<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
GENESIS HEALTH VENTURES, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
PENNSYLVANIA 8050,5912,8099 06-1132947
- -----------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (Primary standard industrial (IRS Employee
incorporation or organization) classification code number) Identification number)
</TABLE>
101 EAST STATE STREET
KENNETT SQUARE, PENNSYLVANIA 19348
(610) 444-6350
(Address, Including Zip Code, and Telephone Number,
Including Area Code of Registrant's Principal Executive Offices)
-----------------------
MICHAEL R. WALKER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GENESIS HEALTH VENTURES, INC.
101 EAST STATE STREET
KENNETT SQUARE, PENNSYLVANIA 19348
(610) 444-6350
(Name, Address, Including Zip Code, and Telephone Number,
including Area Code, of agent for service)
-----------------------
Copies to:
<TABLE>
<S> <C>
RICHARD J. MCMAHON
BLANK ROME COMISKY & MCCAULEY LLP W. LESLIE DUFFY
ONE LOGAN SQUARE CAHILL GORDON & REINDEL
PHILADELPHIA, PA 19103 EIGHTY PINE STREET
(215) 569-5500 NEW YORK, NEW YORK 10005
(212) 701-3000
</TABLE>
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: At the effective time of the merger of Vitalink Pharmacy Services,
Inc. with and into V Acquisition Corporation, a wholly-owned subsidiary of
Genesis Health Ventures, Inc. as described in the attached Joint Proxy
Statement-Prospectus.
-----------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED /1/ PER SHARE OFFERING PRICE FEE/4/
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series G Cumulative Convertible
Preferred Stock, $.01 par
value(5)(6)........................ 609,942 (2) (3) $89,966
================================================================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of the
Registrant's preferred stock that may be issued in the transaction described
herein.
(2) Not applicable.
(3) Estimated solely for the purpose of calculating the registration fee and
computed in accordance with Rule 457(f), based on the value of the
securities to be received by Genesis Health Ventures, Inc. reduced by the
amount of Cash Consideration payable in the Merger.
(4) A filing of $121,988 was previously paid in connection with the filing by
Vitalink Pharmacy Services, Inc. and Genesis Health Ventures, Inc. of their
preliminary proxy materials and is credited against the registration fee
payable hereunder, therefore, no filing fee has been transmitted in
connection with this filing.
(5) This Registration Statement also covers preferred share purchase rights
issued under the Rights Agreement between Genesis Health Ventures, Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated as of April
20, 1995, which are currently transferable with and only with the shares of
Genesis Common Stock registered hereby.
(6) This Registration Statement also covers common stock, par value $.02 per
share, issuable upon the conversion of shares of Series G Cumulative
Convertible Preferred Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
GENESIS HEALTH VENTURES, INC.
101 EAST STATE STREET
KENNETT SQUARE, PENNSYLVANIA 19348
(610) 444-6350
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the shareholders of
Genesis Health Ventures, Inc. ("Genesis"). The Special Meeting will be held on
, 1998, at a.m., Eastern Time, at . At the Special Meeting, you
will be asked to consider and vote upon the agreement and plan of merger
entered into by and among Genesis, Vitalink Pharmacy Services, Inc.
("Vitalink") and V Acquisition Corporation ("Acquisition Corporation"), a
wholly owned subsidiary of Genesis, on April 26, 1998, as amended (the "Merger
Agreement"), and the transactions contemplated in connection with the Merger
Agreement, including the issuance of shares of Genesis Series G Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Genesis Preferred
Stock").
The Merger Agreement provides for the merger of Vitalink with and into
Acquisition Corporation, with Acquisition Corporation being the surviving
corporation (the "Merger"). It also provides that each share of common stock
of Vitalink, par value $.01 per share (the "Vitalink Common Stock"), will be
converted in the Merger into the right to receive (i) .045 shares of Genesis
Preferred Stock, (ii) $22.50 in cash, or (iii) a combination of cash and a
fraction of a share of Genesis Preferred Stock (collectively, the "Closing
Consideration"). The actual consideration ultimately received by a shareholder
for shares of Vitalink Common Stock will depend upon certain election,
allocation and proration procedures and the election of other shareholders as
described in the accompanying materials. The Merger Agreement provides that of
the aggregate consideration payable to holders of the Vitalink Common Stock in
the Merger, 50% will be in the form of cash and 50% will be in the form of
Genesis Preferred Stock.
The Merger Agreement has been approved by the Boards of Directors of
Vitalink and Genesis. Your Board of Directors has determined that the Merger
is in the best interests of Genesis and its shareholders and recommends that
you vote FOR approval of the Merger Agreement.
Genesis is seeking approval of its shareholders in accordance with the
shareholder approval policy of the New York Stock Exchange (the "NYSE"). Under
the NYSE shareholder approval policy, shareholder approval generally is
required prior to the issuance of securities when common stock or securities
convertible into common stock are to be issued in any transaction or series of
related transactions if (i) upon issuance the common stock will have voting
power equal to or in excess of 20% of the voting power outstanding before the
issuance of such stock or convertible securities, or (ii) the number of shares
of common stock to be issued will be equal to or in excess of 20% of the
number of shares of common stock outstanding before such issuance.
Approval by the Genesis shareholders present at the Special Meeting of the
Merger Agreement is a condition to the consummation of the Merger.
Consummation of the Merger is also subject to certain other conditions,
including the approval of the Merger Agreement and the transactions
contemplated thereby by Vitalink's stockholders entitled to vote thereon and
the approval of the Merger by various regulatory agencies. The stockholders of
Vitalink will consider and vote upon a proposal to approve the Merger
Agreement and the transactions contemplated thereby at a special meeting to be
held on , 1998.
The enclosed Notice of Special Meeting of the shareholders and Joint Proxy
Statement/Prospectus describe the Merger and provide information concerning
the Special Meeting. Please read these materials carefully.
The affirmative vote of a majority of the total votes cast at the Special
Meeting and entitled to vote thereon is required for approval of the Merger
Agreement and the transactions contemplated thereby, including the issuance of
the Genesis Preferred Stock.
<PAGE>
Your vote is very important regardless of the number of shares you own.
Whether or not you plan to attend the Special Meeting, I urge you to sign,
date and return the enclosed blue proxy card as soon as possible to ensure
that your shares will be represented at the Special Meeting.
The Merger is an important step for Genesis and its shareholders. On behalf
of the Board of Directors, I urge you to vote FOR the proposal.
If you have any questions, please call (610) 444-6350.
Sincerely,
Michael R. Walker
Chairman and Chief Executive Officer
2
<PAGE>
GENESIS HEALTH VENTURES, INC.
101 EAST STATE STREET
KENNETT SQUARE, PENNSYLVANIA 19348
(610) 444-6350
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
----------------
A Special Meeting of the shareholders of Genesis Health Ventures, Inc.
("Genesis") will be held on , 1998 at 9:30 a.m., Eastern Time, at the
. The Special Meeting will be held to consider and act upon the
following matters:
1. The Merger Agreement, and the transactions contemplated in connection
with the Merger Agreement, including the issuance of shares of Genesis
Series G Cumulative Convertible Preferred Stock, par value $.01 per share
(the "Genesis Preferred Stock"), pursuant to an Agreement and Plan of
Merger, dated as of the 26th day of April, 1998 (the "Merger Agreement"),
by and among Genesis, Vitalink Pharmacy Services, Inc., a Delaware
corporation ("Vitalink"), and V Acquisition Corporation ("Acquisition
Corporation"), a wholly owned subsidiary of Genesis. A copy of the Merger
Agreement is included as Appendix A to the accompanying Joint Proxy
Statement/Prospectus; and
2. The authorization of the Genesis Board, in its discretion, to vote
upon such other business as may properly come before the Special Meeting
and any adjournment or postponement thereof, including, without limitation,
a motion to adjourn the Special Meeting to another time or place for the
purpose of soliciting additional proxies in order to approve and adopt the
transactions contemplated by the Merger Agreement or otherwise.
Holders of record of Genesis common stock, par value $.02 per share
("Genesis Common Stock"), as of the close of business on June 30, 1998 are
entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof. A list of shareholders entitled to vote at the Special
Meeting will be available at the meeting and at Genesis's offices at 101 East
State Street, Kennett Square, Pennsylvania 19348, for a period of ten days
prior to the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN
THE ENCLOSED BLUE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE AS SOON AS
POSSIBLE.
By Order of the Board of Directors,
Ira C. Gubernick
Secretary
<PAGE>
VITALINK PHARMACY SERVICES, INC.
1250 EAST DIEHL ROAD
SUITE 208
NAPERVILLE, ILLINOIS 60563
(630) 245-4800
July , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Vitalink Pharmacy Services, Inc. ("Vitalink"). The Special Meeting will be
held at Cahill Gordon & Reindel, located at 80 Pine Street, New York, New
York, on Friday, July 31, 1998 at 9:00 a.m., local time. As you may be aware,
on April 26, 1998, Vitalink, Genesis Health Ventures, Inc. ("Genesis") and V
Acquisition Corporation, a wholly owned subsidiary of Genesis ("Acquisition
Corporation"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Vitalink into
Acquisition Corporation, with Acquisition Corporation surviving the Merger. At
the Special Meeting, you will be asked to consider and vote upon a proposal to
approve the Merger Agreement and the transactions contemplated thereby.
At the time of the Merger, each outstanding share of common stock of
Vitalink, par value $.01 per share (the "Vitalink Common Stock"), will be
converted into the right to receive: (i) $22.50 in cash, (ii) .045 of a share
of Series G Cumulative Convertible Preferred Stock of Genesis, par value $.01
per share (the "Genesis Preferred Stock"), or (iii) a combination of cash and
a fraction of a share of Genesis Preferred Stock. The actual consideration
ultimately received by a stockholder for shares of Vitalink Common Stock will
depend upon certain election, allocation and proration procedures and the
election of other stockholders as described in the accompanying materials. The
Merger Agreement provides that of the aggregate consideration payable to
holders of Vitalink Common Stock in the Merger, 50% will be in the form of
cash and 50% will be in the form of Genesis Preferred Stock.
You should elect the form of closing consideration on an Election and
Transmittal Form that the Exchange Agent will send you in a separate mailing
concurrently with the mailing of the Joint Proxy Statement/Prospectus. The
Election and Transmittal Form must be completed and returned together with
your share certificates to be received by the exchange agent no later than
5:00 p.m., New York time, on July 30, 1998. The failure to return an Election
and Transmittal Form by July 30, 1998 will result in your being deemed to have
made a non-election for purposes of calculating the composition of the per
share consideration. Due to allocation and proration procedures you may not
receive the consideration elected.
Your Board of Directors has unanimously approved the Merger Agreement. Your
Board has determined that the Merger is in the best interests of Vitalink and
its stockholders and unanimously recommends that you vote FOR approval of the
Merger Agreement and the transactions contemplated thereby. In addition, the
investment banking firm of SBC Warburg Dillon Read Inc. has advised your Board
of Directors in a written opinion dated as of April 26, 1998 that, as of the
date thereof, the consideration to be received by the holders of Vitalink
Common Stock is fair from a financial point of view to the holders of such
shares.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement and the transactions contemplated thereby by
the affirmative vote of a majority of the outstanding shares of Vitalink
Common Stock entitled to vote at the Special Meeting, the approval of the
Merger Agreement and the transactions contemplated thereby, including the
issuance of the Genesis Preferred Stock, by the affirmative vote of a majority
of the shares of Genesis Common Stock present and entitled to vote at a
special meeting of Genesis shareholders and the approval of the Merger by
various regulatory agencies.
The enclosed Notice of Special Meeting of Stockholders and Joint Proxy
Statement/Prospectus describe the Merger and provide information regarding the
Special Meeting. Please read these materials carefully.
Your vote is very important regardless of the number of shares you own. The
affirmative vote of a majority of the outstanding shares of Vitalink Common
Stock entitled to vote at the Special Meeting is required to approve the
Merger Agreement and the transactions contemplated thereby. A failure to
return a properly executed proxy card or to vote in person will have the same
effect as a vote against the Merger Agreement.
<PAGE>
Whether or not you expect to attend the Special Meeting, please sign and date
the enclosed proxy card and promptly mail it in the enclosed postage paid
envelope. You may revoke your proxy in writing if you so desire at any time
before it is voted. If you do attend the Special Meeting, you may vote in
person, whether or not you have sent in your proxy.
On behalf of the Board of Directors, we thank you for you support and
recommend that you vote FOR approval of the Merger Agreement and the
transactions contemplated thereby.
If you have any questions, please call us at (630) 245-4800. We look forward
to seeing you on July 31, 1998.
Sincerely,
/s/ Donna L. DeNardo
Donna L. DeNardo
President and Chief Operating
Officer
2
<PAGE>
VITALINK PHARMACY SERVICES, INC.
1250 EAST DIEHL ROAD
SUITE 208
NAPERVILLE, ILLINOIS 60563
(630) 245-4800
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
---------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Vitalink Pharmacy Services, Inc. ("Vitalink") will be held at
Cahill Gordon & Reindel, located at 80 Pine Street, New York, New York, on
, , 1998 at 9:00 a.m., local time, for the following purposes:
1. To approve the Agreement and Plan of Merger, dated as of April 26,
1998 (the "Merger Agreement"), by and among Vitalink, Genesis Health
Ventures, Inc., a Pennsylvania corporation ("Genesis"), and V Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of
Genesis ("Acquisition Corporation"), pursuant to which Vitalink will merge
(the "Merger") with and into Acquisition Corporation, with Acquisition
Corporation surviving the Merger, and the transactions contemplated by the
Merger Agreement; pursuant to the Merger, Vitalink stockholders will be
able to elect to receive, for each share of common stock of Vitalink, par
value $.01 per share (the "Vitalink Common Stock"), held (i) $22.50 in
cash, (ii) .045 of a share of Series G Cumulative Convertible Preferred
Stock of Genesis, par value $.01 per share (the "Genesis Preferred Stock"),
or (iii) a combination of cash and a fraction of a share of Genesis
Preferred Stock (collectively, the "Closing Consideration"), subject to
such adjustment as to ensure that of the aggregate consideration payable to
holders of Vitalink Common Stock, 50% will be in the form of cash and 50%
will be in the form of Genesis Preferred Stock; and
2. To transact any other business as may properly come before the Special
Meeting and any adjournment or postponement thereof, including, without
limitation, a motion to adjourn the Special Meeting to another time or
place for the purpose of soliciting additional proxies in order to approve
and adopt the Merger Agreement and the transactions contemplated thereby or
otherwise.
Pursuant to Vitalink's Bylaws, Vitalink's Board of Directors has fixed the
close of business on June 30, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting. Only
holders of record of Vitalink Common Stock at the close of business on that
date are entitled to notice of and to vote at the Special Meeting. Any holder
of Vitalink Common Stock entitled to vote on the Merger Agreement and the
transactions contemplated thereby who does not vote in favor thereof has the
right to demand payment of the fair value of such holder's shares upon
compliance with the provisions of Section 262 of the Delaware General
Corporation Law, the full text of which is included as Appendix D to the Joint
Proxy Statement/Prospectus attached to this Notice of Special Meeting. For a
summary of the dissenters' rights of Vitalink's stockholders, see "The
Merger--Rights of Dissenting Vitalink Stockholders" in the attached Joint
Proxy Statement/Prospectus. Failure to comply strictly with the procedures set
forth in Section 262 of the Delaware General Corporation Law will cause the
stockholder to lose dissenters' rights.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER
WHICH IS DESCRIBED IN DETAIL IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. IT IS IMPORTANT THAT YOUR SHARES BE VOTED. THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF VITALINK COMMON
STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING IS REQUIRED TO APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. A FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. PLEASE FILL IN, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU DECIDE TO
ATTEND THE SPECIAL MEETING, YOU CAN REVOKE YOUR PROXY AND VOTE PERSONALLY ON
EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING.
By Order of the Board of Directors,
LOGO
Robert W. Horner, III
Secretary
Naperville, Illinois
July , 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED JUNE 30, 1998, SUBJECT TO CHANGE
GENESIS HEALTH VENTURES, INC.
AND
VITALINK PHARMACY SERVICES, INC.
JOINT PROXY STATEMENT FOR
SPECIAL MEETINGS OF STOCKHOLDERS
-----------
GENESIS HEALTH VENTURES, INC.
PROSPECTUS
-----------
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
Genesis Health Ventures, Inc., a Pennsylvania corporation ("Genesis"), and
stockholders of Vitalink Pharmacy Services, Inc., a Delaware corporation
("Vitalink"), in connection with the solicitation of proxies by the Board of
Directors of Genesis (the "Genesis Board") and the Board of Directors of
Vitalink (the "Vitalink Board") for use at the special meeting of Genesis
shareholders to be held on , 1998 (the "Genesis Special Meeting") and the
special meeting of Vitalink stockholders to be held on , 1998 (the "Vitalink
Special Meeting" and, together with the Genesis Special Meeting, the "Special
Meetings") (including any adjournment or postponement thereof). The Special
Meetings have been called to consider the proposed combination of Genesis and
Vitalink through a merger (the "Merger") of Vitalink with and into V
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary
of Genesis ("Acquisition Corporation"), with Acquisition Corporation surviving
the Merger and continuing its existence under the laws of the State of
Delaware, pursuant to an Agreement and Plan of Merger dated as of April 26,
1998 by and among Genesis, Vitalink and Acquisition Corporation (the "Merger
Agreement").
Each share of common stock of Vitalink, par value $.01 per share (the
"Vitalink Common Stock"), outstanding at the time of consummation of the Merger
(the "Effective Time") will be converted into the right to receive: (i) $22.50
in cash, (ii) .045 of a share of Series G Cumulative Convertible Preferred
Stock of Genesis, par value $.01 per share (the "Genesis Preferred Stock"),
which shall have an initial liquidation preference of $500.00 per share, or
(iii) a combination of cash and a fraction of a share of Genesis Preferred
Stock. The actual consideration ultimately received by a stockholder for shares
of Vitalink Common Stock will depend upon certain allocation and proration
procedures and the election of other stockholders as described herein. The
Merger Agreement provides that of the aggregate consideration payable to
holders of Vitalink Common Stock in the Merger, 50% will be in the form of cash
and 50% will be in the form of Genesis Preferred Stock.
The consummation of the Merger is subject to (i) the approval of the Merger
Agreement and the transactions contemplated thereby, including the issuance of
the Genesis Preferred Stock, by the affirmative vote of a majority of the
shares of the common stock of Genesis, par value $.02 per share (the "Genesis
Common Stock"), present and entitled to vote at the Genesis Special Meeting,
(ii) the approval of the Merger Agreement and the transactions contemplated
thereby by the affirmative vote of a majority of the outstanding shares of
Vitalink Common Stock entitled to vote at the Vitalink Special Meeting, and
(iii) certain other conditions. The Merger Agreement is attached as Appendix A
to this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Genesis with respect to the Genesis Preferred Stock to be issued to Vitalink
stockholders pursuant to the Merger. A registration statement on Form S-4 (the
"Registration Statement") has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to shares of Genesis Preferred Stock to be so
issued. No market for the Genesis Preferred Stock currently exists or is
expected to develop. The Certificate of Designation for the Genesis Preferred
Stock provides that the Genesis Preferred Stock may not be transferred without
the consent of Genesis until the filing by Genesis of a registration statement
with the Commission covering the sale of shares of the Genesis Preferred Stock
by the holders thereof.
This Joint Proxy Statement/Prospectus and the accompanying Notices of Special
Meeting of Stockholders and forms of proxy are first being mailed or delivered
to stockholders of each of Genesis and Vitalink on or about July 1, 1998.
SEE "RISK FACTORS" ON PAGE 22 OF THIS JOINT PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT GENESIS AND VITALINK STOCKHOLDERS SHOULD
CONSIDER WITH RESPECT TO THE MERGER AND THE SECURITIES BEING OFFERED HEREBY.
-----------
THE SECURITIES ISSUABLE IN THE MERGER 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.
-----------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.................. 2
SUMMARY.................................................................... 3
RISK FACTORS............................................................... 21
Certain Financial Considerations......................................... 21
Risk of Adverse Effect of Healthcare Reform.............................. 21
Regulation............................................................... 22
Dependence on Reimbursement by Third Party Payors........................ 23
Geographic Payor Concentration........................................... 24
Dependence on Manor Care................................................. 24
Significant Manor Care Ownership; Manor Care and Genesis Relationship.... 25
Interests of Certain Persons in the Merger............................... 25
Shares of Genesis Stock Eligible for Sale by Manor Care.................. 25
Competition.............................................................. 25
Risks Associated with Genesis Acquisition Strategy....................... 26
THE SPECIAL MEETINGS....................................................... 27
General.................................................................. 27
Voting Securities and Record Dates....................................... 27
Purpose of Special Meetings.............................................. 27
Proxies.................................................................. 27
THE MERGER................................................................. 29
Background of the Merger................................................. 29
Genesis's Reasons for the Merger; Recommendation of Genesis Board........ 31
Opinion of Genesis's Financial Advisor................................... 32
Vitalink's Reasons for the Merger; Recommendation of Vitalink Board...... 36
Opinion of Vitalink's Financial Advisor.................................. 37
Directors and Officers of Surviving Corporation Following the Merger..... 41
Governmental and Regulatory Approvals.................................... 41
Interests of Certain Persons in the Merger............................... 42
Accounting Treatment..................................................... 42
Expenses................................................................. 43
Delisting and Deregistration of Vitalink Common Stock.................... 43
Treatment of Stock Certificates.......................................... 43
Rights of Dissenting Vitalink Stockholders............................... 44
THE MERGER AGREEMENT....................................................... 47
General.................................................................. 47
Closing Consideration.................................................... 47
Election Procedures...................................................... 47
No Fractional Genesis Preferred Stock.................................... 49
Effect on Options........................................................ 49
Representations and Warranties........................................... 50
Covenants................................................................ 51
Conditions............................................................... 53
Termination.............................................................. 54
Termination Fees and Expenses............................................ 55
Indemnification; Insurance............................................... 55
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Amendment............................................................... 56
Waivers; Consents....................................................... 56
RELATIONSHIP BETWEEN VITALINK AND MANOR CARE.............................. 57
General................................................................. 57
Manor Care Pharmacy, Infusion Therapy and Consulting Services
Agreements............................................................. 57
Administrative Services Agreement....................................... 58
Other Agreement......................................................... 59
AGREEMENTS BETWEEN MANOR CARE AND GENESIS................................. 60
The Voting Agreement.................................................... 60
The Rights Agreement.................................................... 61
Other Agreement......................................................... 63
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 65
Reorganization Treatment................................................ 65
Tax Consequences of an Investment in Genesis Preferred Stock............ 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GENE-
SIS...................................................................... 69
THE GENESIS PREFERRED STOCK............................................... 71
General................................................................. 71
Non-Transferability..................................................... 71
Dividends............................................................... 71
Voting Rights........................................................... 73
Conversion at the Option of Genesis..................................... 73
Conversion at the Option of the Holders................................. 74
Notice of Certain Events................................................ 76
Reservation of Genesis Common Stock..................................... 76
Liquidation Preference.................................................. 77
Securities Laws Restrictions on Transfer................................ 77
DESCRIPTION OF GENESIS CAPITAL STOCK...................................... 79
General................................................................. 79
Genesis Common Stock.................................................... 79
Genesis Preferred Stock................................................. 80
Genesis Rights Plan..................................................... 81
COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS................................. 84
General................................................................. 84
Size of the Board of Directors.......................................... 84
Cumulative Voting....................................................... 84
Change in Number of Directors........................................... 84
Removal of Directors.................................................... 85
Filling Vacancies on the Board of Directors............................. 85
Amendment of the Charter................................................ 86
Amendment of the Bylaws................................................. 86
Action by Written Consent............................................... 86
Indemnification and Elimination of Directors' Monetary Liability for
Breach of Duty of Care................................................. 86
Stockholder Vote for Mergers and Other Reorganizations.................. 88
Interested Director Transactions........................................ 89
Stockholder Derivative Suits............................................ 89
Dissolution............................................................. 89
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Inspection of Stockholder Lists......................................... 89
Anti-Takeover Measures.................................................. 90
Dividends and Repurchases of Shares; Par Value, Capital and Surplus..... 92
STOCKHOLDER PROPOSALS..................................................... 93
LEGAL MATTERS............................................................. 93
EXPERTS................................................................... 93
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 94
UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE COMBINED COMPANY...... 94
UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE COMBINED COMPANY AND
OTHER ACQUISITIONS..................................................... 101
</TABLE>
APPENDICES:
A Merger Agreement
B Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
C Fairness Opinion of SBC Warburg Dillon Read Inc.
D Delaware General Corporation Law Section 262
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<PAGE>
AVAILABLE INFORMATION
Each of Genesis and Vitalink 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 Commission relating to its business, financial position, results of
operations and other matters. Such reports, proxy statements and other
information can be inspected and copied (at prescribed rates) at the Public
Reference Section maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its Regional Offices located at
The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, New York, New York 10048. Such reports,
proxy statements and other information can be reviewed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System, which
is publicly available through the Commission's Web site (http://www.sec.gov).
Each of the Genesis Common Stock and Vitalink Common Stock is listed on the
New York Stock Exchange ("NYSE") and reports, proxy statements and other
information relating to each of Genesis and Vitalink can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Genesis has filed with the Commission the Registration Statement under the
Securities Act with respect to the Genesis Preferred Stock offered hereby.
This Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to the Registration Statement and to the exhibits relating thereto for further
information with respect to Genesis, Vitalink and the Genesis Preferred Stock
offered hereby.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus and, if
given or made, such information or representation should not be relied upon as
having been authorized by Genesis, Vitalink or any other person. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction to any
person to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Joint Proxy Statement/Prospectus
nor any distribution of the securities made under this Joint Proxy
Statement/Prospectus shall, under any circumstances, create an implication
that there has been no change in the affairs of Genesis or Vitalink since the
date of this Joint Proxy Statement/Prospectus.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Genesis (File No. 001-
11666) and Vitalink (File No.1-0-19820) pursuant to the Exchange Act are
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Genesis's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, as amended;
2. Genesis's Proxy Statement dated January 22, 1998;
3. Genesis's Quarterly Reports on Form 10-Q for the fiscal quarters ended
December 31, 1997 and March 31, 1998;
4. Genesis's Current Reports on Form 8-K dated October 24, 1997 and May
6, 1998 and on Form 8-K/A dated December 23, 1997 and January 26, 1998;
5. Vitalink's Annual Report on Form 10-K for the fiscal year ended May
31, 1997, as amended;
6. Vitalink's Proxy Statement dated November 4, 1997;
7. Vitalink's Quarterly Reports on Form 10-Q for the fiscal quarters
ended August 31, 1997, November 30, 1997 and February 28, 1998; and
8. Vitalink's Current Reports on Form 8-K dated May 1, 1998 and May 8,
1998.
<PAGE>
All documents and reports filed by Genesis or Vitalink pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and prior to the date of the Special Meetings shall
be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/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, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available, without charge, to any person,
including any beneficial owner, to whom this Joint Proxy Statement/Prospectus
is delivered, upon written or oral request, in the case of documents relating
to Genesis, to Genesis Health Ventures, Inc., 101 East State Street, Kennett
Square, PA 19348 (telephone number (610) 444-6350), Attn: Secretary; or in the
case of documents relating to Vitalink, to Vitalink Pharmacy Services, Inc.,
1250 East Diehl Road, Suite 208, Naperville, IL 60563 (telephone number (630)
245-4800), Attn: Secretary. In order to ensure timely delivery of the
incorporated documents, requests should be received prior to July 20, 1998.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Joint Proxy Statement/Prospectus
(including in information incorporated by reference herein) regarding matters
that are not historical facts are "forward looking statements" within the
meaning of Section 27A of the Securities Act and Section 21 of the Exchange
Act, and are subject to the safe-harbor created by such sections. These
"forward-looking statements" include statements regarding Medicare and
Medicaid programs, Genesis's ability to meet its liquidity needs and control
costs, expected future capital expenditure requirements and certain statements
in the Pro Forma Condensed Consolidated Financial Information, such as certain
of the pro forma adjustments. 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," including the following: the occurrence of
changes in the mix of payment sources utilized by Genesis's or Vitalink's
patients to pay for Genesis's or Vitalink's services; the adoption of cost
containment measures by private pay sources and efforts by governmental
reimbursement sources to impose cost containment measures; changes in the
United States healthcare system and other changes in applicable government
regulations that might affect Genesis's or Vitalink's profitability; Genesis's
or Vitalink's continued ability to operate in a heavily regulated environment
and to satisfy regulatory authorities; Genesis's and Vitalink's ability to
staff its facilities appropriately with qualified healthcare personnel and to
maintain a satisfactory relationship with labor unions; the level of
competition in Genesis's or Vitalink's industry; the continued availability of
insurance for the inherent risks of liability in the healthcare industry;
price increases in pharmaceuticals, durable medical equipment and other items;
Genesis's reputation and its ability to attract and retain patients; Genesis's
ability to realize expected operating efficiencies from acquisitions,
including the Merger; and changes in general economic conditions.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement/Prospectus. This summary does not contain a complete statement
of all material information relating to Genesis or Vitalink, the Merger or the
Merger Agreement and is qualified in all respects by reference to the more
detailed information and financial statements contained elsewhere or
incorporated by reference in this Joint Proxy Statement/ Prospectus and the
Appendices hereto. Stockholders are urged to read this Joint Proxy
Statement/Prospectus and the Appendices hereto in their entirety.
THE COMPANIES
Genesis Health Ventures,
Inc. 101 East State Street
Kennett Square,
Pennsylvania 19348 (610)
444-6350....................
Genesis is a leading provider of healthcare and
support services to the elderly. Genesis 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 175,000 customers in five regional
markets in the Eastern United States in which
over 6,000,000 people over the age of 65 reside.
The networks include 340 eldercare centers with
approximately 42,300 beds; 18 primary care
physician clinics; approximately 100 physicians,
physician assistants and nurse practitioners; 22
institutional pharmacies and seven medical
supply distribution centers serving over 80,000
beds; 31 community-based pharmacies; certified
rehabilitation agencies providing services
through approximately 450 contracts; and eight
home healthcare agencies. Genesis is a
Pennsylvania corporation that was organized in
1985.
Vitalink Pharmacy Services,
Inc. 1250 East Diehl Road,
Suite 208 Naperville,
Illinois 60563 (630) 245-
4800........................
Vitalink provides institutional pharmacy services
to nursing facilities and other institutions.
Vitalink presently operates 57 institutional
pharmacies, including five regional infusion
pharmacies, which specialize in pharmaceutical
dispensing of individual medications, pharmacy
consulting (drug regimen review of potential
medication interaction as well as regulatory
compliance with medication and administration
guidelines) and infusion therapy products.
Vitalink also provides parenteral and enteral
nutrition products to patients who qualify under
Medicare Part B and bills Medicare directly for
these products as well as medical supplies and
other ancillary services.
3
<PAGE>
THE SPECIAL MEETINGS
Date, Place and Time........ The Genesis Special Meeting will be held at
, located at , on , , 1998 at
a.m., local time. The Vitalink Special Meeting
will be held at Cahill Gordon & Reindel, located
at 80 Pine Street, New York, New York, on
, , 1998 at 9:00 a.m., local time.
Purpose of the Special At the Genesis Special Meeting, the holders of
Meetings.................... shares of Genesis Common Stock will consider and
vote upon (i) the approval and adoption of the
Merger Agreement and the transactions
contemplated thereby, including the issuance of
the Genesis Preferred Stock, and (ii) such other
business as may properly come before the Genesis
Special Meeting (collectively, the "Genesis
Proposal"). At the Vitalink Special Meeting, the
holders of shares of Vitalink Common Stock will
consider and vote upon (i) the approval and
adoption of the Merger Agreement and the
transactions contemplated thereby and (ii) such
other business as may properly come before the
Vitalink Special Meeting (collectively, the
"Vitalink Proposal"). See "The Merger."
Required Vote............... Genesis is seeking approval of its shareholders
in accordance with the shareholder approval
policy of the NYSE. Under the NYSE rules, the
affirmative vote of a majority of the shares of
Genesis Common Stock present and entitled to
vote at the Genesis Special Meeting is required
for approval of the Merger Agreement and the
transactions contemplated thereby, including the
issuance of the Genesis Preferred Stock. Such
approval by the Genesis shareholders of the
Merger Agreement is a condition to the
consummation of the Merger.
Under the Delaware General Corporation Law (the
"DGCL"), the affirmative vote of a majority of
the outstanding shares of Vitalink Common Stock
entitled to vote at the Vitalink Special Meeting
will be required to approve the Merger Agreement
and the transactions contemplated thereby.
Pursuant to the Merger Agreement, the obligation
of Genesis to effect the Merger is subject to
the condition that not more than 10% of holders
of the Vitalink Common Stock demand payment
pursuant to Section 262 of the DGCL as of the
Special Meeting Record Date. Manor Care, Inc., a
Delaware corporation ("Manor Care"), is the
beneficial owner of approximately 50% of the
issued and outstanding shares of Vitalink Common
Stock and has agreed to vote its shares of
Vitalink Common Stock in favor of the Vitalink
Proposal. See "Agreements Between Manor Care and
Genesis--The Voting Agreement."
Each director of Genesis and Vitalink intends to
vote or direct the vote of all shares of Genesis
Common Stock and Vitalink Common Stock over
which he or she has voting control (a total
4
<PAGE>
of 1,218,868 and 353,494 shares, respectively,
or approximately % and 1.3%, respectively, of
the outstanding shares of Genesis Common Stock
and Vitalink Common Stock, respectively, as of
July 1, 1998) in favor of approval of the
Genesis Proposal and the Vitalink Proposal,
respectively.
Revocability of Proxies..... Any proxy given pursuant to this solicitation may
be revoked with respect to any proposal at any
time prior to the vote on such proposal. See
"The Special Meeting--Proxies."
Record Date................. Only holders of record of Genesis Common Stock
and Vitalink Common Stock on June 30, 1998 (the
"Special Meeting Record Date") will be entitled
to notice of and to vote at the Special
Meetings. On the Special Meeting Record Date,
there were outstanding shares of
Genesis Common Stock held by approximately
holders of record and 26,259,456 outstanding
shares of Vitalink Common Stock held by
approximately 756 holders of record.
Actions Taken by the At a meeting held on April 24, 1998, the Genesis
Genesis Board............... Board approved the Merger Agreement and
determined that the Merger and the transactions
contemplated in connection with the Merger
Agreement, including the issuance of shares of
Genesis Preferred Stock, are in the best
interests of Genesis and its shareholders. See
"The Merger--Genesis's Reasons for the Merger;
Recommendation of the Genesis Board."
Actions Taken by the At a meeting held on April 23, 1998, the Vitalink
Vitalink Board.............. Board unanimously approved the Merger Agreement
and the transactions contemplated thereby after
determining that the terms of the Merger
Agreement are fair to and in the best interests
of Vitalink and its stockholders. See "The
Merger--Vitalink's Reasons for the Merger;
Recommendation of the Vitalink Board."
THE MERGER AND THE MERGER AGREEMENT
The Merger.................. Subject to the approval of Genesis's shareholders
and Vitalink's stockholders and the satisfaction
or waiver of certain other conditions, Vitalink
will be merged with and into Acquisition
Corporation and Acquisition Corporation will be
the surviving corporation (the "Surviving
Corporation") in the Merger and continue its
corporate existence under the laws of the State
of Delaware.
5
<PAGE>
Closing Consideration....... If each of the Genesis Proposal and the Vitalink
Proposal is approved by the shareholders of
Genesis and the stockholders of Vitalink,
respectively, and other conditions to the Merger
are satisfied, each share of Vitalink Common
Stock will be converted into the right to
receive (x) $22.50 in cash, (y) .045 of a share
of Genesis Preferred Stock or (z) a combination
of cash and a fraction of a share of Genesis
Preferred Stock (collectively, the "Closing
Consideration"). Genesis will not issue any
fractional shares of Genesis Preferred Stock and
will pay cash to holders of Vitalink Common
Stock in lieu thereof. The Merger Agreement
provides that of the aggregate consideration
payable to holders of Vitalink Common Stock in
the Merger, 50% will be in the form of cash and
50% will be in the form of Genesis Preferred
Stock.
Election of Closing All elections of the form of Closing
Consideration............... Consideration are to be made on a form of
election (an "Election and Transmittal Form").
Holders of record of shares of Vitalink Common
Stock who hold such shares as nominees, trustees
or in other representative capacities
(individually, a "Representative") may submit
multiple Election and Transmittal Forms,
provided that each such Representative certifies
that each Election and Transmittal Form covers
all the shares of Vitalink Common Stock held by
such Representative for a particular beneficial
owner. All elections will be revocable until
5:00 p.m. New York time on July 30, 1998, the
last business day prior to the Effective Time,
in accordance with the procedures set forth on
the Election and Transmittal Form.
An Election and Transmittal Form is being sent
to holders of record of Vitalink Common Stock as
of the Special Meeting Record Date. Holders of
shares of Vitalink Common Stock that wish to
receive Genesis Preferred Stock as part of the
Closing Consideration should submit an Election
and Transmittal Form and must deliver their
stock certificates with such Election and
Transmittal Form. Any holder of Vitalink Common
Stock that does not submit a properly completed
Election and Transmittal Form accompanied by the
applicable stock certificates which is received
and accepted by the Exchange Agent prior to 5:00
p.m. New York time on July 30, 1998 (or such
later date as Genesis and Vitalink shall
publicly announce) will be deemed to have made a
Non-Election and will receive Closing
Consideration in the form of cash. See "The
Merger Agreement--Election Procedures."
Genesis Background to and
Reasons for the Merger......
In recommending the Merger to the Genesis
shareholders, the Genesis Board evaluated the
following factors: (i) the Closing Consideration
to be paid to the Vitalink stockholders; (ii)
the Genesis Board's review, based in part on
presentations by Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), its
financial advisor, and management, of the
business, operations and financial condition of
Vitalink; (iii) the Genesis Board's
6
<PAGE>
recognition of the complementary nature of the
markets served and products offered by Genesis
and Vitalink and the expectation that the Merger
would provide it with opportunities for
additional growth; and (iv) the opinion of
Merrill Lynch that the Closing Consideration to
be paid by Genesis is fair, from a financial
point of view, to Genesis (see "The Merger--
Opinion of Genesis's Financial Advisors"). For a
more detailed discussion of the factors
considered by the Genesis Board, see "The
Merger--Background of the Merger" and "The
Merger--Genesis's Reasons for the Merger;
Recommendation of Genesis Board."
THE GENESIS BOARD HAS APPROVED THE MERGER
AGREEMENT AND HAS DETERMINED THAT THE MERGER AND
THE ISSUANCE OF THE GENESIS PREFERRED STOCK ARE
IN THE BEST INTERESTS OF GENESIS AND ITS
SHAREHOLDERS. THE GENESIS BOARD, THEREFORE,
RECOMMENDS THAT GENESIS'S SHAREHOLDERS VOTE FOR
APPROVAL OF THE ISSUANCE OF THE GENESIS
PREFERRED STOCK AND THE MERGER. See "The
Merger--Background of the Merger" and "The
Merger--Genesis's Reasons for the Merger;
Recommendation of Genesis Board."
Vitalink Background to and
Reasons for the Merger......
The Vitalink Board believes that the Merger
constitutes a significant strategic opportunity
for Vitalink's institutional pharmacy business.
The Vitalink Board has determined unanimously
that the Merger, the Merger Agreement and the
transactions contemplated thereby are fair to
and in the best interests of Vitalink and its
stockholders. The Vitalink Board recommends that
the stockholders of Vitalink vote in favor of
the approval of the Merger Agreement and the
transactions contemplated thereby. For a more
detailed discussion of the factors considered by
the Vitalink Board in reaching its decision and
the background and decisions for the Merger, see
"The Merger--Background of the Merger" and "The
Merger--Vitalink's Reasons for the Merger;
Recommendation of Vitalink Board."
Conditions to the Merger.... The conditions precedent to the parties'
obligation to consummate the Merger include the
following: (i) the Registration Statement of
which this Joint Proxy Statement/Prospectus is a
part shall have been declared effective; (ii)
Genesis and Vitalink shall have received all
governmental consents, waivers, authorizations,
orders and approvals necessary to consummate the
Merger; (iii) the Merger and the transactions
contemplated thereby shall have been duly
approved by the shareholders of Genesis and the
stockholders of Vitalink; (iv) the
representations and warranties of the parties
contained in the Merger Agreement shall be true
and correct in all material respects at the
Effective Time (as defined); (v) Genesis shall
have received financing sufficient to fund the
7
<PAGE>
cash portion of the Closing Consideration; (vi)
there shall not have occurred since the date of
the Merger Agreement any changes in the
business, results of operations, assets or
condition (financial or otherwise) of Genesis or
Vitalink except for such changes which would not
have a material adverse effect and other than
any changes in Medicare or Medicaid
reimbursement programs that are known or
reasonably anticipated as of the date of the
Merger Agreement (it being understood that a
change in the stock price of Genesis, in and of
itself, will not constitute a material adverse
change); (vii) no order, decree or injunction of
a court of competent jurisdiction or a
governmental entity shall have prohibited or
restricted consummation of the Merger and any
applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall have expired or
been terminated; (viii) holders of not more than
10% of the Vitalink Common Stock shall have
demanded payment pursuant to Section 262 of the
DGCL as of the Special Meeting Record Date; (ix)
each of Genesis and Vitalink shall have received
tax opinions to the effect that the Merger will
constitute a tax free reorganization and that
except for cash received in lieu of fractional
shares of Genesis Preferred Stock, no Vitalink
stockholder will recognize gain or loss with
respect to the Genesis Preferred Stock received
as a result of the Merger; (x) the shareholders
rights plan between Genesis and Mellon
Securities Trust Company (the "Genesis Rights
Plan") shall have been amended in order to
exempt certain holders of the Genesis Preferred
Stock from the restrictions thereof; and (xi)
each of Genesis and Vitalink shall have
performed and complied with all of its
agreements and obligations as required by the
Merger Agreement.
