers and directors.
Generally, the options granted in the Employee Plan become exercisable over a
5 year period and expire 10 years from the date of grant. All options granted
under the Employee Plan have been at the fair market value of the common
stock on the date of grant.

F-15
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

<TABLE>
<CAPTION>
Option Price Available
per Share Outstanding Exercisable for Grant
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 . $2.22-$13.33 1,164,033 514,429 161,517
-------------- ------------- ------------- -----------
Authorized ................... -- -- -- 450,000
Granted ...................... 13.17-17.00 691,500 -- (691,500)
Became Exercisable ........... -- -- 305,156 --
Exercised .................... 4.45-10.50 (88,980) (88,980) --
Cancelled .................... -- (156,450) -- 156,450
-------------- ------------- ------------- -----------
Balance at September 30, 1994 . 2.22-17.00 1,610,103 730,605 76,467
-------------- ------------- ------------- -----------
Authorized ................... -- -- -- 1,050,000
Granted ...................... 19.67-20.25 740,625 -- (740,625)
Became Exercisable ........... -- -- 400,692 --
Exercised .................... 5.33-16.83 (204,585) (204,585) --
Cancelled .................... -- (51,975) -- 51,975
-------------- ------------- ------------- -----------
Balance at September 30, 1995 . $2.22-$20.25 2,094,168 926,712 437,817
============== ============= ============= ===========
</TABLE>

(10) RETIREMENT PLAN

The Company has a defined contribution plan covering all employees having
1,000 hours or more of service and one year of service in a plan year.
Employees' contributions to the plan may be matched by the Company based on
years of service. During the plan years ended December 31, 1993, 1994 and
1995, the Company accrued a match of 50% of employee contributions up to 3%
of the employee's annual gross salary.

Additionally, the Plan provides for discretionary employer contributions,
based on profits of the Company, in the form of Company common stock and/or
cash. The Company recorded retirement plan expense for the 401(k) match and
the discretionary contribution of approximately $500,000, $959,000, and
$1,128,000 for the years ended September 30, 1993, 1994, 1995, respectively.

Certain employees of Meridian were eligible to participate in plans which
qualified under Section 401(K) of the Internal Revenue Service Code. In
accordance with the terms of the plans, employees elected to contribute a
percentage of their respective annual compensation to the plans, subject to
certain limitations. The Company was obligated to match 50% of each
employee's contribution up to 3% of their respective annual compensation.
Beginning January 1, 1995 one of these plans was merged into the Genesis
Health Ventures, Inc. Retirement Plan.

(11) COMMITMENTS AND CONTINGENCIES

In connection with certain management agreements, the Company has
guaranteed $23,240,000 of indebtedness of others, has lent $12,881,000 at
various interest rates ranging from 7% to 10% and has agreed to provide
working capital advances totalling $21,909,500. At September 30, 1995,
$15,713,800 was outstanding related to cash advances under these working
capital arrangements.

In August 1995, the Company entered into a software license agreement for
clinical operating system. The total commitment under the license agreement
is $12,000,000 of which the Company has paid $3,500,000. The license
agreement provides for a refund of amounts paid in the event the software
does not meet the acceptance requirements as defined in the license
agreement. The Company has estimated the cost to install the system and
related hardware, not including amounts paid for the software license, to be
approximately $18,000,000 over the next four years.

The Company is self-insured for a portion of its workers' compensation and
health insurance exposures. The Company's maximum self-insured exposure is
$500,000 per claim with certain maximum aggregate policy limits per claim
year.

F-16
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for guarantees, loan commitments
and letters of credit is represented by the dollar amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet financial
instruments. The Company does not anticipate any material losses as a result
of these commitments.

Genesis is a party to litigation arising in the ordinary course of
business. Genesis does not believe the results of such litigation, even if
the outcome is unfavorable to the Company, would have a material adverse
effect on its consolidated financial position or results of operations.