Termination................. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the
Effective Time: (a) by mutual written consent of
the Genesis Board and the Vitalink Board, (b) by
either party if, without fault of such
terminating party, the Merger is not consummated
on or before November 30, 1998, which date may
be extended to December 31, 1998 to receive
governmental approvals or by mutual consent of
the parties; provided, however, that the right
to terminate the Merger Agreement pursuant to
this clause (b) will not be available to any
party whose failure to perform in any material
respect its obligations under the Merger
Agreement in any manner shall have been the
cause of, or resulted in, the failure of the
Merger to occur on or before such date and
provided, further, that if the Merger could have
been consummated by November 30, 1998 but for
the failure to receive governmental approvals,
the party requiring and using its best efforts
to receive such approvals may, upon notice to
the other, extend the consummation period to the
earlier of the date of receipt of such approvals
or December 31, 1998; (c) by either party, if
any court of competent jurisdiction or other
8
<PAGE>
governmental authority shall have issued an
order (other than a temporary restraining
order), decree or ruling or taken any other
action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree,
ruling or other action shall have become final
and nonappealable; (d) by either party, if the
stockholders of the non-terminating party fail
to approve the Merger Agreement and the
transactions contemplated thereby at the
applicable Special Meeting; (e) by Vitalink, if
Genesis or Acquisition Corporation has
materially breached any representation,
warranty, covenant or agreement contained in the
Merger Agreement and has not cured such breach
within the earlier of ten business days of
receipt of written notice of such breach or by
the Effective Time; (f) by Genesis, if Vitalink
has materially breached any representation,
warranty, covenant or agreement contained in the
Merger Agreement and has not cured such breach
within the earlier of ten business days of
receipt of written notice of such breach or by
the Effective Time; (g) by Vitalink, if the
Genesis Board has withdrawn, changed or modified
in any manner its recommendation that its
shareholders vote in favor of the Merger
Agreement and the Merger; (h) by Genesis, if the
Vitalink Board has withdrawn, changed or
modified in any manner its recommendation that
its stockholders vote in favor of the Merger or
adopted resolutions approving or otherwise
authorized or recommended an Acquisition
Transaction (as defined) (other than the Merger)
to its stockholders; or (i) by Vitalink prior to
the approval by the Vitalink stockholders of the
Merger if (1) Vitalink has received a Superior
Proposal (as defined) which was not solicited
after the date of the Merger Agreement, (2)
after receiving (x) the advice of outside legal
counsel that failure to take such action would
be inconsistent with the fiduciary duties of the
Vitalink Board to its stockholders under
applicable law and (y) the fairness opinion of a
financial advisor of nationally recognized
reputation that the party making such proposal
is financially capable and that such Superior
Proposal is more favorable to it and its
stockholders than the Merger, the Vitalink Board
reasonably determines in good faith that such
Superior Proposal would yield a higher value to
its stockholders than the Merger and that
failing to take such action would be
inconsistent with the directors' fiduciary
duties under applicable law and (3) Vitalink has
given Genesis three days' written notice prior
to such termination, provided that the
termination described in this clause (i) will
not be effective until the applicable
termination fees and expenses have been paid.
See "The Merger Agreement--Termination."
Effect of Termination....... Except as set forth below, each of Genesis and
Vitalink will bear its respective expenses
incurred in connection with the Merger, except
that expenses incurred in printing, mailing and
filing this Joint Proxy Statement/Prospectus
will be shared equally by Genesis and Vitalink.
9
<PAGE>
If (i) Vitalink terminates the Merger Agreement
pursuant to clause (i) of "--Termination" above;
(ii) Vitalink terminates the Merger Agreement
for any reason and at such time Genesis would
have been entitled to terminate the Merger
Agreement because the Vitalink Board had
withdrawn, changed or modified in any manner its
recommendation that its stockholders vote in
favor of the Merger Agreement and the Merger or
had adopted resolutions approving or otherwise
authorized or recommended an Acquisition
Transaction (other than the Merger) to its
stockholders; (iii) Genesis terminates the
Merger Agreement for the reasons described in
the immediately preceding clause (ii); or (iv)
Genesis or Vitalink terminates the Merger
Agreement pursuant to clause (b), (c), (d) or
(f) of "--Termination" above and, within one
year of any termination described in this clause
(iv), Vitalink consummates, or enters into a
definitive agreement with respect to, an
Acquisition Transaction on terms more favorable
than the terms of the Merger Agreement (without
taking into account any termination fees payable
by Vitalink with respect thereto), then Vitalink
shall pay to Genesis, within one business day
following any termination described in clause
(i), (ii) or (iii) of this paragraph, or within
one business day following the consummation or
entering into of a definitive agreement in the
case of clause (iv) of this paragraph, a fee, in
cash, equal to $20,000,000. See "The Merger--
Termination Fee and Expenses."
RELATIONSHIP AND AGREEMENTS BETWEEN VITALINK AND MANOR CARE
Relationship Between
Vitalink and Manor Care..... Vitalink and Manor Care are parties to various
agreements governing their ongoing relationship
which will continue in existence after the
Effective Time. See "Relationship Between
Vitalink and Manor Care."
AGREEMENTS BETWEEN MANOR CARE AND GENESIS
Voting Agreement
Certain Voting
Arrangements................ Manor Care and Genesis have entered into a Voting
Agreement, dated as of April 26, 1998 (the
"Voting Agreement"), pursuant to which Manor
Care has agreed to vote all of its shares of
Vitalink Common Stock and granted Genesis an
irrevocable proxy to vote its shares of Vitalink
Common Stock (a) in favor of the adoption and
approval of the Merger Agreement and the Merger
and the terms thereof and each of the other
actions contemplated by the Merger Agreement and
(b) against any Competing Transaction (as
defined). Manor Care has agreed to elect to
receive Genesis Preferred Stock as Closing
Consideration and not to seek to assert any
appraisal rights with respect to all of
10
<PAGE>
its Vitalink Common Stock and not to sell or
otherwise dispose of its shares of Vitalink
Common Stock, tender any such shares pursuant to
a tender or exchange offer or grant any person
other than Genesis a proxy to vote such shares
of Vitalink Common Stock. Manor Care has also
agreed to certain restrictions relating to
offers from a third party that could lead to a
Competing Transaction. See "Agreements Between
Manor Care and Genesis--The Voting Agreement."
Termination................. The Voting Agreement will terminate (i) by mutual
written consent of the parties; (ii) 12 months
after the termination of the Merger Agreement if
a third party has commenced or communicated to
Vitalink or publicly proposed or disclosed and
not permanently abandoned or withdrawn an
Acquisition Transaction; (iii) immediately if
Genesis terminates the Merger Agreement (unless
a third party has commenced or communicated to
Vitalink or publicly proposed or disclosed and
not permanently abandoned or withdrawn an
Acquisition Transaction); and (iv) three months
after the termination of the Merger Agreement by
Vitalink unless a third party has commenced or
communicated to Vitalink or publicly proposed or
disclosed and not permanently abandoned or
withdrawn an Acquisition Transaction.
Rights Agreement
Manor Care Standstill....... Manor Care and Genesis have entered into a Rights
Agreement, dated as of April 26, 1998 (the
"Rights Agreement"), pursuant to which Manor
Care has agreed that prior to the earlier of
April 26, 2005 or the occurrence of a Director
Change (as defined), neither it nor any of its
affiliates (the "Manor Care Group") will acquire
any Voting Securities (as defined) of Genesis,
except for the Genesis Preferred Stock, the
Genesis Common Stock or other securities
issuable upon conversion of the Genesis
Preferred Stock and pursuant to stock splits,
stock dividends or other distributions or
offerings made available to holders of Voting
Securities generally. However, if at any time
the aggregate voting power in the election of
directors of all Voting Securities owned by the
Manor Care Group (the "Manor Care Voting Power")
is less than 15% of the total combined voting
power in the election of directors of all the
Voting Securities then outstanding (the "Total
Voting Power"), then the Manor Care Group may
acquire Voting Securities unless the effect of
such acquisition would be to increase the Manor
Care Voting Power to greater than 15% of the
Total Voting Power. Pursuant to the Rights
Agreement, if, at any time prior to April 26,
2003, the Manor Care Group proposes to transfer
to a third party Voting Securities having in
excess of 15% of the Total Voting Power, then as
a condition to such transfer the transferee must
agree to be bound by the restrictions imposed by
Manor Care's standstill obligations.
Notwithstanding the foregoing, the Manor Care
Group will not transfer Voting Securities to any
11
<PAGE>
person who owns any Voting Securities if such
transfer will result in such transferee having
in excess of 15% of the Total Voting Power. In
the Rights Agreement, Manor Care has agreed to
other standstill obligations relating to
activities that would cause Manor Care to gain
control or influence over the management or
policies of Genesis. See "Agreements Between
Manor Care and Genesis--The Rights Agreement."
Board Representation........ Pursuant to the Rights Agreement, Genesis has
agreed to cause one person designated by Manor
Care to be appointed to the Genesis Board (the
"Manor Care Director"). At any time that the
Manor Care Group does not have a Manor Care
Director serving on the Genesis Board, it is
entitled to designate a non-voting observer to
serve thereon (the "Manor Care Observer"). The
Manor Care Director or Manor Care Observer would
be subject to certain obligations regarding
confidential information or material relating to
the business of Manor Care or its subsidiaries
or the business of Genesis or its subsidiaries.
See "Agreements Between Manor Care and Genesis--
The Rights Agreement."
Genesis Standstill.......... Genesis has agreed that it will not take or
recommend to its shareholders any action during
the term of the Rights Agreement which would
impose limitations on the legal rights of the
Manor Care Group as Genesis shareholders, other
than those imposed pursuant to the express terms
of the Rights Agreement, which
disproportionately affect the Manor Care Group
compared to holders of Genesis Preferred Stock
or Genesis Common Stock generally. Pursuant to
the Rights Agreement, Genesis has also agreed
that prior to the Effective Time it will have
taken appropriate action with respect to its
shareholders rights plan so as to exempt (i) the
holders of Genesis Preferred Stock or (ii) any
person that is the direct assignee of any holder
of Genesis Preferred Stock to the extent that
such assignee (A) acquires in a single
transaction from a holder of Genesis Preferred
Stock over 15% of the Voting Securities and (B)
owns no other shares of Voting Securities, from
the restrictions of such shareholders rights
plan with respect to such shares of Genesis
Preferred Stock and shares of Genesis Common
Stock issuable upon conversion thereof. Genesis
has also agreed that from and after the
Effective Time Genesis will take no action which
would subject such holders of Genesis Preferred
Stock to the restrictions of Genesis's
shareholders rights plan or any similar plan
adopted after the Effective Time. Furthermore,
Genesis has agreed not to impose certain
obligations upon the Manor Care Director or the
Manor Care Observer. See "Agreements between
Manor Care and Genesis--The Rights Agreement."
Voting...................... For three years from the date of the Rights
Agreement, other than with respect to a proposed
Change of Control (as defined in the Rights
Agreement), the Manor Care Group will vote all
of its
12
<PAGE>
Voting Securities in accordance with the
recommendation of the Genesis Board. Manor Care
has agreed to cause the Manor Care Director to
vote in accordance with the recommendation of
the Genesis Board to fill any vacancies in the
Genesis Board (other than a Manor Care Director
vacancy). Manor Care has agreed that it will
not, with respect to a proposed Change of
Control approved by the Genesis Board and the
shareholders of Genesis, make any demand for
payment pursuant to Section 262 of the DGCL.
Registration Rights......... Beginning after the first anniversary of the
Effective Time of the Merger, upon the request
of holders of at least 25% of the Voting
Securities acquired by Manor Care at the
Effective Time, Genesis has agreed that it will,
within 90 days after the receipt of such
request, effect the registration under the
Securities Act of all such securities proposed
to be sold by such holders. Genesis is obligated
to effect a maximum of three such registrations.
In addition, for five years after the date of
the Rights Agreement, holders of Voting
Securities acquired by Manor Care at the
Effective Time will have "piggyback"
registration rights with respect to Genesis
Common Stock, subject to a limitation on the
number of shares underwritten if an underwriter
advises that marketing factors require such
limitation.
Termination................. The Rights Agreement will terminate on the
earlier of April 26, 2005 or upon the occurrence
of a Director Change. The Rights Agreement may
also be terminated by either party upon 60 days'
prior written notice to the other in the event
the Merger Agreement is terminated or if the
non-terminating party breaches any of its
material obligations under the Rights Agreement
and such breach is continuing on the 61st day
following such notice. If Manor Care terminates
the Rights Agreement as a result of a breach by
Genesis of Genesis's material obligations under
the Rights Agreement, Manor Care's rights to
representation on the Genesis Board and
registration rights granted under the Rights
Agreement will survive such termination. If the
Manor Care Group disposes of more than 50% of
the Voting Securities it acquires at the
Effective Time to persons who are not members of
the Manor Care Group, the standstill obligations
of each of Manor Care and Genesis, the voting
obligations of Manor Care and the rights of
Manor Care to representation on the Genesis
Board will terminate but Manor Care's
registration rights will remain.
Certain Matters............. In addition to the agreements described above,
Manor Care, Vitalink and Genesis entered into an
agreement regarding, among other matters, the
indemnification by Manor Care of Vitalink and
Genesis for certain liabilities and Manor Care's
agreement not to engage in the institutional
pharmacy business upon certain terms and
conditions described under "Agreements between
Manor Care and Genesis--Other Agreement."
13
<PAGE>
NECESSARY REGULATORY APPROVALS
Regulatory Approvals........ The HSR Act prohibits consummation of the Merger
until Premerger Notification and Report Forms
have been submitted and certain information has
been furnished to the United States Federal
Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of
Justice (the "Antitrust Division") and the
specified waiting period requirements of the HSR
Act have expired or been terminated. The
applicable waiting period expired on June 21,
1998. In addition, certain notices to and
approvals from state and federal regulatory
authorities may be necessary in connection with
the consummation of the Merger. See "The
Merger--Governmental and Regulatory Approvals."
DISSENTERS' RIGHTS
Appraisal Rights............ Under the DGCL, holders of Vitalink Common Stock
that do not vote in favor of the Merger may file
a demand for appraisal rights and receive the
"fair value" of such shares as determined by
Delaware state court. In order to exercise such
rights, holders of Vitalink Common Stock must
comply with all the procedural requirements of
Section 262 of the DGCL, which is attached
hereto in its entirety as Appendix D. "Fair
value" will be determined in judicial
proceedings, the outcome of which cannot be
predicted. Failure to take any of the steps
required under Section 262 of the DGCL may
result in a loss of dissenters' rights. See "The
Merger--Rights of Dissenting Vitalink
Stockholders."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
Tax Consequences of the A holder of shares of Vitalink Common Stock may
Merger...................... be subject to certain federal income taxes
depending on the nature of Closing Consideration
such holder receives. Generally, a holder of
Vitalink Common Stock that exchanges some or all
of its shares for cash will recognize capital
gain or loss equal to the difference between the
amount of cash received and its adjusted basis
in the shares of Vitalink Common Stock it
surrenders. A holder exchanging some or all of
its Vitalink Common Stock for Genesis Preferred
Stock should not recognize any gain or loss on
such shares of Vitalink Common Stock except in
respect of cash received in lieu of a fractional
share of Genesis Preferred Stock. See "Certain
Federal Income Tax Consequences."
14
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED
FINANCIAL DATA OF GENESIS
The following summary financial information of Genesis for each of the fiscal
years ended September 30, 1997, 1996, 1995, 1994 and 1993 has been derived from
Genesis's audited financial statements contained in its Annual Reports on Form
10-K for the years then ended and is qualified in its entirety by such
documents. The summary financial information of Genesis for the six months
ended March 31, 1998 and 1997 has been derived from unaudited consolidated
financial statements contained in the Quarterly Report on Form 10-Q for the
period ended March 31, 1998 and is qualified in its entirety by such documents
and, in the opinion of Genesis's management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information for the unaudited interim periods. The
operating results for the six months ended March 31, 1998 are not necessarily
indicative of results for the full fiscal year ending September 30, 1998. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations of Genesis and the
Consolidated Financial Statements and the Notes thereto of Genesis incorporated
by reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA
Net revenues............ $646,864 $531,807 $1,099,823 $671,469 $486,393 $388,616 $219,809
Income from operations
before depreciation,
amortization, lease
expense, interest and
debenture conversion
expense (EBITDAR)(1)... 118,208 91,810 184,868 127,024 93,253 69,373 38,129
Income before
extraordinary item and
cumulative effect of an
accounting change...... 27,390 25,002 48,144 37,169 25,531 17,691 11,909
Net income.............. 25,466 24,449 47,591 37,169 23,608 17,673 11,909
Earnings per share
before extraordinary
item and cumulative
effect of an accounting
change
Basic.................. 0.78 0.74 1.39 1.40 1.17 0.91 0.68
Diluted................ 0.77 0.71 1.34 1.29 1.03 0.84 0.67
Earnings per share
Basic.................. 0.73 0.72 1.38 1.40 1.08 0.91 0.68
Diluted................ 0.71 0.70 1.33 1.29 0.97 0.84 0.67
Weighted Average Shares
Outstanding
Basic.................. 35,085 33,997 34,558 26,542 21,857 19,386 17,459
Diluted................ 35,658 35,589 36,120 31,058 28,307 24,747 17,871
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, -----------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets......... 1,917,012 1,434,113 950,669 600,389 511,698 236,978
Working capital...... 260,787 226,930 155,491 132,274 66,854 50,081
Long-term debt....... 1,057,404 651,667 338,933 308,052 250,807 83,842
Stockholders' equi-
ty.................. 629,568 608,021 514,608 221,548 195,466 125,348
</TABLE>
- --------
(1) EBITDAR represents earnings before interest expense, income taxes,
depreciation and amortization, extraordinary items, rental expense and
debenture conversion expense. EBITDAR should not be considered an
alternative measure of Genesis's net income, operating performance, cash
flow or liquidity. It is included herein to provide additional information
related to Genesis's ability to service debt.
15
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED
FINANCIAL DATA OF VITALINK
The following summary financial information of Vitalink for each of the
fiscal years ended May 31, 1997, 1996, 1995, 1994 and 1993 has been derived
from Vitalink's audited financial statements contained in its Annual Reports on
Form 10-K for the years then ended and is qualified in its entirety by such
documents. The summary financial information of Vitalink for the nine months
ended February 28, 1998 and 1997 has been derived from unaudited consolidated
financial statements contained in the Quarterly Reports on Form 10-Q for the
period ended February 28, 1998 and is qualified in its entirety by such
documents which, in the opinion of Vitalink's management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such information for the unaudited interim periods. The
operating results for the nine months ended February 28, 1998 are not
necessarily indicative of results for the full fiscal year. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations of Vitalink and the Consolidated
Financial Statements and the Notes thereto of Vitalink incorporated by
reference into this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED MAY 31,
FEBRUARY 28, FEBRUARY 28, ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA
Net revenues............ $371,230 $152,492 $274,038 $141,115 $112,257 $98,569 $65,714
Income from operations.. 35,472 20,696 33,109 22,301 18,726 14,995 11,305
Net income.............. 16,788 12,345 18,317 13,870 11,680 9,204 7,341
Earnings per share
Basic.................. 0.65 0.82 1.03 0.99 0.84 0.66 0.53
Diluted................ 0.64 0.80 1.02 0.98 0.83 0.66 0.53
Average shares
outstanding
Basic.................. 25,781 15,140 17,727 13,976 13,975 13,975 13,975
Diluted................ 26,236 15,392 18,035 14,135 14,009 13,976 13,975
BALANCE SHEET DATA (AT
PERIOD END)
Total assets............ 528,968 528,063 516,805 95,923 80,713 69,587 57,425
Working capital......... 92,742 51,443 74,006 22,830 15,202 14,103 9,938
Due from affiliate...... -- 9,770 1,053 16,910 16,888 8,167 10,276
Long-term debt.......... 87,806 105,832 104,873 -- -- -- --
Stockholders' equity.... 375,740 341,236 348,531 86,299 72,379 60,699 51,495
</TABLE>
16
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma consolidated statements of
operations data for the year ended September 30, 1997 and the six months ended
March 31, 1998 are based on the respective historical financial statements of
Genesis as of and for the year ended September 30, 1997 and six months ended
March 31, 1998 and Vitalink as of and for the twelve months ended August 31,
1997 and six months ended February 28, 1998 adjusted to give effect only to the
Merger as though it occurred on October 1, 1996. The summary unaudited pro
forma consolidated balance sheet data at March 31, 1998 gives effect to the
Merger as if it occurred at that date. The summary unaudited pro forma
financial data are not necessarily indicative of the operating results that
would have been achieved had the Merger been consummated as of October 1, 1996,
nor are they necessarily indicative of future operating results. The summary
unaudited pro forma financial data should be read in conjunction with the
historical financial statements of each of Genesis and Vitalink and the related
notes thereto incorporated by reference into this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31, 1998 SEPTEMBER 30, 1997
-------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
SUMMARY OF OPERATIONS DATA
Net revenues............................. $899,836 $1,452,746
Income from operations before deprecia-
tion, amortization, lease expense and
interest (EBITDAR)(1)................... 161,525 249,899
Income before extraordinary item(3)...... 33,872 54,000
Net income............................... 31,948 53,447
Earnings per common share before
extraordinary item(2)
Basic.................................. 0.72 1.06
Diluted................................ 0.71 1.02
Earnings per common share (2)
Basic.................................. 0.66 1.04
Diluted................................ 0.65 1.00
Weighted average shares outstanding
Basic.................................. 35,085 34,558
Diluted................................ 35,658 36,120
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
BALANCE SHEET DATA
Total assets......................................................... $2,674,140
Working capital...................................................... 348,352
Long-term debt....................................................... 1,455,210
Shareholders' equity................................................. 923,468
</TABLE>
- --------
(1) EBITDAR represents earnings before interest, income taxes, depreciation and
amortization, extraordinary items, rental expense and debenture conversion
expense. EBITDAR should not be considered an alternative measure of
Genesis's net income, operating performance, cash flow or liquidity. It is
included herein to provide additional information related to Genesis's
ability to service debt.
(2) Per common share data includes the effect of the 5.9375% dividend on the
$293.9 million of Genesis Preferred Stock issued as part of the Closing
Consideration. Diluted per common share data does not assume the conversion
of the Genesis Preferred Stock as the effect would be antidilutive.
(3) Before the effect of extraordinary losses, net of tax, of $553 and $1,924
related to the early retirement of debt for the twelve months ended
September 30, 1997 and six months ended March 31, 1998, respectively.
17
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and unaudited pro forma
combined per share data giving effect to the Merger on a purchase accounting
basis as described more fully in the "Unaudited Pro Forma Financial Information
For the Combined Company." The data should be read in conjunction with the
historical financial statements of Genesis and the related notes thereto
incorporated by reference into this Joint Proxy Statement/Prospectus. The
unaudited pro forma combined per share data is not necessarily indicative of
the operating results that would have been achieved had the Merger been in
effect at the beginning of the periods presented and should not be considered
indicative of future operations.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- ---------------------------------
FISCAL YEAR SIX MONTHS FISCAL YEAR SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 MARCH 30, 1998 SEPTEMBER 30, 1997 MARCH 31, 1998
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Genesis Per Share Data
Earnings per common
share before
extraordinary
item(1)(2)
Basic................. $1.39 $0.78 $1.06 $0.72
Diluted............... 1.34 0.77 1.02 0.71
Book value per Common
Share.................. 17.34 17.93 24.97 26.30
</TABLE>
- --------
(1) Before the effect of extraordinary losses, net of tax, of $553 and $1,924
related to the early retirement of debt for the twelve months ended
September 30, 1997 and six months ended March 31, 1998, respectively.
(2) Pro Forma per common share data includes the effect of the 5.9375% dividend
on the $293.9 million of Genesis Preferred Stock issued as part of the
Closing Consideration. Pro Forma diluted per common share data does not
assume conversion of the Genesis Preferred Stock as the effect would be
antidilutive.
18
<PAGE>
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
COMMON STOCK PRICE RANGE AND DIVIDEND DATA
Each of the Genesis Common Stock and the Vitalink Common Stock is listed for
trading on the NYSE. Until February 12, 1997, the Vitalink Common Stock was
quoted on the Nasdaq Stock Market. The following table sets forth the high and
low trading prices per share of each of the Genesis Common Stock and the
Vitalink Common Stock as reported on the NYSE or quoted on the Nasdaq Stock
Market, as applicable, for the periods indicated as reported in published
financial sources. Since Genesis's initial public offering in June 1991,
Genesis has not paid cash dividends on shares of Genesis Common Stock. Since
Vitalink's initial public offering in March 1992, Vitalink has not paid cash
dividends on shares of Vitalink Common Stock.
<TABLE>
<CAPTION>
GENESIS COMMON
STOCK PRICES
---------------------
HIGH LOW
-------- -------
<S> <C> <C>
Three months ended:
1996
March 31........................................... 29 3/4 23 7/8
June 30............................................ 32 7/8 27 3/4
September 30....................................... 29 7/8 21 1/2
December 31........................................ 31 1/8 22 3/4
1997
March 31........................................... 35 7/8 28 1/2
June 30............................................ 37 1/2 26
September 30....................................... 39 1/8 33
December 31........................................ 39 5/8 21 3/4
1998
March 31........................................... 30 5/16 25 1/2
June 30............................................
<CAPTION>
VITALINK COMMON
STOCK PRICES
---------------------
HIGH LOW
-------- -------
<S> <C> <C>
Three months ended:
1996
February 28........................................ 23 1/2 17
May 31............................................. 24 1/2 19
August 31.......................................... 24 1/2 21
November 30........................................ 24 5/8 21 3/8
1997
February 28........................................ 24 5/8 21 1/8
May 31............................................. 21 1/2 16 3/4
August 31.......................................... 19 7/8 17 1/8
November 30........................................ 23 13/16 18 3/4
1998
February 28........................................ 25 7/8 20 7/16
June 30............................................
</TABLE>
19
<PAGE>
On April 24, 1998, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and
low sale prices per share and closing price per share of Genesis Common Stock
and Vitalink Common Stock on the NYSE were as follows:
<TABLE>
<CAPTION>
APRIL 24, 1998
--------------------
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
Genesis................................................. $26.50 $25.38 $25.75
Vitalink................................................ $19.88 $19.69 $19.81
On June 29, 1998, the last full trading day prior to the date of this Joint
Proxy Statement/Prospectus, the reported high and low sale prices per share and
closing price per share of Genesis Common Stock and Vitalink Common Stock on
the NYSE were as follows:
<CAPTION>
, 1998
--------------------
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
Genesis.................................................
Vitalink................................................
</TABLE>
20
<PAGE>
RISK FACTORS
Stockholders of Genesis and Vitalink should carefully consider the following
matters, together with the other information contained in this Joint Proxy
Statement/Prospectus, in evaluating the Merger before making a decision as to
whether to approve the Merger Agreement and the transactions contemplated
thereby.
CERTAIN FINANCIAL CONSIDERATIONS
Genesis has substantial indebtedness and, as a result, significant debt
service obligations. As of March 31, 1998, after giving pro forma effect to
the Merger, and the incurrence of approximately $385.8 million of indebtedness
to fund the Merger, Genesis would have had approximately $1.464 billion of
long-term indebtedness, which would have represented 61% of its total
capitalization. The degree to which Genesis is leveraged could have important
consequences, including the following: (i) Genesis's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of Genesis's cash flow from operations may be dedicated to the payment
of principal and interest on its indebtedness, thereby reducing the funds
available to Genesis for its operations; (iii) certain of Genesis's borrowings
are and will continue to be at variable rates of interest, which causes
Genesis to be vulnerable to increases in interest rates; and (iv) certain of
Genesis's indebtedness contains financial and other restrictive covenants,
including those restricting the incurrence of additional indebtedness, the
creation of liens, the payment of dividends, sales of assets and minimum net
worth requirements. Failure by Genesis to comply with such covenants may
result in an event of default which, if not cured or waived, could have a
material adverse effect on Genesis.
Genesis's ability to make scheduled payments or to refinance its obligations
with respect to its indebtedness depends on its financial and operating
performance, which, in turn, is subject to prevailing economic conditions and
to financial, business and other factors beyond its control. Although
Genesis's cash flow from its operations has been sufficient to meet its debt
service obligations in the past, there can be no assurance that Genesis's
operating results will continue to be sufficient for payment of Genesis's
indebtedness. Genesis also has significant long-term operating lease
obligations with respect to certain of its eldercare centers.
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM
In recent years, a number of legislative proposals have been introduced in
Congress that would contemplate changes in the health care system, either
nationally or at the state level. The Balanced Budget Act of 1997 (the
"Balanced Budget Act"), signed into law on August 5, 1997, seeks to achieve a
balanced federal budget by, among other things, reducing federal spending on
the Medicare and Medicaid programs. With respect to Medicare, the law mandates
establishment of a prospective payment system ("PPS") for Medicare skilled
nursing facilities ("SNFs") under which facilities will be paid a federal per
diem rate for most covered nursing facility services (including
pharmaceuticals). Physician services, certain nurse practitioner and physician
assistant services, among others, are not included in the per diem rate. It is
anticipated that the PPS will be phased in over three cost reporting periods,
starting with cost reporting periods beginning on or after July 1, 1998. The
Balanced Budget Act institutes consolidated billing for SNF services for most
non-physician Part B items and services for SNF residents, effective July 1,
1998. In the Conference Report accompanying the Balanced Budget Act, the
conferees specifically note that, to ensure that the frail elderly residing in
SNFs receive needed and appropriate medication therapy, the Secretary of the
Department of Health and Human Services is to consider, as part of the PPS for
SNFs, the results of studies conducted by independent organizations, including
those which examine appropriate payment mechanisms and payment rates for
medication therapy, and develop case mix adjustments that reflect the needs of
such patients. The Balanced Budget Act also eliminated the SNF routine service
cost in its update for fiscal year 1998. The law also imposes numerous other
cost savings measures affecting Medicare SNF services.
The Balanced Budget Act also repealed the "Boren Amendment" federal payment
standard for Medicaid payments to Medicaid nursing facilities effective
October 1, 1997. The Boren Amendment required Medicaid
21
<PAGE>
payments to certain health care providers to be reasonable and adequate in
order to cover the costs of efficiently and economically operated health care
facilities. States must now use a public notice and comment period in order to
determine rates and provide interested parties a reasonable opportunity to
comment on proposed rates and the justification for and the methodology used
in calculating such rates. There can be no assurance that budget constraints
or other factors will not cause states to reduce Medicaid reimbursement to
nursing facilities and pharmacies or that payments to nursing facilities and
pharmacies will be made on a timely basis. The law also grants greater
flexibility to states to establish Medicaid managed care projects without the
need to obtain a federal waiver. Although these waiver projects generally
exempt institutional care, including nursing facilities and institutional
pharmacy services, no assurances can be given that these projects ultimately
will not change the reimbursement system for long-term care, including
pharmacy services, from fee-for-service to managed care negotiated or
capitated rates. Genesis and Vitalink anticipate that federal and state
governments will continue to review and assess alternative health care
delivery systems and payment methodologies. It is not possible to predict the
effect of the recent budget legislation or the interpretation or
administration of such legislation on the business of Genesis or Vitalink.
Accordingly, there can be no assurance that these changes or any future health
care legislation will not adversely affect the business of Genesis or
Vitalink.
REGULATION
The federal government and all states in which Genesis and Vitalink operate
regulate various aspects of their 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 and other providers of
healthcare services, including pharmacies, are subject to periodic inspection
by governmental and other authorities to assure continued compliance with
various standards, their continued licensing under state law and, to the
extent applicable, 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. Each of Genesis and Vitalink is
also subject to inspection regarding record keeping and inventory control. The
failure to obtain or renew any required regulatory approvals or licenses by a
provider could result in actions such as, but not limited to, where
applicable, the denial of reimbursement, the imposition of fines, temporary
suspension of admission of new patients to facilities, suspension or
decertification from the Medicaid or Medicare program, restrictions on the
ability to acquire new providers or expand existing providers and, in extreme
cases, revocation of the facility's license or closure of a facility. There
can be no assurance that the facilities or providers owned, leased or managed
by Genesis, or the provision of services and supplies by Genesis or Vitalink,
will meet or continue to meet the requirements for participation in the
Medicaid or Medicare program or that state regulatory authorities will not
adopt changes or new interpretations of existing laws that would adversely
affect Genesis or Vitalink.
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 expenditures being undertaken. To the extent that
Certificates of Need or other similar approvals are required for expansion of
Genesis's operations, either through center or provider 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. In addition, in
most states the reduction of beds or the closure of a facility requires the
approval of the appropriate state regulatory agency and if Genesis were to
reduce beds or close a facility, Genesis could be adversely impacted by a
failure to obtain or a delay in obtaining such approval.
Genesis and Vitalink are 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 federal
"Stark legislations" which prohibit, with limited exceptions, the referral of
patients for certain
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services, including home health services, physical therapy and occupational
therapy, by a physician to an entity in which the physician has a financial
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.
Genesis and Vitalink are also subject to laws applicable to federal government
contracts generally, such as the False Claims Act, which establishes liability
for anyone making a false statement to get a claim paid by the federal
government. 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 nursing services, double billing, hospice services, home
health services and the provision of medical supplies to nursing facilities;
accordingly, these areas may come under closer scrutiny by the government.
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, Genesis
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 Genesis.
In the ordinary course of business, Genesis's facilities receive notices
that they have failed to comply with various regulatory requirements. From
time to time, such failure to comply has resulted in various penalties against
certain providers and Genesis. These penalties have included but are not
limited to monetary fines, temporary bans on the admission of new patients and
the placement of restrictions on Genesis's ability to obtain or transfer
Certificates of Need in certain states. There can be no assurance that future
actions by state regulators will not result in penalties or sanctions which
could have a material adverse effect on Genesis.
DEPENDENCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
For the years ended September 30, 1997 and 1996, and the six months ended
March 31, 1998, respectively, Genesis derived approximately 39%, 39% and 45%
of its patient service revenue from private pay sources, 24%, 25% and 20% from
Medicare and 37%, 36% and 35% from various state Medicaid agencies. For the
years ended May 31, 1997 and 1996, and for nine months ended February 28,
1998, respectively, Vitalink derived approximately 63%, 65% and 60% of its net
revenue from private pay sources, 5%, 6% and 5% from Medicare and 32%, 29% and
35% 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 Genesis and Vitalink. Those
measures include the adoption of initial and continuing recipient eligibility
criteria which may limit payment for services, the adoption of the prospective
payment system under Medicare, the repeal of the Boren Amendment requiring
Medicaid payments to be reasonable and adequate, and 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 Genesis 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. Genesis's and
Vitalink's financial condition and results of operations may be affected by
the revenue reimbursement process, which in the healthcare industry is complex
and can involve lengthy delays between the time that revenue is recognized and
the time that reimbursement amounts are settled. For Genesis, the majority of
the third party payor balances are settled within two or three years following
the provision of services. Genesis's and Vitalink's financial condition and
results of operations may also be affected by the timing of reimbursement
payments and rate adjustments from third party payors. In addition, there can
be no assurance that centers owned, leased or managed by Genesis, or the
provision of services and supplies by Genesis or Vitalink, now or in the
future will
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initially meet or continue to meet the requirements for participation in such
programs. Genesis and Vitalink 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 Genesis and Vitalink expect 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 payments 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. Neither Genesis nor Vitalink
can 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
Genesis and Vitalink. 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.
Managed care organizations and other third party payors have continued to
consolidate in order to enhance their ability to influence the delivery of
healthcare services. Consequently, the healthcare needs of a large percentage
of the United States population are increasingly served by a small number of
managed care organizations. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the
extent such organizations terminate Genesis or Vitalink as a preferred
provider and/or engage Genesis's or Vitalink's competitors as preferred or
exclusive providers, the business of either could be materially adversely
affected.
For certain specialty medical services covered by the Medicare program,
Genesis is reimbursed for its direct costs plus an allocation of indirect
costs up to a regional limit. As Genesis expands its specialty medical
services, the cost of care for these services are expected to exceed the
regional reimbursement limits. As a result, Genesis has submitted and will be
required to submit further exception requests to recover the excess costs from
Medicare. There is no assurance Genesis will be able to recover such excess
costs under pending or any future requests. The failure to recover these
excess costs in the future may adversely affect Genesis's financial condition
and results of operations.
Each of Genesis and Vitalink are subject to periodic audits by the Medicare
and Medicaid programs, and the paying agencies for these programs have various
rights and remedies against Genesis and Vitalink if they assert that Genesis
or Vitalink has overcharged the programs or failed to comply with program
requirements. Such payment agencies could require Genesis or Vitalink to repay
any overcharges or amounts billed in violation of program requirements, or
could make deductions from future amounts due to Genesis or Vitalink. Such
agencies could also impose fines, criminal penalties or program exclusions.
Private pay sources also reserve the right to conduct audits and make monetary
adjustments.
GEOGRAPHIC PAYOR CONCENTRATION
Genesis's operations are principally located in Connecticut, Delaware,
Florida, Illinois, Maryland, Massachusetts, New Hampshire, New Jersey, North
Carolina, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia
and Wisconsin. Any adverse change in the regulatory environment, the
reimbursement rates paid under the Medicaid program or in the supply and
demand for services in the states in which Genesis operates, and particularly
in Florida, Maryland, Massachusetts, New Hampshire, New Jersey and
Pennsylvania, could have a material adverse effect on Genesis.
DEPENDENCE ON MANOR CARE
Net revenues from Manor Care and its patients (including revenues pursuant
to government reimbursement programs) accounted for approximately 29%, 48% and
19% of total net revenues of Vitalink in fiscal 1997 and 1996 and the nine
months ended February 28, 1998, respectively. On a pro forma basis, after
giving effect to the Merger, net revenues from Manor Care would have accounted
for approximately 5% of total combined
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revenues of Genesis for the year ended September 30, 1997. Under various
master agreements (the "Master Agreements") with Manor Care as described
herein, Vitalink may at its option provide pharmaceutical, consulting and
infusion therapy products and services to any and all nursing facilities owned
or licensed by Manor Care through September 30, 2003 in accordance with the
terms thereof and subject to each individual patient's right to designate his
or her own pharmacy or infusion therapy provider. Each individual pharmacy
service agreement entered into pursuant to the Master Agreements, however, may
be limited or terminated under certain circumstances, including upon the
disposition of any nursing facilities by Manor Care. See "Relationship Between
Vitalink and Manor Care--Manor Care Pharmacy, Infusion Therapy and Consulting
Services Agreements."
SIGNIFICANT MANOR CARE OWNERSHIP; MANOR CARE AND GENESIS RELATIONSHIP
Following the completion of the Merger, depending upon certain allocation
and proration procedures and the election of other Vitalink stockholders,
Manor Care may beneficially own on a fully-diluted basis up to 18% of the
outstanding shares of Genesis. In addition, Manor Care has entered into
certain agreements with Genesis concerning their relationship. See "Agreements
Between Manor Care and Genesis."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Vitalink's management and the Vitalink Board may be
deemed to have interests in the Merger in addition to their interests as
Vitalink stockholders generally, which may cause potential conflicts of
interest. In addition, certain members of the Manor Care Board of Directors
are also members of the Vitalink Board, and in connection with the Merger,
Manor Care has entered into certain agreements with Genesis. The Vitalink
Board was aware of these factors and considered them, among other factors, in
approving the Merger. See "Agreements between Manor Care and Genesis." Such
factors include (i) the acceleration of the vesting of Vitalink options as a
result of the consummation of the Merger as described under "The Merger
Agreement--Effect on Options"; (ii) the treatment of Vitalink options in the
Merger as described under "The Merger Agreement--Effect on Options"; (iii) the
indemnification to be provided pursuant to the terms of the Merger Agreement
as described under "The Merger Agreement--Indemnification; Insurance"; (iv)
the payment by Genesis of the premiums for directors' and officers' liability
insurance for current Vitalink directors and officers as described under "The
Merger Agreement--Indemnification; Insurance"; (v) the cash payments to be
received by such persons as a result of the early termination of Vitalink
incentive compensation plans and employment agreements; and (vi) certain
agreements between Manor Care and Genesis. See "Agreements between Manor Care
and Genesis." Manor Care is also party to various operating agreements with
Vitalink which will continue in effect after the Effective Time. See
"Relationship between Vitalink and Manor Care."
SHARES OF GENESIS STOCK ELIGIBLE FOR SALE BY MANOR CARE
Although Manor Care has no present intent to dispose of any of the shares of
Genesis Preferred Stock it receives as a result of the Merger or Genesis
Common Stock issuable upon conversion thereof, Manor Care may, subject to the
Rights Agreement, seek to effect such a disposition through a public offering
or a private sale to a third party or otherwise. If Manor Care should dispose
of all or a substantial amount of its Genesis Preferred Stock or Genesis
Common Stock issuable upon conversion of the Genesis Preferred Stock, the
prevailing market price of the Genesis Common Stock and Genesis Preferred
Stock could be adversely affected. See "Agreements Between Manor Care and
Genesis--The Rights Agreement."
COMPETITION
The healthcare industry is highly competitive. Each of Genesis and Vitalink
competes with a variety of other companies in providing its services. Certain
competing companies have greater financial and other resources and may be more
established in their respective communities than Genesis or Vitalink.
Competing companies may offer newer or different centers or services than
Genesis or Vitalink and may thereby attract Genesis's or Vitalink's customers
who are either presently residents of Genesis's eldercare centers or centers
served by Vitalink or are otherwise receiving their eldercare services from
Genesis or Vitalink.
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RISKS ASSOCIATED WITH GENESIS ACQUISITION STRATEGY
Genesis has recently completed several acquisitions of eldercare businesses.
Genesis also intends to pursue additional acquisitions in the future. There
can be no assurance that Genesis will be able to realize expected operating
and economic efficiencies from its recent acquisitions, from the Merger or
from any future acquisitions or that such acquisitions will not adversely
affect Genesis's results of operations or financial condition. In addition,
there can be no assurance that Genesis will be able to locate suitable
acquisition candidates in the future, consummate acquisitions on favorable
terms or successfully integrate newly acquired businesses with Genesis's
operations. The consummation of acquisitions likely will result in the
incurrence or assumption by Genesis of additional indebtedness.
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THE SPECIAL MEETINGS
GENERAL
The Genesis Special Meeting will be held at , located at , on
, , 1998 at a.m., local time, for the purpose set forth in Genesis's
Notice of Special Meeting of Shareholders and as described below. The Vitalink
Special Meeting will be held at Cahill, Gordon & Reindel located at 80 Pine
Street, New York, New York, 10005, on , , 1998 at 9:00 a.m., local time,
for the purpose set forth in Vitalink's Notice of Special Meeting of
Stockholders and as described below. This Joint Proxy Statement/Prospectus is
furnished in connection with the solicitation by the Board of Directors of
each of Genesis and Vitalink of proxies to be used at their respective Special
Meetings and at any and all adjournments or postponements thereof. Any person
executing a proxy card may revoke it prior to the exercise thereof by filing
with the Secretary of Genesis or Vitalink, as the case may be, at or prior to
the applicable Special Meeting, at the address specified under the caption
"Available Information" in this Joint Proxy Statement/Prospectus, either a
written instrument revoking the proxy or a duly executed proxy bearing a later
date.
VOTING SECURITIES AND RECORD DATES
Genesis. Genesis shareholders of record at the close of business on June 30,
1998 are entitled to notice of and to vote at the Genesis Special Meeting. As
of June 30, 1998, there were outstanding shares of Genesis Common Stock.
Each share of Genesis Common Stock is entitled to one vote. The presence, in
person or by proxy, at the Genesis Special Meeting of the holders of a
majority of the shares of Genesis Common Stock outstanding and entitled to
vote at the Genesis Special Meeting is necessary to constitute a quorum at the
Genesis Special Meeting. Genesis is seeking approval of its shareholders in
accordance with the shareholder approval policy of the NYSE. Under the NYSE
rules, the affirmative vote of a majority of the total votes cast at the
Genesis Special Meeting and entitled to vote thereon is required for approval
of the Genesis Proposal. Approval by the Genesis shareholders of the Merger
Agreement under the rules of the NYSE is a condition to the consummation of
the Merger. Abstentions will be counted for the purpose of determining the
existence of a quorum.
Vitalink. Vitalink stockholders of record at the close of business on June
30, 1998 are entitled to notice of and to vote at the Vitalink Special
Meeting. As of June 30, 1998, there were 26,259,466 outstanding shares of
Vitalink Common Stock. Each share of Vitalink Common Stock is entitled to one
vote. The presence, in person or by proxy, at the Vitalink Special Meeting of
the holders of a majority of the shares of Vitalink Common Stock outstanding
and entitled to vote at the Vitalink Special Meeting is necessary to
constitute a quorum at the Vitalink Special Meeting. The affirmative vote of a
majority of the outstanding shares of Vitalink Common Stock entitled to vote
thereon is required to approve the Vitalink Proposal. Abstentions will be
counted for the purpose of determining the existence of a quorum.
PURPOSE OF SPECIAL MEETINGS
Genesis. The purpose of the Genesis Special Meeting is to (i) consider and
vote upon the Genesis Proposal and (ii) transact such other business as may
properly come before the Genesis Special Meeting and at any and all
adjournments or postponements thereof.
Vitalink. The purpose of the Vitalink Special Meeting is to (i) consider and
vote upon the Vitalink Proposal and (ii) transact such other business as may
properly come before the Vitalink Special Meeting and at any and all
adjournments or postponements thereof.
PROXIES
All shares of Genesis Common Stock and Vitalink Common Stock represented by
properly executed proxies received prior to or at the Genesis Special Meeting
or Vitalink Special Meeting, as the case may be, and not duly and timely
revoked will be voted in accordance with the instructions indicated thereon.
Proxies that have
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been properly executed and returned but with no instructions thereon will be
voted FOR the approval of the Genesis Proposal and the Vitalink Proposal, as
applicable. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate voting power and number of shares represented and
entitled to vote at the Genesis Special Meeting, or the Vitalink Special
Meeting, as the case may be, will not be voted. Accordingly, since the
affirmative vote of a majority of shares present and entitled to vote thereon
is required for approval of the Genesis Proposal, and the affirmative vote of
a majority of the outstanding shares of Vitalink Common Stock entitled to vote
at the Vitalink Special Meeting is required for approval of the Vitalink
Proposal, a proxy marked "ABSTAIN" will have the effect of a vote against the
Genesis Proposal or the Vitalink Proposal, as the case may be. Shares
represented by "broker non-votes" (i.e., shares held by brokers, fiduciaries
or other nominees which are represented at a meeting but with respect to which
the broker or nominee is not empowered to vote) will be counted for purposes
of determining whether there is a quorum at a Special Meeting but not for
purposes of determining the aggregate voting power. In accordance with NYSE
rules, brokers and nominees are precluded from exercising their voting
discretion with respect to the approval and adoption of either the Genesis
Proposal or the Vitalink Proposal and thus, absent specific instructions from
the beneficial owner of such shares, are not empowered to vote thereon.
Because approval of the affirmative vote of a majority of the total votes cast
at the Genesis Special Meeting and entitled to vote thereon is required for
approval of the Genesis Proposal (provided that the number of votes cast
represents more than 50% of the outstanding shares of Genesis Common Stock), a
"broker non-vote" will not have the effect of a vote against the Genesis
Proposal. However, as the affirmative vote of a majority of the outstanding
Vitalink Common Stock entitled to vote thereon is required to approve the
Vitalink Proposal, a "broker non-vote" or the failure to vote in person or by
proxy will have the effect of a vote against the Vitalink Proposal.
The Genesis Board and the Vitalink Board are not currently aware of any
business to be acted upon at their respective Special Meetings other than as
described herein. If, however, other matters are properly brought before
either Special Meeting, or any adjournments or postponements thereof, the
persons appointed as proxies will have discretion to vote or act thereon
according to their judgment. Such adjournments may be for the purpose of
soliciting additional proxies. Neither Genesis nor Vitalink currently intends
to seek an adjournment of its Special Meeting.
Any proxy given pursuant to this solicitation may be revoked at any time
before such proxy is voted. Attendance at the Genesis Special Meeting or the
Vitalink Special Meeting will not in and of itself constitute a revocation of
a proxy.
Each of Genesis and Vitalink will bear its own costs incurred in the
solicitation of proxies. In addition to the use of the mail, arrangements will
be made with brokerage houses and other custodians, nominees and fiduciaries
to send proxy material to beneficial owners and Genesis or Vitalink, as the
case may be, will, upon request, reimburse them for their reasonable expenses.
Genesis and Vitalink have retained ChaseMellon Shareholder Services, L.L.C. to
aid in the solicitation of proxies and to verify certain records related to
the solicitation at a maximum fee of $4,000.00, plus expenses. To the extent
necessary in order to ensure sufficient representation at its respective
Special Meeting, Genesis or Vitalink may request by telephone, telegram or in
person the return of proxy cards. The extent to which this will be necessary
depends entirely upon how promptly proxy cards are returned. Holders of
Genesis Common Stock and Vitalink Common Stock are urged to send in their
proxies without delay.
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THE MERGER
BACKGROUND OF THE MERGER
The decision of the Vitalink Board to approve and recommend the Merger, the
Merger Agreement and the transactions contemplated thereby is the product of
an extended evaluation process. As part of the ongoing effort by Vitalink and
Manor Care to enhance the strategic position of Vitalink in the marketplace
and increase shareholder value, the Vitalink Board, on October 3, 1997,
authorized Vitalink management to review strategic alternatives for Vitalink
and to engage the services of a financial advisor to assist it in evaluating
possible transactions that would be favorable to Vitalink.
On October 15, 1997, Manor Care, which had indicated its desire to alter the
nature of its equity interest in Vitalink, issued a press release announcing
its intention to explore strategic alternatives with respect to its ownership
of approximately half of the outstanding shares of Vitalink. According to the
press release, strategic mergers, joint ventures and other business
combinations were among the options that Manor Care would consider. Vitalink
issued a similar press release.
Also on October 15, 1997, Vitalink retained SBC Warburg Dillon Read Inc.
("SBC Warburg Dillon Read") as its financial advisor. Manor Care has a long
standing relationship with SBC Warburg Dillon Read. Manor Care from time to
time has retained SBC Warburg Dillon Read as its financial advisor and
consulted with SBC Warburg Dillon Read in connection with the Merger. In
addition, Vitalink and Manor Care both consulted with the same legal counsel
in connection with the Merger.
After discussing potential courses of action, Vitalink management authorized
SBC Warburg Dillon Read to explore a possible business combination. Shortly
thereafter, SBC Warburg Dillon Read and Vitalink compiled a list of potential
strategic buyers to be contacted regarding their interest in a transaction
with Vitalink. In the following days, SBC Warburg Dillon Read either
approached or was approached by 17 companies that were thought to have
strategic interest in, and the financial capability to complete, a business
combination with Vitalink. Several prospective purchasers expressed
preliminary levels of interest and, in the last two weeks of October 1997,
Vitalink management made presentations to four of the potential purchasers,
including Genesis.
In November 1997, Vitalink received preliminary proposals from three of the
four prospective purchasers, not including Genesis. All of these proposals
offered Vitalink stockholders a combination of common stock and convertible
preferred stock; none of the proposals offered any cash. In mid-November 1997,
Vitalink management made presentations to two additional prospective
purchasers. On November 20, 1997, at a regularly scheduled meeting of the
Vitalink Board, SBC Warburg Dillon Read reviewed the preliminary proposals and
advised the Vitalink Board on the progress of the process of exploring
strategic alternatives to date.
In December 1997, Vitalink, together with SBC Warburg Dillon Read, began
negotiating toward a firm proposal with one of the prospective purchasers. The
prospective purchaser failed to deliver an acceptable proposal to Vitalink.
In early January 1998, Vitalink management and SBC Warburg Dillon Read
contacted potential purchasers again in order to determine their level of
interest in pursuing a transaction. Two of the entities (including Genesis)
that initially had indicated interest responded favorably and met further with
Vitalink management.
In the last week of January 1998, Genesis met with Vitalink management. In
February 1998, Vitalink and Genesis, together with their respective financial
advisors, began negotiating a firm proposal.
During the course of the negotiations, Genesis indicated to Vitalink that it
would only proceed negotiating a possible business combination if Vitalink and
Manor Care agreed to suspend the process of exploring strategic alternatives
and negotiate exclusively with Genesis. Accordingly, Vitalink, Manor Care and
Genesis entered into a non-solicitation agreement, pursuant to which Vitalink
and Manor Care agreed to negotiate exclusively with Genesis with respect to a
potential business combination and to cease any existing discussions or
negotiations with third parties for a limited period of time.
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At the beginning of March 1998, members of the senior management of each of
Vitalink, Genesis and Manor Care, together with representatives of SBC Warburg
Dillon Read, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), financial advisor to Genesis, and respective legal counsel, held a
conference call to discuss certain proposed terms of the Merger.
In the second week of March 1998, representatives of each of Vitalink and
Genesis met in order to discuss certain non-public information concerning
their respective business strategies, operations, principal properties,
financial statements, capital budgets and related matters. Vitalink, Genesis
and their respective financial advisors and legal counsel began to negotiate
the terms of the Merger Agreement and they and Manor Care began negotiating
the terms of the ancillary documents.
Also in the second week of March 1998, Vitalink received an unsolicited non-
binding proposal from one of the entities to which Vitalink management had
previously made a presentation.
On March 16, 1998, the Vitalink Board, at a regularly scheduled meeting,
reviewed the terms of the Genesis offer and the unsolicited proposal in
relation to how each satisfied the objectives of the process of exploring
strategic alternatives. After extensive deliberation, the Vitalink Board
concluded that the Genesis offer was the most attractive proposal it had
received in the process and directed management to continue negotiations with
Genesis in an effort to reach a definitive agreement.
In the third week of March 1998, members of senior management of Vitalink,
Genesis and Manor Care, together with their financial advisors and legal
counsel, met in Philadelphia, Pennsylvania to negotiate the terms of the
Merger Agreement and the ancillary documents. At the meeting, the parties
failed to reach agreement on certain issues. Vitalink, Manor Care and their
financial advisor and legal counsel continued to discuss the open issues.
At the end of March 1998, the entity that had made the unsolicited
indication of interest met with members of Vitalink management. Such entity
subsequently lowered its bid to a price below that of the Genesis offer. At
the beginning of April 1998, Vitalink management determined that the offer did
not satisfy the objectives the Vitalink Board had formulated at the
commencement of the process of exploring strategic alternatives, and thus
terminated discussions with such entity.
During the first week of April 1998, Genesis and Manor Care entered into
discussions regarding a possible business combination. After consideration of
certain matters, the parties determined to discontinue such discussions.
In mid-April 1998, senior management of each of Vitalink and Genesis,
together with representatives of SBC Warburg Dillon Read, Merrill Lynch and
legal counsel to each of Vitalink and Genesis held numerous conference calls
to resolve various open issues with respect to the Merger and met to begin
finalizing the documentation of the terms of the Merger.
On April 23, 1998, the entire Vitalink Board, including those directors who
are also directors of Manor Care, convened for a special telephonic meeting to
receive the views of Vitalink management and Vitalink's financial and legal
advisors regarding the proposed Merger. Vitalink management updated the
Vitalink Board regarding the terms of the Merger. SBC Warburg Dillon Read
reviewed its analysis of the terms of the Merger that was presented at the
March 16, 1998 meeting of the Vitalink Board and advised the Vitalink Board
that it was prepared to render its oral opinion that as of such date, the
Closing Consideration to be received by the holders of Vitalink Common Stock
in the Merger was fair to such holders from a financial point of view. The
Vitalink Board reviewed the material terms of the legal documents to be
entered into by Vitalink. After discussion, the Vitalink Board unanimously
approved the Merger Agreement and the transactions contemplated thereby,
subject to the satisfactory resolution of all remaining open issues thereunder
and the finalization of the documentation relating to the Merger in
satisfactory form and substance.
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On April 20, 1998, the Genesis Board met for a special telephonic meeting
and reviewed, with the advice and assistance of Genesis's management and
Genesis's financial and legal advisors, the proposed Merger Agreement, Voting
Agreement, Rights Agreement and related agreements and transactions. At such
meeting, Genesis's management and financial and legal advisors made
presentations to the Genesis Board concerning the proposed transaction.
On April 24, 1998, the Genesis Board met for a special telephonic meeting
and Merrill Lynch provided its opinion to the effect that as of such date the
Closing Consideration to be paid to the holders of Vitalink Common Stock was
fair to Genesis from a financial point of view. See "--Opinion of Genesis's
Financial Advisor." By unanimous vote of the members present, the Genesis
Board approved the proposed Merger Agreement, Voting Agreement, Rights
Agreement and the related agreements and transactions.
On April 25 and April 26, 1998, Vitalink, Genesis and Manor Care and their
respective legal counsel continued to finalize the documentation of the Merger
and certain of the ancillary agreements.
On April 26, 1998, SBC Warburg Dillon Read delivered its written opinion
that, as of such date, the Closing Consideration to be received by Vitalink
stockholders as a result of the transactions contemplated by the Merger
Agreement was fair to such stockholders from a financial perspective.
On the evening of April 26, 1998, Vitalink and Genesis executed the Merger
Agreement, and the parties to the Voting Agreement, Rights Agreement and
certain other ancillary documents executed those agreements.
On April 27, 1998, Vitalink, Genesis and Manor Care issued a joint press
release announcing that Vitalink and Genesis had entered into a definitive
agreement to effect the combination of Vitalink and Genesis.
On and after April 29, 1998, certain shareholders of Vitalink (the
"Plaintiffs") filed four separate actions in Delaware state court against
Vitalink, certain of its officers and directors (the "Individual Defendants"),
Genesis and Manor Care (collectively, the "Defendants") alleging, among other
things, that Vitalink, the Individual Defendants and Manor Care have breached
certain duties owed to the Plaintiffs in connection with the Merger Agreement
and certain of the transactions contemplated thereby, and that Genesis has
knowingly aided and abetted that alleged breach. In their complaints, the
Plaintiffs seek damages and preliminary and permanent relief to enjoin the
Defendants from consummating the Merger and the transactions contemplated
thereby. The complaint in only one of the actions (the "Finkelstein Action")
has been served upon the Defendants. The parties have stipulated that the
Defendants shall have no obligation to respond to the complaint in the
Finkelstein Action until counsel for the plaintiff therein provides written
notice of intent to require such response. The parties are engaged in
preliminary documentary discovery. Counsel for the parties also anticipate
entering into an agreement, subject to court approval, to consolidate all four
actions for all purposes.
GENESIS'S REASONS FOR THE MERGER; RECOMMENDATION OF GENESIS BOARD
Genesis's Reasons for the Merger. The Genesis Board believes that the Merger
is in the best interests of Genesis and its shareholders. Accordingly, the
Genesis Board has approved and adopted the Merger Agreement and recommends
that Genesis shareholders vote FOR the approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
In negotiating the terms of the Merger and in considering its recommendation
for the approval of the Merger Agreement, the Genesis Board considered a
number of factors including, without limitation, the following:
(i) the Closing Consideration to be paid to the Vitalink stockholders in
relation to the market value, book value and earnings per share of the
Vitalink Common Stock;
(ii) the Genesis Board's review, based in part on presentations by
Merrill Lynch, its financial advisor, and management, of the business,
operations and financial condition of Vitalink, the prospects of the
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combined business, and the increased market presence, economies of scale,
cost savings opportunities and enhanced opportunities for growth made
possible by the Merger;
(iii) the Genesis Board's recognition of the complementary nature of the
markets served and products offered by Genesis and Vitalink and its
expectation that the Merger would provide it with opportunities for
additional growth;
(iv) the impact the Merger is anticipated to have on Genesis's
consolidated results of operations, including anticipated cost savings;
(v) the opinion of Merrill Lynch that the Closing Consideration to be
paid by Genesis is fair, from a financial point of view, to Genesis (see
"--Opinion of Genesis's Financial Advisor");
(vi) the Merger is consistent with Genesis's ongoing strategy of growth
through acquisitions; and
(vii) the terms of the Merger Agreement and the other documents executed
in connection with the Merger.
The Genesis Board also considered the importance of (a) the completion of
the Merger on a tax-free basis and (b) the importance of Vitalink's contract
for the right to service all beds for Manor Care. In addition, the Genesis
Board also considered certain potential adverse effects of the Merger on
Genesis, including the possible failure to integrate Vitalink into the
operations of Genesis, increased leverage and failure to realize certain
anticipated benefits of the Merger. After considering the benefits and
possible detriments of each of the above-mentioned factors, the Genesis Board
determined the Merger was in the best interest of its shareholders.
The Genesis Board did not assign any specific or relative weights to any of
the foregoing factors it considered in reaching its determination.
OPINION OF GENESIS'S FINANCIAL ADVISOR
At the meeting of the Genesis Board held on April 24, 1998, Merrill Lynch
rendered its opinion that, as of such date, and based upon the assumptions
made, matters considered and limits of review set forth in Merrill Lynch's
written opinion (the "Merrill Lynch Opinion"), the Closing Consideration was
fair to Genesis from a financial point of view.
The full text of the Merrill Lynch Opinion is attached hereto as Appendix B
and is incorporated herein by reference. The description of the Merrill Lynch
Opinion set forth herein is qualified in its entirety by reference to the full
text of the Merrill Lynch Opinion set forth in Appendix B. Genesis
shareholders are urged to read the Merrill Lynch Opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review undertaken, by Merrill Lynch
in connection therewith.
THE MERRILL LYNCH OPINION IS DIRECTED TO THE GENESIS BOARD AND ADDRESSES
ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CLOSING CONSIDERATION
TO GENESIS. IT DOES NOT ADDRESS THE MERITS OF THE UNDERLYING BUSINESS DECISION
OF GENESIS TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY GENESIS SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE GENESIS
SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER IN CONNECTION
THEREWITH.
Merrill Lynch has informed Genesis that in arriving at its written opinion,
Merrill Lynch: (1) reviewed certain publicly available business and financial
information relating to Genesis and Vitalink that it deemed to be relevant;
(2) reviewed certain information, including financial forecasts, relating to
the businesses, earnings, cash flow, assets, liabilities and prospects of
Genesis and Vitalink, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger (the
"Expected Synergies"), furnished to Merrill Lynch by management of Genesis;
(3) conducted discussions with members of the senior management and
representatives of Genesis and Vitalink concerning the matters set forth in
clauses (1) and (2)
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above, as well as their respective businesses and prospects before and after
giving effect to the Merger; (4) reviewed the market prices and valuation
multiples for Vitalink Common Stock and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be relevant; (5)
reviewed the results of operations of Vitalink and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be relevant;
(6) compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which Merrill Lynch deemed to be relevant;
(7) participated in discussions and negotiations among representatives of
Vitalink and Genesis and their financial and legal advisors; (8) reviewed the
potential pro forma impact of the Merger on Genesis; (9) reviewed the Merger
Agreement; (10) reviewed the Voting Agreement between Genesis and certain
stockholders of Vitalink and the Rights Agreement between Genesis and certain
stockholders of Vitalink; (11) reviewed the form of the Certificate of
Designation of Genesis setting forth the preferences, rights and designations
for the Genesis Preferred Stock which is attached as an exhibit to the Merger
Agreement; and (12) reviewed such other financial studies and analyses and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, Vitalink or Genesis. Any estimates contained in the analyses performed
by Merrill Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly
available, and it has not assumed any responsibility for independently
verifying such information or undertaken an independent evaluation or
appraisal of any of the assets or liabilities of Vitalink or been furnished
with any such evaluation or appraisal. In addition, Merrill Lynch did not
assume any obligation to conduct any physical inspection of the properties or
facilities of Vitalink. With respect to the financial forecast information and
the Expected Synergies furnished to or discussed with Merrill Lynch by Genesis
or Vitalink, Merrill Lynch assumed that they were reasonably prepared and
reflected the best currently available estimates and judgment of Vitalink's or
Genesis' management as to the expected future financial performance of
Vitalink or Genesis, as the case may be, and the Expected Synergies.
The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and the
information made available to Merrill Lynch as of, the date of the Merrill
Lynch Opinion. Merrill Lynch assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger. Merrill Lynch further
assumed, with Genesis's consent, that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes.
In connection with rendering the Merrill Lynch Opinion, Merrill Lynch
performed a variety of financial analyses, including those summarized below.
These analyses were presented to the Genesis Board at a meeting held on April
20, 1998. The summary set forth below does not purport to be a complete
description of the analyses performed by Merrill Lynch in this regard,
although it describes all material analyses performed by Merrill Lynch in
connection therewith. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a partial
analysis or summary description. Accordingly, notwithstanding the separate
analyses summarized below, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors
considered by it, without considering all such analyses and factors, or
attempting to ascribe relative weights to
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some or all such analyses and factors, could create an incomplete view of the
evaluation process underlying the Merrill Lynch Opinion.
The financial forecasts furnished to Merrill Lynch and used by it in certain
of its analyses were prepared by the management of Genesis. Genesis does not
publicly disclose financial forecasts of the type provided to Merrill Lynch in
connection with its review of the Merger, and as a result, such financial
forecasts were not prepared with a view towards public disclosure. The
financial forecasts were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions, and accordingly, actual results
could vary significantly from those set forth in such financial forecasts.
The following is a summary of the material analyses performed by Merrill
Lynch in connection with the Merrill Lynch Opinion.
Historical Trading Analysis. Merrill Lynch reviewed the historical stock
market performance of Vitalink Common Stock. This analysis indicated that the
52-week trading price of a share of Vitalink Common Stock ranged between
$17.13 and $25.88.
Selected Publicly Traded Comparable Companies Analysis. Using publicly
available information, Merrill Lynch reviewed the stock prices (as of April
17, 1998) and market multiples of common stocks of the following companies:
Omnicare, Inc., PharMerica, Inc. and NCS Healthcare, Inc. (the "Comparable
Companies"). Merrill Lynch believes these companies are engaged in lines of
business that are generally comparable to those of Vitalink. Merrill Lynch
determined the stock prices of the Comparable Companies as a multiple of
estimated 1998 calendar year earnings per share ("EPS"), as estimated by First
Call Corporation ("First Call"). For estimated 1998 calendar year EPS, the
multiples ranged from 24.2x to 36.4x. Merrill Lynch also compared the stock
prices of the Comparable Companies as a multiple of estimated 1998 calendar
year EPS to their respective projected five-year EPS growth rates, as
estimated by First Call. The multiples ranged from 96.8% to 134.7% of the
projected five-year EPS growth rates. Based on the application of these
multiples to Vitalink, Merrill Lynch determined an implied range of equity
values per share for Vitalink Common Stock which ranged from a high of $36.80
per share to a low of $18.60 per share.
Because Vitalink has received a notice of nonrenewal from Paragon Health
Network, Inc. ("Paragon") with respect to a pharmaceutical supply agreement
between Vitalink and Paragon, Merrill Lynch also calculated an implied range
of equity values per share for Vitalink Common Stock by separately valuing
Vitalink's earnings associated with Paragon (the "Paragon Earnings") and the
remaining Vitalink earnings (without earnings associated with Paragon) (the
"Remaining Vitalink"). Under this valuation methodology (the "Alternative
Methodology"), Merrill Lynch calculated the present value of the after-tax
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the Paragon Earnings based on certain assumptions with respect to such Paragon
Earnings and separately calculated the value of the Remaining Vitalink using
each of the methodologies described herein. Based on the Alternative
Methodology and the application of the multiples derived for the Comparable
Companies to the Remaining Vitalink, Merrill Lynch calculated an implied range
of equity values per share for Vitalink Common Stock which ranged from a high
of $29.90 per share to a low of $18.05 per share.
Selected Acquisition Transactions Analysis. Using publicly available
information, Merrill Lynch reviewed the purchase prices and multiples paid in
selected mergers and acquisitions involving companies which Merrill Lynch
deemed relevant in evaluating the Merger. Merrill Lynch reviewed the
acquisition of CompuPharm, Inc. by GranCare, Inc.; the acquisition of
Evergreen Pharmaceutical, Inc. by Omnicare, Inc.; the acquisition of Symphony
Pharmacy Services by Capstone Pharmacy Services, Inc.; the acquisition of
TeamCare by Vitalink; the acquisition of Clinical Care Health Care Services by
Capstone Pharmacy Services, Inc.; the acquisition of Pharmacy Corporation of
America by Capstone Pharmacy Services, Inc.; the acquisition of American
Medserve Corporation by Omnicare, Inc.; and the acquisition of CompScripts
Inc. by Omnicare, Inc. (collectively, the "Acquisition Comparables").
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Merrill Lynch calculated the multiples of transaction values for the
Acquisition Comparables (calculated as the consideration offered for the
equity (using the acquiror's stock price where relevant) plus the book value
of debt less cash and cash equivalents) to the EBITDA of the acquired
businesses for the 12 months preceding the acquisition announcements, which
ranged from 5.6x to 15.0x, with a mean of 11.1x and a median of 11.5x. Based
on the application of the multiples derived from the Acquisition Comparables
to the estimated EBITDA of Vitalink for the fiscal year ended May 31, 1998,
the implied range of equity values per share for Vitalink Common Stock ranged
from $22.10 to $27.60. Merrill Lynch also calculated the implied range of
equity values per share for Vitalink Common Stock derived from the Acquisition
Comparables based on the Alternative Methodology, which ranged from $22.05 to
$27.00.
No company or transaction used in the analyses described under "--Selected
Publicly Traded Comparable Companies Analysis" and "--Selected Acquisition
Transactions Analysis" is identical to Vitalink or the Merger. Accordingly, an
analysis of the results thereof necessarily involves complex considerations
and judgments concerning differences in financial and operating
characteristics and other factors that could affect the transaction or the
public trading or other values of Vitalink or companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable acquisition
or company data. In addition, in performing the analysis described under "--
Selected Publicly Traded Comparable Companies Analysis," Merrill Lynch
calculated the multiples of stock price to estimated 1998 calendar year EPS
for the Comparable Companies based on projections prepared by research
analysts using only publicly available information. Accordingly, such
estimates may or may not prove to be accurate.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow ("DCF") analysis (i.e., an analysis of the present value of the projected
free cash flows for the periods using the discount rates indicated) of
Vitalink as of May 31, 1998 using financial forecasts for the years 1998
through 2003 provided by management of Genesis and a fiscal year end 2003
terminal value of Vitalink based upon a range of multiples of forecasted year
end 2003 EBITDA. Based on net debt of $75 million as of May 1998 and diluted
shares of 26.3 million and using discount rates based upon a weighted average
cost of capital analysis for Vitalink and comparable companies of 12% to 14%
and terminal value multiples of fiscal year end 2003 estimated EBITDA ranging
from 8.0x to 10.0x, the DCF analysis yielded a range of equity values per
share for Vitalink of $21.00 to $27.50, without giving effect to the Expected
Synergies, and $25.00 to $32.50, after giving effect to the Expected
Synergies. Merrill Lynch also performed the DCF analysis using the Alternative
Methodology, which yielded a range of equity values per share for Vitalink of
$19.75 to $26.10, without giving effect to the Expected Synergies, and $23.75
to $31.10, after giving effect to the Expected Synergies.
Pro Forma Merger Analysis. Based on the financial forecasts provided by
Genesis, Merrill Lynch analyzed certain pro forma effects of the Merger,
including the potential impact on the projected stand-alone EPS of Genesis
Common Stock and the anticipated per share EPS accretion (i.e., incremental
increase) to such stock resulting from the Merger. After giving effect to the
Expected Synergies and assuming that 50% of the aggregate consideration to be
received by the stockholders of Vitalink will be convertible preferred stock,
this analysis indicated that the Merger would be accretive to projected
earnings per share of Genesis Common Stock for fiscal years 1998 through 2001
inclusive.
Merrill Lynch has been retained by the Genesis Board as an independent
contractor to act as financial advisor to Genesis in connection with the
Merger. Genesis selected Merrill Lynch to act as its financial advisor because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Merger and because it is
familiar with Genesis and its business. Merrill Lynch regularly engages in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements. In
addition, Merrill Lynch is currently providing and has in the past provided
financial advisory and financing services to Genesis and may continue to do so
and has received, and may receive, fees for the rendering of such services.
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Genesis and Merrill Lynch entered into a letter agreement dated April 14,
1998 relating to the services to be provided by Merrill Lynch in connection
with the Merger. Genesis agreed to pay Merrill Lynch fees as follows: (i) a
fee of $100,000 payable in cash on the date of the letter agreement, and (ii)
a fee of $4,200,000 payable in cash upon the closing of the Merger, against
which the fees described in clause (i) will be credited. In such letter
agreement, Genesis also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with its advisory work,
including the reasonable fees and disbursements of its legal counsel, and to
indemnify Merrill Lynch against certain liabilities relating to or arising out
of the Merger, including liabilities under the securities laws. In addition,
Genesis has agreed that if it pursues any public offering or private placement
of securities in connection with the financing of the cash portion of the
Closing Consideration, it will engage Merrill Lynch as lead manager or lead
placement agent, as the case may be, on customary terms to be mutually agreed
upon.
VITALINK'S REASONS FOR THE MERGER; RECOMMENDATION OF VITALINK BOARD
The Vitalink Board believes that the Merger constitutes a significant
strategic opportunity for Vitalink's institutional pharmacy business. The
Vitalink Board has determined unanimously that the Merger, the Merger
Agreement and the transactions contemplated thereby are fair to and in the
best interests of Vitalink and its stockholders. The Vitalink Board recommends
that the stockholders of Vitalink vote in favor of the approval of the Merger
Agreement and the transactions contemplated thereby. In reaching this
conclusion, the Vitalink Board, with the assistance of its financial and legal
advisors, considered a number of factors, including, without limitation, the
following:
(i) the Closing Consideration to be paid to the Vitalink stockholders in
relation to the market value, book value and earnings per share of the
Vitalink Common Stock;
(ii) the combined pharmacy company resulting from the Merger is expected
to benefit from several operational efficiencies including, but not limited
to (a) greater purchasing power which will allow it to reduce its cost of
goods sold and deal more effectively with, and obtain more favorable
pricing from, large wholesalers and pharmaceutical corporations that act as
suppliers to institutional pharmacy companies, (b) elimination of
duplicative administrative and accounting functions, (c) consolidation of
local pharmacy operations where service areas overlap and (d) reduction of
corporate overhead and building and other expenses;
(iii) the combined company will have the opportunity to cross sell
products and services including medical supplies and home infusion products
to customers;
(iv) the combined company will possess greater managerial, operational
and financial resources than Vitalink alone. As a result of its greater
financial resources, the combined company may be expected to have enhanced
access to capital on more favorable terms than were previously available to
Vitalink;
(v) the terms of the Merger Agreement and the other documents executed in
connection therewith;
(vi) after having pursued a process of seeking strategic alternatives,
the offer from Genesis was the highest value offer received; and
(vii) the oral and written presentations of SBC Warburg Dillon Read and
its opinion that, as of April 26, 1998, the Closing Consideration is fair
to the stockholders of Vitalink from a financial point of view and the
analyses forming the bases for such opinions. See "--Opinion of Vitalink's
Financial Advisor" for a discussion of the factors considered by SBC
Warburg Dillon Read in rendering its opinion. Such opinion is subject to
limitations, qualifications and assumptions, and is included as Appendix C
hereto and should be read in its entirety.
The Vitalink Board also considered the importance of the completion of the
Merger on a tax-free basis to Vitalink.
The Vitalink Board also considered certain risks and potential disadvantages
associated with the Merger, including the risk that management's attention
will be diverted by the distractions associated with a business
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combination such as the Merger and the potential business disruption to the
business of Vitalink and Genesis as well as the risk that the transaction
might not be consummated as a result of a failure to satisfy certain
conditions precedent to the Merger Agreement.
The foregoing discussion of information and factors considered by the
Vitalink Board is not intended to be exhaustive, but is intended to set forth
all material information related thereto. In view of the wide variety of
factors considered in connection with its evaluation of the terms of the
Merger, the Vitalink Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weight to, the specific
factors considered in reaching its determinations.
THE VITALINK BOARD UNANIMOUSLY RECOMMENDS TO ITS STOCKHOLDERS THAT THEY VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF VITALINK'S FINANCIAL ADVISOR
The Vitalink Board retained SBC Warburg Dillon Read to act as financial
advisor in connection with the Merger. On April 26, 1998, SBC Warburg Dillon
Read rendered its written opinion to the Vitalink Board, to the effect that,
and based upon and subject to the limitations, assumptions, qualifications set
forth therein, as of the date thereof, the consideration to be received by the
holders of Vitalink Common Stock in the Merger is fair to such holders, from a
financial point of view. The full text of SBC Warburg Dillon Read's opinion
dated April 26, 1998, which sets forth a description of the assumptions made,
general procedures followed, matters considered and limitations on the review
undertaken, is set out in Appendix C. Holders of Vitalink Common Stock are
urged to read the opinion carefully in its entirety, especially with regard to
the assumptions made and matters considered by SBC Warburg Dillon Read. The
summary of opinion set forth herein is qualified in its entirety by reference
to the full text of such opinion.
In arriving at its opinion, SBC Warburg Dillon Read, among other things: (i)
reviewed certain publicly available business and historical financial
information relating to Genesis and Vitalink, (ii) reviewed certain internal
non-public estimates and company financial forecasts prepared by the
managements of Genesis and Vitalink, (iii) reviewed certain financial
information and other data provided to SBC Warburg Dillon Read by Vitalink
that is not publicly available relating to the business and prospects of
Vitalink, (iv) reviewed certain financial information and other data provided
to SBC Warburg Dillon Read by Genesis that is not publicly available relating
to the business and prospects of Genesis, (v) conducted discussions with
members of the senior managements of Genesis and Vitalink with respect to the
operations, financial condition, history and prospects of each company, (vi)
reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business SBC Warburg Dillon Read believes
to be generally comparable to those of Genesis and Vitalink, (vii) considered
the pro forma effects of the Merger on Genesis's financial statements and
reviewed certain estimates of synergies prepared by the management of Genesis,
(viii) reviewed the historical market prices of the Genesis Common Stock and
the Vitalink Common Stock, (ix) compared the financial terms of the Merger
with the financial terms of certain other transactions which SBC Warburg
Dillon Read believes to be generally comparable to the Merger, (x) reviewed
the financial terms of the Genesis Preferred Stock, (xi) reviewed the draft
Merger Agreement, and (xii) conducted such other financial studies, analyses,
and investigations, and considered such other information as SBC Warburg
Dillon Read deemed necessary or appropriate, but none of which was
individually material. SBC Warburg Dillon Read's opinion was necessarily based
upon economic, monetary, market and other conditions as in effect on, and the
information made available to SBC Warburg Dillon Read, as of the date thereof.
In connection with its review, SBC Warburg Dillon Read, with Vitalink's
consent, did not assume any responsibility for independent verification of any
of the foregoing information and, with Vitalink's consent, relied on such
information as being complete and accurate in all material respects. In
addition, with Vitalink's consent,
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SBC Warburg Dillon Read did not make or receive any evaluation or appraisal of
any of the assets or liabilities (contingent or otherwise) of Genesis and
Vitalink nor was SBC Warburg Dillon Read furnished with such appraisal or
evaluations. With respect to the financial forecasts, pro forma effects and
estimates of synergies referred to above, SBC Warburg Dillon Read has assumed,
at Vitalink's direction, that the Genesis and Vitalink company financial
forecasts, pro forma information and estimates of synergies have been prepared
reasonably on a basis reflecting the best currently available estimates and
judgments of the respective managements as to the future financial performance
of their respective companies and will be realized in the amounts and at the
times contemplated thereby. In connection with its engagement, SBC Warburg
Dillon Read was requested to approach, and held discussions with, third
parties to solicit indications of interest in a possible acquisition of
Vitalink.
SBC Warburg Dillon Read's opinion does not address Vitalink's underlying
business decision to effect the Merger. In rendering its opinion, SBC Warburg
Dillon Read did not render any opinion as to the value of Genesis or make any
recommendation to the holders of Vitalink Common Stock with respect to the
advisability of disposing of, electing to receive, or retaining Genesis
Preferred Stock or the underlying Genesis Common Stock received in the Merger.
In addition, SBC Warburg Dillon Read did not make any recommendation regarding
whether or not it is advisable for holders of Vitalink Common Stock to vote in
favor of the Merger.
In arriving at its opinion, SBC Warburg Dillon Read did not assign any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments based on its experience in rendering such opinions and
on then existing economic, monetary and market conditions as to the
significance and relevance of each analysis and factor. Accordingly, SBC
Warburg Dillon Read believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, SBC Warburg Dillon Read made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond Genesis's and Vitalink's control. Any
estimates contained in SBC Warburg Dillon Read's analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of a business or securities do not
purport to be appraisals or to reflect the actual prices at which businesses
or securities might be sold. The material valuation methods used are
summarized below.
SBC Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly is engaged
in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. In the past, SBC
Warburg Dillon Read and its predecessors have provided investment banking
services to Vitalink and Manor Care and have received customary compensation
for the rendering of such services. In the ordinary course of business, SBC
Warburg Dillon Read, its predecessors and affiliates, may have traded the
securities of Vitalink and Genesis for their own accounts and, accordingly,
may at any time hold a long or short position in such securities.
Pursuant to the engagement letter between Vitalink and SBC Warburg Dillon
Read, Vitalink has paid to SBC Warburg Dillon Read a fee of $650,000 for the
rendering of its opinion and has agreed to pay SBC Warburg Dillon Read an
additional $2,850,000 upon consummation of the Merger. Vitalink has also
agreed to reimburse SBC Warburg Dillon Read for the expenses reasonably
incurred by it in connection with its engagement (including reasonable counsel
fees) and to indemnify SBC Warburg Dillon Read and its officers, directors,
employees, agents and controlling persons against certain expenses, losses,
claims, damages or liabilities in connection with its services, including
those arising under the federal securities laws.
Analyses Related to Vitalink
Analysis of Selected Comparative Companies. Using publicly available
information, SBC Warburg Dillon Read analyzed selected financial criteria of
companies which, in SBC Warburg Dillon Read's judgment, were
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generally comparable to Vitalink for the purpose of this analysis. The
comparable companies were as follows: NCS HealthCare, Inc. ("NCS"), Omnicare,
Inc. ("Omnicare") and PharMerica, Inc. ("PharMerica") (the "Vitalink
Comparative Companies"). SBC Warburg Dillon Read (i) calculated stock price as
a multiple of estimated calendar 1998 earnings per share ("EPS") based on
industry sources and compared this multiple with the estimated long-term EPS
growth rate based on industry sources; (ii) derived an "enterprise value"
(defined as equity market value plus the book value of debt and preferred
stock less cash and cash equivalents); (iii) calculated enterprise value as a
multiple of latest twelve months ("LTM") revenue, LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") and LTM earnings
before interest and taxes ("EBIT") and (iv) calculated enterprise value as a
multiple of latest quarter annualized ("LQA") revenue, LQA EBITDA and LQA
EBIT.