(12) QUARTERLY FINANCIAL DATA (UNAUDITED)

The Company's unaudited quarterly financial information is as follows:

<TABLE>
<CAPTION>
Fully-diluted
Earnings Earnings Per
before Share before
Cumulative Cumulative
Effect of Effect of
Accounting Accounting
Change and Change and Fully-diluted
Total Net Extraordinary Net Extraordinary Earnings
(In thousands, except per share data) Revenues Items Earnings Items Per Share
- ------------------------------------- ----------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C>
Quarter ended:
December 31, 1994 ................ $111,553 $ 4,810 $ 4,810 $ .21 $.21
March 31, 1995 ................... 116,953 5,813 5,813 .24 .24
June 30, 1995 .................... 125,959 6,885 4,962 .28 .21
September 30, 1995 ............... 131,928 8,023 8,023 .31 .31
----------- --------------- ---------- --------------- ---------------
$486,393 $25,531 $23,608 $1.03 $.97
----------- --------------- ---------- --------------- ---------------
Quarter ended:
December 31, 1993 ................ $ 71,913 $ 2,915 $ 3,055 $ .15 $.16
March 31, 1994 ................... 98,640 3,584 3,584 .19 .19
June 30, 1994 .................... 105,361 4,708 4,550 .23 .22
September 30, 1994 ............... 112,702 6,484 6,484 .27 .27
----------- --------------- ---------- --------------- ---------------
$388,616 $17,691 $17,673 $ .84 $.84
=========== =============== ========== =============== ===============
</TABLE>

(13) SUBSEQUENT EVENT

Effective March 29, 1996, the Company issued a three for two stock
dividend on the Common Stock. Share and per share information in the
accompanying consolidated financial statements has been adjusted accordingly.

F-17
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
------------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................................... $ 10,387 $ 7,798
Accounts receivable, net of allowance for doubtful accounts of
$6,179 at September 30, 1995 and $7,557 at March 31, 1996.... 101,124 120,874
Cost report receivables ....................................... 26,271 31,936
Inventory ..................................................... 9,601 11,828
Other current assets .......................................... 43,674 33,856
--------------- -----------
Total current assets ......................................... 191,057 206,292
--------------- -----------
Property, plant and equipment ................................... 294,769 360,604
Accumulated depreciation ........................................ (51,108) (56,594)
--------------- -----------
243,661 304,010
Goodwill and other intangibles, net ............................. 114,947 154,998
Other assets .................................................... 50,724 68,776
--------------- -----------
TOTAL ASSETS .................................................. $600,389 $ 734,076
=============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ......................... $ 52,522 $ 58,958
Current installments of long-term debt ........................ 2,539 2,438
Income taxes payable .......................................... 1,882 411
--------------- -----------
Total current liabilities .................................... 56,943 61,807
--------------- -----------
Long-term debt .................................................. 308,052 392,210
Deferred income taxes ........................................... 8,698 5,783
Deferred gain and other liabilities ............................. 5,149 4,671
Shareholders' equity:
Common stock, par value $.02, authorized 60,000,000 shares, issued
and outstanding, 22,081,267 and 22,035,666 at September 30, 1995;
24,494,572 and 24,448,971 at March 31, 1996 ................ 294 331
Additional paid-in capital .................................... 155,927 190,280
Retained earnings ............................................. 65,569 79,237
--------------- -----------
221,790 269,848
Less treasury stock, at cost .................................... (243) (243)
--------------- -----------
Total shareholders' equity .................................... 221,547 269,605
--------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $600,389 $ 734,076
=============== ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-18
<PAGE>

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
--------------------------- ---------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues:
Basic healthcare services ........................... $ 69,058 $ 83,066 $ 136,372 $ 155,260
Specialty medical services .......................... 41,469 61,811 80,145 115,001
Management services and other ....................... 6,426 9,862 11,989 17,256
------------ ------------ ------------ ------------
Total net revenues ................................. 116,953 154,739 228,506 287,517
Operating expenses:
Salaries, wages and benefits ........................ 57,546 77,283 113,603 142,325
Other operating expenses ............................ 33,201 41,798 64,800 79,394
General corporate expense ........................... 4,142 6,262 8,281 11,101
Debenture conversion expense ........................ -- -- -- 1,090
Depreciation and amortization ......................... 4,652 6,087 8,984 11,235
Lease expense ......................................... 3,408 4,068 6,730 7,861
Interest expense, net ................................. 4,816 6,939 9,393 12,979
------------ ------------ ------------ ------------
Earnings before income taxes ......................... 9,188 12,302 16,715 21,532
Income taxes .......................................... 3,375 4,492 6,092 7,864
------------ ------------ ------------ ------------
Net income ........................................... $ 5,813 $ 7,810 $ 10,623 $ 13,668
============ ============ ============ ============
Per common share data:
Primary
Earnings excluding Debenture conversion expense ..... $ 0.26 $ 0.31 $ 0.47 $ 0.58
Debenture conversion expense ........................ -- -- -- (0.03)
Net income .......................................... $ 0.26 $ 0.31 $ 0.47 $ 0.55
Weighted average shares of Common Stock and equivalents 22,674,336 25,306,685 22,618,641 24,730,819
Fully-diluted
Earnings excluding Debenture conversion expense ..... $ 0.24 $ 0.30 $ 0.44 $ 0.55
Debenture conversion expense ........................ -- -- -- (0.02)
Net income .......................................... $ 0.24 $ 0.30 $ 0.44 $ 0.53
Weighted average shares of Common Stock and equivalents 28,411,333 28,797,732 28,369,497 28,816,719
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-19
<PAGE>