The range for equity value as a multiple of each of the indicated statistics
for each of the Vitalink Comparative Companies were as follows: estimated 1998
EPS of 30.2x for NCS, 33.8x for Omnicare and 24.0x for PharMerica; and
estimated 1998 price to earnings multiple to estimated long-term EPS growth
rate of 1.00x for NCS, 1.24x for Omnicare and 0.91x for PharMerica, compared
to equity value multiples of 21.1x and 2.17x, respectively, for Vitalink using
a stock price of $22.50 for Vitalink. The range for enterprise value as a
multiple of each of the indicated statistics for each of the Vitalink
Comparison Companies were as follows: LTM and LQA revenue of 1.65x and 1.40x,
respectively, for NCS, 3.52x and 2.78x, respectively, for Omnicare, and 1.69x
and 1.90x, respectively, for PharMerica; LTM and LQA EBITDA of 16.7x and
14.2x, respectively, for NCS, 24.4x and 19.9x, respectively, for Omnicare, and
13.6x and 15.7x, respectively, for PharMerica; and LTM and LQA EBIT of 25.1x
and 20.6x, respectively, for NCS, 30.4x and 25.5x, respectively, for Omnicare,
and 19.2x and 22.4x, respectively, for PharMerica; compared to enterprise
value multiples of 1.55x and 1.36x, 10.9x and 9.8x, and 14.7x and 13.2x,
respectively, for Vitalink using a stock price of $22.50 for Vitalink.
Analysis of Selected Comparative Transactions. Using publicly available
information, SBC Warburg Dillon Read analyzed selected financial criteria of
16 transactions completed or pending in the institutional pharmacy industry
which, in SBC Warburg Dillon Read's judgment, were generally comparable to the
Merger for the purpose of this analysis. The acquisitions reviewed by SBC
Warburg Dillon Read, in reverse chronological order of announcement date were
as follows: the pending acquisition of CompScript, Inc. by Omnicare, the
acquisition of American Medserve Corporation by Omnicare, the merger of
Pharmacy Corporation of America with Capstone Pharmacy Services, Inc., the
acquisition of TeamCare, Inc. by Vitalink, the acquisition of Pompton Nursing
Home Suppliers, Inc. by Omnicare, the acquisition of Symphony Pharmacy
Services, Inc. by Capstone Pharmacy Services, Inc., the acquisition of
NeighborCare Pharmacies Inc. by Genesis, the acquisition of Insta-Care
Holdings Inc. by Pharmacy Corporation of America, the acquisition of the
Institutional Pharmacy Business of Synetic, Inc. by Pharmacy Corporation of
America, the acquisition of Evergreen Pharmaceuticals, Inc. by Omnicare, the
acquisition of LTC Pharmaceutical Services Corporation by GranCare, Inc., the
acquisition of CompuPharm, Inc. by GranCare, Inc., the acquisition of West End
Family Pharmacy, Inc. by Vitalink, the acquisition of Westhaven Services
Corporation by Omnicare, the acquisition of Pharmacare, Inc. by Omnicare, and
the acquisition of Langsam Nursing Pharmacy, Inc. by Omnicare (the
"Comparative Transactions"). SBC Warburg Dillon Read calculated enterprise
value as a multiple of LTM revenue, LTM EBITDA and LTM EBIT.
The range and median for enterprise value as a multiple of each of the
indicated statistics for the Comparative Transactions were as follows: LTM
revenue of 0.83x to 1.77x with a median of 1.31x; LTM EBITDA of 6.1x to 19.2x
with a median of 11.3x; and LTM EBIT of 7.2x to 39.0x with a median of 14.1x.
These results were compared with the implied multiples of Vitalink based on a
purchase price of $22.50 per share of Vitalink Common Stock which were as
follows: LTM revenue of 1.55x; LTM EBITDA of 10.9x; and LTM EBIT of 14.7x.
Discounted Cash Flow Analysis. SBC Warburg Dillon Read performed a
discounted cash flow analysis based on Vitalink's projections with two
scenarios developed by Vitalink management as follows: (i) a base case and
(ii) a downside case. Utilizing several scenarios of Vitalink's projections,
SBC Warburg Dillon Read
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calculated the theoretical discounted present value of equity for Vitalink by
adding together the present value of (i) the future stream of free cash flow
through the year ended May 31, 2003, (ii) the future value of Vitalink at the
end of the year ended May 31, 2003 (the "Terminal Value"), and (iii) the net
debt at November 30, 1997. The Terminal Value was calculated based on terminal
EBITDA multiples of 8.0x to 11.0x. The cash flow streams and terminal values
were then discounted to present values using a range of discount rates from
12.0% to 14.0%. These assumptions yielded per share equity values of Vitalink
from $16.82 to $25.32 under the base case projections, and $15.04 to $22.35
under the downside case projections.
Analyses Related to Genesis
Analysis of Selected Comparative Companies. Using publicly available
information, SBC Warburg Dillon Read analyzed selected financial criteria of
companies which, in SBC Warburg Dillon Read's judgment, were generally
comparable to Genesis for the purpose of this analysis. The comparable
companies were as follows: Health Care and Retirement, Inc., Manor Care,
Paragon Health Network, Inc. and Vencor, Inc. (the "Genesis Comparative
Companies"). SBC Warburg Dillon Read (i) calculated stock price as a multiple
of estimated calendar 1998 EPS based on industry sources and compared this
multiple with the estimated long-term EPS growth rate based on industry
sources; (ii) derived an enterprise value; (iii) calculated enterprise value
as a multiple of LTM revenue and LTM EBITDA; (iv) derived an adjusted
enterprise value (defined as enterprise value plus rental expense multiplied
by eight; and (v) calculated adjusted enterprise value as a multiple of LTM
earnings before interest, taxes, depreciation, amortization and rent
("EBITDAR").
The range and median for equity value as a multiple of each of the indicated
statistics for the Genesis Comparative Companies were as follows: estimated
1998 EPS of 13.8x to 23.2x with a median of 18.5x; and estimated 1998 price to
earnings multiple to estimated long-term EPS growth rate of 0.79x to 1.22x
with a median of 1.06x. The range and median for enterprise value as a
multiple of each of the indicated statistics for the Genesis Comparable
Companies were as follows: LTM revenue of 1.20x to 2.41x with a median of
1.74x; and LTM EBITDA of 8.4x to 14.2x with a median of 11.6x. The range and
median for adjusted enterprise value as a multiple of LTM EBITDAR for the
Genesis Comparable Companies was 8.4x to 13.7x with a median of 11.2x. These
results were compared with the multiples of Genesis based on a price of $25.75
per share of Genesis Common Stock which were as follows: LTM revenue of 1.74x;
LTM EBITDA of 10.8x; and LTM EBITDAR of 10.4x.
No company transaction or business used in the analysis described under
"Analysis of Selected Comparative Companies" and "Analysis of Selected
Comparative Transactions" above is identical to Vitalink or Genesis or the
combined company. Accordingly, an analysis of the results thereof necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect
the transaction or the public trading or other values of the company or
companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not itself a meaningful method of using
such generally comparable acquisition or company data.
Discounted Cash Flow Analysis. SBC Warburg Dillon Read performed a
discounted cash flow analysis based on prevailing publicly available analyst
earnings estimates for Genesis. SBC Warburg Dillon Read performed the
discounted cash flow analysis using several scenarios of the Put/Call
Agreement by and among the Cypress Group L.L.C., a Delaware limited
partnership, TPG Partners II, L.P., a Delaware limited partnership, Nazem,
Inc., a Delaware corporation, and Genesis, dated as of October 9, 1997 (the
"Put/Call Agreement") relating to the acquisition of the MultiCare Companies
Inc., a Delaware corporation, by Genesis and the other signatories thereto.
Utilizing the prevailing publicly available analyst earnings estimates for
Genesis, SBC Warburg Dillon Read calculated the theoretical discounted present
value of equity for Genesis by adding together the present value of (i) the
future stream of free cash flow through the year ended September 30, 2002,
(ii) the future value of Genesis at the end of the year ended September 30,
2002 (the "Terminal Value"), and (iii) the net debt at December 31, 1997. The
Terminal Value was calculated based on terminal EBITDA multiples of 9.0x to
11.0x. The cash flow
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streams and terminal values were then discounted to present values using a
range of discount rates from 11.0% to 13.0%. These assumptions yielded per
share equity values of Genesis of $26.80 to $43.87.
Pro Forma Merger Analysis. SBC Warburg Dillon Read prepared a pro forma
analysis of the impact of the Merger using the projections provided by the
management of Vitalink and the prevailing publicly available analyst earnings
estimates for Genesis for the years ending September 30, 1999, 2000, 2001 and
2002. Assuming projected synergies of $10,600,000 and using prevailing
publicly available analyst forecasts for Genesis, the impact on Genesis's pro
forma earnings per share was mildly dilutive in the year ending September 30,
1999 and increasingly accretive in the years ending September 30, 2000 through
2002.
Genesis Preferred Stock Valuation. SBC Warburg Dillon Read calculated the
theoretical value of the Genesis Preferred Stock by adding together (i) the
present value of the future stream of expected dividend payments and (ii) the
value of the implied option to purchase Genesis's Common Stock at a strike
price of $37.20 per share. The value of future dividend payments was
calculated using a discount rate of 8.875% (based on a spread of 275 basis
points over the 30-year treasury rate). The value of the implied option was
calculated using a Black-Scholes based option pricing model with the following
assumptions (i) a stock price volatility of 40% for Genesis; (ii) an option
life of four years; and (iii) a stock price of $26.36 per share of Genesis
Common Stock (based on the 10-day average closing price). Based on these
assumptions, SBC Warburg Dillon Read calculated that the Genesis Preferred
Stock had a theoretical value of approximately 98% of par.
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION FOLLOWING THE MERGER
The initial directors and the initial officers of the Surviving Corporation
shall be the directors and officers of the Surviving Corporation following the
Merger, in each case, until their successors are elected and qualified or
until their resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until the following steps have been taken: (1)
Premerger Notification and Report Forms have been submitted and certain
information has been furnished to the FTC and the Antitrust Division; and (2)
required waiting periods have expired or been terminated.
Genesis and Vitalink agreed, pursuant to the Merger Agreement, to use their
commercially reasonable efforts to file or cause to be filed with the FTC and
the Antitrust Division, as promptly as practicable, such notifications as are
required to be filed under the HSR Act and the rules and regulations
promulgated thereunder, and to respond as promptly as practicable to any
requests for additional information made by either the FTC or the Antitrust
Division. Accordingly, Genesis and Vitalink each filed Premerger Notification
and Report Forms with the FTC and the Antitrust Division on May 22, 1998. The
statutory waiting period expired on June 21, 1998.
At any time before or after the consummation of the Merger and
notwithstanding the expiration or termination of the HSR Act waiting period,
any federal or state antitrust authorities could take action under the
antitrust laws as they deem necessary or desirable in the public interest.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of all or part of the assets of Genesis or Vitalink.
Private parties may also seek to take legal action under the antitrust laws,
if circumstances permit.
If the Antitrust Division, or any other federal or state antitrust
authority, were to challenge the Merger, the consummation of the Merger could
be postponed beyond November 30,1998, in which event, either Genesis or
Vitalink may terminate the Merger Agreement pursuant to its terms at any time
after December 31, 1998. See "The Merger Agreement--Termination."
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Many of the states in which Vitalink transacts business require Genesis to
provide notice of the Merger or to receive certain approvals in connection
with the consummation of the Merger. These regulatory requirements relate to
licensure, dispensing of controlled substances and participation in the
Medicare and Medicaid programs. In addition, the Health Care Financing
Administration and the Drug Enforcement Administration may require notice of
the Merger and may require Genesis to obtain certain approvals in connection
with the consummation of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Vitalink's management and the Vitalink Board may be
deemed to have interests in the Merger in addition to their interests as
Vitalink stockholders generally, which may cause potential conflicts of
interest. In addition, certain members of the Manor Care Board of Directors
are also members of the Vitalink Board and, in connection with the Merger,
Manor Care has entered into certain agreements with Genesis. The Vitalink
Board was aware of these factors and considered them, among other factors, in
approving the Merger. See "Agreements between Manor Care and Genesis." Such
factors include (i) the acceleration of the vesting of Vitalink options as a
result of the consummation of the Merger as described under "The Merger
Agreement--Effect on Options"; (ii) the treatment of Vitalink options in the
Merger as described under "The Merger Agreement--Effect on Options"; (iii) the
indemnification to be provided pursuant to the terms of the Merger Agreement
as described under "The Merger Agreement--Indemnification; Insurance"; (iv)
the payment by Genesis of the premiums for directors' and officers' liability
insurance for current Vitalink directors and officers as described under "The
Merger Agreement--Indemnification; Insurance"; (v) the cash payments to be
received by such persons as a result of the early termination of Vitalink
incentive compensation plans and employment agreements; and (vi) certain
agreements between Manor Care and Genesis. See "Agreements between Manor Care
and Genesis." Manor Care is also party to various operating agreements with
Vitalink which will continue in effect after the Effective Time. See
"Relationship between Vitalink and Manor Care."
As of July 1, 1998, 10 executive officers and directors of Vitalink (as a
group) beneficially owned an aggregate of 372,015 shares of Vitalink Common
Stock (excluding shares subject to outstanding stock options). All such shares
will be treated in the Merger in the same manner as shares of Vitalink Common
Stock held by other stockholders of Vitalink.
As of July 1, 1998, the executive officers of Vitalink (as a group) also
held options to purchase an aggregate of 371,900 shares of Vitalink Common
Stock pursuant to Vitalink's stock option plans, of which 257,670 were not
currently exercisable. In addition, as of July 1, 1998, the non-employee
directors of Vitalink (as a group) held options to purchase an aggregate of
40,000 shares of Vitalink Common Stock of which 36,000 were not currently
exercisable. Upon the consummation of the Merger, all of the options held by
such executive officers and non-employee directors will immediately become
exercisable in full. The treatment of such options is described under "The
Merger Agreement--Effect on Options."
Certain executive officers of Vitalink have entered into consulting
agreements with Vitalink pursuant to which each of them will provide
consulting services to Vitalink beginning on the date of such officer's
termination of employment with Vitalink and ending on a date 12-18 months
after the Effective Time. No consulting agreement will be effective if the
officer is terminated after April 30, 1999.
ACCOUNTING TREATMENT
Genesis will account for the Merger using the purchase method of accounting
under generally accepted accounting principles ("GAAP") and the rules and
regulations of the Commission. Under the purchase method of accounting,
Genesis will be treated as the acquiror of Vitalink and, as a result, the net
assets of Vitalink will be recorded on Genesis's books at their estimated fair
market value. See "Summary--Summary Unaudited Pro Forma Financial Data" and
"Unaudited Pro Forma Financial Information."
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EXPENSES
Each of Genesis and Vitalink will each bear its respective expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby, including, without limitation, the preparation, execution and
performance of the Merger Agreement and the transactions contemplated thereby
and all fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that expenses incurred in
printing, mailing and filing (including, without limitation, Commission filing
fees and stock exchange listing application fees) this Joint Proxy
Statement/Prospectus and the Registration Statement shall be paid equally by
Genesis and Vitalink. Genesis and Vitalink estimate the foregoing fees and
expenses will total $ .
DELISTING AND DEREGISTRATION OF VITALINK COMMON STOCK
If the Merger is consummated, the Vitalink Common Stock will be delisted
from the NYSE and deregistered under the Exchange Act.
TREATMENT OF STOCK CERTIFICATES
After the Effective Time, each certificate previously representing shares of
Vitalink Common Stock will automatically, with no further action by the holder
thereof, represent the right to receive: (x) $22.50 in cash, (y) .045 of a
share of Genesis Preferred Stock or (z) a combination of cash and a fraction
of a share of Genesis Preferred Stock. ChaseMellon Shareholder Services,
L.L.C. is the transfer agent and registrar (the "Exchange Agent") for Genesis.
A form for electing the form of Closing Consideration and for use in
exchanging certificates formerly representing shares of Vitalink Common Stock
for cash or certificates representing shares of Preferred Stock or for cash
(the "Election and Transmittal Form") will be mailed to Vitalink stockholders
as of the Special Meeting Record Date. The Election and Transmittal Form,
together with the certificates representing shares of Vitalink Common Stock,
should be returned pursuant to the instructions contained on such form and as
further described under "The Merger Agreement--Election Procedures."
VITALINK STOCKHOLDERS THAT WISH TO RECEIVE GENESIS PREFERRED STOCK AS PART
OF THE CLOSING CONSIDERATION SHOULD SUBMIT AN ELECTION AND TRANSMITTAL FORM
AND SHOULD DELIVER THEIR STOCK CERTIFICATES TOGETHER WITH SUCH ELECTION AND
TRANSMITTAL FORM.
If a holder of Vitalink Common Stock does not submit such holder's stock
certificates with a properly completed Election and Transmittal Form by 5:00
p.m. New York time on the last business day prior to the Effective Time, such
holder will be deemed to have made a Non-Election. Until surrendered, each
certificate which immediately prior to the Effective Time represented
outstanding shares of Vitalink Common Stock (the "Certificates") will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing cash or shares of
Genesis Preferred Stock, cash in lieu of any fractional shares of Genesis
Preferred Stock and any dividends or other distributions to which such holder
is entitled. Holders of Vitalink Common Stock who surrender a Certificate for
cancellation to the Exchange Agent together with such documents as may be
required will receive in exchange for such Certificate (i) cash to which such
holder is entitled; (ii) a certificate representing that number of whole
shares of Genesis Preferred Stock which such holder has the right to receive
in respect of the shares of Vitalink Common Stock formerly represented by such
Certificate; (iii) cash in lieu of fractional shares of Genesis Preferred
Stock; and (iv) any dividends or other distributions to which such holder is
entitled as described below, and the Certificate so surrendered will forthwith
be canceled. In the event of a transfer of ownership of shares of Vitalink
Common Stock which is not registered in the transfer records of Vitalink, cash
and/or a certificate representing the proper number of shares of Genesis
Preferred Stock may be paid and/or issued to the transferee if the Certificate
representing such shares of Vitalink Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
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Promptly after completion of the election allocation and adjustment
procedures relating to the Closing Consideration, Genesis will deposit or
cause to be deposited with the Exchange Agent the applicable amounts of cash
and Genesis Preferred Stock that comprise the Closing Consideration.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Genesis Preferred Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to Genesis Preferred Stock represented thereby, and
no cash payment or cash payment in lieu of fractional shares of Genesis
Preferred Stock will be paid to any such holder until the holder of such
Certificate surrenders such Certificate nor will such holder have voting
rights with respect thereto.
Neither Genesis nor Vitalink will be liable to any holder of Vitalink Common
Stock for any Genesis Preferred Stock (or dividends or distributions with
respect thereto) or cash in respect of shares of Vitalink Common Stock or in
lieu of fractional shares of Genesis Preferred Stock delivered to a public
official pursuant to any abandoned property, escheat or similar law.
Each holder of shares of Vitalink Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Genesis Preferred Stock will receive, in lieu of such fraction of a share,
cash in an amount equal to such fraction divided by .045 and multiplied by
$22.50. No such holder will be entitled to dividends, voting rights or any
other rights as stockholder in respect of any fractional shares of Genesis
Preferred Stock.
After the Effective Time, there will be no transfers on the stock transfer
books of Vitalink of the shares of Vitalink Common Stock.
RIGHTS OF DISSENTING VITALINK STOCKHOLDERS
Each holder of Vitalink Common Stock has the right to dissent from the
Merger and demand and perfect appraisal rights in accordance with the
conditions established by Section 262 of the DGCL ("Section 262").
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX D. THIS DISCUSSION AND APPENDIX D SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER OF VITALINK COMMON STOCK WHO WISHES TO EXERCISE
STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT
IN THE LOSS OF APPRAISAL RIGHTS.
A holder of record of Vitalink Common Stock as of the Special Meeting Record
Date who makes the demand described below with respect to such shares, who
continuously is the record holder of such shares through the Effective Time,
who otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the Merger Agreement nor consents thereto in writing
may be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his or her shares of stock. All
references in this summary of appraisal rights to a "stockholder" is to the
record holder or holders of shares of Vitalink Common Stock. Except as set
forth herein, stockholders of Vitalink will not be entitled to appraisal
rights in connection with the Merger. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Vitalink Common Stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares is not expressly stated, the demand
will be presumed to cover all shares of Vitalink Common Stock outstanding in
the name of such record owner.
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Prior to the Vitalink Special Meeting, a stockholder who elects to exercise
appraisal rights, if available, should mail or deliver his or her written
demand to Vitalink Pharmacy Services, Inc., 1250 East Diehl Road, Suite 208,
Naperville, IL 60563, Attn: Robert W. Horner, III, Secretary.
The written demand for appraisal must be received prior to the Vitalink
Special Meeting, should specify the stockholder's name and mailing address,
the number of shares of Vitalink Common Stock owned and that the stockholder
is thereby demanding appraisal of his or her shares. A proxy or vote against
the Merger Agreement will not by itself constitute such a demand. Within ten
days after the Effective Time, the surviving corporation must provide notice
of the Effective Time to all stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section
262 may file a petition in the Delaware court, with a copy served on the
Surviving Corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. Accordingly, Vitalink stockholders who desire to have their
shares appraised should initiate any petitions necessary for the perfection of
their appraisal rights within the time periods and in the manner prescribed in
Section 262. If appraisal rights are available, within 120 days after the
Effective Time, any stockholder who has theretofore complied with the
applicable provisions of Section 262 will be entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of shares of Vitalink Common Stock not voting in favor of the
Merger Agreement and with respect to which demands for appraisal were received
by Vitalink and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Surviving Corporation. If a petition for an appraisal is timely filed and
assuming appraisal rights are available, at the hearing on such petition, the
Delaware Court will determine which stockholders, if any, are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceeding; and if any
stockholder fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such stockholder. Where proceedings are not
dismissed, the Delaware Court will appraise the shares of Vitalink Common
Stock owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining fair
value, the court is to take into account all relevant factors. In Weinberger
v. UOP, the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceedings, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered, and that "fair price obviously requires consideration of
all relevant factors involving the value of a company." The Delaware Supreme
Court stated that in making this determination of fair value the court must
consider market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other facts ascertainable as of the date of the
merger that are useful in determining the future prospects of the merged
corporation. Initially, the Delaware Supreme Court stated that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware Court
and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of Vitalink, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to an appraisal.
Any holder of shares of Vitalink Common Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time,
be entitled to vote for any purpose any shares subject to such
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demand or to receive payment of dividends or other distributions on such
shares, except for dividends or distributions payable to stockholders of
record at a date prior to the Effective Time.
If no petition for appraisal is filed with the Delaware Court within 120
days after the Effective Time, stockholders' rights to appraisal shall cease.
Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the Surviving Corporation a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except that (i) any such
attempt to withdraw made more than 60 days after the Effective Time will
require written approval of the surviving corporation and (ii) no appraisal
proceeding in the Delaware court will be dismissed as to any stockholder
without the approval of the Delaware Court, which may be conditioned upon such
terms as the Delaware Court deems just.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions, including all
material terms, of the Merger Agreement. This summary is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference in its entirety.
GENERAL
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the requisite vote of the shareholders of Genesis and
the stockholders of Vitalink and the satisfaction or waiver of the other
conditions to the Merger, Vitalink will be merged with and into Acquisition
Corporation and Acquisition Corporation will be the surviving corporation in
the Merger and continue its corporate existence under the laws of the State of
Delaware.
Subject to the terms and conditions of the Merger Agreement, the Merger will
become effective at the date and time when a properly executed Certificate of
Merger is filed with the Secretary of State of the State of Delaware (the
"Effective Time"). See "--Conditions." At the Effective Time, the certificate
of incorporation and bylaws of Acquisition Corporation will become the
certificate of incorporation and bylaws of the Surviving Corporation.
CLOSING CONSIDERATION
At the Effective Time, each outstanding share of Vitalink Common Stock will,
by virtue of the Merger and without any action on the part of the holders
thereof, be converted into the right to receive (x) $22.50 in cash, (y) .045
of a share of Genesis Preferred Stock or (z) a combination of cash and a
fraction of a share of Genesis Preferred Stock. The actual consideration
ultimately received by a Vitalink stockholder will depend upon certain
allocation and proration procedures and the election of other Vitalink
stockholders. Of the aggregate consideration payable to holders of Vitalink
Common Stock in the Merger, 50% will be in the form of cash and 50% will be in
the form of Genesis Preferred Stock.
ELECTION PROCEDURES
Each stockholder of Vitalink will be entitled to elect to receive cash or
Genesis Preferred Stock or to indicate that such stockholder has no preference
as to the form of its Closing Consideration (a "Non-Election"). The election
will be made on the Election and Transmittal Form to be mailed by the Exchange
Agent to each Vitalink stockholder as of the Special Meeting Record Date.
Since Manor Care has agreed to elect to receive Genesis Preferred Stock for
all of its shares of Vitalink Common Stock, the effect of a Non-Election will
be the same as an election for cash. Due to proration and allocation
procedures, there can be no assurance that a holder of Vitalink Common Stock
will receive the form of Closing Consideration it elects.
ONLY STOCKHOLDERS OF VITALINK THAT DESIRE TO RECEIVE GENESIS PREFERRED STOCK
AS CLOSING CONSIDERATION NEED TO COMPLETE AND RETURN THE ELECTION AND
TRANSMITTAL FORM.
The stockholders of Vitalink will make an election by mailing the Election
and Transmittal Form to the Exchange Agent. To be effective, an Election and
Transmittal Form must be properly completed, signed and submitted by a record
holder of Vitalink Common Stock to the Exchange Agent and accompanied by
certificates representing the shares of Vitalink Common Stock as to which the
election is being made (or by an appropriate trust company in the United
States or a member of a registered national securities exchange or the
National Association of Securities Dealers, Inc. (the "NASD")). Holders of
record of shares of Vitalink Common Stock who hold such shares as nominees,
trustees or in other representative capacities ("Representatives") may submit
multiple Election and Transmittal Forms, provided that such Representatives
certify in writing that each such Election and Transmittal Form covers all the
shares of Vitalink Common Stock held by each Representative for a particular
beneficial owner. Vitalink will have the discretion, which it may delegate in
whole or in part to the
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Exchange Agent, to determine whether Election and Transmittal Forms have been
properly completed, signed and submitted or revoked and to disregard
immaterial defects in Election and Transmittal Forms. The decision of Vitalink
(or the Exchange Agent) in such matters will be conclusive and binding.
Neither Vitalink nor the Exchange Agent will be under any obligation to notify
any person of any defect in an Election and Transmittal Form submitted to the
Exchange Agent. The Exchange Agent will also make all computations to ensure
that the Closing Consideration is 50% in the form of cash and 50% in the form
of Genesis Preferred Stock and all such computations will be conclusive and
binding on the holders of Vitalink Common Stock. Election and Transmittal
Forms and other appropriate and customary transmittal materials (which will
specify that delivery will be effected, and risk of loss and title to the
certificates theretofore representing shares of Vitalink Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent)
will be in such form as Genesis and Vitalink may mutually agree.
For the purposes hereof, a holder of Vitalink Common Stock that does not
submit an Election and Transmittal Form which is received by the Exchange
Agent prior to the Election Deadline (as defined below) will be deemed to have
made a Non-Election and will receive Closing Consideration in the form of
cash. If Vitalink or the Exchange Agent determines that any purported cash
election or Genesis Preferred Stock election was not properly made with
respect to any or all of the shares of Vitalink Common Stock of a holder, such
purported cash election or Genesis Preferred Stock election will be deemed to
be of no force and effect and the stockholder making such purported cash
election or Genesis Preferred Stock election will, for purposes hereof, be
deemed to have made a Non-Election.
Upon surrender to the Exchange Agent of a certificate or certificates
representing shares of Vitalink Common Stock, together with an Election and
Transmittal Form duly executed and any other required documents, the holder of
such certificates will be entitled to receive from Genesis in exchange
therefor the Closing Consideration which such holder has the right to receive
under the Merger Agreement, and such certificates shall forthwith be canceled.
If any shares of Genesis Preferred Stock are to be issued to a person other
than the person in whose name the certificates surrendered are registered, it
shall be a condition of exchange that the certificates so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the exchange of the certificates surrendered to a person other than
the registered holder or such person shall establish to the satisfaction of
Genesis that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of the Merger Agreement, each certificate shall
represent, for all purposes, the right to receive the Closing Consideration in
respect of the number of shares of Vitalink Common Stock evidenced by such
certificate, without any interest thereon.
Genesis and Vitalink will each use its best efforts to mail the Election and
Transmittal Forms to all persons or entities who become holders of Vitalink
Common Stock during the period between the Special Meeting Record Date and
10:00 a.m., New York time, on the date five business days prior to the
anticipated Effective Time and to make the Election and Transmittal Form
available to all persons or entities who become holders of Vitalink Common
Stock subsequent to such day and no later than the close of business on the
business day prior to the Effective Time. Persons who become holders of
Vitalink Common Stock after the Special Meeting Record Date or any other
holders of Vitalink Common Stock who need an Election and Transmittal Form may
obtain copies thereof upon request from the Exchange Agent. An Election and
Transmittal Form must be received by the Exchange Agent by 5:00 p.m. on the
last business day prior to the Effective Time (the "Election Deadline") in
order to be effective. All elections may be revoked by writing to the Exchange
Agent received prior to the Election Deadline.
AN ELECTION AND TRANSMITTAL FORM IS BEING SENT TO HOLDERS OF RECORD OF
VITALINK COMMON STOCK ON THE SPECIAL MEETING RECORD DATE. THE INSTRUCTIONS TO
THE ELECTION AND TRANSMITTAL FORM SPECIFY THAT
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DELIVERY WILL BE EFFECTED, AND RISK OF LOSS AND TITLE TO THE CERTIFICATES
REPRESENTING SHARES OF VITALINK COMMON STOCK WILL PASS, ONLY UPON PROPER
DELIVERY OF SUCH CERTIFICATES TO THE EXCHANGE AGENT. TO BE EFFECTIVE, AN
ELECTION AND TRANSMITTAL FORM MUST BE PROPERLY COMPLETED AND SIGNED AND MUST
BE RECEIVED BY CHASEMELLON SHAREHOLDER SERVICES, L.L.C, AS EXCHANGE AGENT,
ACCOMPANIED BY ALL STOCK CERTIFICATES REPRESENTING SHARES OF VITALINK COMMON
STOCK HELD BY THE PERSON SUBMITTING SUCH ELECTION AND TRANSMITTAL FORM NO
LATER THAN 5:00 P.M. NEW YORK TIME ON THE LAST BUSINESS DAY PRIOR TO THE
EFFECTIVE TIME. THE EFFECTIVE TIME OF THE MERGER IS ANTICIPATED TO OCCUR
. THUS, EACH HOLDER OF VITALINK COMMON STOCK SHOULD DELIVER A PROPERLY
COMPLETED ELECTION AND TRANSMITTAL FORM TO THE EXCHANGE AGENT NO LATER THAN
5:00 P.M. NEW YORK TIME, ON (THE LAST BUSINESS DAY IMMEDIATELY PRIOR TO
THE ANTICIPATED EFFECTIVE TIME). NO ASSURANCE CAN BE GIVEN THAT THE EFFECTIVE
TIME WILL NOT BE DELAYED. GENESIS AND VITALINK WILL ANNOUNCE PUBLICLY ANY
DELAY IN THE EFFECTIVE TIME AND THE NEW DATE BY WHICH ELECTION AND TRANSMITTAL
FORMS MUST BE SUBMITTED. ALL ELECTIONS MAY BE REVOKED UNTIL 5:00 P.M. NEW YORK
TIME ON THE LAST BUSINESS DAY PRIOR TO THE EFFECTIVE TIME IN ACCORDANCE WITH
THE PROCEDURES SET FORTH ON THE ELECTION AND TRANSMITTAL FORM.
HOLDERS OF SHARES OF VITALINK COMMON STOCK THAT WISH TO RECEIVE GENESIS
PREFERRED STOCK AS PART OF THE CLOSING CONSIDERATION SHOULD SUBMIT AN ELECTION
AND TRANSMITTAL FORM AND SHOULD DELIVER THEIR STOCK CERTIFICATES TOGETHER WITH
SUCH ELECTION AND TRANSMITTAL FORM.
ANY HOLDER OF VITALINK COMMON STOCK THAT DOES NOT SUBMIT A PROPERLY
COMPLETED ELECTION AND TRANSMITTAL FORM ACCOMPANIED BY THE APPLICABLE STOCK
CERTIFICATES WHICH IS RECEIVED AND ACCEPTED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M. NEW YORK TIME ON JULY 30, 1998 (OR SUCH LATER DATE AS GENESIS AND
VITALINK SHALL PUBLICLY ANNOUNCE) WILL BE DEEMED TO HAVE MADE A NON-ELECTION
AND WILL RECEIVE CLOSING CONSIDERATION IN THE FORM OF CASH.
Subsequent to the Effective Time, the Exchange Agent will mail a letter of
transmittal to holders of record of Vitalink Common Stock immediately prior to
the Effective Time who did not previously deliver their stock certificates
with an Election and Transmittal Form for use in submitting such certificates
in exchange for Closing Consideration. See "The Merger--Treatment of Stock
Certificates."
The tax consequences of receiving cash and/or Genesis Preferred Stock are
different. See "Certain Federal Income Tax Consequences."
NO FRACTIONAL GENESIS PREFERRED STOCK
Each holder of shares of Vitalink Common Stock who, upon surrender of all
Certificates of such holder, would be entitled to receive a fraction of a
share of Genesis Preferred Stock will not be entitled to receive dividends on
or vote such fraction of a share and will receive, in lieu of such fraction of
a share, cash in an amount equal to such fraction divided by .045 and
multiplied by $22.50.
EFFECT ON OPTIONS
Prior to the Effective Time, the Vitalink Board will take action to adjust
the terms of all outstanding employee stock options to purchase shares of
Vitalink Common Stock and all outstanding stock appreciation rights related
thereto previously granted under any stock option or stock appreciation rights
plan, program or arrangement of Vitalink (collectively, the "Vitalink Plans"),
to provide for the treatment of such options and stock appreciation rights as
set forth below.
At the Effective Time, each option (and any stock appreciation right related
thereto) outstanding immediately prior to the Effective Time if not already
vested, by its terms, will vest. All options with an exercise price below
$22.50 (the "Per Share Cash Consideration") will be canceled as of the
Effective Time in exchange
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for cash payable at the Effective Time by the Surviving Corporation in an
amount equal to the product of the total number of shares of Vitalink Common
Stock subject to such option and the excess of the Per Share Cash
Consideration over the exercise price per share of Vitalink Common Stock
subject to such option. Except as provided in the Merger Agreement, or as
otherwise agreed to by the parties, the Vitalink Plans will terminate as of
the Effective Time and the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of Vitalink or any of its subsidiaries will be
deleted as of the Effective Time.
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, all of the obligations of Vitalink under the
Vitalink Plans with respect to options with an exercise price at or above the
Per Share Cash Consideration will terminate except for such options which by
their terms require that they continue after the Merger (the "Continuing
Options"). Each Continuing Option will be exchanged for options of Genesis
exercisable for the number of shares of Genesis Common Stock equal to the
number of shares of Vitalink Common Stock subject to such options multiplied
by the Per Share Cash Consideration and divided by the market price of the
Genesis Common Stock as of the Effective Time. The option price per share of
the Genesis Common Stock will be determined in accordance with a Black-Scholes
pricing model based upon the relative market value of Genesis Common Stock as
of the Effective Time and the option price of the Vitalink Common Stock.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties by each of Genesis, Acquisition Corporation and Vitalink (as to
such party) relating to the following matters (which representations and
warranties are subject, in certain cases, to specified exceptions): (i) the
due organization, qualification, power and good standing of Genesis and
Vitalink and their respective subsidiaries; (ii) the capitalization of each of
Genesis and Vitalink; (iii) the authority of each of Genesis, Acquisition
Corporation and Vitalink to execute, deliver and perform the Merger Agreement
and the transactions contemplated thereby, and the enforceability of the
Merger Agreement; (iv) the approval by the Genesis Board, the Vitalink Board
and the Board of Directors of Acquisition Corporation regarding certain
related matters; (v) the receipt of all necessary governmental or regulatory
authorizations, consents or approvals required to consummate the Merger; (vi)
the absence of any conflict with, or violations of, the corporate documents
and certain binding instruments of each of Genesis and Vitalink or their
respective subsidiaries or with or of any rule, regulation, order or decree of
courts or governmental entities, subject to certain exceptions; (vii) the
accuracy of reports and documents filed by each of Genesis and Vitalink with
the Commission since September 30, 1997 and May 31, 1997, respectively, and
certain financial statements of each of Genesis and Vitalink filed therewith;
(viii) the absence of change of control puts with respect to Vitalink upon the
transactions contemplated by the Merger Agreement; (ix) the absence of
undisclosed liabilities of Genesis and Vitalink as of September 30, 1997 and
May 31, 1997, respectively, or obligations of Genesis, Vitalink and each of
their respective subsidiaries; (x) the absence of material changes in the
business of Genesis and its subsidiaries since December 31, 1997 and the
absence of material changes in the business of Vitalink and its subsidiaries
since February 28, 1998; (xi) the absence of litigation involving either
Genesis or Vitalink or their respective subsidiaries that would have a
material adverse effect on the business of either party; and (xii) compliance
by each of Genesis and Vitalink and their respective subsidiaries with
applicable laws, ordinances, regulations, rules and orders.
In addition, the Merger Agreement contains representations and warranties
relating to the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) Vitalink's valid
leasehold interest in all of the properties utilized by Vitalink; (ii)
Vitalink's compliance with all laws, rules and regulations affecting or in
connection with its pharmacy business and all licenses with respect thereto;
(iii) Vitalink's compliance with all rules, regulations, policies and
procedures of governmental programs, including Medicare and Medicaid, relating
to billings, charges and costs for goods and services provided; (iv)
compliance by Genesis and Vitalink with all applicable environmental laws; (v)
the maintenance of adequate insurance by each of Genesis and Vitalink; (vi)
the right to use and the absence of disputes concerning intellectual property
rights of
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Genesis and Vitalink; (vii) the filing of all necessary tax returns and
payment of all taxes due and notices of assessment received by Genesis and
Vitalink; (viii) the employee benefit plans of Genesis and Vitalink; (ix) the
compliance by Genesis and Vitalink with all applicable employment laws; (x)
the absence of any breaches or defaults on any contracts to which Genesis or
Vitalink is a party which would, individually or in the aggregate, impair the
ability of either Genesis or Vitalink to consummate the Merger and the
transactions contemplated thereby; (xi) the disclosure by Vitalink of all its
contracts: (a) which require it to make annual payments in excess of $250,000,
(b) to guarantee the performance of another party, (c) that are with an
officer, director or a holder of more than 5% of the outstanding shares of
Vitalink, (d) that restrict where or the type of business Vitalink may engage
in, or (e) that contain any provisions relating to a change in control; (xii)
Vitalink has taken all necessary actions to exempt the Merger and the
transactions contemplated thereby from the anti-takeover provisions of the
DGCL and any other state anti-takeover statute or regulation; (xiii) the
disclosure by Vitalink of all of its subsidiaries' bank accounts and safe
deposit boxes; (xiv) the receipt of a fairness opinion by Genesis from Merrill
Lynch and by Vitalink from SBC Warburg Dillon Read; and (xv) the absence of
any brokerage, finder's or other fee due in connection with the Merger
(except, in the case of Genesis, such fees incurred in connection with the
services of Merrill Lynch and, in the case of Vitalink, such fees payable to
SBC Warburg Dillon Read).
Non-survival of Representations and Warranties. The representations and
warranties of Vitalink and Genesis will not survive the Effective Time,
although it is a condition of each party's obligations under the Merger
Agreement that the other party's representations and warranties (unless made
as of a specified date) be true and correct in all material respects as if
made as of the Effective Time.