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1995 1996
---------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 10,623 $ 13,668
Adjustments to reconcile net income to net cash provided by operating
activities:
Charges (credits) included in operations not requiring funds:
Provision for deferred taxes ..................................... 1,523 1,966
Depreciation and amortization .................................... 8,984 11,235
Amortization of deferred gain .................................... (230) (230)
Debenture conversion expense ..................................... -- 1,090
Changes in assets and liabilities excluding effects of acquisitions:
Increase in accounts receivable .................................. (8,843) (7,519)
Increase in cost report receivables .............................. (4,992) (6,941)
Increase in inventory ............................................ (753) (1,548)
(Increase) decrease in other current assets ...................... (5,734) (10,932)
Increase (decrease) in accounts payable and accrued expenses ..... 4,784 5,355
Increase in income taxes payable ................................. 636 1,508
---------- -----------
Total adjustments ................................................ (4,625) (6,016)
---------- -----------
Net cash provided by operating activities ........................ 5,998 7,652
Cash flows from investing activities:
Capital expenditures ............................................. (9,723) (12,776)
Cash paid net -- acquisitions .................................... (934) (93,316)
Deferred and other long-term asset additions, net ................ (5,225) (11,593)
Increase in trustee-held funds ................................... (168) (60)
---------- -----------
Net cash used in investing activities ............................ (16,050) (117,745)
---------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under bank credit facility ........... 9,800 107,200
Repayment of long-term debt ...................................... (382) (322)
Debenture conversion expense ..................................... -- (1,090)
Proceeds from exercise of common stock options ................... 681 1,716
---------- -----------
Net cash provided by financing activities .......................... 10,099 107,504
---------- -----------
Net increase (decrease) in cash and cash equivalents ............... 47 (2,589)
---------- -----------
Cash and cash equivalents:
Beginning of the period .......................................... 3,817 10,387
---------- -----------
End of the period ................................................ $ 3,864 $ 7,798
========== ===========
Supplemental disclosure of cash flow information:
Interest paid .................................................... $ 9,177 $ 11,876
========== ===========
Income taxes paid ................................................ $ 5,072 $ 12,005
========== ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-20
<PAGE>

GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's annual report for the fiscal year
ended September 30, 1995. The information furnished is unaudited but reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial information for the periods shown. Such
adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results expected for the full year.

2. Earnings Per Share

Primary and fully-diluted earnings per share are based on the weighted
average number of common shares outstanding and the dilutive effect of stock
options, convertible debentures and other common stock equivalents.

3. McKerley Acquisition Pro Forma Financial Information

On November 30, 1995, the Company acquired all of the issued and
outstanding stock and partnership interests of McKerley Health Care Centers,
Inc., McKerley Health Care Center -- Concord. Inc., McKerley Health
Facilities and McKerley Health Care Center -- Concord, L.P. (collectively,
the "McKerley Entities"). The Company acquired the outstanding stock and
partnership interests of the McKerley Entities for approximately $68.7
million, including assumed debt and after giving effect to the funds placed
in escrow by the principals as described below. An additional $6.0 million of
purchase price is payable if certain financial objectives are achieved
through October 1997. The transaction was financed with borrowings under the
Company's bank credit facility.

Pursuant to certain agreements executed on November 30, 1995, the Company
directly or through one or more subsidiaries, agreed to provide certain
services to the principals during the period ending November 30, 1998, and
the principals agreed to make certain lease payments on behalf of the Company
with respect to certain lease obligations of the McKerley Entities. As
security for the principals' or their affiliates' obligation to make the
required payments as they become due, the principals placed approximately
$6.5 million in an account with a third party escrow agent.

The following unaudited pro forma statement of operations information
gives effect to the McKerley acquisition described above as though it had
occurred at the beginning of the periods presented, after giving effect to
certain adjustments, including amortization of goodwill, additional
depreciation expense, increased interest expense on debt related to the
acquisition and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisition occurred at the beginning of the periods
presented.

<TABLE>
<CAPTION>
(In thousands, except
per share data)
Six Months Ended
March 31,
--------------------------
1995 1996
---------- ----------
<S> <C> <C>
Pro Forma Statement of Operations Information:
Total net revenues ................. $256,576 $297,393
Net income ......................... 10,918 13,950
Primary earnings per share ......... $ 0.48 $ 0.56
Fully-diluted earnings per share ... $ 0.45 $ 0.54
</TABLE>

F-21
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

The following unaudited pro forma condensed consolidated statement of
operations gives effect to (i) the McKerley Transaction (ii) the NeighborCare
Transaction (iii) the National Health Transaction and (iv) the Offering and
the application of the estimated net proceeds as described under "Use of
Proceeds" as if each had occurred at the beginning of the periods presented.

The pro forma condensed statements of operations are based upon
assumptions and include adjustments as described in the notes below. The pro
forma information should be read in conjunction with the Company's historical
consolidated financial statements, McKerley's historical combined financial
statements and National Health's historical combined financial statements
included or incorporated by reference herein. The column entitled "McKerley
Historical Results" represents the historical combined results of McKerley for
the year ended November 30, 1995. The column entitled "McKersey Historical
Results" for the six months ended March 31, 1996 represents the two months
ended November 30, 1995. As a result of the differing year ends of Genesis and
McKerley, the two months ended November 30, 1995 are included in both periods.
The historical financial statements of NeighborCare for the year ended July 2,
1995 and the three months ended December 31, 1995 are included in the columns
"NeighborCare" in the tables below. The historical combined financial
statements of National Health for the year ended December 31, 1995 and for the
three months ended December 31, 1995 are included in the columns "National
Health" in the tables below. As a result of the differing year ends of Genesis
and National Health, the three months ended December 31, 1995 is included in
both periods. For the purposes of this presentation, an effective tax rate of
37% has been assumed for McKerley, NeighborCare and National Health, for the
historical results, and the resulting pro forma adjustment. Such data is not
necessarily indicative of the historical financial results that would have been
achieved had the acquisitions occurred at the beginning of the periods
presented or that may be expected to result in the future as a result of such
transactions.

<PAGE>

<TABLE>
<CAPTION>
Year ended September 30, 1995
----------------------------------------------------------------------------------------
Genesis McKerley McKerley Pro NeighborCare NeighborCare
Historical Historical Forma Historical Pro Forma
Results Results Adjustments Results Adjustments
---------- ---------- ------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $486,393 $57,266 $ 114 (A)(B)(C) $52,751 $ --
Operating expense: .......
Operating expenses other than
depreciation, amortization
and lease expense ........... 393,139 52,069 (6,063)(A)(D) 51,986 (1,849)(I)(K)
Depreciation and
amortization ................ 18,793 1,900 1,079 (F) -- 2,547 (J)
Lease expense ................ 13,798 2,759 (1,244)(G) -- --
Interest expense, net ........ 20,367 4,200 1,625 (A)(E) 1,276 1,880 (H)
-------- ------- ------- ------- -------
Earnings from operations
before income taxes and
extraordinary items ......... 40,296 (3,662) 4,717 (511) (2,578)
-------- ------- ------- ------ -------
Earnings from operations
before extraordinary items... $ 25,531 $(2,307) $ 2,972 $ (322) $(1,624)
-------- ------- ------- ------ -------
Fully diluted earnings per
share before extraordinary
items ....................... $1.03
Weighted average common
shares and equivalents ...... 28,452 308 (H)

</TABLE>
<TABLE>
<CAPTION>

Year ended September 30, 1995
------------------------------------------------------------------------------------------------
Pro Forma
Consolidated
Pro Forma Genesis/McKerley/
Consolidated NeighborCare/
National Health National Health Genesis/McKerley/ National Health
Pro Forma Pro Forma NeighborCare/National Offering Results Adjusted
Results Adjustments Health Results Adjustment for Offering
--------------- --------------- --------------------- ---------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $108,785 $(22,949)(L)(P) $682,360 $ -- $682,360
Operating expense:
Operating expenses other than
depreciation, amortization
and lease expense ........... 92,990 (26,435)(L)(O)(P) 555,837 -- 555,837
Depreciation and
amortization ................ 4,055 1,067 (L)(M) 29,441 -- 29,441
Lease expense ................ 3,176 (233)(L) 18,256 -- 18,256
Interest expense, net ........ 6,177 3,375 (L)(N) 38,900 (13,720)(Q) 25,180
-------- ------- --------- ------- ---------
Earnings from operations
before income taxes and
extraordinary items ......... 2,387 (723) 39,926 13,720 53,646
-------- ------- --------- ------- ---------
Earnings from operations
before extraordinary items... $ 1,504 $ (455) $ 25,299 $ 8,644 $ 33,943
-------- ------- --------- ------- ---------
Fully diluted earnings per
share before extraordinary
items ....................... $1.07
Weighted average common
shares and equivalents ...... 6,500 32,260