COVENANTS
Conduct of Business Pending the Merger. The Merger Agreement provides that,
except as contemplated thereby or as otherwise previously disclosed to
Genesis, from the date of the Merger Agreement until the Effective Time,
Vitalink and each of its subsidiaries will conduct its operations as set forth
in this paragraph. Without the prior written consent of Genesis, Vitalink
agrees not to (i) amend its organizational documents; (ii) split, combine or
reclassify shares of its capital stock, or pay any dividend or other
distribution or redeem any of its capital stock, debt securities or
indebtedness; (iii) consolidate or merge with another entity or sell or
transfer any capital stock or transfer 5% or more of its assets to another
person; (iv) enter into affiliate transactions on terms less favorable than
those that could have been obtained from a third party on an arm's-length
basis; (v) authorize any agreement with respect to any plan of liquidation or
dissolution; (vi) except in the ordinary course of business consistent with
past practice, enter into, modify or amend any material contract or relinquish
any material contract rights, and even in the ordinary course, enter into a
supply or vendor agreement which requires annual payments in excess of
$250,000 which is not terminable by Vitalink upon 30 days' or less notice;
(vii) authorize or commit to make capital expenditures in excess of $3.0
million per calendar quarter; (viii) permit any insurance policy which names
it as a beneficiary or loss payee to be cancelled, terminated or materially
altered; (ix) maintain its books and records in a manner not in the ordinary
course of business consistent with past practice; (x) institute any change in
accounting methods except as may be appropriate to conform to changes in
applicable law or GAAP; (xi) revalue any of its assets, write down the value
of its inventory or write off notes or accounts receivable, except in the
ordinary course of business consistent with past practice or as may be
appropriate to conform to changes in law or GAAP; (xii) pay or discharge any
liabilities other than as required by law or in the ordinary course of
business consistent with past practice; (xiii) take any action that is likely
to have a material adverse effect on the ability of Genesis or Vitalink to
consummate the Merger or materially delay the consummation thereof; (xiv)
issue, sell, deliver or grant any options, warrants, calls, subscriptions or
other rights that are exchangeable into or exercisable for shares of capital
stock of Vitalink; (xv) (1) incur indebtedness other than under working
capital facilities but in no event in excess of $10,000,000 in the aggregate
at any one time outstanding, (2) assume, guarantee or otherwise become liable
for the debts of any other individual, firm or corporation not in the ordinary
course of business consistent with past practice, (3) enter into any material
transaction not in the ordinary course of business consistent with past
practice or (4) incur any liabilities that would have a material adverse
effect on Vitalink; (xvi) except as otherwise previously disclosed to Genesis,
(1) increase the compensation of its directors, officers or employees, except
in the ordinary
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course of business consistent with past practice, (2) pay any pension,
retirement allowance or other employee benefit or enter into any contract with
any of its past or present employees relating to any pension, retirement
allowance or other employee benefit, except (as to other than directors or
officers) in the ordinary course of business consistent with past practice or
as required under agreements, plans, or arrangements existing as of the date
of the Merger Agreement, (3) grant any severance or termination pay or enter
into or amend any severance plan except as required to under agreements
existing as of the date of the Merger Agreement, (4) enter into or amend any
contract with any past or present officers and directors, or, except in the
ordinary course of business consistent with past practice, enter into an
agreement with any past or present other employees or (5) become obligated
under any new pension or other employee benefit plan not in existence as of
the date of the Merger Agreement, including any bonus, incentive or other
benefit plan, except as required to comply with applicable law or amend such
plans, contracts, agreements, or understandings in existence prior to the date
of the Merger Agreement, except for the renewal of existing bonus or incentive
plans in the ordinary course of business; (xvii) sell or otherwise dispose of
any lease or license to any of its material real properties; (xviii) acquire
any interest in any corporation or entity other than acquisitions in the
ordinary course of business consistent with past practice; or (xix) grant any
material license to use any of its intellectual property rights.
Prior to the Effective Time, without the prior written consent of Vitalink,
Genesis agrees not to (i) amend its organizational documents; (ii) split,
combine or reclassify shares of its capital stock, or pay any dividend or
distribution, except pursuant to agreements in effect as of the date of the
Merger Agreement; (iii) authorize any agreement with respect to any plan of
liquidation or dissolution; (iv) maintain its books and records in a manner
not in the ordinary course of business consistent with past practice; (v)
institute any change in accounting methods except as may be appropriate to
conform to changes in applicable law or GAAP; (vi) revalue any of its assets,
write down the value of its inventory or write off notes or accounts
receivable, except in the ordinary course of business consistent with past
practice or as may be appropriate to conform to changes in law or GAAP; (vii)
take any action that is likely to have a material adverse effect on the
ability of Genesis or Vitalink to consummate the Merger or materially delay
the consummation thereof; (viii) except as otherwise agreed by the parties,
not to take any action to sell, transfer or otherwise dispose of, or enter
into any agreement to, dispose of, any institutional pharmacy of Vitalink; or
(ix) enter into any Credit Impairing Transaction, which is defined as any
transaction which would (A) violate Genesis's Third Amended and Restated
Credit Agreement, (B) downgrade Genesis's credit rating or (C) result in an
event of default under any debt instrument of Genesis with outstanding
principal amount of $30 million.
No Solicitation. Each of Vitalink and its subsidiaries has agreed in the
Merger Agreement that it will not, and will use its best efforts to cause its
and its subsidiaries' respective directors, officers, employees, investment
bankers, attorneys and other agents and representatives not to, directly or
indirectly, (x) solicit, initiate, or knowingly facilitate or encourage
(including by way of furnishing or disclosing information) any inquiries or
the making of any offer or proposal by any corporation, partnership, trust,
person or other entity or group (a "Third Party") with respect to, or that
could reasonably be expected to lead to, any merger, consolidation, share
exchange, business combination, tender or exchange offer or other similar
transaction regarding it or any of its subsidiaries and involving the
acquisition of all or substantially all of the assets of it and any of its
subsidiaries, taken as a whole, or a significant equity interest in (including
by way of tender offer), or a recapitalization or restructuring of, it or any
of its subsidiaries (any of the foregoing being an "Acquisition Transaction")
or (y) negotiate, explore or otherwise communicate in any way with any Third
Party with respect to any Acquisition Transaction or enter into, approve or
recommend any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by the Merger Agreement. The Merger Agreement provides, however,
that Vitalink may, in response to a bona fide, written offer made by a
financially responsible Third Party with respect to an Acquisition Transaction
(a "Superior Proposal") which was not solicited after the date of the Merger
Agreement, furnish information to, or engage in discussions and negotiations
with, such Third Party, but only if (A) the Vitalink Board, having received
(x) the advice of outside legal counsel that failure to take such action would
be inconsistent with its fiduciary duties to its stockholders under applicable
law and (y) the fairness opinion of a financial advisor of nationally
recognized
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reputation that the party making such proposal is financially capable and that
such Superior Proposal would yield a higher value to its stockholders than the
Merger, reasonably determines in good faith that taking such action is
reasonably likely to lead to an Acquisition Transaction that is more favorable
to it and its stockholders than the Merger and that failing to take such
action would be inconsistent with the directors' fiduciary duties under
applicable law, and (B) prior to furnishing or disclosing any non-public
information to, or entering into discussions or negotiations with, such Third
Party, it receives from such Third Party an executed confidentiality agreement
with terms no less favorable in the aggregate to it than those contained in
the confidentiality agreement between Genesis and Vitalink, but which
confidentiality agreement will not provide for any exclusive right to
negotiate with Vitalink or any payments by Vitalink. The Vitalink Board will
not be prohibited from complying with Rule14e-2 promulgated under the Exchange
Act with regard to a tender or exchange offer.
Vitalink has agreed in the Merger Agreement to notify Genesis in writing no
later than the end of the business day after receipt of any inquiries,
proposals or offers with respect to an Acquisition Transaction or any request
for nonpublic information relating to it in connection with an Acquisition
Transaction or for access to its or any of its subsidiaries' properties, books
or records by any Third Party that informs the Vitalink Board that such Third
Party is considering making, or has made, a proposal or offer with respect to
an Acquisition Transaction. Vitalink has also agreed promptly to notify
Genesis of any determination by the Vitalink Board to furnish information or
engage in discussions or negotiations with any Third Party and to immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted theretofore with respect to any of the
foregoing.
Employee Benefit Matters
Genesis has agreed to honor and perform all obligations of Vitalink in
existence at the time of the Merger under all employee benefit plans,
employment agreements and all other agreements with any employee of Vitalink
which relate to employment, compensation or benefits. Genesis will provide the
employees of Vitalink and its subsidiaries who are employees immediately after
the Effective Time with compensation and employee benefits substantially
equivalent to the compensation and employee benefits offered to employees of
Genesis in similar positions. After the Effective Time, Genesis will grant all
of the employees of Vitalink and its subsidiaries credit for all service with
Vitalink or its subsidiaries prior to the Effective Time for all purposes for
which such service was recognized by Vitalink, and Genesis will waive any pre-
existing condition exclusions and actively-at-work requirements and provide
that any expenses incurred on or before the Effective Time by an employee of
Vitalink or its subsidiaries or such employee's covered dependents will be
taken into account for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions. Genesis has also agreed to
provide employees of Vitalink or its subsidiaries who are terminated within
the specified period after the Effective Time with a severance/retention
incentive plan.
CONDITIONS
Mutual Conditions
The obligations of each party to effect the Merger are subject to, among
other things, the fulfillment or waiver of the following conditions: (i) the
effectiveness of the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part; (ii) the Merger and the transactions
contemplated thereby shall have been duly approved by the shareholders of
Genesis and the stockholders of Vitalink; (iii) no order, decree, or
injunction of a court of competent jurisdiction or a governmental entity shall
have prohibited or restricted consummation of the Merger and any waiting
period under the HSR Act shall have expired or been terminated; (iv) Genesis
shall have received financing in an amount sufficient to fund the cash portion
of the Closing Consideration; and (v) the receipt of tax opinions by Genesis
and Vitalink to the effect that the Merger will be a tax-free reorganization
and that except for cash received in lieu of fractional shares of Genesis
Preferred Stock, no Vitalink stockholder will recognize gain or loss with
respect to the Genesis Preferred Stock received as a result of the Merger.
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Conditions to Genesis's Obligations
The obligation of Genesis and Acquisition Corporation to consummate the
Merger is further subject to the fulfillment or waiver of, among other things,
the following conditions: (i) the representations and warranties of Vitalink
contained in the Merger Agreement shall be true and correct in all material
respects as of the Effective Time; (ii) Vitalink shall have performed and
complied with all of its agreements, obligations and conditions required by
the Merger Agreement; (iii) there shall not have occurred since the date of
the Merger Agreement any changes in the business, results of operations,
assets or condition (financial or otherwise) of Vitalink except for changes
that would have a material adverse effect on Vitalink and other than any
changes in Medicare or Medicaid reimbursement programs that are known or
reasonably anticipated as of the date of the Merger Agreement; (iv) Vitalink
shall furnish various certificates of its officers to Genesis; (v) Vitalink
shall have received all governmental consents, waivers, authorizations, orders
and approvals necessary to consummate the Merger; and (vi) holders of not more
than 10% of the Vitalink Common Stock shall have demanded payment pursuant to
Section 262 of the DGCL as of the Special Meeting Record Date.
Conditions to Vitalink's Obligations
The obligation of Vitalink to consummate the Merger is further subject to
the fulfillment or waiver of, among other things, the following conditions:
(i) the representations and warranties of Genesis contained in the Merger
Agreement shall be true and correct in all material respects as of the
Effective Time; (ii) Genesis shall have performed and complied in all material
respects with all of its agreements, obligations and conditions required by
the Merger Agreement; (iii) there shall not have occurred since the date of
the Merger Agreement any changes in the business, results of operations,
assets or condition (financial or otherwise) of Genesis except for changes
that would have a material adverse effect on Genesis and other than any
changes in Medicare or Medicaid reimbursement programs that are known or
reasonably anticipated as of the date of the Merger Agreement (it being
understood that a decline in the stock price of Genesis Common Stock does not,
in and of itself, constitute a material adverse change); (iv) Genesis shall
furnish various certificates of its officers to Vitalink; (v) Genesis shall
have amended the Genesis Rights Plan in order to exempt certain holders of the
Genesis Preferred Stock from the restrictions thereof; and (vi) Genesis shall
have received all governmental consents, waivers, authorizations, orders and
approvals necessary to consummate the Merger.
TERMINATION
Mutual Consent or by Either Party. The Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time: (a)
by mutual written consent of the Genesis Board and the Vitalink Board; (b) by
either party if, without fault of such terminating party, the Merger is not
consummated on or before November 30, 1998, which date may be extended by
mutual consent of the parties; provided, however, that the right to terminate
the Merger Agreement pursuant to this clause (b) will not be available to any
party whose failure to perform in any material respect its obligations under
the Merger Agreement in any manner shall have been the cause of, or resulted
in, the failure of the Merger to occur on or before such date and provided,
further, that if the Merger could have been consummated by November 30, 1998
but for the failure to receive governmental approvals, the party requiring and
using its best efforts to receive such approvals may, upon notice to the
other, extend the consummation period to the earlier of the date of receipt of
such approvals or December 31, 1998; (c) by either party, if any court of
competent jurisdiction or other governmental authority shall have issued an
order (other than a temporary restraining order), decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Merger,
and such order, decree, ruling or other action shall have become final and
nonappealable; or (d) by either party, if the stockholders of the non-
terminating party fail to approve the Merger Agreement and the transactions
contemplated thereby at the applicable Special Meeting.
Termination by Vitalink Only. The Merger Agreement may be terminated and the
Merger may be abandoned by Vitalink at any time prior to the Effective Time,
if (a) Genesis or Acquisition Corporation has materially breached any
representation, warranty, covenant or agreement contained in the Merger
Agreement and has not cured such breach within the earlier of ten business
days of receipt of written notice of such breach from Vitalink or by the
Effective Time; (b) the Genesis Board has withdrawn, changed or modified in
any manner its
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recommendation that its stockholders vote in favor of the Merger Agreement and
the Merger; or (c) prior to the approval by the Vitalink stockholders of the
Merger, if (1) Vitalink has received a Superior Proposal which was not
solicited after the date of the Merger Agreement, (2) after receiving (x) the
advice of outside legal counsel that failure to take such action would be
inconsistent with the fiduciary duties of the Vitalink Board to its
stockholders under applicable law and (y) the fairness opinion of a financial
advisor of nationally recognized reputation that the party making such
proposal is financially capable and that such Superior Proposal is more
favorable to it and its stockholders than the Merger, the Vitalink Board
reasonably determined in good faith that such Superior Proposal would yield a
higher value to its stockholders than the Merger and that failing to take such
action would be inconsistent with the directors' fiduciary duties under
applicable law and (3) Vitalink has given Genesis three days' written notice
prior to such termination, provided that the termination described in this
clause (c) will not be effective until the applicable termination fees and
expenses have been paid. See "--Termination Fees and Expenses."
Termination by Genesis Only. The Merger Agreement may be terminated and the
Merger may be abandoned by Genesis at any time prior to the Effective Time, if
(a) Vitalink has materially breached any representation, warranty, covenant or
agreement contained in the Merger Agreement and has not cured such breach
within the earlier of ten business days of receipt of written notice of such
breach from Genesis or by the Effective Time or (b) the Vitalink Board has
withdrawn, changed or modified in any manner its recommendation that its
stockholders vote in favor of the Merger or adopted resolutions approving or
otherwise authorized or recommended an Acquisition Transaction (other than the
Merger) to its stockholders.
TERMINATION FEES AND EXPENSES
Except as set forth below, each of Vitalink and Genesis will bear its
respective expenses incurred in connection with the Merger, except that
expenses incurred in printing, mailing and filing this Joint Proxy
Statement/Prospectus will be shared equally by Vitalink and Genesis.
If (i) Vitalink terminates the Merger Agreement pursuant to clause (c)
described under "--Termination--Termination by Vitalink Only" above; (ii)
Vitalink terminates the Merger Agreement for any reason and at such time
Genesis would have been entitled to terminate the Merger Agreement because the
Vitalink Board had withdrawn, changed or modified in any manner its
recommendation that its stockholders vote in favor of the Merger Agreement and
the Merger or had adopted resolutions approving or otherwise authorized or
recommended an Acquisition Transaction (other than the Merger) to its
stockholders; (iii) Genesis terminates the Merger Agreement for the reasons
described in the immediately preceding clause (ii); or (iv) Genesis or
Vitalink terminates the Merger Agreement pursuant to clause (b), (c) or (d)
described under "--Termination--Mutual Consent or by Either Party" or clause
(a) described under "--Termination--Termination by Genesis Only" and, within
one year of any termination described in this clause (iv), Vitalink
consummates, or enters into a definitive agreement with respect to, an
Acquisition Transaction on terms more favorable than the terms of the Merger
Agreement (without taking into account any termination fees payable by
Vitalink with respect thereto), then Vitalink shall pay to Genesis, within one
business day following any termination described in clause (i), (ii) or (iii)
of this paragraph, or within one business day following the consummation or
entering into of a definitive agreement in the case of clause (iv) of this
paragraph, a fee, in cash, equal to $20,000,000.
INDEMNIFICATION; INSURANCE
Genesis and the Surviving Corporation will indemnify, defend and hold
harmless the present and former officers and directors of Vitalink and Genesis
will cause the Surviving Corporation to indemnify, defend and hold harmless
the present and former employees and agents of Vitalink against all losses,
claims, damages, expenses or liabilities arising out of actions or omissions
or alleged actions or omissions occurring at or prior to the Effective Time to
the extent and on the same terms and conditions (including with respect to
advancement of expenses) permitted or required under applicable law and
Vitalink's Certificate of Incorporation, By-laws and indemnification
agreements in effect at the date of the Merger Agreement. Genesis or the
Surviving Corporation
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will pay all reasonable expenses, including attorneys' fees, that may be
incurred by any indemnified party in enforcing the indemnity and other
obligations provided for herein.
For a period of six years after the Effective Time, Genesis will cause to be
maintained in effect the current policies of directors' and officers'
liability insurance maintained by Vitalink (provided that Genesis may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) which
obligation may, at Genesis's discretion, be satisfied by Vitalink purchasing,
at Genesis's request, at the Effective Time insurance coverage extending its
existing directors' and officers' liability insurance policies, on the same
terms and conditions, covering claims made with respect to the period prior to
the Effective Time. If the premiums with respect to such insurance exceed 300%
of the annual premiums paid by Vitalink as of the date of the Merger Agreement
by Vitalink for such insurance, Genesis will only be obligated to purchase
directors' and officers' liability insurance with a maximum coverage as can be
obtained at an annual premium equal to 300% of the annual premiums paid by
Vitalink as of the date of the Merger Agreement.
AMENDMENT
Subject to applicable law, the Merger Agreement may be amended, modified or
supplemented only by written agreement of Genesis and Vitalink at any time
prior to the Effective Time with respect to any of the terms contained
therein; provided, however, that, after the Merger Agreement is adopted by the
stockholders of Vitalink and Genesis, no such amendment or modification will
change the amount or form of the Closing Consideration.
WAIVERS; CONSENTS
Any failure of Vitalink or Genesis to comply with any obligation, covenant,
agreement or condition contained in the Merger Agreement may be waived by
Vitalink or Genesis, as the case may be, prior to the Effective Time only by a
written instrument signed by the party granting such waiver, but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent failure. Whenever the Merger Agreement requires or
permits consent by or on behalf of any party thereto, such consent shall be
given in writing pursuant to the terms thereof.
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RELATIONSHIP BETWEEN VITALINK AND MANOR CARE
GENERAL
Manor Care currently beneficially owns approximately 50% of the outstanding
shares of Vitalink. Vitalink maintains a variety of corporate relationships
with Manor Care. In anticipation with Vitalink's initial public offering in
February 1992, Vitalink and Manor Care entered into a number of agreements
described below for the purpose of defining their ongoing relationship. Since
at the time of the execution of these agreements Manor Care controlled more
than 50% of the voting securities of Vitalink, these agreements were not the
result of arm's length negotiations.
MANOR CARE PHARMACY, INFUSION THERAPY AND CONSULTING SERVICES AGREEMENTS
Pursuant to four agreements with Manor Care, Vitalink has the right to
provide pharmaceutical products and services, enteral and parenteral therapy
supplies and services, urological and ostomy products, intravenous products
and services and pharmacy consulting services to all facilities operated by
Manor Care. Vitalink is not restricted from providing similar services to non-
Manor Care facilities. These agreements will continue to be effective after
the Effective Time of the Merger.
Master Agreement for Pharmacy Services. On June 1, 1991 Vitalink and
ManorCare Health Services, Inc., a wholly owned subsidiary of Manor Care
("MCHS") entered into the Master Agreement for Pharmacy Services (the
"Pharmacy Services Agreement") pursuant to which Vitalink has the option to
provide pharmaceutical services to any and all nursing facilities owned or
licensed by Manor Care. The option is exercisable from time to time as
Vitalink establishes the capability to serve additional facilities operated by
Manor Care. The Pharmacy Services Agreement calls for each individual nursing
facility to enter into a separate agreement with Vitalink which defines the
scope of services, duties and obligations of Vitalink and compensation related
thereto. Pricing for services and products is determined on a market-by-market
basis and is subject to reimbursement limitations depending on the payor
source. The Pharmacy Services Agreement was amended on September 19, 1997 to
extend the term thereof to September 30, 2002, to implement an automatic
extension as described below and to update the billing rates set forth
therein. The initial term of each of the Pharmacy Services Agreement, as
amended, and the individual facility agreements is 11 years and four months,
with an automatic renewal of one additional year as of each October 1 during
the remaining term of the agreement. The automatic renewal may be terminated
by either party upon written notice to the other at least 90 days prior to
each October 1 during the remaining term of the Pharmacy Services Agreement.
The individual facility agreements can be terminated by MCHS under various
circumstances, including the failure of Vitalink to provide services which
conform to generally accepted pharmacy practices or upon 30 days', notice in
the event Manor Care no longer owns or holds the license to the facility upon
the sale of such facility to a third party. The Pharmacy Services Agreement
was amended on April 26, 1998 to allow assignment thereof to assignees meeting
certain qualifications as set forth in such amendment.
Master Agreement for Infusion Therapy Services. On June 1, 1991, Vitalink
and MCHS entered into the Master Agreement for Infusion Therapy Services (the
"Infusion Therapy Services Agreement") pursuant to which Vitalink has the
option to provide infusion therapy products and services to any and all
nursing facilities owned or licensed by Manor Care. The option is exercisable
from time to time as Vitalink establishes the capability to serve additional
facilities operated by Manor Care. The Infusion Therapy Services Agreement
calls for each individual nursing facility to enter into a separate agreement
with Vitalink which defines the scope of services, duties and obligations of
Vitalink and compensation related thereto. Pricing for services and products
is determined on a market-by-market basis and is subject to reimbursement
limitations depending on the payor source. The Infusion Therapy Services
Agreement was amended on September 19, 1997 to extend the term thereof to
September 30, 2002, to implement an automatic extension as described below and
to amend the billing rates set forth therein. The initial term of each of the
Infusion Therapy Services Agreement, as amended, and the individual facility
agreements is 11 years and four months, with an automatic renewal of one
additional year as of each October 1 during the remaining term of the
agreement. The automatic renewal may be terminated by
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either party upon written notice to the other at least 90 days prior to each
October 1 during the remaining term of the Infusion Therapy Services
Agreement. The individual facility agreements can be terminated by MCHS under
various circumstances, including the failure by Vitalink to provide services
which conform to generally accepted pharmacy practices or upon 30 days' notice
in the event Manor Care no longer owns or holds the license to such facility
upon the sale of such facility to a third party. The Infusion Therapy Services
Agreement was amended on April 26, 1998 to allow assignment thereof to
assignees meeting certain qualifications as set forth in such amendment.
Master Pharmacy Consulting Agreement. On June 1, 1991 Vitalink and MCHS
entered into the Master Pharmacy Consulting Agreement (the "Master Pharmacy
Consulting Agreement") whereby Vitalink has agreed to develop and implement a
program to provide all consultant pharmacy services to any and all nursing
facilities owned or licensed by Manor Care that Vitalink is capable of
servicing. The Master Pharmacy Consulting Agreement calls for each individual
nursing facility to enter into a separate Consultant Pharmacy Services
Agreement (the "Consultant Pharmacy Services Agreement") with Vitalink which
defines the scope of services, the duties and obligations of Vitalink and
compensation related thereto. Each nursing facility is billed monthly by
Vitalink based on its number of licensed beds. The Master Pharmacy Consulting
Agreement was amended on September 19, 1997 to extend the term thereof to
September 30, 2002, to implement an automatic extension as described below and
to amend the billing rates set forth therein. The initial term of each of the
Master Pharmacy Consulting Agreement, as amended, and the individual
Consultant Pharmacy Services Agreements, is 11 years and four months, with an
automatic accrual of one additional year as of each October 1 during the
remaining term of the Master Pharmacy Consulting Agreement. The automatic
accrual may be terminated by either party upon written notice to the other at
least 90 days prior to each October 1 during the remaining term of the Master
Pharmacy Consulting Agreement. The individual facility agreements are
terminable early by MCHS under various circumstances, including the failure by
Vitalink to provide services which conform to generally accepted pharmacy
practices or upon 30 days' notice in the event Manor Care no longer owns or
holds the license to such facility upon the sale of such facility to a third
party. The Master Pharmacy Consulting Agreement was amended on April 26, 1998
to allow assignment thereof to assignees meeting certain qualifications as set
forth in such amendment.
Pharmacy Services Consultant Agreement. On May 31, 1991, Vitalink and MCHS
entered into the Pharmacy Services Consultant Agreement (the "Pharmacy
Services Consulting Agreement") whereby Vitalink agreed to assist Manor Care
at the corporate level in establishing uniform pharmacy delivery standards for
all of its nursing facilities, including those not serviced by Vitalink. Such
assistance takes the form of advising Manor Care on compliance with applicable
laws, rules and regulations, providing in-services to Manor Care corporate
staff on all phases of pharmacy services, and consulting with Manor Care at
the corporate level on all operating policies and procedures concerning
administration and record keeping of pharmaceuticals at its nursing
facilities. No pharmacy consulting services are provided to individual nursing
facilities under this agreement. For the services provided under the Pharmacy
Services Consultant Agreement, Manor Care pays Vitalink an annual fee,
initially $10.00 per long term care bed operated by Manor Care. The initial
term of the agreement is ten years, with automatic renewal for successive
five-year periods; however, either party may notify the other of its intent
not to so renew upon 90 days' written notice. The Pharmacy Services Consultant
Agreement was amended on September 19, 1997 to change all references therein
from long term care to skilled nursing.
ADMINISTRATIVE SERVICES AGREEMENT
Vitalink and Manor Care entered into an administrative services agreement
(the "Administrative Services Agreement"), pursuant to which Manor Care
provided Vitalink with various services such as maintenance of employee
benefit plans, payroll, legal, insurance, financial, accounting, internal
audit, tax and information systems. Effective October 1, 1997, Manor Care
provides only insurance, tax and internal audit services to Vitalink. The
Administrative Service Agreement is terminable upon 180 days, prior notice of
either party. It is anticipated that this agreement will be terminated
following the Merger and that Genesis will provide such services to Vitalink.
Pursuant to the Administrative Services Agreement, Vitalink agrees to
reimburse Manor Care for the direct costs of rendering services to Vitalink.
Where such direct costs cannot be separately measured, Vitalink will pay a
portion of the total cost based on Manor Care's current practices for
allocating those costs
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among its subsidiaries. Manor Care charges Vitalink for services rendered by
billing Vitalink periodically for such services.
OTHER AGREEMENT
Vitalink, Manor Care and Genesis have also entered into an agreement as
described under "Agreements Between Manor Care and Genesis--Other Agreement."
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AGREEMENTS BETWEEN MANOR CARE AND GENESIS
THE VOTING AGREEMENT
Genesis and Manor Care have entered into a Voting Agreement dated as of
April 26, 1998 pursuant to which Manor Care has agreed to vote its
approximately 50% of the issued and outstanding shares of Vitalink Common
Stock (i) in favor of adoption and approval of the Merger Agreement and the
Merger and the terms thereof and each of the other actions contemplated by the
Merger Agreement; (ii) against any other action or agreement that would,
directly or indirectly, result in (A) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving
Vitalink or its subsidiaries; (B) a sale, lease or transfer of a material
amount of assets of Vitalink or its subsidiaries or a reorganization,
recapitalization or liquidation of Vitalink or its subsidiaries; (C) an
election of new members to the Vitalink Board, except where the vote is cast
in favor of the nominees of a majority of the existing directors of Vitalink;
or (D) any transaction that could reasonably be expected to materially delay
or postpone the consummation of the Merger or cause a material breach by
Vitalink of any covenant under the Merger Agreement; and (iii) against any
action, agreement or transaction that is intended or could reasonably be
expected (A) to facilitate a person other than Genesis in acquiring Vitalink
or (B) to impede, interfere with, delay, postpone, discourage or materially
adversely affect the consummation of the Merger (any of the foregoing in
clause (ii) or (iii), a "Competing Transaction").
Manor Care has agreed to elect to receive Genesis Preferred Stock with
respect to all of the shares of Vitalink Common Stock owned by it. Manor Care
has agreed not seek to assert any appraisal rights with respect to such
shares.
Manor Care has agreed to irrevocably appoint Genesis as its attorney and
proxy to vote and otherwise act in accordance with the Voting Agreement with
respect to any shares of Vitalink Common Stock that Manor Care is entitled to
vote at any meeting of the stockholders of Vitalink or in respect of any
consent in lieu thereof. This proxy and power of attorney is irrevocable and
coupled with an interest in favor of Genesis. Manor Care has agreed that it
will not, directly or indirectly, (x) solicit, initiate or knowingly
facilitate or encourage (including by way of furnishing or disclosing
nonpublic information) any inquiries or the making of any offer or proposal by
any third party with respect to, or that could reasonably be expected to lead
to, a Competing Transaction or (y) negotiate, explore or otherwise communicate
in any way with any third party with respect to any Competing Transaction or
enter into, approve or recommend any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or any
other transactions contemplated by the Voting Agreement. Manor Care has
agreed, by the end of the business day following receipt thereof, to (i)
promptly notify Genesis of receipt by it of any inquiries, proposals or offers
with respect to a Competing Transaction or any request for nonpublic
information relating to Vitalink in connection with a Competing Transaction or
for access to Vitalink's or any of its subsidiaries' properties, books or
records by any third party that informs the Vitalink Board that such third
party is considering making, or has made, a proposal or offer with respect to
a Competing Transaction, and indicate in reasonable detail the identity of the
party making the competing offer (including the name of such party) and the
terms and conditions of any such proposal or offer and (ii) immediately cease
and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted theretofore with respect to any of the
foregoing, and to take the necessary steps to inform such individuals or
entities of the obligations undertaken in this paragraph.
Manor Care has also agreed not to sell or otherwise dispose of its shares of
Vitalink Common Stock, tender any such shares pursuant to a tender or exchange
offer, or grant any person other than Genesis a proxy to vote such shares of
Vitalink Common Stock.
The Voting Agreement will terminate (i) by mutual written consent of the
parties to the Voting Agreement; (ii) 12 months after the termination of the
Merger Agreement (unless the termination of the Merger Agreement is mutually
agreed to, if a third party has commenced or communicated to Vitalink or
publicly proposed or disclosed and not permanently abandoned or withdrawn an
Acquisition Transaction; (iii) immediately if Genesis
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terminates the Merger Agreement (unless a third party has commenced or
communicated to Vitalink or publicly proposed or disclosed and not permanently
abandoned or withdrawn an Acquisition Transaction); and (iv) three months
after the termination of the Merger Agreement by Vitalink unless a third party
has commenced or communicated to Vitalink or publicly proposed or disclosed
and not permanently abandoned or withdrawn an Acquisition Transaction.
THE RIGHTS AGREEMENT
Genesis and Manor Care have entered into a Rights Agreement dated as of
April 26, 1998
Manor Care Standstill Obligations. Pursuant to the Rights Agreement, Manor
Care has agreed that prior to the earlier of April 26, 2005 or the occurrence
of a Director Change as described below, neither it nor any of its affiliates,
including, without limitation, New ManorCare Health Services, Inc.
(collectively, the "Manor Care Group") will, without the prior written consent
of Genesis, directly or indirectly, acquire any capital stock of Genesis that
is entitled to vote generally in the election of directors or is convertible
or exchangeable for any class of capital stock which is entitled to vote
generally in the election of directors (all such classes of capital stock of
Genesis are collectively referred to as the "Voting Securities"), except for
the Genesis Preferred Stock, the Genesis Common Stock or other securities
issuable upon conversion of the Genesis Preferred Stock and pursuant to stock
splits, stock dividends or other distributions or offerings made available to
holders of Voting Securities generally. However, if at any time the aggregate
voting power in the election of directors of all Voting Securities owned by
the Manor Care Group (the "Manor Care Voting Power") is less than 15% (the
"Maximum Percentage") of the total combined voting power in the election of
directors of all the Voting Securities then outstanding (the "Total Voting
Power"), then the Manor Care Group may acquire Voting Securities unless the
effect of such acquisition would be to increase the Manor Care Voting Power to
greater than the Maximum Percentage of the Total Voting Power. If at any time
the Manor Care Voting Power is increased to more than the Maximum Percentage
of the Total Voting Power as a result of a repurchase of Voting Securities by
Genesis or any other change in Genesis's capitalization, no member of the
Manor Care Group will be required to dispose of any Voting Securities.
Pursuant to the Rights Agreement, if, at any time prior to April 26, 2003, the
Manor Care Group proposes to transfer to a third party Voting Securities
having in excess of the Maximum Percentage of the Total Voting Power, then as
a condition to such transfer the transferee must agree to be bound by the
restrictions imposed by Manor Care's standstill obligations. Notwithstanding
the foregoing, the Manor Care Group will not transfer Voting Securities to any
person who owns any Voting Securities if such transfer will result in such
transferee having in excess of the Maximum Percentage of the Total Voting
Power.
Manor Care has also agreed not to (i) solicit any vote of Genesis
shareholders in opposition to the recommendation of a majority of the Genesis
Board; (ii) join any group or otherwise act in concert with any other person
for the purpose of acquiring, holding, voting or disposing of Voting
Securities in violation of its standstill obligations, or otherwise become a
"person" within the meaning of Section 13(d)(3) of the Exchange Act (in each
case other than solely with members of the Manor Care Group), or deposit any
Voting Securities in a voting trust or similar arrangement or subject any
Voting Securities to any voting agreement or pooling arrangement other than in
accordance with its voting obligations as described under the caption "--
Voting" below; (iii) call a special meeting of the shareholders of Genesis or
make a shareholder proposal at any meeting of the shareholders of Genesis;
(iv) commence or announce any intention to commence a tender or exchange offer
for any shares of Genesis capital stock (although Manor Care may tender or
exchange its shares in connection with a tender or exchange offer commenced by
an unaffiliated third party) or take any action that would require the Manor
Care Group to file with or send to the Commission an amendment to Item 4 or
Item 6 of its Schedule 13D under the Exchange Act with respect to the Voting
Securities; (v) assist, encourage or induce any person to acquire outstanding
Voting Securities or propose a tender offer, exchange offer or change of
control of Genesis; (vi) otherwise act alone or in concert with others to
control or influence the management of Genesis other than as provided within
the Rights Agreement or as described under the caption "--Genesis Board
Representation" below; (vii) arrange or participate in any financing for any
transaction in violation of Manor
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Care's standstill obligations as described above; or (viii) make public, or
cause or facilitate the public disclosure (including by disclosure to any
journalist or other representative of the media) of, any request, or otherwise
seek (in any fashion that would require public disclosure by Genesis), to
obtain any waiver or amendment of any provision of Manor Care's standstill
obligations or take any action restricted thereby.
Genesis Board Representation. As promptly as practicable after receipt of
written notice from Manor Care, Genesis will cause one person designated by
Manor Care to be appointed to the Genesis Board (the "Manor Care Director").
At any time the Manor Care Group does not have a Manor Care Director serving
on the Genesis Board, it is entitled to designate a non-voting observer (the
"Manor Care Observer") to serve thereon. The designation of the Manor Care
Director or Manor Care Observer will be made after consultation with Genesis
and will be reasonably acceptable to the Genesis Board, which acceptance will
not unreasonably be withheld. In the event that the Manor Care Director for
any reason ceases to serve as a member of the Genesis Board during his or her
term of office, Manor Care will have the right to designate another Manor Care
Director to fill such vacancy. Manor Care also has the right to request the
removal of the Manor Care Director, subject to the applicable provisions of
Genesis's Articles of Incorporation and By-Laws as well as applicable
statutory provisions. The Manor Care Director or Manor Care Observer would be
subject to certain obligations regarding confidential information or material
relating to the business of Manor Care or its subsidiaries or the business of
Genesis or its subsidiaries.
Genesis Standstill Obligations. Genesis has agreed that it will not, without
the prior written consent of Manor Care, take or recommend to its shareholders
any action during the term of the Rights Agreement which would impose
limitations on the legal rights of the Manor Care Group as Genesis
shareholders, other than those imposed pursuant to the express terms of the
Rights Agreement, which disproportionately affect the Manor Care Group
compared to holders of Genesis Preferred Stock or Genesis Common Stock
generally. Pursuant to the Rights Agreement, Genesis has also agreed that
prior to the Effective Time it will have taken appropriate action with respect
to its shareholders rights plan so as to exempt (i) the holders of Genesis
Preferred Stock or (ii) any person that is the direct assignee of any holder
of Genesis Preferred Stock to the extent that such assignee (A) acquires in a
single transaction from a holder of Genesis Preferred Stock over 15% of the
Voting Securities and (B) owns no other shares of Voting Securities, from the
restrictions of such shareholders rights plan with respect to such shares of
Genesis Preferred Stock and shares of Genesis Common Stock issuable upon
conversion thereof. Genesis has also agreed that from and after the Effective
Time Genesis will take no action which would subject such holders of Genesis
Preferred Stock to the restrictions of Genesis's shareholders rights plan or
any similar plan adopted after the Effective Time. Furthermore, Genesis has
agreed that it will not require any Manor Care Director or Manor Care Observer
to enter into any confidentiality agreement or other arrangement that would
limit the ability of such Manor Care Director or Manor Care Observer to
communicate with Manor Care as contemplated within the Rights Agreement.
Voting. At any time prior to April 26, 2001, other than with respect to a
proposed Change of Control, the Manor Care Group will take all such action as
may be required so that all Voting Securities owned by the Manor Care Group
are voted on all matters to be voted on by holders of Voting Securities in
accordance with the recommendation of the Genesis Board. Manor Care has agreed
to cause the Manor Care Director to take such action as may be necessary and
to vote in accordance with the recommendation of the Genesis Board to fill any
vacancies in the Genesis Board (other than a Manor Care Director vacancy).
Manor Care has agreed that it will not, with respect to a proposed Change of
Control approved by the Genesis Board and the shareholders of Genesis, make
any demand for payment pursuant to Section 262 of the DGCL. As used in the
Rights Agreement, a proposed "Change of Control" occurs (A) when the
shareholders of Genesis are asked to approve an agreement or plan (i) to merge
or consolidate Genesis with or into another company (other than a merger or
consolidation which would result in the Voting Securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the Voting Securities or
the voting securities of such surviving entity outstanding immediately after
such merger or consolidation); (ii) to sell, or otherwise dispose of, all or
substantially all of Genesis's property and assets; or (iii) to liquidate,
dissolve or wind-up Genesis or (B) when Genesis is the subject of a
transaction pursuant to Rule 13e-3 under the Exchange Act.
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Registration Rights. To the extent that Manor Care would be deemed to be an
affiliate of Genesis after the Effective Time, the Genesis Preferred Stock and
the underlying Genesis Common Stock owned by Manor Care would only be
transferable under the Securities Act pursuant to an effective registration
statement filed with the Commission or an exemption from the registration
requirements of the Securities Act. Beginning after the first anniversary of
the Effective Time, upon the request of holders of at least 25% of the Voting
Securities acquired by the Manor Care Group at the Effective Time, Genesis has
agreed that it will, within 90 days after the receipt of such request, effect
the registration under the Securities Act of all such securities proposed to
be sold by such holders. Pursuant to the Certificate of Designation governing
the Genesis Preferred Stock, upon the filing of an effective registration
statement with the Commission, the restrictions on transferability of the
Genesis Preferred Stock will terminate with respect to all holders of the
Genesis Preferred Stock. Genesis is obligated to effect a maximum of three
such registrations. In addition, for five years after the date of the Rights
Agreement, holders of Voting Securities acquired by the Manor Care Group at
the Effective Time will have "piggyback" registration rights with respect to
Genesis Common Stock, subject to a limitation on the number of shares
underwritten if an underwriter advises that marketing factors require such
limitation.
Termination. The Rights Agreement will terminate on the earlier of April 26,
2005 or upon the occurrence of a Director Change. A "Director Change" means
(i) an action by the Genesis Board that removes the Chief Executive Officer of
Genesis as of the date of the Rights Agreement from office or materially
alters his authority or responsibilities such that he does not exercise the
authority or have the responsibilities formerly associated with his position
as the Chief Executive Officer or (ii) the majority of the Genesis Board does
not consist of directors who either were members of the Genesis Board on the
date of the Rights Agreement, subsequently became members of the Genesis Board
if such persons were recommended or elected to succeed continuing directors by
a majority of such continuing directors, or appointed at the direction of
Manor Care.
The Rights Agreement may also be terminated by either party upon 60 days
prior written notice to the other in the event the Merger Agreement is
terminated or if the non-terminating party breaches any of its material
obligations under the Rights Agreement and such breach is continuing on the
61st day following such notice. If Manor Care terminates the Rights Agreement
as a result of a breach by Genesis of Genesis's material obligations under the
Rights Agreement, Manor Care's rights to representation on the Genesis Board
and registration rights granted under the Rights Agreement will survive such
termination. If the Manor Care Group disposes of more than 50% of the Voting
Securities it acquires at the Effective Time to persons who are not members of
the Manor Care Group, the standstill obligations of each of Manor Care and
Genesis, the voting obligations of Manor Care and the rights of Manor Care to
representation on the Genesis Board will terminate but Manor Care's
registration rights will remain.
OTHER AGREEMENT
Genesis, Vitalink and Manor Care have entered into a Side Agreement dated as
of April 26, 1998. Pursuant to the Side Agreement, Manor Care has agreed to
provide certain indemnification to each of Genesis and Vitalink and to refrain
from certain competitive activities with respect to Genesis. The Side
Agreement will only be effective from and after the Effective Time and will
terminate and be of no further force or effect if the Merger is not
consummated.