</TABLE>

F-22

<PAGE>

<TABLE>
<CAPTION>
Six Months ended March 31, 1996
----------------------------------------------------------------------------------------
Genesis McKerley McKerley Pro NeighborCare NeighborCare
Historical Historical Forma Historical Pro Forma
Results Results Adjustments Results Adjustments
---------- ---------- ------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ............. $287,517 $ 9,671 $ 204 (A)(B)(C) $34,214 --
Operating expenses: ......
Operating expenses other than
depreciation, amortization
and lease expense ....... 232,820 11,537 (3,820)(A)(D) 31,314 $ (924)(I)(K)
Debenture conversion expense 1,090 -- --
Depreciation and
amortization ............ 11,235 323 180 (F) 437 1,273 (J)
Lease expense ............ 7,861 460 (207)(G) 732 --
Interest expense, net .... 12,979 1,158 (201)(A)(E) 979 602 (H)
--------- -------- ------- ------- ------
Earnings from operations
before taxes and
extraordinary items ..... 21,532 (3,807) 4,252 747 (951)
--------- -------- ------- ------- ------
Earnings from operations
before extraordinary items $ 13,668 $(2,398) $2,678 $ 471 $(599)
--------- -------- ------- ------- ------
Fully diluted earnings per
share before extraordinary
items and Debenture
conversion expense ...... $0.55
Weighted average common
shares and equivalents .. 28,817 308 (H)

</TABLE>
<TABLE>
<CAPTION>
Six Months ended March 31, 1996
------------------------------------------------------------------------------------------------
Pro Forma
Consolidated
Pro Forma Genesis/McKerley/
Consolidated NeighborCare/
National Health National Health Genesis/McKerley/ National Health
Pro Forma Pro Forma NeighborCare/National Offering Results Adjusted
Results Adjustments Health Results Adjustment for Offering
--------------- --------------- --------------------- ---------- --------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ............... $60,373 $ (15,621)(L)(P) $376,358 $376,358
Operating expenses:
Operating expenses other than
depreciation, amortization
and lease expense ......... 52,368 (17,430)(L)(O)(P) 305,870 305,870
Debenture conversion expense 1,090 -- 1,090
Depreciation and
amortization .............. 2,327 234 (L)(M) 16,009 16,009
Lease expense .............. 1,696 (198)(L) 10,344 10,344
Interest expense, net ...... 3,233 1,489 (L)(N) 20,249 $ (6,841)(Q) 13,407
-------- ------- --------- ------- ------
Earnings from operations
before taxes and
extraordinary items ....... 749 275 22,797 6,841 29,638
-------- ------- --------- ------- -------
Earnings from operations
before extraordinary items.. $ 472 $ 173 $ 14,465 $ 4,310 $ 18,775
-------- ------- --------- ------- -------
Fully diluted earnings per
share before extraordinary
items and Debenture
conversion expense ........ $0.59
Weighted average common
shares and equivalents .... 6,500 35,625

</TABLE>
F-23

<PAGE>

PRO FORMA ADJUSTMENTS ARE AS FOLLOWS:

MCKERLEY TRANSACTION

(A) The historical financial statements of McKerley include unusual,
nonrecurring charges related to a provision to properly state certain
insurance program liabilities, record a loss related to the termination
of an interest rate swap agreement and to write off certain other
long-term assets.

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Revenues, net ......................................... $ 204 $ 204
======== ========
Operating expenses other than depreciation, amortization
and lease expense .................................... (3,248) (3,248)
Interest expense, net ................................. $ (566) $ (566)
======== ========

</TABLE>

(B) Effective October 1, 1995 the State of New Hampshire issued a reduction
in payment rates under the Medical Assistance program. The annualized
impact of this rate reduction is approximately $1,500,000.

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
Revenues, net ........... $(1,500) --
======== =========

(C) The former owners have agreed to pay certain Genesis subsidiaries for
marketing and other services for approximately two years with annual
payments of approximately $900,000. The former owners also agreed to
lease 30,000 square feet of office space from the Company for
approximately two years at an annual rate of $510,000.