Under the Side Agreement, Manor Care has agreed to indemnify Vitalink, as
well as Genesis and its directors, officers and agents and its representatives
retained in connection with the Merger Agreement, against all losses, expenses
and fees (including any liability to a director, agent, representative or
employee of Vitalink under any provisions contained in the Certificate of
Incorporation or Bylaws of Vitalink or any agreement of Vitalink existing at
or prior to the Effective Time to the extent not covered by insurance), which
arise out of any stockholder's allegation or claim that the Vitalink Board, as
constituted at or prior to the Effective Time, has violated its fiduciary
duties or other obligations to the stockholders of Vitalink in approving the
Merger Agreement and the transactions contemplated thereby.
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Manor Care has agreed to indemnify Vitalink and its subsidiaries against all
losses arising out of any claim or action based upon any action or omission by
Manor Care in providing billing and collection services to Vitalink and its
subsidiaries or in billing and collecting amounts payable or reimbursable in
respect of services rendered by Vitalink to Manor Care and its patients prior
to the Effective Time, if such claim or action is brought prior to the third
anniversary of the Effective Time. Manor Care has also agreed to indemnify
Vitalink and its subsidiaries against all losses arising out of any claim or
action based upon allegations of fraud or violation of applicable law by Manor
Care or its subsidiaries (other than Vitalink and its subsidiaries) arising
out of the execution of the Pharmacy Services Agreement, Infusion Therapy
Services Agreement and Master Pharmacy Consulting Agreement or the alleged
illegality of any provision of any such agreements, if such claim or action is
brought before the time period set forth in the applicable statute of
limitations has run. Such indemnification is not available with respect to any
losses arising out of any claim or action alleging that amounts indicated by
Vitalink as due and owing for providing services to patients of Manor Care was
not reasonable, was in excess of amounts owed or was otherwise improperly paid
or alleging fraud or any violations of applicable law by Vitalink or any of
its subsidiaries.
Manor Care has agreed to indemnify Vitalink and its subsidiaries for certain
taxes, interest and penalties assessed against any of them that arise out of
tax returns filed while Manor Care and Vitalink were members of a group that
reported their taxes on a consolidated basis. The indemnification would be
limited to the excess of the amount of taxes, interest and penalties of a
third person assessed against Vitalink, over the amount of taxes, interest and
penalties allocated to Vitalink under the Tax Agreement dated as of June 1,
1991 between Vitalink and Manor Care, which was terminated in 1997.
Under the Side Agreement, each of Manor Care and Vitalink has agreed that
from and after the Effective Time, such party will not take any action against
the other to collect any amounts for services rendered by such party to the
other prior to the Effective Time, except for amounts for which such party has
billed the other as of the Effective Time as reflected in the books and
records of such other party as of the Effective Time and amounts owed to
Vitalink for services rendered to Manor Care's patients prior to the Effective
Time.
Manor Care has also agreed under the Side Agreement that, for a period of
ten years, neither it nor any of its affiliates will, directly or indirectly,
engage in the institutional pharmacy business, or establish, acquire, engage,
own, manage, operate or control any person in the institutional pharmacy
business (or participate in any such actions), in any state in which Genesis
or any affiliate of Genesis at any time during the ten year period owns or
operates an institutional pharmacy business. Manor Care is permitted under the
Side Agreement, however, to acquire an entity which among other businesses
owns and operates an institutional pharmacy business so long as the
institutional pharmacy business is not the primary business of the acquired
entity and such institutional pharmacy business is sold within one year of its
acquisition. This covenant not to compete is for the benefit of Genesis and
any third party to whom Genesis sells any of the institutional pharmacies of
Vitalink. The covenant not to compete terminates if the Pharmacy Services
Agreement, Infusion Therapy Services Agreement and Master Pharmacy Consulting
Agreement, which currently expire on September 30, 2003, are extended through
September 30, 2008 by virtue of automatic renewal or otherwise.
Pursuant to the terms of the Side Agreement, such agreement is binding upon
Manor Care and its successors and assigns and upon any entity to which all or
substantially all of the assets of Manor Care and its subsidiaries, taken as a
whole, are transferred in any corporate reorganization, division, split-up or
spin-off. The Side Agreement further provides, however, that Manor Care may
assign all of its rights and obligations thereunder to a direct or indirect
subsidiary of Manor Care which is contemplated to be spun off, at which time
Manor Care will be released from any further obligations under or with respect
to the Side Agreement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences of (i) the Merger to a holder of Vitalink Common Stock and
(ii) an investment in shares of Genesis Preferred Stock. The discussion set
forth below is for general information only and may not apply to a holder
subject to special treatment under the Code, such as a holder that is a bank,
an insurance company, a dealer in securities, a tax-exempt organization or
that acquired its shares of Vitalink Common Stock pursuant to the exercise of
an employee stock option or otherwise as compensation. In addition, this
summary only applies to a holder of Vitalink Common Stock (or Genesis
Preferred Stock received in exchange for Vitalink Common Stock) holding its
shares of Vitalink Common Stock (or such Genesis Preferred Stock) as a capital
asset and who or that is (i) a U.S. citizen or resident, (ii) a U.S.
corporation, partnership or other entity created or organized under the laws
of the United States, (iii) an estate the income of which is subject to U.S.
taxation regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary jurisdiction over its administration and
one or more U.S. persons have the authority to control all of its substantial
decisions (a "Holder"). This summary is based upon the Code, administrative
pronouncements, judicial decisions, and Treasury Regulations in effect as of
the date hereof, all of which are subject to change, retroactively or
prospectively, and to differing interpretation. No ruling will be requested
from the Internal Revenue Service regarding the tax consequences of the Merger
and an investment in Genesis Preferred Stock and, accordingly, there can be no
assurance that the Internal Revenue Service will agree with the discussion of
the tax consequences of the Merger or of an investment in Genesis Preferred
Stock set forth below. Due to the summary nature of the following discussion,
Holders are urged to consult their tax advisors as to the particular U.S.
federal income tax consequences to them of the Merger and an investment in
Genesis Preferred Stock and as to the foreign, state, local and other tax
consequences thereof.
As of the date hereof, it is intended that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and that
Genesis, Acquisition Corporation and Vitalink will each be a party to that
reorganization under Section 368(b) of the Code. Consummation of the Merger is
conditioned upon the receipt by Genesis of the opinion of Blank Rome Comisky &
McCauley LLP, counsel to Genesis, and by Vitalink of the opinion of Cahill
Gordon & Reindel, counsel to Vitalink, each dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth or referred to in such opinions (including
representations of Genesis, Acquisition Corporation, Vitalink and one or more
of the stockholders of Vitalink dated as of the Effective Time), the Merger
will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that Genesis,
Acquisition Corporation and Vitalink will each be a party to that
reorganization under Section 368(b) of the Code.
REORGANIZATION TREATMENT
Assuming the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code, it is the opinion of Blank Rome Comisky & McCauley
LLP and Cahill Gordon & Reindel that the material U.S. federal income tax
consequences of the Merger will be as follows.
Exchange of Vitalink Common Stock. As discussed below, the U.S. federal
income tax consequences of the Merger to a Holder will depend on whether the
Holder exchanges its Vitalink Common Stock for cash, Genesis Preferred Stock,
or a combination thereof, and may further depend on whether (i) the Holder is
deemed to constructively own shares of Vitalink Common Stock under Section 318
of the Code (which generally deems a person to own stock that is owned by
certain family members or related entities or that is the subject of an option
or options owned or deemed owned by such person), and (ii) the Holder actually
or constructively owns any Genesis stock (including but not limited to Genesis
Common Stock).
Exchange Solely for Cash. In general, if pursuant to the Merger a Holder
exchanges all of the shares of Vitalink Common Stock actually owned by it
solely for cash (including pursuant to the exercise of its right to seek an
appraisal), it will recognize capital gain or loss equal to the difference
between the amount of cash received and its adjusted tax basis in the shares
of Vitalink Common Stock surrendered. That gain or loss
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generally will be long-term capital gain or loss if the Holder held the shares
of Vitalink Common Stock for more than one year as of the date of the
exchange. Long-term capital gains recognized by a Holder that is an individual
are subject to federal income tax at a maximum rate of 28%, which rate is
reduced to 20% for shares of Vitalink Common Stock if a Holder who is an
individual held the shares of Vitalink Common Stock for more than eighteen
months as of the date of the exchange. Gain or loss must be calculated
separately for each block of Vitalink Common Stock (shares of Vitalink Common
Stock acquired at the same time in a single transaction) held by a Holder.
Interest, if any, awarded by a court to a dissenting stockholder will be
includable in such stockholder's income as ordinary income for U.S. federal
income tax purposes. If, however, any such Holder constructively owns shares
of Vitalink Common Stock that are exchanged for shares of Genesis Preferred
Stock in the Merger, or, possibly, owns shares of Genesis stock actually or
constructively after the Merger, in unusual circumstances the consequences to
such Holder may be similar to the consequences described below under the
heading "Exchange for Genesis Preferred Stock and Cash," except that the
amount of consideration, if any, treated as a dividend would be limited to the
amount of Vitalink's current and accumulated earnings and profits (rather than
being limited to the extent of the Holder's ratable share of Vitalink's
undistributed earnings and profits) and would not be limited to the amount of
such Holder's gain. In addition, under certain circumstances, a Holder who
actually owns no Genesis stock but pursuant to Section 318 of the Code
constructively owns Genesis stock may avoid such attribution by filing a
timely agreement with the Internal Revenue Service under Section 302(c) of the
Code. Because of the complexity of these rules, each Holder that believes it
may be subject to these rules should consult its tax advisor.
Exchange Solely for Genesis Preferred Stock. If pursuant to the Merger a
Holder exchanges all of the shares of Vitalink Common Stock actually owned by
it solely for shares of Genesis Preferred Stock, it should not recognize any
gain or loss except in respect of cash received in lieu of a fractional share
of Genesis Preferred Stock (as discussed below). The aggregate adjusted tax
basis of the shares of Genesis Preferred Stock received in that exchange will
be equal to the aggregate adjusted tax basis of the shares of Vitalink Common
Stock surrendered therefor (adjusted with respect to fractional shares), and
the holding period of such Genesis Preferred Stock will include the period
during which such shares of Vitalink Common Stock were held. If a Holder has
differing bases and/or holding periods in respect of its shares of Vitalink
Common Stock, it should consult its tax advisor prior to the exchange with
regard to identifying the bases and/or holding periods of the particular
shares of Genesis Preferred Stock received in the exchange, since several
methods of determination may be available.
Exchange for Genesis Preferred Stock and Cash. If pursuant to the Merger a
Holder exchanges all of the shares of Vitalink Common Stock actually owned by
it for a combination of Genesis Preferred Stock and cash, the Holder should
recognize gain, but not loss, with respect to each block of Vitalink Common
Stock surrendered in an amount equal to the lesser of (i) the amount of gain
realized (i.e., the excess of the amount of cash and the fair market value of
Genesis Preferred Stock received that is allocable to such block of Vitalink
Common Stock over the tax basis of such block) and (ii) the amount of cash
received allocable to such block of Vitalink Common Stock. For purposes of
such calculation, the aggregate amount of cash and Genesis Preferred Stock
received by a Holder will be allocated proportionately among the shares of
Vitalink Common Stock surrendered. Any such recognized gain will be treated as
capital gain unless the cash received has the effect of the distribution of a
dividend, in which case the gain would be treated as a dividend to the extent
of the Holder's ratable share of Vitalink's undistributed earnings and
profits.
In general, the determination as to whether the gain recognized in that
exchange will be treated as capital gain or dividend income depends upon
whether and to what extent that exchange reduces the Holder's deemed
percentage stock ownership of Genesis. For purposes of that determination, the
Holder is treated as if it first exchanged all of its shares of Vitalink
Common Stock solely for Genesis Preferred Stock and then Genesis immediately
redeemed (the "deemed redemption") a portion of such Genesis Preferred Stock
in exchange for the cash the Holder actually received. The gain recognized in
that exchange will be treated as capital gain if under Section 302 of the Code
the deemed redemption is (i) "not essentially equivalent to a dividend" or
(ii) "substantially disproportionate" with respect to the Holder.
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Whether the deemed redemption is "not essentially equivalent to a dividend"
with respect to a Holder will depend upon the Holder's particular
circumstances. At a minimum, however, in order for the deemed redemption to be
"not essentially equivalent to a dividend," the deemed redemption must result
in a "meaningful reduction" in the Holder's deemed percentage stock ownership
of Genesis. In general, that determination requires a comparison of (i) the
percentage of the outstanding stock of Genesis the Holder is deemed actually
and constructively to have owned immediately before the deemed redemption and
(ii) the percentage of the outstanding stock of Genesis the Holder is deemed
actually and constructively to have owned immediately after the deemed
redemption. The Internal Revenue Service has indicated in a published ruling
that, in the case of a small minority holder of a publicly held corporation
who exercises no control over corporate affairs, a reduction in the holder's
proportionate interest in the corporation from .0001118% to .0001081% would
constitute a meaningful reduction.
The deemed redemption will be "substantially disproportionate" with respect
to a Holder if the percentage of the outstanding voting stock of Genesis
actually and constructively owned by the Holder immediately after the deemed
redemption (treating Genesis Preferred Stock acquired by Genesis in the deemed
redemption as not outstanding) is less than 80% of the percentage of the
outstanding voting stock of Genesis actually and constructively owned by the
Holder immediately before the deemed redemption (treating the Genesis
Preferred Stock acquired by Genesis in the deemed redemption as outstanding).
However, the deemed redemption will not be treated as substantially
disproportionate unless the Holder's actual and constructive ownership of
Genesis Common Stock immediately following and before the deemed redemption
also meets the 80% requirement of the preceding sentence.
In applying the foregoing tests, under certain attribution rules, a
stockholder is deemed to own stock owned and, in some cases, constructively
owned by certain family members, by certain estates and trusts of which the
Holder is a beneficiary, and by certain affiliated entities, as well as stock
subject to an option actually or constructively owned by the stockholder or
such other persons. As these rules are complex, each Holder that believes it
may be subject to these rules should consult its tax advisor.
Under the foregoing tests, in most circumstances, gain recognized by a
Holder that exchanges its share of Vitalink Common Stock for a combination of
Genesis Preferred Stock and cash is expected to be treated as capital gain,
and will be long-term capital gain if the holding period for such shares was
greater than one year as of the date of the exchange. Holders of Vitalink
Common Stock who receive such cash should, however, consult their own tax
advisors to determine the proper treatment of such cash payments in their
individual situations (including the impact, if any, of Vitalink Common Stock
or Genesis stock owned by related persons).
The aggregate tax basis of Genesis Preferred Stock received by a Holder that
exchanges its shares of Vitalink Common Stock for a combination of Genesis
Preferred Stock and cash pursuant to the Merger will be the same as the
aggregate tax basis of the shares of Vitalink Common Stock surrendered
therefor, decreased by the cash received and increased by any recognized gain
(whether capital gain or dividend income). The holding period of Genesis
Preferred Stock will include the holding period of the shares of Vitalink
Common Stock surrendered therefor.
If a Holder has differing basis and/or holding periods in respect of its
shares of Vitalink Common Stock, it should consult its tax advisor prior to
the exchange with regard to identifying the particular basis and/or holding
period of the shares of Vitalink Common Stock to be sold in the exchange and
the particular bases and/or holding periods of the particular shares of
Genesis Preferred Stock it receives in the exchange since several methods of
determination may be available.
Cash Received in Lieu of a Fractional Share. Cash received in lieu of a
fractional share of Genesis Preferred Stock will be treated as received in
redemption of such fractional share and gain or loss will be recognized,
measured by the difference between the amount of cash received and the portion
of the basis of the Vitalink Common Stock allocable to such fractional
interest. Such gain or loss will constitute capital gain or
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loss, and will be long-term capital gain or loss if the holding period for
such shares of Vitalink Common Stock was greater than one year as of the date
of the exchange.
Additional Considerations. In addition, a Holder who receives Genesis
Preferred Stock could be subject to special rules under Section 306 of the
Code on the sale, exchange, redemption or other disposition thereof if the
receipt of cash in lieu of such stock would have been treated as a dividend
under the Section 302 rules described above. Each Holder of Vitalink Common
Stock should consult its tax advisor on the potential application of Section
306 to the receipt of Genesis Preferred Stock.
Consequences to Genesis, Acquisition Corporation and Vitalink. None of
Genesis, Acquisition Corporation or Vitalink will recognize gain or loss as a
result of the Merger.
TAX CONSEQUENCES OF AN INVESTMENT IN GENESIS PREFERRED STOCK
Cash Dividends. Any cash dividends that are paid in respect of Genesis
Preferred Stock, to the extent paid out of Genesis's current and accumulated
earnings and profits, will be taxable as ordinary income. Corporate Holders
generally will qualify for the dividends-received deduction with respect to
such dividends, subject to the minimum holding period and other applicable
requirements. To the extent that Genesis does not have sufficient current or
accumulated earnings and profits, all or a portion of any distribution made
with respect to Genesis Preferred Stock in any particular year will not
qualify as a dividend for U.S. federal income tax purposes and, as a result,
will not be eligible for the dividends-received deduction. A distribution in
respect of Genesis Preferred Stock that does not constitute a dividend for
U.S. federal income tax purposes will represent a non-taxable distribution to
the extent of the Holder's basis in its Genesis Preferred Stock
(correspondingly reducing such Holder's basis in such Holder's shares of
stock) and, to the extent such distributions exceed the Holder's basis in such
stock, a capital gain.
Under certain circumstances, a corporate stockholder that receives
"extraordinary dividends," as defined in Section 1059(c) of the Code, is
required to reduce its tax basis in the stock on which such dividends are paid
by the non-taxed portion of such dividends. For this purpose, under Section
1059(f) of the Code, any dividend with respect to "disqualified preferred
stock" is treated as an "extraordinary dividend." Generally, quarterly
dividends not in arrears paid to an original Holder of Genesis Preferred Stock
will not constitute extraordinary dividends under Section 1059(c) of the Code.
In addition, although the issue is not free from doubt, Genesis Preferred
Stock should not constitute "disqualified preferred stock" under Section
1059(f) of the Code.
Backup Withholding. Certain non-corporate holders may be subject to backup
withholding at a rate of 31% on dividends received on Genesis Preferred Stock.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. IF, AS
INTENDED AS OF THE DATE HEREOF, THE MERGER QUALIFIES AS A REORGANIZATION UNDER
SECTION 368(A) OF THE CODE, THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TO THE HOLDERS OF VITALINK COMMON STOCK DEPEND TO A GREAT EXTENT ON WHETHER
THEY RECEIVE GENESIS PREFERRED STOCK OR CASH. ACCORDINGLY, IT IS IMPORTANT
THAT EACH VITALINK STOCKHOLDER RETURN THE ELECTION FORM, SO THAT IT IS
RECEIVED BEFORE THE ELECTION DEADLINE.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GENESIS
BENEFICIAL OWNERSHIP OF GENESIS COMMON STOCK
Principal Shareholders
The following table sets forth as of June 1, 1998 certain information with
respect to the beneficial ownership of Genesis Common Stock (i) by each person
who is known by Genesis to be the beneficial owner of more than five percent
of the Genesis Common Stock, (ii) by each director, (iii) by each of Genesis's
five most highly compensated executive officers and (iv) by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF
GENESIS COMMON PERCENTAGE OF
STOCK BENEFICIALLY GENESIS COMMON
OWNED(1) STOCK OWNED
------------------ --------------
<S> <C> <C>
Putnam Investment, Inc.(2).................. 3,289,151 9.0%
One Post Office Square
Boston, Massachusetts 02109
Allen R. Freedman(3)........................ 13,500 *
Richard R. Howard(4)........................ 295,450 *
Samuel H. Howard(5)......................... 18,000 *
Roger C. Lipitz(6).......................... 28,000 *
Stephen E. Luongo(7)........................ 49,518 *
Alan B. Miller(8)........................... 28,000 *
Michael R. Walker(9)........................ 786,400 2.1%
David C. Barr(10)........................... 261,750 *
George V. Hager, Jr.(11).................... 152,253 *
Michael G. Bronfein(12)..................... 196,671 *
All executive officers and directors as a
group (19 persons)......................... 2,052,600 5.6%
</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 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 June 1, 1998. 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 28, 1998. Consists of 3,092,550
shares beneficially owned by Putnam Investment Management, Inc. and
196,601 shares beneficially owned by The Putnam Advisory Company, Inc.
which are registered investment advisors, and are wholly owned by Putnam
Investments, Inc. Putnam Investments, Inc. is a wholly owned subsidiary
of Marsh & McLennan Companies, Inc.
(3) Consists of 13,500 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(4) Includes 212,750 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(5) Consists of 18,000 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(6) Includes 18,000 shares of Genesis Common Stock which may be acquired upon
the exercise of stock options.
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(7) Includes 30,000 shares of Genesis Common Stock which may be acquired upon
the exercise of stock options.
(8) Includes 22,500 shares of Genesis Common Stock which may be acquired upon
the exercise of stock options.
(9) Includes 367,500 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(10) Consists of 231,750 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(11) Includes 126,500 shares of Genesis Common Stock which may be acquired
upon the exercise of stock options.
(12) Includes 27,500 shares of Genesis Common Stock which may be acquired upon
the exercise of stock options.
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THE GENESIS PREFERRED STOCK
The following summary description of the Series G Cumulative Convertible
Genesis Preferred Stock (the "Genesis Preferred Stock") to be issued by
Genesis does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Certificate of Designation governing the
Genesis Preferred Stock, copies of which are available from Genesis upon
request.
GENERAL
The Genesis Preferred Stock will be authorized as a new series of preferred
stock, consisting of up to shares. Article 6 of the Amended and Restated
Articles of Incorporation of Genesis authorizes Genesis to issue an aggregate
of 5,000,000 shares of preferred stock. The Genesis Board is authorized to
divide the Genesis Preferred Stock into one or more series and has broad
authority to determine the relative rights and preferences of the shares
within each series, including voting rights.
NON-TRANSFERABILITY
Until the filing by Genesis of a registration statement with the Commission
covering the sale of shares of Genesis Preferred Stock by holders, no holder
may transfer the Genesis Preferred Stock without the consent of Genesis.
DIVIDENDS
Holders of Genesis Preferred Stock will be entitled to receive, when, as and
if declared by the Genesis Board out of legally available funds, cumulative
preferential cash dividends at an annual rate equal to 5.9375% of the
liquidation preference, which has been set at $500.00 per share, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, a "Dividend Payment Date"). The first dividend payment will
be for the period from the date of original issuance of the Genesis Preferred
Stock (the "Issue Date") to December 31, 1998 and each dividend payment
thereafter will be for the period from the most recent Dividend Payment Date
on which dividends have been paid to but excluding the first Dividend Payment
Date thereafter. Each quarterly period beginning on January 1, April 1, July 1
and October 1 in each year and ending on and including the day next preceding
the first day of the next such quarterly period shall be a "Dividend Period."
The rate per annum at which dividends on the Genesis Preferred Stock will
accrue will be increased as follows on the indicated date:
<TABLE>
<S> <C>
Fourth anniversary of the Issue Date................................. 6.1875%
Fifth anniversary of the Issue Date.................................. 6.6250%
Ninth anniversary of the Issue Date.................................. 7.0625%
Eleventh anniversary of the Issue Date............................... 7.5000%
Thirteenth anniversary of the Issue Date............................. 7.9375%
</TABLE>
Dividends will accrue whether or not dividends are declared or if there are
funds legally available for the payment of dividends on a daily basis from the
previous dividend payment date. Dividends will cease to accrue in respect of
the Genesis Preferred Stock on the date of the conversion thereof.
If, for four consecutive Dividend Periods, dividends are not declared and
paid or funds are not legally available for the payment of dividends,
dividends will accumulate as of the Dividend Payment Dates, but such
accumulated unpaid dividends will not bear interest. However, if, after such
four consecutive Dividend Periods, dividends are not declared and paid or
funds continue not to be legally available for the payment of dividends,
dividends that accrue thereafter will be payable in additional shares of
Genesis Preferred Stock (the "Dividend Shares") until such time as all accrued
and unpaid dividends are paid in full in cash. Such dividend Shares will be
valued at $500.00 per share with a liquidation preference of $500.00 per
share.
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As long as any Genesis Preferred Stock is outstanding, no dividends or other
distributions for any Dividend Period (other than dividends payable in shares
of, or warrants, rights or options exercisable for or convertible into shares
of Genesis Common Stock or any other capital stock of Genesis ranking junior
to the Genesis Preferred Stock as to the payment of dividends and the
distribution of assets upon liquidation ("Junior Stock"), and cash in lieu of
fractional shares of such Junior Stock in connection with any such dividends)
will be paid on any Junior Stock unless: (i) full dividends on all outstanding
shares of Genesis preferred stock that by its terms ranks pari passu with the
Genesis Preferred Stock with respect to the payment of dividends ("Parity
Preferred Stock"), and the Genesis Preferred Stock have been paid, or declared
and set aside for payment, for all Dividend Periods terminating on or prior to
the payment date of such Junior Stock dividend or distribution and for the
current Dividend Period, to the extent such Parity Preferred Stock dividends
are cumulative; (ii) Genesis has paid or set aside all amounts required to be
paid or set aside for all purchase, retirement and sinking funds, if any; and
(iii) Genesis is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Genesis Preferred Stock.
In addition, as long as any Genesis Preferred Stock is outstanding, no
shares of any Junior Stock may be purchased, redeemed or otherwise acquired by
Genesis or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares of
such Junior Stock in connection therewith) or in accordance with the Put/Call
Agreement, or outstanding call options) nor may any funds be set aside or made
available for any sinking fund for the purchase or redemption of any Junior
Stock unless: (i) full dividends on all outstanding shares of Parity Preferred
Stock and Genesis Preferred Stock have been paid, or declared and set aside
for payment, for all dividends periods terminating on or prior to the date of
such purchase, redemption or acquisition and for the current Dividend Period,
to the extent such Parity Preferred Stock dividends are cumulative; (ii)
Genesis has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement and sinking
funds, if any, for any outstanding shares of Parity Preferred Stock; and (iii)
Genesis is not in default on any of its obligations to redeem any outstanding
shares of Parity Preferred Stock or Genesis Preferred Stock.
Except as provided below, Genesis may not pay dividends on any Parity
Preferred Stock unless it has paid or declared and set apart for payment all
accrued and unpaid dividends for all prior dividend payment periods on the
Genesis Preferred Stock on or prior to the payment date of such Parity
Preferred Stock, to the extent such Parity Preferred Stock dividends are
cumulative. Whenever all accrued dividends in respect of prior dividend
payment periods are not paid in full on Genesis Preferred Stock and on any
Parity Preferred Stock, all dividends declared on the Genesis Preferred Stock
and the Parity Preferred Stock will be declared and made pro rata so that the
amount of dividends declared on the Genesis Preferred Stock and the Parity
Preferred Stock will bear the same ratio that accrued and unpaid dividends in
respect of prior Dividend Payment Periods on the Genesis Preferred Stock and
the Parity Preferred Stock bear to each other.
As long as any Genesis Preferred Stock is outstanding, Genesis may not
purchase, redeem or otherwise acquire any shares of Parity Preferred Stock
(except for consideration payable in Junior Stock or cash payable in lieu of
fractional shares of Junior Stock) if Genesis has failed to pay any accrued
dividends on the Genesis Preferred Stock or any Parity Preferred Stock on a
Dividend Payment Date, Genesis has not set aside all amounts required to be
paid or set aside for all purchase, retirement or sinking funds or Genesis is
in default on any of its obligations to redeem any outstanding shares of
Parity Preferred Stock or Genesis Preferred Stock. Notwithstanding the
foregoing, in such event, Genesis may purchase or redeem fewer than all the
shares of the Genesis Preferred Stock and Parity Preferred Stock if such
repurchase or redemption is made pro rata so that the amounts purchased or
redeemed bear to each other the same ratio that the required redemption
payments on the shares of the Genesis Preferred Stock and any Parity Preferred
Stock then outstanding bear to each other.
The dividend payable on Genesis Preferred Stock for each quarterly dividend
period will be computed by dividing the annual dividend amount by four. The
amount of dividends payable for the initial dividend period
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and for any period shorter than a full dividend period will be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in any period less than one month.
VOTING RIGHTS
The holders of the Genesis Preferred Stock will be entitled to such number
of votes for each share held as equals the number of shares of Genesis Common
Stock into which such shares are convertible on the record date set for
determining who is entitled to vote a particular matter and will vote together
with the holders of Genesis Common Stock (and any other class or series of
Genesis Preferred Stock, if any, similarly entitled to vote (such Genesis
Preferred Stock, together with the Genesis Common Stock, the "Voting
Securities") as a single class, on all matters to be voted on by holders of
Genesis Common Stock. In addition to such voting rights, holders of the
Genesis Preferred Stock will be entitled to vote as a separate class on
matters as to which the Pennsylvania Business Corporation Law requires a
separate class vote.
Whenever dividends payable on shares of Genesis Preferred Stock are in
arrears and unpaid for four consecutive Dividend Periods, thereafter and until
all accrued and unpaid dividends, whether or not declared, on the outstanding
shares of Genesis Preferred Stock shall have been paid in full in cash or
declared and cash set apart for the payment thereof, the number of directors
of Genesis shall be increased by two and the holders of the Genesis Preferred
Stock shall have the right, voting separately as a class, by a vote of holders
of a majority of the number of outstanding shares of Genesis Preferred Stock,
to elect two directors of Genesis while still preserving the right of holders
of Genesis Preferred Stock to vote for the remaining directors together with
holders of the Genesis Common Stock. At such time as the accrued and unpaid
dividends shall have been paid in full in cash or declared and cash set apart
for the payment thereof, the right of the holders to vote for directors as
provided herein shall terminate and the term of office of any director(s) then
in office who were elected pursuant to the process herein described shall
immediately terminate.
So long as any shares of Genesis Preferred Stock are outstanding, subject to
the applicable provisions of the Pennsylvania Business Corporation Law,
Genesis will not, without consent of the holders of at least two-thirds of the
number of shares of Genesis Preferred Stock at the time outstanding, given in
person or by proxy, either in writing or by vote at a special meeting called
for the purpose, (i) increase the number of shares of authorized Genesis
Preferred Stock or issue any additional shares of Genesis Preferred Stock
other than Dividend Shares; (ii) amend or modify the powers, preferences or
rights of the Genesis Preferred Stock or take any action which adversely
affects the interests of the holders of Genesis Preferred Stock, provided,
however, that Genesis may authorize and issue classes or series of stock
ranking senior to, or on a parity with, the Genesis Preferred Stock either in
the payment of dividends or in the distribution of assets upon any liquidation
of Genesis, or that Genesis may be required to redeem or repurchase before all
of the Genesis Preferred Stock has been redeemed without the consent of the
holders of the Genesis Preferred Stock; or (iii) enter into any plan of
complete liquidation or dissolution or otherwise effect the voluntary
liquidation, dissolution or winding-up of Genesis unless, as a result of such
liquidation, the liquidation preference on the Genesis Preferred Stock is
satisfied in full.
CONVERSION AT THE OPTION OF GENESIS
Genesis may not convert the Genesis Preferred Stock prior to April 26, 2001.
From and after April 26, 2001, Genesis at its option may convert the Genesis
Preferred Stock in whole at any time at a conversion price equal to 100% of
the liquidation preference, plus accrued and unpaid dividends to the date of
conversion, only if the Genesis Common Stock is trading 120% above the
conversion price, which has been fixed at $37.20.
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From and after April 26, 2002, Genesis at its option may convert the Genesis
Preferred Stock in whole at any time at the conversion price set forth below,
stated as a percentage of the liquidation preference, in each case plus
accrued and unpaid dividends to the date of conversion, if converted during
the twelve-month period beginning April 26:
<TABLE>
<CAPTION>
YEAR PRICE
---- ------
<S> <C>
2002................................................................. 104.50%
2003................................................................. 103.75%
2004................................................................. 103.00%
2005................................................................. 102.25%
2006................................................................. 101.50%
2007................................................................. 100.75%
2008 and thereafter.................................................. 100.00%
</TABLE>
The conversion prices for the Genesis Preferred Stock set forth above are
payable by Genesis solely in Genesis Common Stock. On the date of conversion,
Genesis will deliver to each holder of Genesis Preferred Stock held for each
share of Genesis Preferred Stock a number of shares of Genesis Common Stock
with an aggregate market price on such date equal to the applicable conversion
price.
Each holder of Genesis Preferred Stock will surrender the certificate or
certificates representing such shares of Genesis Preferred Stock to Genesis,
duly endorsed (or otherwise in proper form for transfer, as determined by
Genesis), in the manner and at the place designated by Genesis, and on the
date of conversion the conversion price for such shares will be payable to the
holder thereof, and each surrendered certificate will be canceled and retired.
CONVERSION AT THE OPTION OF THE HOLDERS
Procedure. At the option of the holders, each share of Genesis Preferred
Stock will be convertible at any time into Genesis Common Stock at the
conversion price of $37.20 (equivalent to a conversion rate of 13.441 shares
of Genesis Common Stock for each share of Genesis Preferred Stock).
Conversion of Genesis Preferred Stock may be effected by delivering
certificates evidencing such shares, together with written notice of
conversion and a proper assignment of such certificates to Genesis or in
blank, to the office or agency to be maintained by Genesis for that purpose
(and, if applicable, cash payment of an amount equal to the dividend payable
on such shares), and otherwise in accordance with conversion procedures
established by Genesis. Each optional conversion will be deemed to have been
effected immediately prior to the close of business on the date on which the
foregoing requirements will have been satisfied and dividends will cease to
accrue in respect of Genesis Preferred Stock at such time.
On and after the date of conversion, unless Genesis fails to issue
certificates evidencing the Genesis Common Stock, dividends on the Genesis
Preferred Stock called for conversion shall cease to accumulate on the date of
conversion, and all rights of the holders of converted shares shall terminate
with respect thereto on the date of conversion, other than the right to
receive the Genesis Common Stock into which each share of Genesis Preferred
Stock shall be converted.
Receipt of Dividends. Holders of Genesis Preferred Stock at the close of
business on a record date for any payment of declared dividends shall be
entitled to receive the full dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the conversion of such
shares following such record date and prior to the corresponding Dividend
Payment Date. However, shares of Genesis Preferred Stock surrendered for
conversion after the close of business on a record date for any payment of
declared dividends and before the opening of business on the next succeeding
Dividend Payment Date must be accompanied by payment to Genesis in cash of an
amount equal to the dividend declared on such shares of Genesis Preferred
Stock to be converted and to be payable on such Dividend Payment Date unless a
conversion notice from Genesis shall have been delivered to the Holders and
the date of conversion is on or before the next succeeding Dividend Payment
Date.
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Holders thereof shall continue to be entitled to receive from Genesis any
accrued but unpaid dividends thereon. Such accrued but unpaid dividends may be
declared and paid at any time, without reference to any regular Dividend
Payment Date. Except as provided above, upon any conversion at the option of
the holder of Genesis Preferred Stock, Genesis shall make no payment or
allowance for unpaid dividends for the Dividend Period during which such
conversion occurs, whether or not in arrears, on such converted Genesis
Preferred Stock or for previously declared dividends or distributions on the
shares of Common Stock issued upon such conversion.
Adjustment to Conversion Price. In case Genesis shall (i) subdivide its
outstanding shares of Genesis Common Stock into a greater number of shares,
(ii) combine its outstanding shares of Genesis Common Stock into a smaller
number of shares, or (iii) issue by reclassification of its shares of Genesis
Common Stock any shares of its capital stock, the conversion price shall be
adjusted so that the holder of a share of Genesis Preferred Stock surrendered
for conversion shall be entitled to receive upon conversion the number of such
shares of Genesis Common Stock which such holder would have been entitled to
receive after the happening of such event had such share of Genesis Preferred
Stock been converted immediately prior to such record date.
In the event Genesis shall make a dividend or other distribution, including
warrants and debt instruments, on the Genesis Common Stock, other than (A)
regular dividends payable in cash or (B) any dividend or distribution on the
Genesis Common Stock if the Genesis Preferred Stock holders receive in such
distribution the same as they would have received if such holders had
converted into Genesis Common Stock immediately prior to such dividend, then,
an appropriate adjustment to the conversion price shall be made so that the
holder of each share of Genesis Preferred Stock shall be entitled to receive,
upon the conversion thereof, the number of shares of Genesis Common Stock
determined by multiplying (1) the number of shares of Genesis Common Stock
into which such share was convertible on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive
such dividend or distribution by (2) a fraction, the numerator of which shall
be the current market price per share of Genesis Common Stock as of such
record date, and the denominator of which shall be such current market price
per share of Genesis Common Stock less the fair market value per share of
Genesis Common Stock of such dividend or distribution; provided, however, that
in the event of a distribution of shares of capital stock of a subsidiary of
Genesis (a "Spin-Off") made to holders of shares of Genesis Common Stock, the
numerator of such fraction shall be the sum of the market price per share of
Genesis Common Stock as of the 30th trading day after the effective date of
such Spin-Off and the market price of the capital stock of the subsidiary
which is distributed in such Spin-Off in respect of one share of Genesis
Common Stock as of such 30th trading day and the denominator of which shall be
the current market price per share of Genesis Common Stock as of such 30th
trading day.
No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
No fractional shares or scrip representing fractional shares of Genesis
Common Stock shall be issued upon the conversion of any share of Genesis
Preferred Stock. If conversion of the Genesis Preferred Stock does not yield a
round number of shares of Genesis Common Stock, the fraction of Genesis Common
Stock resulting from such conversion will be multiplied by the market price of
the Genesis Common Stock and such amount will be paid by Genesis to the
converting holder in cash.
Change in Control. In the event of any capital reorganization or
reclassification of outstanding shares of Genesis Common Stock or in case of
any merger, consolidation or other corporate combination of Genesis with or
into another corporation, or in case of any sale or conveyance to another
corporation of the property of Genesis as an entirety or substantially as an
entirety (each of the foregoing being referred to as a "Transaction"), each
share of Genesis Preferred Stock shall be exchanged for a new series of
preferred stock of the surviving person, or in the case of a surviving person
other than a corporation, comparable securities of such surviving person, in
either case having economic terms as nearly equivalent as possible to, and
with the same voting and other rights as, the Genesis Preferred Stock; except
that any holder of Genesis Preferred Stock shall be entitled to receive, upon
conversion subsequent to the consummation of such Transaction, the kind and
amount of shares of stock
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and other securities and property receivable (including cash) upon the
consummation of such Transaction by a holder of that number of shares of
Genesis Common Stock into which one share of Genesis Preferred Stock was
convertible immediately prior to such Transaction. Notwithstanding the
foregoing, upon a Change in Control (as defined below) at the option of the
holder of any shares of Genesis Preferred Stock the holder thereof shall be
entitled to receive, upon presentation of the certificates therefor to the
surviving person subsequent to the consummation of such Transaction, cash
equal to the liquidation preference as of the consummation of such
transaction. If necessary, appropriate adjustment (as determined by the
Genesis Board in good faith) shall be made in the application of the
provisions set forth herein with respect to the rights and interests
thereafter of the holders of shares of Genesis Preferred Stock to the end that
the provisions set forth herein for the protection of the conversion rights of
the Genesis Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities and
property deliverable upon conversion of the shares of Genesis Preferred Stock
remaining outstanding (with such adjustments in the conversion price and
number of shares issuable upon conversion and such other adjustments in the
provisions hereof as the Genesis Board in good faith shall determine to be
appropriate). In case securities or property other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all references
herein shall be deemed to apply, so far as appropriate and as nearly as may
be, to such other securities or property.
Notwithstanding anything contained herein to the contrary, Genesis will not
effect any Transaction unless, prior to the consummation thereof, proper
provision is made to ensure that the holders of shares of Genesis Preferred
Stock will be entitled to receive the benefits afforded hereby if, following
the Transaction, one or more entities other than Genesis shall be required to
deliver securities or other property upon the conversion of the Genesis
Preferred Stock, such entity or entities shall assume, by written instrument
delivered to each holder of shares of Genesis Preferred Stock the obligation
to deliver to such holder the securities and property to which, in accordance
with the foregoing provisions, such holder is entitled.
"Change in Control" means (A) when the stockholders of Genesis approve an
agreement or plan (i) to merge or consolidate Genesis with or into another
company (other than a merger or consolidation which would result in the Voting
Securities outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) more than 50% of the combined voting power of the
voting securities of Genesis or such surviving entity outstanding immediately
after such merger or consolidation), or (ii) to sell, or otherwise dispose of,
all or substantially all of Genesis property and assets, or (B) when Genesis
is the subject of a transaction pursuant to Rule 13e-3 under the Exchange Act.
NOTICE OF CERTAIN EVENTS
In case at any time or from time to time, Genesis shall pay any dividend or
make any other distribution to the holders of Genesis Common Stock, or shall
offer for subscription pro rata to the holders of Genesis Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Genesis Common Stock or
merger, consolidation or other corporate combination of Genesis with or into
another corporation, or any sale or conveyance to another corporation of the
property of Genesis as an entirety or substantially as an entirety, or there
shall be a voluntary or involuntary dissolution, liquidation or winding-up of
Genesis, then, Genesis shall give written notice at the same time as, or as
soon as practicable after, such event is first communicated (including by
announcement of a record date in accordance with the rules of any stock
exchange on which the Genesis Common Stock is listed or admitted to trading)
to holders of Genesis Common Stock, but in any event within 30 days of
occurrence of such event to the registered holders of the Genesis Preferred
Stock notice of any of the aforementioned events.
RESERVATION OF GENESIS COMMON STOCK
Genesis shall at all times reserve and keep available out of its authorized
but unissued shares of Genesis Common Stock, solely for the purpose of
effecting the conversion of the shares of the Genesis Preferred Stock, such
number of shares of Genesis Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Genesis
Preferred Stock. If at any time the number of authorized but unissued
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shares of Common Stock is not sufficient to effect the conversion of all then
outstanding shares of the Genesis Preferred Stock, Genesis will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose.
LIQUIDATION PREFERENCE
The Genesis Preferred Stock will rank pari passu as to preference on
distribution of assets upon liquidation with each other series of Parity
Preferred Stock then outstanding, and with any future preferred stock issued
by Genesis that by its terms ranks pari passu with the Genesis Preferred Stock
with respect to distribution of assets upon liquidation.
The Genesis Preferred Stock will be subordinate as to preference on
distribution of assets upon liquidation of dividends to each other series of
existing and future preferred stock issued by Genesis that by its terms is
senior to the Genesis Preferred Stock with respect to distribution of assets
upon liquidation.
In the event of the liquidation, dissolution or winding-up of the business
of Genesis, whether voluntary or involuntary, the holders of Genesis Preferred
Stock then outstanding, after payment or provision for payment of the debts
and other liabilities of Genesis and the payment or provision for payment of
any distribution on any shares of Genesis having a preference and a priority
over the Genesis Preferred Stock on liquidation, and before any distribution
to holders of any shares of Genesis that are junior and subordinate to the
Genesis Preferred Stock on liquidation shall be entitled to be paid out of the
assets of Genesis available for distribution to its stockholders the
liquidation preference, plus an amount equal to all accrued and unpaid
dividends thereon, and shall, after the holders of Genesis Common Stock have
received an amount per share of Genesis Common Stock equal to the amount paid
per share of Genesis Preferred Stock, be entitled to participate on a pro rata
basis with the holders of Genesis Common Stock. In the event the assets of
Genesis available for distribution to the holders of the Genesis preferred
stock upon any dissolution, liquidation or winding-up of Genesis shall be
insufficient to pay in full the liquidation payments payable to the holders of
outstanding Genesis Preferred Stock and of all other series of preferred stock
that rank on a parity with the Genesis Preferred Stock in the event of
liquidation, the holders of Genesis Preferred Stock and of all other series of
such parity Preferred Stock shall share ratably in such distribution of assets
in proportion to the amount which would be payable on such distribution if the
amounts to which the holders of outstanding Genesis Preferred Stock and the
holders of outstanding shares of such Parity Preferred Stock were paid in
full. Except as provided herein, holders of Genesis Preferred Stock shall not
be entitled to any distribution in the event of liquidation, dissolution or
winding-up of the affairs of Genesis.
None of the sale, lease, transfer or exchange of all or substantially all of
the assets of Genesis nor the consolidation or merger of Genesis with one or
more other corporations (whether or not Genesis is the corporation surviving
such consolidation or merger) will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of Genesis.
SECURITIES LAWS RESTRICTIONS ON TRANSFER
In addition to the contractual restrictions on the sale of Genesis Preferred
Stock, the holders thereof may be further restricted by certain provisions of
the Securities Act.
The shares of Genesis Preferred Stock to be issued to stockholders of
Vitalink pursuant to the Merger Agreement have been registered under the
Securities Act. However, persons who are "affiliates" (as defined in the
Securities Act) of Vitalink are prohibited from transferring such shares.
Directors and executive officers of Vitalink may be deemed to have been
"affiliates" of Vitalink within the meaning of the Securities Act. Any such
affiliate will not be able to resell the Genesis Preferred Stock received by
him or her in the Merger unless such stock is registered for resale or an
exemption from registration under the Securities Act is available, such as
Rule 145. All such persons should carefully consider the limitations imposed
by Rule 145 under the Securities Act prior to effecting any resales of Genesis
Preferred Stock. In general, under Rule145 as currently in effect, persons who
may be deemed affiliates (as that terms is described in the Securities Act) of
Vitalink as of the
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Vitalink Special Meeting would be entitled to sell within any three-month
period a number of shares of Genesis Preferred Stock that does not exceed the
greater of 1% of the then outstanding shares of the Genesis Preferred Stock or
the average weekly trading volume during the four calendar weeks preceding a
sale by such person. Sales under Rule 145 are also subject to certain
provisions relating to the manner of sale and availability of current
information about Genesis. Such limitations would generally cease to apply to
non-affiliates of Genesis following the first anniversary of the Effective
Time provided that Genesis meets certain public information requirements or
the second anniversary of the Effective Time otherwise. This Proxy
Statement/Prospectus does not cover any resales of Genesis Preferred Stock
received by affiliates of Vitalink or by certain of their family members or
related interests.
Pursuant to the Merger Agreement, prior to the Effective Time, Vitalink
shall cause to be prepared and delivered to Genesis a list (reasonably
satisfactory to counsel for Genesis) identifying all persons who, at the time
of the Vitalink Special Meeting, may be deemed to be "affiliates" of Vitalink
as that term is defined in Rule 145 under the Securities Act. Vitalink shall
use its reasonable best efforts to cause each person identified as an
affiliate in such list to deliver to Genesis on or prior to the Effective Time
a written agreement (in a form previously approved by Vitalink and Genesis)
that such affiliate will not sell, transfer, or otherwise dispose of any
shares of Genesis Preferred Stock issued to such possible affiliate pursuant
to the Merger except pursuant to an effective registration statement or in
compliance with Rule 145 or an exemption from the registration requirements of
the Securities Act and it is a condition to the obligation of Genesis to close
the Merger that it receives such written agreements.
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DESCRIPTION OF GENESIS CAPITAL STOCK
GENERAL
Genesis is authorized to issue 60,000,000 shares of common stock having a
par value of $.02 per share and 5,000,000 shares of Preferred Stock (the
"Genesis Undesignated Preferred Stock"). If Genesis's shareholders approve the
issuance of the Genesis Preferred Stock, upon consummation of the Merger, the
Genesis Preferred Stock will have a par value of $.01 per share. As of the
Special Meeting Record Date, there were shares of Genesis Common Stock issued
and outstanding and no shares of Genesis Undesignated Preferred Stock issued
and outstanding. The Genesis Board has the power from time to time to issue
additional shares of Genesis Undesignated Preferred Stock or Genesis Common
Stock authorized by Genesis's Amended and Restated Articles of Incorporation
(the "Genesis Articles") without obtaining approval of Genesis's shareholders.
The rights, qualifications, limitations and restrictions on each series of
Genesis Undesignated Preferred Stock issued will be determined by the Genesis
Board and approved as required by the Pennsylvania Business Corporation Law
(the "PBCL"), the NYSE or otherwise, at the time of issuance and may include,
among other things, rights in liquidation, rights to participating dividends,
voting and convertibility to Genesis Common Stock. The following descriptions
of Genesis capital stock are qualified in their entirety by reference to the
Genesis Articles.
GENESIS COMMON STOCK
Dividends. Genesis can pay dividends out of any statutory surplus or from
certain net profits if, as and when declared by the Genesis Board. The payment
of dividends by Genesis is subject to limitations that are imposed by law. The
holders of Genesis Common Stock are entitled to receive and share equally in
such dividends as may be declared by the Genesis Board out of funds legally
available therefor. Holders of the Genesis Preferred Stock will have a
priority over the holders of Genesis Common Stock with respect to dividends.
See "--Genesis Preferred Stock."
Voting Rights. The holders of Genesis Common Stock possess exclusive voting
rights in Genesis. Such holders elect the Genesis Board and act on such other
matters as are required to be presented to them under the PBCL or the Genesis
Articles, the NYSE, or as are otherwise presented to them by the Genesis
Board. Each holder of Genesis Common Stock is entitled to one vote per share
of Genesis Common Stock on all matters voted upon by Genesis shareholders and
will not have any right to cumulate votes in the election of directors.
Holders of Genesis Preferred Stock will not have voting rights except in
certain limited circumstances, although the Genesis Board may provide voting
rights for any newly created series of Genesis Undesignated Preferred Stock
that may be issued in the future.
Liquidation Rights. In the event of any liquidation, dissolution, or winding
up of Genesis, the holders of Genesis Common Stock would be entitled to
receive, after payment or provision for payment of all debts and liabilities
of Genesis, all assets available for distribution. Holders of Genesis
Preferred Stock will have a priority over the holders of Genesis Common Stock
in the event of any liquidation, dissolution or winding up of Genesis.
Preemptive Rights. Holders of Genesis Common Stock are not entitled to
preemptive rights with respect to any shares which may be issued.
Issuance of Stock. In certain instances, the issuance of authorized but
unissued shares of Genesis Common Stock or Genesis Undesignated Preferred
Stock may have an anti-takeover effect. The authority of the Genesis Board to
issue Genesis Undesignated Preferred Stock with rights and privileges,
including voting rights, as it may deem appropriate, may enable the Genesis
Board to prevent a change of control despite a shift in ownership of Genesis
Common Stock. In addition, the Genesis Board's authority to issue additional
shares of Genesis Undesignated Preferred Stock may deter or delay a change of
control by increasing the number of shares needed to gain control of Genesis.
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Certain Anti-takeover Provisions. The Genesis Articles and Genesis's Bylaws
contain a number of provisions that may be deemed to have the effect of
discouraging or delaying attempts to gain control of Genesis, including
provisions (i) classifying the Genesis Board into three classes with each
class to serve for three years with one class being elected annually; (ii)
vesting in the Genesis Board the exclusive power to fix from time to time the
size of the Genesis Board; (iii) authorizing a majority vote of the Genesis
Board then in office to fill vacancies in the Genesis Board; and (iv) setting
forth specific conditions under which (a) business may be transacted at an
annual meeting of shareholders and (b) persons may be nominated for election
as directors of Genesis at an annual meeting of shareholders.
The foregoing provisions could impede a change of control of Genesis. In
particular, classification of the Genesis Board has the effect of decreasing
the number of directors that could be elected in a single year by any person
who seeks to elect its designees to a majority of the seats on the Genesis
Board.
GENESIS PREFERRED STOCK
As of the Genesis Record Date, no shares of Genesis Undesignated Preferred
Stock have been issued. Genesis Undesignated Preferred Stock may be issued
with such preferences and designations as the Genesis Board may determine from
time to time. The Genesis Board may issue, without shareholder approval,
Genesis Undesignated Preferred Stock with voting, dividend, liquidation and
conversion rights that could dilute the voting strength of the holders of
Genesis Common Stock and may assist Genesis's management in impeding an
unfriendly takeover or an attempted change in control.
With the exception of the Genesis Preferred Stock, Genesis has authorized no
arrangements, understandings, or plans at the present time for the issuance or
use of the shares of the Genesis Undesignated Preferred Stock. The Genesis
Board believes that the availability of such shares will provide Genesis with
increased flexibility in structuring possible future financing and
acquisitions and in meeting other corporate needs that may arise. In the event
of a proposed merger, tender offer, or other attempt to gain control of
Genesis of which Genesis management does not approve, the Genesis Board may be
able to authorize the issuance of one or more series of Genesis Undesignated
Preferred Stock with rights and preferences that could impede the completion
of such a hostile transaction. The issuance of Genesis Undesignated Preferred
Stock, therefore, may deter future takeover attempts. The Genesis Board does
not intend to issue any Genesis Undesignated Preferred Stock except on terms
that it deems to be in the best interest of Genesis's then existing
shareholders.
Genesis Junior Preferred Stock. Genesis has authorized and has filed a
Statement of Designation with respect to the issuance of Genesis Series A
Junior Participating Preferred Stock, par value $.01 per share ("Genesis
Junior Preferred Stock"). Genesis Junior Preferred Stock is only issuable in
connection with Genesis's rights plan. See "--Genesis Rights Plan." When
issued, the Genesis Junior Preferred Stock will rank junior to all other
series of Genesis Undesignated Preferred Stock and the Genesis Preferred Stock
as to the payment of dividends and the distribution of assets upon any
liquidation, dissolution or winding up of Genesis, unless the terms of any
such series provide otherwise.
Dividends on the Genesis Junior Preferred Stock will be cumulative to the
greater of (i) $1.00 or (ii) subject to adjustment, 1000 times the aggregate
per share amount of all cash dividends declared on Genesis Undesignated
Preferred Stock, and 1000 times the aggregate per share amount of all non-cash
dividends or other distributions declared on Genesis Undesignated Preferred
Stock other than a dividend payable in shares of Genesis Undesignated
Preferred Stock or a subdivision of the outstanding shares of Genesis
Undesignated Preferred Stock.
Each holder of the Genesis Series A Junior Preferred Stock is entitled to
1,000 votes on all matters submitted to a vote of the Genesis shareholders.
The Genesis Junior Preferred Stock has preference over the Genesis Common
Stock with respect to the distribution of assets in the event of a
liquidation, dissolution, or winding up of Genesis. The liquidation
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preference of the Genesis Junior Preferred Stock is $1000.00 per share, plus
an amount equal to accrued and unpaid dividends and distributions.
If Genesis enters into any consolidation, merger, combination or other
transaction in which shares of Genesis Undesignated Preferred Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then the shares of Genesis Junior Preferred Stock will at the same
time be similarly exchangeable or changeable in an amount equal to 1,000 times
the aggregate amount of consideration received by the holders of Genesis
Undesignated Preferred Stock. Holders of the Genesis Junior Preferred Stock
are not entitled to preemptive rights with respect to any shares of Genesis
that may be issued.
GENESIS RIGHTS PLAN
The Genesis Rights Agreement, dated as of April 20, 1995, contains
provisions intended to protect shareholders in the event of unsolicited offers
or attempts to acquire Genesis. The Genesis Rights Agreement provides that
attached to each share of Genesis Common Stock is a right to purchase one
thousandth of a share of Genesis Junior Preferred Stock, at a price of $165.00
(the "Purchase Price") per one thousandth interest in a share of Genesis
Undesignated Junior Preferred Stock (the "Genesis Right"), subject to
adjustment. The Genesis Rights will expire on April 20, 2005, unless extended
or unless the Genesis Rights are earlier redeemed by Genesis, in each case as
described below.
The Genesis Rights will separate from the Genesis Common Stock and become
exercisable for Genesis Junior Preferred Stock upon a Distribution Date, which
is defined in the Genesis Rights Agreement 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 of Genesis, 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
Genesis's outstanding voting shares.
If a person or group were to acquire 15% or more of the voting shares of
Genesis, each Genesis Right then outstanding (other than Genesis Rights
beneficially owned by the acquiring person which become null and void) would
become a right to buy that number of shares of Genesis Common Stock (or under
certain circumstances, the equivalent number of thousandths of a Genesis
Junior Preferred Stock) that at the time of such acquisition would have a
market value of two times the Purchase Price of the Genesis Right.
If Genesis 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 Genesis Right
(other than Genesis Rights beneficially owned by a person or group who had
acquired 15% or more of the voting shares of Genesis, which Genesis Rights
became null and void) will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price of the Genesis Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction would have a market value of two times the Purchase Price of
the Genesis Right.
The dividend and liquidation rights, and the non-redemption feature, of the
Genesis Junior Preferred Stock are designed so that the value of one
thousandth of a Genesis Junior Preferred Share purchasable upon exercise of
each Genesis Right will approximate the value of one share of Genesis Common
Stock. The shares of Genesis Junior Preferred Stock issuable upon exercise of
the Genesis Rights will be non-redeemable and rank junior to all other series
of Genesis's Undesignated Preferred Stock. Each whole share of Genesis Junior
Preferred Stock will be entitled to receive a quarterly preferential dividend
in an amount per share equal to the greater of (i) $1.00 in cash, or (ii) in
the aggregate, 1,000 times the dividend declared on the Genesis Common Stock.
In the event of liquidation, the holders of the Genesis Junior Preferred Stock
will be entitled to receive a preferential liquidation payment equal to the
greater of (i) $1,000 per share, or (ii) in the aggregate, 1,000 times the
payment made on the Genesis Common Stock. In the event of any merger,
consolidation or other transaction in which Genesis Common Stock is exchanged
for or changed into other stock or securities, cash or other property, each
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share of whole Genesis Junior Preferred Stock will be entitled to receive
1,000 times the amount received per Genesis Common Stock. Each whole share of
Genesis Junior Preferred Stock shall be entitled to 1,000 votes on all matters
submitted to a vote of the shareholders of Genesis, and Genesis Junior
Preferred Stock shall generally vote together as one class with Genesis Common
Stock and any other capital stock on all matters submitted to a vote of
shareholders.
The offer and sale of the Genesis Junior Preferred Stock issuable upon
exercise of the Genesis Rights are registered with the Commission and such
registration will not be effective until the Genesis Rights become
exercisable. The Genesis Rights themselves are listed on the NYSE.
The number of shares Genesis Junior Preferred Stock or other securities or
property issuable upon exercise of the Genesis Rights, and the Purchase Price
payable, is subject to certain adjustments from time to time to prevent
dilution.
The number of outstanding Genesis Rights is also subject to adjustment in
the event of a stock split of the Genesis Common Stock or a stock dividend on
the Genesis Common Stock payable in Genesis Common Stock or subdivisions,
consolidations or combinations of the Genesis Common Stock occurring, in any
such case, prior to the Distribution Date.
Exchange and Redemption. At any time after the acquisition by a person or
group of affiliated or associated persons of beneficial ownership of 15% or
more of the outstanding voting shares of Genesis and before the acquisition by
a person or group of 50% or more of the outstanding voting shares of Genesis,
the Genesis Board may, at its option, issue Genesis Common Stock or Genesis
Junior Preferred Stock in mandatory redemption of, and in exchange for, all or
part of the then outstanding and exercisable Genesis Rights (other than
Genesis Rights owned by such person or group which would become null and void)
at an exchange ratio of one share of Genesis Common Stock (or one thousandth
of a share of Genesis Junior Preferred Stock) for each two shares of Genesis
Common Stock for which each Genesis Right is then exercisable, subject to
adjustment.
Redemption of Rights. 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 Genesis Board may redeem all but not less than
all of the then outstanding rights at a price of $.001 per Genesis Right (the
"Redemption Price"). The redemption of the Genesis Rights may be made
effective at such time, on such basis and with such conditions as the Genesis
Board in its sole discretion may establish. Immediately upon the action of the
Genesis Board ordering redemption of the Genesis Rights, the right to exercise
the Genesis Rights will terminate and the only right of the holders of Genesis
Rights will be to receive the Redemption Price.
The terms of the rights may be amended by the Genesis Board without the
consent of the holders of the Genesis Rights, including an amendment to extend
the expiration date of the Genesis Rights Agreement, and, provided a
Distribution Date has not occurred, to extend the period during which the
Genesis Rights may be redeemed, except that after the first public
announcement that a person or group has become the beneficial owner of 15% or
more of the outstanding voting shares, no such amendment may materially and
adversely affect the interests of the holders of the Genesis Rights.
Pursuant to the Genesis Rights Plan, Genesis has agreed that prior to the
Effective Time it will have taken appropriate action with respect to the
Genesis Rights Plan so as to exempt (i) the holders of Genesis Preferred Stock
or (ii) any person that is the direct assignee of any holder of Genesis
Preferred Stock to the extent that such assignee (A) acquires in a single
transaction from a holder of Genesis Preferred Stock over 15% of the Voting
Securities and (B) owns no other shares of Voting Securities, from the
restrictions of the Genesis Rights Plan with respect to such shares of Genesis
Preferred Stock and shares of Genesis Common Stock issuable upon conversion
thereof.
The Genesis Rights will not prevent a takeover of Genesis. However, the
Genesis Rights may cause substantial dilution to a person or group that
acquires 10% or more of the Genesis Common Stock without
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receiving the prior approval of the Genesis Board. Accordingly, the Genesis
Rights may result in Genesis being less attractive to a potential acquiror
and, in the event that the existence of Genesis Rights deter certain potential
acquirors, such Genesis Rights could result in the holders of Genesis
Preferred Stock and Genesis Common Stock receiving less consideration in the
event of a takeover. The Genesis Rights should not interfere with any merger
or other business combination approved by the Genesis Board.
Each share of Genesis Common Stock acquired upon conversion of the Genesis
Preferred Stock will have attached thereto a Genesis Right.
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COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS
GENERAL
Genesis is a Pennsylvania corporation and, accordingly, is governed by the
PBCL and by its Amended and Restated Articles of Incorporation (the "Genesis
Articles") and Bylaws (the "Genesis Bylaws"). Vitalink is a Delaware
corporation and, accordingly, has been and will be, through the Effective
Time, governed by the DGCL and its Delaware Restated Certificate of
Incorporation (the "Vitalink Certificate") and Bylaws (the "Vitalink Bylaws").
Upon consummation of the Merger, except for those persons who dissent from the
Merger and perfect dissenters' rights under the DGCL or elect to receive cash
as the Closing Consideration, the stockholders of Vitalink will become
shareholders of Genesis.
The following is a general comparison of material differences between the
rights of Vitalink stockholders under the DGCL, the Vitalink Certificate and
the Vitalink Bylaws, on the one hand, and the rights of Genesis shareholders
under the PBCL, the Genesis Articles and the Genesis Bylaws, on the other.
This discussion is only a summary of certain provisions and does not purport
to be a complete description of such similarities and differences, and is
qualified in its entirety by reference to the DGCL, the PBCL, and the full
text of the Vitalink Certificate, Vitalink Bylaws, Genesis Articles and
Genesis Bylaws.
SIZE OF THE BOARD OF DIRECTORS
Pennsylvania law permits the board of directors to be fixed by amendment to
the bylaws or if not so fixed, in the articles of incorporation or at three if
no number is so stated. The Genesis Articles provide that the number of
directors shall be specified in the Genesis Bylaws and may be altered or
amended by a vote of either 80% of the total outstanding shares eligible to
vote or by 75% of the directors in office at the time of the vote. The Genesis
Articles also divide the number of directors into three classes to be elected
for a term ending on the third annual meeting following their election. The
Genesis Bylaws set the number of directors at seven directors. The Board of
Directors of Genesis may therefore change the exact number of directors.
Delaware law permits the board of directors alone to change the authorized
number, or the range, of directors by amendment to the bylaws, unless the
certificate of incorporation otherwise provides or unless the directors are
not authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation (in which case a change in the number of
directors may be made only by amendment to the certificate of incorporation
approved by the stockholders). The Vitalink Certificate provides that the
number of directors shall be as specified in the Vitalink Bylaws and
authorizes the Vitalink Board to make, alter, amend or repeal the Vitalink
Bylaws. The Vitalink Board may therefore change the authorized range, as well
as the exact number, of directors.
CUMULATIVE VOTING
Under the PBCL, the shareholders of Genesis are entitled to cumulate their
votes in the election of directors, unless otherwise provided in the Genesis
Articles. The Genesis Articles do not provide for cumulative voting; thus the
election of directors is determined by a plurality vote.
Under the DGCL, the stockholders of Vitalink are not entitled to cumulate
their votes in the election of directors unless the Vitalink Certificate so
provides. The Vitalink Certificate does not provide for cumulative voting;
thus the election of directors is determined by a plurality vote.
CHANGE IN NUMBER OF DIRECTORS
Under the PBCL, the number of directors may be fixed by the bylaws or, if no
provision in the bylaws addresses the number of directors, the number of
directors shall be fixed by the articles of incorporation or at three
directors if no number is so stated. The Genesis Bylaws provide that the
Genesis Board shall consist of at least eight directors.
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Under the DGCL, the number of directors are fixed by, or in the manner
provided in, the bylaws, unless the certificate of incorporation otherwise
provides or fixes the number of directors, in which case a change in the
number or permissible range of directors may be made only by amendment to the
certificate of incorporation. Under the Vitalink Bylaws, the number of members
of the Vitalink Board may be fixed and changed by a majority of the total
number of directors Vitalink would have if there were no vacancies. The
Vitalink Bylaws currently provide that the Vitalink Board shall consist of not
less than three nor more than eight directors.
REMOVAL OF DIRECTORS
Under Pennsylvania law, the entire board of directors, a class of the board
or any individual director may be removed from office with or without cause by
the vote of shareholders entitled to vote on the election of the directors, or
the class of directors. The Genesis Articles provide that any member of the
Genesis Board may be removed from office at any time with or without cause by
a vote of 80% of the outstanding shares of capital stock or by 75% of the
entire Genesis Board recommending removal of the director and by a majority
vote of the outstanding shares of capital stock entitled to vote on the
election of directors at a meeting of the shareholders called for that
purpose.
Under the DGCL, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
with the approval of a majority of the outstanding shares entitled to vote at
an election of directors. In the case of a Delaware corporation having
cumulative voting, if less than the entire board is to be removed, a director
may not be removed without cause if the number of shares voted against such
removal would be sufficient to elect the director under cumulative voting. A
director of a corporation with a classified board of directors may be removed
only for cause, unless the certificate of incorporation provides otherwise.
The Vitalink Certificate does not provide for a classified board of directors
or for cumulative voting. As a result, Vitalink directors may be removed with
or without cause with the approval of a majority of the shares entitled to
vote at an election of directors. Although the definition of "cause" has not
been clearly established under Delaware law, courts in various states have
found "cause" to include malfeasance while in office, gross misconduct or
false or fraudulent misrepresentations inducing the directors' appointment,
willful conversion of corporate funds, a breach of the obligation to make full
disclosure, incompetency, gross inefficiency and moral turpitude.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Pennsylvania law, a vacancy in the board of directors, including a
vacancy resulting from an increase in the number of directors, may be filled
by a majority of the remaining directors though less than a quorum or by the
sole remaining director. In a classified board, the director chosen to fill
the vacancy shall hold office until the next selection of the class to which
such director has been chosen, and until his successor has been selected and
qualified. The Genesis Bylaws provide that a vacancy on the Genesis Board
occurring during the course of the year shall be filled by the affirmative
vote of a majority of the remaining directors. Such director shall serve for
the remainder of the term of office of the class to which he was elected.
The Vitalink Bylaws provide that a vacancy on the Board of Directors
occurring during the course of the year, including a vacancy created by an
increase in the number of directors, may be filled by the remaining directors
then in office, although less than a quorum, or by a sole remaining director.
These provisions further provide that any directors so appointed will serve
until the next annual stockholders meeting and until his successor is duly
elected and qualified. Under the DGCL, however, if at the time of filling any
vacancy or newly created directorship the directors then in office constitute
less than a majority of the entire board of directors (as constituted
immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of
the total number of shares at the time outstanding having the right to vote
for such directors, summarily under certain circumstances, order an election
to be held to fill any such vacancies or newly created directorships or to
replace the directors chosen by the directors then in office.
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AMENDMENT OF THE CHARTER
Under the PBCL, articles of incorporation may be amended if such amendment
is approved by the board of directors and the holders of a majority of the
shares of stock outstanding entitled to vote on such amendment. Amendments
affecting any one particular class of shares need be approved by a majority of
the class of shares.
The Genesis Articles require the affirmative vote of 80% or more of the
outstanding voting stock voting together as a single class to approve an
amendment thereto unless the amendment has been approved by the affirmative
vote of at least 75% of the entire Genesis Board and then by the affirmative
vote of a majority of the outstanding voting stock voting together as a single
class.
Under the DGCL, the Vitalink Certificate may be amended if such amendment is
approved by the Vitalink Board and by the holders of a majority of the shares
of stock outstanding entitled to vote thereon. In addition, if Vitalink were
to have more than one class of stock outstanding, amendments that would
adversely affect the rights of any class would require the vote of a majority
of the shares of that class.
AMENDMENT OF THE BYLAWS
Under the PBCL, shareholders possess the power to amend a corporation's
bylaws. The authority to amend the bylaws may be vested in the board of
directors, subject to the power of the shareholders to alter such action. The
board of directors may not unilaterally amend provisions of a corporation's
bylaws relating to shareholder voting power and authority.
The Genesis Bylaws may be amended by the majority vote of the Genesis Board
and by the majority vote of the shareholders. If an amendment does not receive
the approval of the Genesis Board, the amendment may be approved by a vote of
75% of the votes of all shareholders entitled to vote at any annual or special
meeting of the shareholders.
Under the DGCL, stockholders entitled to vote hold the power to adopt, amend
or repeal the bylaws. The Vitalink Bylaws provide that they may be amended,
altered or repealed at any annual or special meeting by a majority of
stockholders if a quorum is present.
ACTION BY WRITTEN CONSENT
The PBCL law permits, unless otherwise restricted in the bylaws, any action
required to be taken at a meeting of the shareholders to be taken without a
meeting, if a consent to the action by all of the shareholders entitled to
vote is filed with the secretary of the corporation. The Genesis Bylaws do not
contain any restrictions on shareholder written consent in lieu of a meeting.
The DGCL permits stockholders, unless specifically prohibited by the
certificate of incorporation, to take action without a meeting by the written
consent of the holders of at least the number of shares necessary to authorize
or take such action at a meeting at which all shares entitled to vote therein
were present and voted. Action by written consent may, in some circumstances,
permit the taking of stockholder action opposed by the board of directors more
rapidly than would be possible if a meeting of stockholders were required.
INDEMNIFICATION AND ELIMINATION OF DIRECTORS' MONETARY LIABILITY FOR BREACH OF
DUTY OF CARE
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the PBCL contain
provisions for mandatory and discretionary indemnification of a corporation's
directors, officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with an action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party by reason of his being a
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representative, director or officer of the corporation or serving at the
request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. Under
Section 1743, indemnification is mandatory to the extent that the officer or
director has been successful on the merits or otherwise in defense of any
action or proceeding if the appropriate standards of conduct are met.
Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct, and such determination will be made by the
board of directors (i) by a majority vote of a quorum of directors not parties
to the action or proceeding; (ii) if a quorum of directors not parties to the
action is not obtainable, or if obtainable and a majority of disinterested
directors so directs, by independent legal counsel; or (iii) by the
shareholders.
Section 1745 provides that expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action or proceeding may be
paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
PBCL shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding that office.
Section 1747 grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred
by him or her in his or her capacity as an officer and/or director, whether or
not the corporation would have the power to indemnify him or her against the
liability under Subchapter 17D of the PBCL.
Sections 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the PBCL to successor
corporations resulting from consolidation, merger or division.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the PBCL shall, unless
otherwise provided when authorized or ratified, continue as to a person unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.
The Genesis Bylaws provide in general that Genesis shall indemnify its
officers and directors to the fullest extent permitted by law.
Delaware law permits, with certain exceptions, a corporation to adopt
charter provisions eliminating the liability of a director to the corporation
or its stockholders for monetary damages for breach of the director's
fiduciary duty. The Vitalink Certificate eliminates the liability of directors
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permissible under Delaware
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law, as such law exists currently or as it may be amended in the future. Under
Delaware law, such provision may not eliminate or limit director monetary
liability for: (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. Such
limitation of liability provisions also may not limit a director's liability
for violation of, or otherwise relieve Vitalink or its directors from the
necessity of complying with federal or state securities laws, or affect the
availability of non-monetary remedies such as injunctive relief or rescission.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law, if such director or officer undertakes to
repay such amounts if it is ultimately determined that he or she is not
entitled to indemnification. In addition, Delaware law allows a corporation's
purchase of indemnity insurance for the benefit of its officers, directors,
employees and agents whether or not the corporation would have the power to
indemnify against the liability covered by the policy.
Delaware law also permits a Delaware corporation to provide indemnification
in excess of that provided by statute. Delaware law does not require
authorizing provisions in the certificate of incorporation and does not
contain express prohibitions on indemnification in certain circumstances;
limitations on indemnification may be imposed by a court, however, based on
principles of public policy.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
STOCKHOLDER VOTE FOR MERGERS AND OTHER REORGANIZATIONS
The Genesis Articles require the approval of the holders of at least 80% of
the Genesis outstanding shares of voting stock to approve certain Business
Combinations (as defined), and related transactions. Under the PBCL, absent
this provision, Business Combinations, including mergers, consolidations and
sales of all or substantially all of the assets of a corporation must, subject
to certain exceptions, be approved by the vote of the holders of only a
majority of the outstanding shares of Genesis Common Stock and any other
affected class of stock. Under the Genesis Articles, at least 80% approval of
shareholders is required in connection with any Business Combination except in
cases where the proposed transaction has been approved in advance by three
quarters of the Genesis Board. The foregoing provision of the Genesis Articles
applies to any "Business Combination," which is defined to include (i) any
merger or consolidation of Genesis or any of its subsidiaries; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition of
substantially all of the assets of Genesis; (iii) the adoption of any plan for
the liquidation or dissolution of Genesis proposed by or on behalf of any
interested shareholder or affiliate thereof; and (iv) any reclassification of
securities, recapitalization of Genesis or any merger on consolidation of
Genesis with any of its subsidiaries.
Delaware law generally requires that the holders of a majority in voting
power of the outstanding shares of stock of both constituent corporations
entitled to vote approve mergers. Delaware law does not require a stockholder
vote of the surviving corporation in a merger (unless the corporation provides
otherwise in its certificate of incorporation) if (a) the merger agreement
does not amend in any respect the existing certificate of incorporation, (b)
each share of the stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding or
treasury share after the effective date of the merger and (c) either no shares
of common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under
the plan of merger, or the authorized unissued shares or the treasury shares
of common stock of the surviving corporation to be issued or delivered under
the plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed twenty percent (20%) of the shares of common stock of the surviving
corporation outstanding immediately prior to the effective date of the merger.
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<PAGE>
Delaware law also requires that a sale of all or substantially all of the
assets of a corporation be approved by a majority of the outstanding voting
shares of the corporation transferring such assets.
Delaware law generally does not require class voting (unless otherwise
required in a corporation's certificate of incorporation), except in certain
transactions involving an amendment to the certificate of incorporation that
adversely affects a specific class of shares. As a result, stockolder approval
of such transactions may be easier to obtain under Delaware law for companies
which have more than one class of shares outstanding.
INTERESTED DIRECTOR TRANSACTIONS
Under Pennsylvania law and Delaware law, certain contracts or transactions
in which one or more of a corporation's directors have an interest are not
void or voidable solely because of such interest if either (a) after full
disclosure of the transaction to the board, a majority of the board's
disinterested directors, even if such majority does not constitute a quorum,
approves the transaction, or (b) after disclosure of the material facts of the
transaction, the stockholders approve the transaction or (c) the transaction
is fair to the corporation at the time of its approval by the Board of
Directors or the shareholders.
STOCKHOLDER DERIVATIVE SUITS
Under Pennsylvania law, a stockholder may bring a derivative action on
behalf of the corporation if the stockholder was a stockholder of the
corporation at the time the transaction in question occurred or if his or her
stock thereafter devolved upon him or her by operation of law. In addition,
any corporation or person beneficially interested in shares of the corporation
may be allowed to maintain an action or proceeding against the corporation in
the discretion of the court if there is a prima facie claim asserted and
serious injustice would result without the maintenance of the action. Delaware
law requires shareholders of less than 5% of the outstanding shares of any
class of securities or shareholders of less than $200,000 in fair market value
of securities to post attorneys' fees in connection with the action or
proceeding.
Under Delaware law, a stockholder may bring a derivative action on behalf of
the corporation only if the stockholder was a stockholder of the corporation
at the time the transaction in question occurred or if his or her stock
thereafter devolved upon him or her by operation of law.
DISSOLUTION
Under the PBCL, in order to dissolve a corporation the board must approve a
resolution to voluntarily dissolve the corporation and a majority of the
shareholders entitled to vote must approve the dissolution. A voluntary
dissolution may also be authorized by a majority of the shareholders entitled
to vote by filing articles of dissolution with the department of state.
Under the DGCL, the board may pass a resolution to dissolve the corporation
and a majority of stockholders must approve the dissolution. Dissolution may
also be authorized by the unanimous written consent of the stockholders
without any action by the board.
INSPECTION OF STOCKHOLDER LISTS
Under the PBCL, any shareholder has the right to inspect the shareholder
list for a purpose reasonably related to such person's interest as a
shareholder. If the corporation refuses or does not respond to an inspection
request by a shareholder within five days after the demand has been made, the
shareholder may apply to a court for an order compelling inspection. A
corporation with 5,000 or more shareholders may, in lieu of making a voting
list, provide the required information by alternative means.
Delaware law allows any stockholder to inspect the stockholder list for a
purpose reasonably related to such person's interest as a stockholder.
Delaware law also provides for inspection rights as to a list of stockholders
entitled to vote at a meeting within a ten day period preceding a
stockholders' meeting for any purpose germane to the meeting.
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<PAGE>
ANTI-TAKEOVER MEASURES
In the last several years, a number of states have adopted special laws
designed to make certain kinds of "unfriendly" corporate takeovers or other
transactions involving a corporation and one or more of its significant
stockholders more difficult. Under Section 203 of the DGCL ("Section 203"),
certain "business combinations" with "interested stockholders" of Delaware
corporations are subject to a three-year moratorium unless specified
conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the
time that such person becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or group who or which owns
15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of such corporation at any time within the three
year period prior to the date on which it is to be determined whether such
person is an interested stockholder.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to or with the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of the
corporation or a subsidiary equal to 10% or more of the aggregate market value
of the corporation's consolidated assets or its outstanding stock; the
issuance or transfer by the corporation or a majority-owned subsidiary of
stock of the corporation or such subsidiary to the interested stockholder
(except for transfers in a conversion or exchange or a pro rata distribution
or certain other transactions, none of which increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or any receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation or a majority-owned subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if (i) prior to the time when such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which
made him or her an interested stockholder (excluding from the 85% calculation
shares owned by directors who are also officers of the target corporation and
shares held by employee stock plans which do not permit employee-participants
to decide confidentially whether to accept a tender or exchange offer); or
(iii) on or after the time when such person becomes an interested stockholder,
the board approves the business combination and it is also approved at a
stockholder meeting by the affirmative vote of 66 2/3% of the voting stock not
owned by the interested stockholder.
Section 203 applies only to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, quoted on
NASDAQ or held of record by more than 2,000 stockholders. However, a Delaware
corporation may elect not to be governed by Section 203 by a provision in its
original certificate of incorporation or an amendment thereto or to the
bylaws, which amendment must be approved by a majority of the shares entitled
to vote.
Vitalink believes that Section 203 will have the effect of encouraging any
potential acquiror to negotiate with Vitalink's Board of Directors. Section
203 should also discourage certain potential acquirors unwilling to comply
with its provisions.
In accordance with Pennsylvania law, the Genesis Articles and the Genesis
Bylaws contain a number of provisions relating to corporate governance and to
the rights of shareholders. Certain of these provisions may be deemed to have
a potential anti-takeover effect in that such provisions may delay or prevent
a change of control of Genesis. These provisions include the authority of the
Genesis Board to issue one or more series of preferred stock with such
provisions as the Genesis Board may determine, the elimination of cumulative
voting, the
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<PAGE>
establishment of a classified board of directors and restrictions upon the
rights of shareholders to call special meetings.
The Genesis Articles require that at least 80% of the voting stock of
Genesis approve a fundamental transaction (such as a merger, liquidation or
sale of substantially all of the assets of Genesis) or certain amendments to
the Genesis Articles, unless, in either case, at least 75% of the Genesis
Board has voted in favor of the transaction or amendment, in which case only a
majority of the voting stock need approve the transaction or amendment. The
Genesis Articles also permit the Genesis Board to oppose, in its sole
discretion, a tender offer for Genesis's securities and to take into
consideration any pertinent issues. Should the Genesis Board determine to
reject such a tender offer, it may take any lawful action to accomplish its
purpose, including, among other things, advising shareholders not to accept
the offer and commencing litigation against the offeror. The Genesis Articles
also provide that the number of directors may be changed only by a vote of (i)
holders of at least 80% of the outstanding shares of voting stock or (ii) 75%
of the directors in office at the time of such vote. Any director or the
entire Genesis Board may be removed from office only by the affirmative vote
of the holders of at least 80% of the outstanding shares of voting stock
except that if the Genesis Board, by an affirmative vote of at least 75% of
the entire Genesis Board, recommends removal of the directors to the
shareholders, such removal may be effected by the affirmative vote of the
holders of at least the majority of outstanding shares of Genesis Common
Stock.
In addition, Section 1721 of the PBCL, under which Genesis was incorporated,
provides that the directors of a corporation, in making decisions concerning
takeovers or any other matters, may consider, to the extent that they deem
appropriate, among other things, (i) the effects of any proposed transaction
upon any or all groups affected by such action, including among others,
shareholders, employees, suppliers, customers and creditors, (ii) the short-
term and long-term interests of the corporation and (iii) the resources,
intent and conduct of the person seeking control.
Under Pennsylvania law, directors may be elected in two or more classes
whose terms expire at different times provided that each class shall be as
nearly equal in number as possible, the term of office of at least one class
shall expire in each year and no single term shall exceed four years. The
Genesis Articles provide for the classification of directors into three
classes, each class serving for staggered three-year terms.
Under Pennsylvania law applicable to corporations whose shares are
registered under the Exchange Act, a shareholder is not entitled to call a
special meeting of shareholders unless such shareholder is an "interested
shareholder" (as defined in Section 2553 of the PBCL) calling a special
meeting for the purpose of approving a "business combination" (as defined in
Section 2554 of the PBCL) with such "interested shareholder." As so defined,
an "interested shareholder" is a person who, together with its affiliates and
associates, owns (or within the preceding five-year period did own) 20% or
more of a "registered" corporation's shares entitled to vote generally in the
election of directors, and a "business combination" includes mergers,
consolidations, asset sales, share exchanges, divisions of a "registered"
corporation or any subsidiary thereof and other transactions resulting in a
disproportionate financial benefit to an "interested shareholder." Under the
Genesis Articles, special meetings of the shareholders of Genesis may be
called by the chairman of the Genesis Board or a majority of its board of
directors or by shareholders entitled to cast 30% of the votes entitled to be
cast at such meeting.