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
Revenues, net . $1,410 --
====== ========

(D) As a result of the McKerley Transaction, corporate overhead functions
related to the prior owners, certain nursing staff and regional
management of the nursing facilities will be merged. The Company has
identified duplicative positions and the costs associated with such
positions, and plans to eliminate these costs according to a transition
plan within one year of the acquisition.
Salary costs and other payments associated with certain McKerley
principals who will not be joining Genesis have been identified and
eliminated, as well as costs associated with other management positions
which have already been vacated and will not be replaced. Support staff
associated with these positions have also been eliminated.
The components of the savings expected upon merging McKerley's operations
into Genesis are as follows:

Annual Cost Semi-Annual Cost
---------------------------------
(In thousands)
<S> <C> <C>
Principal salaries, payments and cost of support personnel $(1,693) $(418)
Management to be eliminated due to overlap, and vacated
management positions not to be replaced ................ (622) (104)
Personnel reduction in operating staff to eliminate
duplicative positions .................................. (500) (50)
--------- ------
$(2,815) $(572)
========= ======

</TABLE>

F-24
<PAGE>

The impact of the savings have been reflected in a pro forma adjustment as
follows:

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation, amortization
and lease expense .................................... $(2,815) $(572)
================== ===============

</TABLE>

(E) The McKerley Transaction was financed with borrowings under the Company's
bank credit facilities aggregating approximately $68,700,000. The Company
has repaid approximately $27,000,000 of assumed McKerley debt. The
Company has also assumed a mortgage obligation of approximately
$9,000,000 which was not immediately repaid. Interest rate assumptions
are 7.25% for the Company's borrowing under its bank credit facilities.

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense -- bank facilities ............... $ 4,930 $ 822
Elimination of historical McKerley remaining interest
expense ........................................ (2,739) (457)
------------------ ---------------
$ 2,191 $ 365
================== ===============
</TABLE>

(F) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The pro forma adjustment to reflect the increased depreciation and
amortization is as follows:

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
<S> <C> <C>
Depreciation and amortization expense . $1,079 $180
================== ===============

</TABLE>

(G) The former owners have agreed to make certain lease payments on behalf of
the Company with respect to certain lease obligations of the McKerley
Entities. The following pro forma adjustment reflects the impact of
recognizing the resulting lease expense on a straight line basis over the
remaining lease term:

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
<S> <C> <C>
Lease expense . $(1,244) $(207)
================== ===============

</TABLE>

F-25
<PAGE>

NEIGHBORCARE TRANSACTION

(H) A portion of the NeighborCare Transaction will be financed with
borrowings under the Company's bank credit facilities aggregating
approximately $47,250,000. Genesis expects to repay approximately
$18,000,000 of NeighborCare debt assumed in the transaction. Interest
rate assumptions are 6.8% for the Company's borrowings under its credit
facilities.
<TABLE>
<CAPTION>

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense -- bank facilities ............... $ 3,171 $1,581
Elimination of historical NeighborCare remaining
interest expense ............................... (1,29) (979)
-------- ---------
$ 1,880 $ 602
======== =========
</TABLE>

Adjustment to reflect the issuance of $10,000,000 of Genesis Common Stock
as a portion of the consideration. The stock issuance price has been
estimated at $32.50 per share resulting in the issuance of 307,692 shares.

(I) As a result of the NeighborCare Transaction, corporate and administrative
overhead functions related to the prior ownership structure will be
merged. Accordingly, Genesis has identified duplicative physical
locations which will be merged into existing Genesis pharmacy and medical
supply locations.
<TABLE>
<CAPTION>

Annual Cost Semi Annual Cost
---------------------------------
(In thousands)
<S> <C> <C>
Consolidation of institutional pharmacy locations ....... $ (300) $(150)
Consolidation of medical supply division ................ (300) (150)
Personnel reduction in operating staff to eliminate
duplicative positions .................................. 615) (308)
Other operating costs including legal and accounting fees,
advertising and office expense ......................... (474) (236)
----------- --------
$(1,689) $(844)
=========== ========
</TABLE>

The impact of the savings have been reflected in a pro forma adjustment
as follows:
<TABLE>
<CAPTION>

(J) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The elimination of historical depreciation expense is the result of
certain assets not being acquired by Genesis. The pro forma adjustment to
reflect the net increased depreciation and amortization is as follows:
<TABLE>
<CAPTION>

Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Impact of step-up and allocation of goodwill... $2,706 $1,353
Elimination of historical depreciation expense. (159) (80)
------------- -----------
Depreciation and amortization ................ $2,547 $1,273
============= ===========
</TABLE>

F-26
<PAGE>

(K) In connection with the NeighborCare Transaction, certain corporate office
and furniture and fixture leases will be terminated. The pro forma
adjustment to reflect this is as follows:

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation, amortization
and lease expense .................................... $(160) $(80)
================== ===============

</TABLE>

NATIONAL HEALTH TRANSACTION

(L) In connection with the National Health Transaction certain assets and
liabilities will not be acquired by Genesis. Additionally, certain
businesses, including home health care, infusion therapy and assisted
living facilities in New York State will not be acquired. The statement
of operations data from these assets is presented in a pro forma footnote
below:

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Net Revenues ....................................... $(24,949) $(16,621)
Operating expenses other than Debenture conversion
expense depreciation, amortization and lease
expense ........................................... (27,375) (17,900)
Depreciation and amortization ...................... (1,290) (928)
Lease expense ...................................... (233) (198)
Interest expense, net .............................. (1,124) (751)

</TABLE>

(M) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of the purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The pro forma adjustment to reflect the increased depreciation and
amortization is as follows:

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
<S> <C> <C>
Depreciation and amortization ... $2,357 $1,162
============ ===========

</TABLE>

(N) The National Health Transaction is expected to be financed by Genesis
with borrowings under its bank credit facilities aggregating
approximately $116,272,000. Genesis intends to repay approximately
$36,200,000 of indebtedness to be assumed upon consummation of the
transaction. The Company also expects to assume mortgage obligations of
approximately $18,000,000 which is not expected to be repaid. Interest
rate assumptions are 6.8% for the Company's borrowing under its bank
credit facilities.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense-bank facility .................. $ 8,139 $ 4,070
Elimination of historical National Health remaining
expense ...................................... (3,640) (1,820)
-------------- ------------
$ 4,499 $ 2,250
============= ============

</TABLE>

F-27
<PAGE>

(O) Genesis has identified certain cost saving opportunities in connection
with the National Health Transaction. The Company has identified
duplicative positions and the costs associated with such positions, and
plans to eliminate these costs according to a transition plan within one
year of the acquisition.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Reduction in contract labor services .................... $( 108) $ (54)
Personnel reduction in operating staff to eliminate duplicative
positions .............................................. (252) (126)
--------- --------
$( 360) $(180)
========= ========
</TABLE>

(P) Genesis has identified certain revenue synergies relating to its
pharmacy, medical supply and group purchasing businesses. These services
are currently not provided by Genesis to National Health facilities nor
does National Health have the businesses to deliver these services.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
---------------------------------------
(In thousands)
<S> <C> <C>
Revenues, net ...................................... $2,000 $1,000
Operating expenses other than Debenture conversion
expense depreciation, amortization and lease
expense ........................................... 1,300 650
--------- ---------
Net impact ....................................... $ 700 $ 350
========= =========
</TABLE>

OFFERING ADJUSTMENT

(Q) Adjustment to reflect the application of the net proceeds of the Offering
to repay indebtedness under the Company's bank credit facilities which
currently bear interest at a weighted average annual rate of
approximately 6.8%.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
<S> <C> <C>
Interest, net ......... $(13,720) $(6,841)
======== ========

</TABLE>

F-28
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

The following unaudited pro forma condensed consolidated balance sheet
includes the historical consolidated condensed balance sheet of the Company
at March 31, 1996 and the pro forma adjustments to reflect the NeighborCare
Transaction and the National Health Transaction, as if they occurred on March
31, 1996. The pro forma adjustments should be read in conjunction with the
Company's historical consolidated financial statements included elsewhere herein
and National Health's historical combined financial statements included in the
Company's Form 8K/A dated May 3, 1996.

<TABLE>
<CAPTION>
Pro Forma
Consolidated
Pro Forma Genesis/
Pro Forma National NeighborCare/
NeighborCare National Health National
Genesis NeighborCare Adjustments Health Adjustments Health
------- ------------ ----------- -------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets ................... $206,292 $19,595 $ -- $24,335 $(8,814)(D) $241,408
Property and equipment, net ...... 304,010 1,712 -- 58,973 64,281(D)(G) 428,976
Other assets ..................... 223,774 5,899 46,327(C) 15,384 (1,309)(D)(G) 290,075
---------- -------- -------- ---------- -------- ---------
Total assets ..................... $734,076 $27,206 $46,327 $98,692 $54,158 $960,459
========== ======== ======== ========== ======== =========
Current liabilities .............. $ 61,807 $11,839 $(2,149)(A)(B) $23,843 $(5,195)(D)(E)(F) $ 90,145
Long term debt, excluding
current maturities .............. 392,210 10,897 39,844(A) 69,800 62,899(D)(E) 575,650
Other liabilities ................ 10,454 2,562 390(B) -- 520(F) 13,926
Redeemable warrants ............... -- 242 242(C) -- -- --
Shareholders' equity ............. 269,605 1,666 8,484(A)(C) 5,049 (4,066)(D)(G) 280,738
--------- -------- -------- --------- -------- ---------
Total liabilities and shareholders'
equity .......................... $734,076 $27,206 $46,327 $98,692 $54,158 $960,459
========== ======== ======== ========== ======== =========
</TABLE>

Pro forma adjustments are as follows:

NEIGHBORCARE TRANSACTION

(A) The NeighborCare Transaction will be financed with a combination of
borrowing by Genesis under its bank credit facilities of approximately
$47,250,000 and the issuance of $10,000,000 of Genesis Common Stock. The
impact of the borrowings under the bank credit facilities and the
issuance of Genesis common stock at an estimated value of $32.50 per share
is reflected in the following pro forma adjustment:

(In thousands)
Current liabilities ................................. $(3,649)
Long-term debt ..................................... 39,844
Shareholders' equity ................................ 10,000
========

(B) Transaction costs which include professional fees, duplicative salary
costs and severance, taxes and title costs and certain other costs
incurred or to be incurred in order to consummate the transaction will be
accrued, net of tax benefits, in the amount of $1,890. The following pro
forma adjustment represents the accrual for these costs:

(In thousands)
Current liabilities ................................. $1,500
Other liabilities.................................... 390
=======

(In thousands)
Other assets ....................................... $46,327
Redeemable warrants.................................. (242)
Shareholders' equity ................................ (1,516)
==========

F-29
<PAGE>

NATIONAL HEALTH TRANSACTION

(D) The assets and liabilities of National Health not being acquired or
assumed by Genesis in the National Health Transaction are eliminated in a
pro forma adjustment as follows:

(In thousands)
Current assets ............................ $ (8,814)
Property and equipment .................... (9,755)
Other assets .............................. (12,408)
--------------
Total assets .............................. $(30,977)
==============
Current liabilities ....................... $ (7,095)
Long term debt, excluded current maturities . (17,273)
Other liabilities ......................... --
Shareholders' equity ...................... (6,609)
--------------
Total liabilities and shareholders' equity . $(30,977)
==============

(E) The National Health Transaction will be financed by Genesis with
borrowings under its bank credit facilities of approximately $116,272,000
which includes the repayment of approximately $36,200,000. Additionally,
Genesis will assume existing indebtedness of approximately $18,000,000
which it does not intend to repay immediately. The impact of the
borrowings under the bank credit facilities is reflected in the following
pro forma adjustment:
(In thousands)
Current liabilities ........................ $ (100)
Long term debt, excluding current maturities . 80,172
==============

(F) Transaction costs which include professional fees, duplicative salary costs
and severance, taxes and title costs and certain other costs incurred or to
be incurred in order to consummate the transaction will be accrued, net of
tax benefits, in the amount of $2,520. The following pro forma adjustment
represent the accrual for these costs:

(In thousands)
Current liabilities . $2,000
Other liabilities . 520
==============

(G) Purchase accounting adjustments include the following allocations:

(In thousands)
Property and equipment, net . $74,036
Other assets .............. 11,099
Shareholders' equity ...... 2,543
==============

F-30
<PAGE>

No dealer, salesperson or any other individual has been authorized to give
any information or make any representations not contained in this Prospectus
in connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any
implication that there has not been any change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.
------

TABLE OF CONTENTS

Page
--------
Prospectus Summary ........................ 3
Cautionary Statement Regarding Forward
Looking Statements ....................... 6
Risk Factors .............................. 6
Use of Proceeds ........................... 9
Capitalization ............................ 9
Price Range of Common Stock ............... 10
Dividend Policy ........................... 10
Selected Consolidated Financial Data ...... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 12
Business .................................. 18
Management ................................ 27
Principal Shareholders .................... 30
Description of Capital Stock .............. 31
Underwriting .............................. 35
Legal Matters ............................. 36
Experts ................................... 36
Available Information ..................... 36
Incorporation of Certain Documents by
Reference ................................. 37
Index to Financial Information ............ F-1

6,500,000 SHARES

LOGO

COMMON STOCK
------
P R O S P E C T U S
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MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
MAY 22, 1996