Delaware law has been widely viewed as permitting a corporation to take
measuers which provide it greater flexibility in governing its internal
affairs and its relationships with stockholders and other parties than do the
laws of many other states. Among these measures, discussed below, are the
establishment of a classified board of directors, elimination of cumulative
voting and elimination of the right of stockholders to call special meetings
of stockholders.
Delaware law permits, but does not require, that the certificate of
incorporation, the initial bylaws or a bylaw adopted by vote of the
stockholders may provide for a classified board of directors pursuant to which
the directors may be divided into as many as three classes with staggered
terms of office. Because the terms of office of each class expire in
successive years, only one class of directors would be elected each year.
Classification of
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<PAGE>
the board of directors could make it more difficult for any person desiring to
acquire Vitalink to obtain immediate control of the board.
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by such other person authorized to do so in the
certificate of incorporation or bylaws. The Vitalink Bylaws do not currently
provide that such meetings may be called by the stockholders. Thus, under
Delaware law, it may be more difficult for stockholders to initiate action
that may be opposed by the board of directors.
DIVIDENDS AND REPURCHASES OF SHARES; PAR VALUE, CAPITAL AND SURPLUS
Under the PBCL, a corporation has the power, subject to restrictions in its
bylaws, to make distributions (including redemptions and purchases of its own
stock) to its shareholders unless after giving effect thereto (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business, or (ii) the corporation's total assets would be less than
the sum of its total liabilities plus the amount that would be needed upon the
dissolution of the corporation to satisfy the preferential rights, if any, of
shareholders having superior differential rights to those shareholders
receiving the distribution. Total assets and liabilities for this purpose are
to be determined by the board of directors, which may base its determination
on one or more of the following book value, or current value, of the
corporation's assets and liabilities, unrealized appreciation and depreciation
of the corporation's assets and liabilities and any other method that is
reasonable in the circumstances. The Genesis Bylaws do not contain any
limitations on such powers.
The concepts of par value, capital and surplus are retained under Delaware
law. A Delaware corporation may make repurchases or redemptions that do not
impair capital and may pay dividends out of any surplus account or out of net
profits of the current and preceding fiscal years (provided that the amount of
capital of the corporation is not less than the aggregate amount of the
capital represented by all outstanding stock having a preference upon the
distribution of assets). The ability of a Delaware corporation to pay
dividends or to make repurchases of redemptions of its shares is dependent on
the financial status of the corporation solely, not on a consolidated basis.
Under Delaware law, surplus may be created by a reduction of capital and may
be distributed by board action, as long as capital is maintained in an amount
not less than the aggregate par value of the remaining outstanding shares plus
the stated value of any shares not having par value.
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STOCKHOLDER PROPOSALS
Shareholders of Genesis are entitled to submit proposals which they believe
should be voted upon at a shareholders' meeting. The Commission has adopted
regulations which govern the inclusion of such proposals in annual proxy
material. Genesis's 1999 Annual Meeting will be held in January 1999.
Shareholder proposals must be submitted to the Secretary of Genesis no later
than October 27, 1998 in order to be eligible for inclusion in Genesis's proxy
materials for such meeting.
If the Merger is not consummated in accordance with the Merger Agreement,
Vitalink will consider any stockholder's proposal for action at its 1998
Annual Meeting of Stockholders in the proxy material to be mailed to its
stockholders in connection with such meeting if such proposal is received at
the principal office of Vitalink no later than August 1, 1998.
LEGAL MATTERS
The validity of the Genesis Preferred Stock to be issued by Genesis pursuant
to the Merger and certain tax matters will be passed upon for Genesis by Blank
Rome Comisky & McCauley LLP, Philadelphia, Pennsylvania. As of June 1, 1998,
Stephen Luongo, a partner in Blank Rome Comisky & McCauley LLP, is the
beneficial owner of 49,518 shares of Genesis Common Stock and is a director of
Genesis. Certain tax matters will be passed upon for Vitalink by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York.
EXPERTS
The consolidated financial statements and schedules of Genesis and its
subsidiaries at September 30, 1997 and 1996, and for each of the years in the
three-year period ended September 30, 1997 included in the Genesis Annual
Report on Form 10-K for the fiscal year ended September 30, 1997, as amended,
have been incorporated by reference herein and in the Registration Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, also incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedules of The Multicare
Companies and its subsidiaries for the years ended December 31, 1996 and 1995,
and for each of the years in the three-year period ended December 31, 1996
included in Multicare's 1996 Annual Report on Form 10-K, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, also incorporated by reference herein, and upon authority of said
firm as experts in accounting and auditing.
The consolidated financial statements and schedules of Vitalink as of May
31, 1997 and 1996 and for each of the three years in the period ended May 31,
1997 appearing in Vitalink's Annual Report on Form 10-K/A for the year ended
May 31, 1997 incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
FOR THE COMBINED COMPANY
The following unaudited pro forma financial information for the combined
company gives effect to the Merger, which is expected to be accounted for by
the purchase method. The unaudited pro forma condensed consolidated balance
sheet gives effect to the Merger (including the repayment of certain Vitalink
debt in connection with the Merger), as if the Merger had occurred on March
31, 1998. The unaudited pro forma condensed statements of operations give
effect to the Merger as if it had occurred on October 1, 1996. The following
unaudited pro forma financial information does not give effect to other
acquisitions consummated by Genesis or Vitalink during 1997 or 1998. See
"Unaudited Pro Forma Financial Information for the Combined Company and Other
Acquisitions" for information showing the pro forma effect on the combined
company of certain other acquisitions consummated by Genesis and Vitalink in
1997 and 1998.
The pro forma adjustments are based upon available information and certain
assumptions that management of Genesis and Vitalink believes are reasonable
and are described in the notes accompanying the unaudited pro forma condensed
consolidated statement of operations and the unaudited pro forma condensed
consolidated balance sheet. No changes in operating revenues and expenses have
been made to reflect the results of any modification to operations that might
have been made had the Merger been consummated on the aforesaid assumed
effective dates for purposes of the pro forma results. The unaudited pro forma
condensed consolidated financial information is provided for informational
purposes only and does not purport to represent what Genesis's results of
operations or financial position would actually have been had the transactions
in fact occurred at such dates or to project Genesis's results of operations
or financial position at or for any future date or period. The unaudited pro
forma condensed consolidated financial information has been prepared using the
purchase method of accounting, whereby the Closing Consideration is allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values at the effective date of the transaction.
Such allocations are based on studies and valuations which have not yet been
completed. Accordingly, the allocations and estimated lives reflected in the
unaudited pro forma condensed consolidated financial information are
preliminary and subject to revision.
The following unaudited pro forma financial information should be read in
conjunction with the historical financial statements of Genesis for its fiscal
year ended September 30, 1997 and Vitalink for its fiscal year ended May 31,
1997, including the respective notes thereto, which are incorporated by
reference in this Joint Proxy Statement/Prospectus.
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<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENESIS VITALINK PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS COMBINED
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets............. $ 425,767 $137,383 $ (5,177)(2) $ 557,973
Property and equipment,
net....................... 572,749 24,346 -- 597,095
Goodwill, net.............. 420,991 346,480 213,292 (3) 980,763
Other assets............... 497,505 20,759 3,000 (5) 538,309
17,045 (4)
---------- -------- -------- ----------
Total assets............. $1,917,012 $528,968 $228,160 $2,674,140
========== ======== ======== ==========
Current liabilities........ $ 164,980 $ 44,641 $ -- $ 209,621
Long term debt, excluding
current maturities........ 1,057,404 87,806 (67,400)(6) 1,455,210
377,400 (7)
Deferred taxes............. 41,487 19,036 -- 60,523
Other liabilities.......... 23,573 1,745 -- 25,318
Shareholders' equity....... 629,568 375,740 (81,840)(8) 923,468
---------- -------- -------- ----------
Total liabilities and
shareholders' equity.... $1,917,012 $528,968 $228,160 $2,674,140
========== ======== ======== ==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
95
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) As of February 28, 1998, the end of Vitalink's third quarter in its fiscal
year ended May 31, 1998.
(2) Represents utilization of existing Genesis cash balances to finance a
portion of the Closing Consideration.
(3) Represents the excess of the Closing Consideration, including estimated
direct costs of the Merger, over the estimated fair values of the net
assets acquired. The Closing Consideration is based on an offer price of
$22.50 per share of the 26,127,886 outstanding shares of Vitalink's Common
Stock, and the payment of $8,200 to settle the outstanding common stock
options of Vitalink.
<TABLE>
<S> <C>
Closing Consideration for Vitalink (including option payment of
$8,200)........................................................ $596,077
Direct costs of acquisition..................................... 10,000
--------
606,077
Less: Stockholders' equity of Vitalink, net of existing goodwill
of $346,480.................................................... 29,260
Less: Estimated fair value of pharmacy services agreements with
Manor Care..................................................... 17,045
--------
559,772
Less: Existing Vitalink goodwill................................ 346,480
--------
$213,292
========
</TABLE>
(4) Represents the estimated fair value of Vitalink's pharmacy services
agreement with Manor Care.
(5) Represents direct financing costs in connection with the borrowing of
available amounts under Genesis's revolving credit facility at an assumed
interest rate of 8.00%.
(6) Represents the repayment of borrowings under Vitalink's five-year $200
million revolving credit facility which expires February 12, 2002.
(7) Represents the borrowing of available amounts under Genesis' revolving
credit facility at an assumed interest rate of 8.00% to finance, in part,
the Closing Consideration and the repayment of borrowings under Vitalink's
revolving credit facility.
<TABLE>
<S> <C>
Borrowings under revolving credit facility....................... $377,400
</TABLE>
(8) Represents the issuance of $293,900 of convertible preferred stock to
finance a portion of the Closing Consideration and the elimination of
Vitalink's stockholders' equity.
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<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
GENESIS VITALINK PRO FORMA PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................. $1,099,823 $352,923 $ -- $1,452,746
Expenses:
Operating expenses......... 858,916 262,676 (4,500)(5) 1,117,092
Corporate, general and
administrative............ 41,039 32,229 (5,600)(6) 67,668
Special charge............. 15,000 3,087 -- 18,087
Lease expense.............. 28,587 6,205 (500)(6) 34,292
Depreciation and
amortization.............. 41,946 12,457 2,582 (1) 56,985
Interest expense, net...... 39,103 2,776 26,414 (2) 68,293
---------- -------- -------- ----------
Total expenses........... 1,024,591 319,430 18,396 1,362,417
---------- -------- -------- ----------
Income (loss) before
income taxes and
extraordinary item...... 75,232 33,493 (18,396) 90,329
Income tax expense
(benefit)................... 27,088 14,934 (5,693)(7) 36,329
---------- -------- -------- ----------
Income (loss) before
extraordinary item...... 48,144 18,559 (12,703) 54,000
Less: preferred stock
dividends................... -- -- 17,450 (3) 17,450
---------- -------- -------- ----------
Income (loss) available to
common shareholders before
extraordinary item(8)....... $ 48,144 $ 18,559 $(30,153) $ 36,550
========== ======== ======== ==========
Per common share data:
Basic:
Income before
extraordinary item(8)... $ 1.39 $ 1.06
Weighted average shares
of common stock......... 34,558,000 (4) 34,558,000
Diluted:
Income before
extraordinary item(8)... $ 1.34 $ 1.02
Weighted average shares
of common stock and
equivalents............. 36,120,000 (4) 36,120,000
</TABLE>
- --------
* Twelve months ended August 31, 1997.
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations
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<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
GENESIS VITALINK PRO FORMA PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................... $ 646,864 $252,972 $ -- $ 899,836
Expenses:
Operating expenses........... 502,480 191,115 (2,250)(5) 691,345
Corporate, general and
administrative.............. 26,176 23,590 (2,800)(6) 46,966
Lease expense................ 14,511 2,495 (250)(6) 16,756
Depreciation and
amortization................ 24,353 9,425 1,291 (1) 35,069
Interest expense, net........ 38,331 2,891 13,207 (2) 54,429
---------- -------- -------- ----------
Total expenses............. 605,851 229,516 9,198 844,565
---------- -------- -------- ----------
Income (loss) before income
taxes, equity in net
income of unconsolidated
subsidiaries and
extraordinary item........ 41,013 23,456 (9,198) 55,271
Income tax expense (benefit)... 14,970 10,622 (2,846)(7) 22,746
---------- -------- -------- ----------
Income (loss) before equity
in net income of
unconsolidated
subsidiaries and
extraordinary item........ 26,043 12,834 (6,352) 32,525
Equity in net income of
unconsolidated subsidiaries... 1,347 -- -- 1,347
---------- -------- -------- ----------
Income (loss) before
extraordinary item........ 27,390 12,834 (6,352) 33,872
Less: preferred stock
dividends..................... -- -- 8,725 (3) 8,725
---------- -------- -------- ----------
Income (loss) available to
common shareholders before
extraordinary item(8)..... $ 27,390 $ 12,834 $(15,077) $ 25,147
========== ======== ======== ==========
Per common share data:
Basic:
Income before extraordinary
item(8)................... $ 0.78 $ 0.72
Weighted average shares of
common stock.............. 35,084,965 (4) 35,084,965
Diluted:
Income before extraordinary
item(8)................... $ 0.77 $ 0.71
Weighted average shares of
common stock and
equivalents............... 35,658,191 (4) 35,658,191
</TABLE>
- --------
* Six months ended February 28, 1998, the second and third quarters in
Vitalink's fiscal year ended May 31, 1998.
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations
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<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) Represents additional amortization relating to the goodwill and the
estimated fair value of pharmacy services agreements with Manor Care
recorded as a result of the Merger, less amortization of pre-acquisition
goodwill recorded by Vitalink:
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Amortization of goodwill over 40 years.............. $13,994 $6,997
Amortization of the fair value of pharmacy services
agreements with Manor Care over 20 years........... 852 426
------- ------
14,846 7,423
Less: amortization of $346,480 of pre-acquisition
goodwill recorded by Vitalink over useful life of
40 years and amortization and depreciation of other
assets which have no future benefit ............... 12,264 6,132
------- ------
Pro forma adjustment................................ $ 2,582 $1,291
======= ======
</TABLE>
(2) The Closing Consideration and the repayment of certain amounts under the
Vitalink credit facility will be financed, in part, through borrowings
under Genesis' revolving credit facility, resulting in additional net
interest expense, and the amortization of related direct financing costs,
as follows:
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Interest expense--$377,400 borrowing under revolv-
ing credit facility, 8.00%........................ $30,192 $15,096
Amortization of direct financing costs over 10
years............................................. 300 150
------- -------
30,492 15,246
Less: interest expense--$67,400 repayment of
Vitalink credit facility, 6.05%................... 4,078 2,039
------- -------
Pro forma adjustment............................... $26,414 $13,207
======= =======
</TABLE>
(3) Represents the 5.9375% dividend on the $293,900 of Genesis Preferred Stock
issued as part of the Closing Consideration.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
$17,450 $8,725
======= ======
</TABLE>
(4) Pro forma per share basic and diluted income before extraordinary item
include the effect of the 5.9375% dividend on the Genesis Preferred Stock.
The pro forma per share diluted income before extraordinary item does not
assume the conversion of the Genesis Preferred Stock as the effect would
be antidilutive.
99
<PAGE>
(5) Genesis has identified certain operations of Vitalink for which it has a
discrete and identifiable plan to implement. Additionally, under current
pharmaceutical supply contracts, purchasing discounts on volume increases
will be achieved.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Elimination of losses related to operations for
which Genesis has a discrete and identifiable
plan............................................... $2,400 $1,200
Purchasing discounts on volume increases............ 2,100 1,050
------ ------
Pro forma adjustment................................ $4,500 $2,250
====== ======
</TABLE>
Additionally, Genesis has identified duplicative positions and operations
and the related costs which approximate $10,900, and plans to eliminate
these costs according to a transition plan within one year from the Merger
date.
(6) As a result of the Merger, certain duplicative corporate and
administrative overhead functions related to the prior ownership structure
will be merged and duplicative positions will be eliminated. Genesis has
identified duplicative physical locations which will be merged into
existing Genesis administrative locations.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Personnel reductions in corporate and
administrative staff to eliminate duplicative
positions........................................ $3,100 $1,550
Other administrative costs including legal and
accounting fees and office expense............... 2,500 1,250
------ ------
$5,600 $2,800
====== ======
Lease expense..................................... $ 500 $ 250
====== ======
</TABLE>
(7) Represents income tax benefit, excluding non-deductible amortization, at
36%.
(8) Before the effect of extraordinary losses, net of tax, of $553 and $1,924
related to the early retirement of debt for the twelve months ended
September 30, 1997 and the six months ended March 31, 1998, respectively.
100
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE COMBINED
COMPANY AND OTHER ACQUISITIONS
The following unaudited pro forma financial information for the combined
company and other acquisitions gives effect to (i) the Merger, which is
expected to be accounted for using the purchase method of accounting, (ii)
Genesis's purchase on October 9, 1997 of an approximately 44% interest in the
Multicare Companies, Inc. ("Multicare") which was accounted for using the
equity method of accounting (the "Multicare Transaction"), (iii) Genesis's
asset purchase of Multicare's outpatient and inpatient rehabilitation therapy
business effective October 9, 1997, which was accounted for using the purchase
method of accounting (the "Therapy Purchase"), (iv) Genesis' purchase of the
outstanding capital stock and limited partnership interests of certain
subsidiaries of Multicare engaged in the business of providing institutional
pharmacy services to third parties (the "Pharmacy Purchase") effective January
1, 1998, which was accounted for using the purchase method of accounting and
(v) Vitalink's merger with TeamCare, Inc. (the "TeamCare Acquisition") on
February 1, 1997 which was accounted for using the purchase method.
The Genesis Pro Forma Adjustments in the unaudited pro forma condensed
consolidated statement of operations for the twelve months ended September 30,
1997 and the six months ended March 31, 1998 include the effect of the
Multicare Transaction, the Therapy Purchase, and the Pharmacy Purchase as if
they had occurred on October 1, 1996. The Vitalink Pro Forma Adjustments in
the unaudited pro forma condensed consolidated statement of operations for the
twelve months ended September 30, 1997 include the effect of the TeamCare
Acquisition as if it had occurred on October 1, 1996. No pro forma adjustments
related to the TeamCare Acquisition are included in the unaudited pro forma
condensed consolidated statement of operations for the six months ended March
31, 1998 since the TeamCare Acquisition was included in Vitalink's operating
results for the entire period.
No pro forma balance sheet is presented because the transactions relating to
Genesis and Vitalink described in the preceding paragraph (other than the
Merger) were all consummated prior to March 31, 1998 and February 28, 1998,
respectively, and are reflected in the historical balance sheets of Genesis
and Vitalink, respectively, which are included in the "Unaudited Pro Forma
Financial Information for the Combined Company."
The pro forma adjustments are based on available information and certain
assumptions that management believes are reasonable and are described in the
accompanying notes. No changes in operating revenues and expenses have been
made to reflect the results of any modification to operations that might have
been made had the Merger been consummated on the aforesaid assumed effective
dates for purposes of the pro forma results. The unaudited pro forma financial
information for the combined company and other acquisitions is provided for
informational purposes only and does not purport to represent what Genesis's
results of operations would actually have been had the transactions described
above actually occurred at such dates or to project Genesis's results of
operations or financial position at or for any future date or period. The
unaudited pro forma financial information for the combined company has been
prepared using the purchase method of accounting for the Merger, whereby
merger consideration is allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair values at the
effective date of the transaction. Such allocations are based on studies and
valuations which have not yet been completed. Accordingly, the allocations and
estimated lives for the Merger in the unaudited pro forma financial
information for the combined company are preliminary and subject to change.
The following unaudited pro forma financial information for the combined
company should be read in conjunction with the historical financial statements
of Genesis for its fiscal year ended September 30, 1997 and Vitalink for its
fiscal year ended May 31, 1997, including the respective notes thereto, which
are incorporated by reference in this Joint Proxy Statement/Prospectus.
101
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
GENESIS VITALINK PRO FORMA
GENESIS PRO FORMA VITALINK TRANSACTION PRO FORMA PRO FORMA COMBINED
HISTORICAL ADJUSTMENTS HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS(13) AS ADJUSTED
---------- ----------- ----------- ----------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $1,099,823 $148,817 (8)(11) 352,923 -- 1,601,563 116,447 1,718,010
Expenses:
Operating expenses..... 858,916 94,069 (11) 262,676 (4,500)(5) 1,211,161 88,382 1,299,543
Corporate, general and
administrative......... 41,039 16,000 (8) 32,229 (5,600)(6) 83,668 12,187 95,855
Special charge......... 15,000 -- 3,087 -- 18,087 -- 18,087
Lease expense.......... 28,587 1,356 (11) 6,205 (500)(6) 35,648 -- 35,648
Depreciation and amor-
tization............... 41,946 3,585 (10)(11) 12,457 2,582 (1) 60,570 5,482 66,052
Interest expense, net.. 39,103 35,358 (9) 2,776 26,414 (2) 103,651 2,700 106,351
---------- -------- ------- ------- ---------- ------- ----------
Total expenses....... 1,024,591 150,368 319,430 18,396 1,512,785 108,751 1,621,536
---------- -------- ------- ------- ---------- ------- ----------
Income (loss) before
income taxes, equity
in loss of unconsoli-
dated subsidiaries
and
extraordinary item... 75,232 (1,551) 33,493 (18,396) 88,778 7,696 96,474
Income tax expense (ben-
efit) .................. 27,088 (558)(7) 14,934 (5,693)(7) 35,771 4,013 39,784
---------- -------- ------- ------- ---------- ------- ----------
Income (loss) before
equity in loss of
unconsolidated sub-
sidiaries and ex-
traordinary item..... 48,144 (993) 18,559 (12,703) 53,007 3,683 56,690
Equity in loss of uncon-
solidated subsidiary.... -- (5,109)(12) -- -- (5,109) -- (5,109)
---------- -------- ------- ------- ---------- ------- ----------
Income (loss) before ex-
traordinary item........ 48,144 (6,102) 18,559 (12,703) 47,898 3,683 51,581
Less: preferred stock
dividends............... -- -- -- 17,450 (3) 17,450 -- 17,450
---------- -------- ------- ------- ---------- ------- ----------
Income (loss) available
to common shareholders
before
extraordinary item(14).. $ 48,144 (6,102) 18,559 (30,153) 30,448 3,683 34,131
========== ======== ======= ======= ========== ======= ==========
Per common share data:
Basic:
Income before ex-
traordinary
item(14)............. $ 1.39 $ 0.88 $ 0.99
Weighted average
shares of common
stock................ 34,558,000 (4) 34,558,000 (4) 34,558,000
Diluted:
Income before ex-
traordinary
item(14)............. $ 1.34 $ 0.85 $ 0.95
Weighted average
shares of common
stock and
equivalents.......... 36,120,000 (4) 36,120,000 (4) 36,120,000
</TABLE>
- -----
* Twelve months ended August 31, 1997.
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations
102
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
GENESIS
GENESIS PRO FORMA VITALINK TRANSACTION PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL* ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 646,864 $16,021(8)(11) 252,972 -- 915,857
Expenses:
Operating expenses.... 502,480 13,477(11) 191,115 (2,250)(5) 704,822
Corporate, general and
administrative....... 26,176 -- (8) 23,590 (2,800)(6) 46,966
Special charge........ -- -- -- -- --
Lease expense......... 14,511 179(11) 2,495 (250)(6) 16,935
Depreciation and amor-
tization............. 24,353 321(10)(11) 9,425 1,291 (1) 35,390
Interest expense,
net.................. 38,331 1,050(9) 2,891 13,207 (2) 55,479
---------- ------- ------- -------- ----------
Total expenses...... 605,851 15,027 229,516 9,198 859,592
---------- ------- ------- -------- ----------
Income (loss) before
income taxes, equity in
loss of unconsolidated
subsidiaries and
extraordinary item..... 41,013 994 23,456 (9,198) 56,265
Income tax expense (ben-
efit).................. 14,970 (21)(7) 10,622 (2,846)(7) 22,725
---------- ------- ------- -------- ----------
Income (loss) before
equity in loss of
unconsolidated
subsidiaries and
extraordinary item..... 26,043 1,015 12,834 (6,352) 33,540
Equity in loss of
unconsolidated
subsidiary............. 1,347 (365)(12) -- -- 982
---------- ------- ------- -------- ----------
Income (loss) before ex-
traordinary item....... 27,390 650 12,834 (6,352) 34,522
Less: preferred stock
dividends.............. -- -- -- 8,725 (3) 8,725
---------- ------- ------- -------- ----------
Income (loss) available
to common shareholders
before extraordinary
item (14).............. $ 27,390 $ 650 $12,834 $(15,077) $ 25,797
========== ======= ======= ======== ==========
Per common share data:
Basic:
Income before ex-
traordinary item
(14)............... $ 0.78 $ 0.74
Weighted average
shares of common
stock.............. 35,084,965 (4) 35,084,965
Diluted:
Income before ex-
traordinary item
(14)............... $ 0.77 $ 0.72
Weighted average
shares of common
stock and
equivalents........ 35,658,191 (4) 35,658,191
</TABLE>
- --------
* Six months ended February 28, 1998.
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations
103
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) Represents additional amortization relating to the goodwill and the
estimated fair value of pharmacy services agreements with Manor Care
recorded as a result of the Merger, less amortization of pre-acquisition
goodwill recorded by Vitalink:
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Amortization of goodwill over 40 years.............. $13,994 $6,997
Amortization of the fair value of pharmacy services
agreements with Manor Care over 20 years........... 852 426
------- ------
14,846 7,423
Less: amortization of $346,480 of pre-acquisition
goodwill recorded by Vitalink over a remaining use-
ful life of 40 years and amortization and deprecia-
tion of other assets which have no future benefit.. 12,264 6,132
------- ------
Pro forma adjustment................................ $ 2,582 $1,291
======= ======
</TABLE>
(2) The Closing Consideration and the repayment of certain amounts under the
Vitalink credit facility will be financed, in part, through borrowings
under Genesis' revolving credit facility, resulting in additional net
interest expense, and the amortization of related direct financing costs,
as follows:
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Interest expense--$377,400 borrowing under revolv-
ing credit facility, 8.00%........................ $30,192 $15,096
Amortization of direct financing costs over 10
years............................................. 300 150
------- -------
30,492 15,246
Less: interest expense--$67,400 repayment of
Vitalink credit facility, 6.05%................... 4,078 2,039
------- -------
Pro forma adjustment............................... $26,414 $13,207
======= =======
</TABLE>
(3) Represents the 5.9375% dividend on the $293,900 of Genesis Preferred Stock
issued as part of the Closing Consideration.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
$17,450 $8,725
======= ======
</TABLE>
(4) Pro forma per share basic and diluted income before extraordinary item
include the effect of the 5.9375% dividend on the Genesis Preferred Stock.
The pro forma per share diluted income before extraordinary item does not
assume the conversion of the Genesis Preferred Stock as the effect would
be antidilutive.
104
<PAGE>
(5) Genesis has identified certain operations of Vitalink for which it has a
discrete and identifiable plan to implement. Additionally, under current
pharmaceutical supply contracts, purchasing discounts on volume increases
will be achieved.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Elimination of losses related to operations for
which Genesis has a discrete and identifiable
plan............................................... $2,400 $1,200
Purchasing discounts on volume increases............ 2,100 1,050
------ ------
Pro forma adjustment................................ $4,500 $2,250
====== ======
</TABLE>
Additionally, Genesis has identified duplicative positions and operations
and the related costs which approximate $10,900, and plans to eliminate
these costs according to a transition plan within one year from the Merger
date.
(6) As a result of the Merger, certain duplicative corporate and
administrative overhead functions related to the prior ownership structure
will be merged and duplicative positions will be eliminated. Genesis has
identified duplicative physical locations which will be merged into
existing Genesis administrative locations.
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Personnel reductions in corporate and
administrative staff to eliminate duplicative
positions........................................ $3,100 $1,550
Other administrative costs including legal and
accounting fees and office expense............... 2,500 1,250
------ ------
$5,600 $2,800
====== ======
Lease expense..................................... $ 500 $ 250
====== ======
</TABLE>
(7) Represents income tax benefit, excluding non-deductible amortization, at
36%.
(8) As a result of the management contract with Multicare, certain corporate
employees of Multicare are employed by Genesis. The management fee
charged by Genesis is reflected as an adjustment to net revenues.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Total corporate, general and administrative ex-
pense.......................................... $16,000 $ --
======= ======
Management fee revenues......................... 38,186 --
======= ======
(9) Interest expense has been adjusted to reflect the indebtedness incurred
in connection with the investment in Multicare, the Pharmacy Purchase and
the Therapy Purchase. The estimated average interest rate for the
indebtedness incurred is approximately 8.3%.
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Interest expense, net........................... $35,358 $1,050
======= ======
</TABLE>
105
<PAGE>
(10) In connection with the Therapy Purchase and the Pharmacy Purchase,
depreciation and amortization have been increased by the amortization of
goodwill and depreciation resulting from the allocation of purchase
price. The Therapy Purchase and Pharmacy Purchase have preliminarily
resulted in additional goodwill of approximately $47,000 which is
amortized over lives ranging from 20 to 40 years.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Depreciation and amortization...................... $ 1,675 $ 321
======== =======
(11) Represents the consolidation of the operating results relating to the
Therapy Purchase and the Pharmacy Purchase.
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Revenues, net...................................... $110,631 $16,021
Operating expenses................................. 94,069 13,477
Depreciation and amortization...................... 1,910 --
Lease expense...................................... 1,356 179
</TABLE>
(12) Represents Genesis' 43.6% share of the pro forma Multicare net loss from
continuing operations.
(13) The Vitalink Pro Forma Adjustments give effect to Vitalink's merger with
TeamCare, Inc. ("TeamCare"), an institutional pharmacy business. The
merger was accounted for using the purchase method of accounting with an
effective date of February 1, 1997, and accordingly, the historical
results of TeamCare from September 1, 1996 through January 31, 1997 are
presented below with related pro forma adjustments:
The pro forma adjustments represent the amortization of (a) approximately
$216,500 of the excess of purchase price over the estimated fair value of
net assets acquired and (b) the amortization of approximately $11,400
representing the estimated fair value of pharmaceutical supply agreements
based on the straight-line method over 40 and 6 years, respectively.
<TABLE>
<CAPTION>
VITALINK
TEAMCARE PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS
---------- ----------- -----------
<S> <C> <C> <C>
Net revenues........................... $116,447 $ -- $116,447
Expenses:
Operating expenses................... 88,382 -- 88,382
Corporate, general and administra-
tive................................ 12,187 -- 12,187
Depreciation and amortization........ 2,437 3,045 5,482
Interest expense, net................ 2,700 -- 2,700
-------- ------- --------
Total expenses..................... 105,706 3,045 108,751
-------- ------- --------
Income (loss) before income taxes.... 10,741 (3,045) 7,696
-------- ------- --------
Income tax expense..................... 4,013 -- 4,013
-------- ------- --------
Income (loss) from continuing opera-
tions................................. $ 6,728 $(3,045) $ 3,683
======== ======= ========
</TABLE>
(14) Before the effect of extraordinary losses, net of tax, of $553 and $1,924
related to the early retirement of debt for the twelve months ended
September 30, 1997 and the six months ended March 31, 1998, respectively.
106
<PAGE>
APPENDIX A
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
VITALINK PHARMACY SERVICES, INC.,
GENESIS HEALTH VENTURES, INC.
AND
V ACQUISITION CORPORATION
DATED AS OF APRIL 26, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1.01 The Merger................................................ A-1
Section 1.02 Effective Time............................................ A-1
Section 1.03 Certificate of Incorporation and By-Laws of Surviving
Corporation.............................................. A-1
Section 1.04 Directors and Officers of Surviving Corporation........... A-2
Section 1.05 Stockholders' Meetings.................................... A-2
Section 1.06 Filing of Certificate of Merger........................... A-2
Section 1.07 Further Assurances........................................ A-2
ARTICLE II
Conversion of Shares
Section 2.01 Vitalink Common Stock..................................... A-2
Section 2.02 Election Procedures....................................... A-4
Section 2.03 Acquisition Corporation Common Stock; Genesis Owned Common
Stock.................................................... A-5
Section 2.04 Exchange of Shares........................................ A-5
Section 2.05 Effect on Options......................................... A-6
Section 2.06 Fractional Shares......................................... A-6
Section 2.07 Lost Certificates......................................... A-7
Section 2.08 Dissenting Stock.......................................... A-7
Section 2.09 Conversion of Dissenting Stock............................ A-7
ARTICLE III
Representations and Warranties of Genesis and Acquisition Corporation
Section 3.01 Organization, Etc......................................... A-7
Section 3.02 Authority Relative to This Agreement...................... A-8
Section 3.03 No Violations, Etc........................................ A-8
Section 3.04 Capitalization............................................ A-9
Section 3.05 SEC Filings............................................... A-9
Section 3.06 Financial Statements...................................... A-10
Section 3.07 Absence of Undisclosed Liabilities........................ A-10
Section 3.08 Absence of Changes or Events.............................. A-10
Section 3.09 Litigation................................................ A-10
Section 3.10 Subsidiaries and Investments.............................. A-11
Section 3.11 Compliance with Laws...................................... A-11
Section 3.12 Intellectual Property Rights.............................. A-11
Section 3.13 Taxes..................................................... A-12
Section 3.14 Employee Benefit Plans; ERISA............................. A-12
Section 3.15 Labor and Employment Matters.............................. A-13
Section 3.16 Environmental Matters..................................... A-13
Section 3.17 Insurance................................................. A-15
Section 3.18 Contracts and Commitments................................. A-15
Section 3.19 Finders or Brokers........................................ A-15
Section 3.20 Board Recommendation...................................... A-15
Section 3.21 Fairness Opinion.......................................... A-15
</TABLE>
i
<PAGE>
ARTICLE IV
Representations and Warranties of Vitalink
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 4.01 Organization, Etc........................................... A-16
Section 4.02 Authority Relative to This Agreement........................ A-16
Section 4.03 No Violations, Etc.......................................... A-16
Section 4.04 Capitalization.............................................. A-17
Section 4.05 SEC Filings................................................. A-17
Section 4.06 Financial Statements........................................ A-17
Section 4.07 Absence of Undisclosed Liabilities.......................... A-18
Section 4.08 Absence of Changes or Events................................ A-18
Section 4.09 Litigation.................................................. A-19
Section 4.10 Subsidiaries and Investments................................ A-19
Section 4.11 Compliance with Laws........................................ A-19
Section 4.12 Institutional Pharmacy Business............................. A-20
Section 4.13 Intellectual Property Rights................................ A-21
Section 4.14 Taxes....................................................... A-21
Section 4.15 Employee Benefit Plans; ERISA............................... A-22
Section 4.16 Labor and Employment Matters................................ A-24
Section 4.17 No Change of Control Puts................................... A-24
Section 4.18 Environmental Matters....................................... A-24
Section 4.19 Insurance................................................... A-25
Section 4.20 Leases...................................................... A-26
Section 4.21 Contracts and Commitments................................... A-26
Section 4.22 Finders or Brokers.......................................... A-26
Section 4.23 Fairness Opinion............................................ A-27
Section 4.24 Board Recommendation........................................ A-27
Section 4.25 State Antitakeover Statutes................................. A-27
Section 4.26 Banks....................................................... A-27
ARTICLE V
Covenants
Section 5.01 Conduct of Business of Vitalink and Genesis................. A-27
Section 5.02 No Solicitation............................................. A-30
Section 5.03 Access to Information....................................... A-30
Section 5.04 Registration Statement and Proxy Statement.................. A-31
Section 5.05 Other Actions; Filings; Consents............................ A-31
Section 5.06 Public Announcements........................................ A-32
Section 5.07 Notification of Certain Matters............................. A-32
Section 5.08 Expenses.................................................... A-32
Section 5.09 Affiliates.................................................. A-32
Section 5.10 Employee Benefit Matters.................................... A-33
Section 5.11 Plan of Reorganization...................................... A-33
Section 5.12 Indemnification of Directors, Officers, etc................. A-33
Section 5.13 Financing Condition Fee..................................... A-34
Section 5.14 Update Disclosure Statements................................ A-34
Section 5.15 Licenses.................................................... A-34
</TABLE>
ii
<PAGE>
ARTICLE VI
Conditions to the Obligations of Vitalink, Genesis and Acquisition Corporation
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 6.01 Registration Statement..................................... A-34
Section 6.02 Stockholder Approvals...................................... A-34
Section 6.03 Certain Proceedings; HSR Act............................... A-34
Section 6.04 Tax Opinions............................................... A-34
Section 6.05 Financing.................................................. A-34
ARTICLE VII
Conditions to the Obligations of Genesis and Acquisition Corporation
Section 7.01 Representations and Warranties True........................ A-35
Section 7.02 Performance................................................ A-35
Section 7.03 Certificates............................................... A-35
Section 7.04 Material Adverse Change.................................... A-35
Section 7.05 Approval and Consents...................................... A-35
Section 7.06 Dissenting Shares.......................................... A-35
ARTICLE VIII
Conditions to the Obligations of Vitalink
Section 8.01 Representations and Warranties True........................ A-35
Section 8.02 Performance................................................ A-36
Section 8.03 Certificates............................................... A-36
Section 8.04 Material Adverse Change.................................... A-36
Section 8.05 Stockholders Rights Plan................................... A-36
Section 8.06 Approvals and Consents..................................... A-36
ARTICLE IX
Closing
Section 9.01 Time and Place............................................. A-36
Section 9.02 Filings at the Closing..................................... A-36
ARTICLE X
Termination and Abandonment
Section 10.01 Termination................................................ A-37
Section 10.02 Procedure for Termination.................................. A-38
Section 10.03 Effect of Termination and Abandonment...................... A-38
Section 10.04 Termination Fees........................................... A-38
ARTICLE XI
Definitions
Section 11.01 Terms Defined in This Agreement............................ A-39
</TABLE>
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ARTICLE XII
Miscellaneous
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 12.01 Amendment and Modification............................... A-42
Section 12.02 Waiver of Compliance; Consents........................... A-42
Section 12.03 Survival of Representations and Warranties;
Investigations.......................................... A-42
Section 12.04 Notices.................................................. A-42
Section 12.05 Assignment; Third Party Beneficiaries.................... A-43
Section 12.06 Governing Law............................................ A-43
Section 12.07 Counterparts............................................. A-43
Section 12.08 Severability............................................. A-43
Section 12.09 Interpretation........................................... A-43
Section 12.10 Entire Agreement......................................... A-44
Section 12.11 Enforcement of Agreement................................. A-44
SIGNATURES.............................................................. A-45
</TABLE>
<TABLE>
<C> <C> <S>
Schedule I -- Terms of Preferred Stock
EXHIBITS
Exhibit A -- Form of Voting Agreement
Exhibit B -- Form of Rights Agreement
Exhibit C -- Form of Affiliate Letter
Exhibit D-1 -- Form of Representation Letter of Vitalink
Exhibit D-2 -- Form of Representation Letter of Genesis
Exhibit E-1 -- Form of Tax Opinion of Cahill Gordon & Reindel
Exhibit E-2 -- Form of Tax Opinion of Blank Rome Comisky & McCauley LLP
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of April 26, 1998 (the "Agreement"),
by and among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation
("Genesis"), V ACQUISITION CORPORATION, a Delaware corporation and a wholly
owned subsidiary of Genesis ("Acquisition Corporation"), and VITALINK PHARMACY
SERVICES, INC., a Delaware corporation ("Vitalink"). Acquisition Corporation
and Vitalink are hereinafter sometimes collectively referred to as the
"Constituent Corporations."
RECITALS
Whereas, Genesis and Vitalink wish to effect the combination of Vitalink and
Genesis through a merger of Vitalink with Acquisition Corporation (the
"Merger") on the terms and conditions set forth herein;
Whereas, Genesis and Vitalink desire to make certain representations,
warranties, covenants and agreements in connection with the Merger;
Whereas, the Merger is intended to qualify for Federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, holders owning approximately 50% of the outstanding Vitalink Common
Stock (as defined below) on a fully diluted basis have entered into a voting
agreement, dated as of the date hereof (the "Voting Agreement"), substantially
in the form of Exhibit A hereto, and have entered into a rights agreement,
dated as of the date hereof (the "Rights Agreement"), substantially in the
form of Exhibit B hereto, pursuant to which such holders have agreed, among
other things, to vote their shares in favor of the Merger.
Now, Therefore, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.01. The Merger. (a) In accordance with the provisions of this
Agreement and the General Corporation Law of the State of Delaware (the
"Delaware Act"), at the Effective Time (as hereinafter defined), Vitalink
shall be merged with and into Acquisition Corporation, and Acquisition
Corporation shall be the surviving corporation (hereinafter sometimes called
the "Surviving Corporation") and shall continue its corporate existence under
the laws of the State of Delaware. The name of the Surviving Corporation shall
be "NeighborCare, Inc." or such other name as designated by Genesis. At the
Effective Time the separate existence of Vitalink shall cease.
(b) The Merger shall have the effects on Acquisition Corporation and
Vitalink as constituent corporations of the Merger as provided under the
Delaware Act.
Section 1.02. Effective Time. The Merger shall become effective at the time
of filing of, or at such later time specified in, a certificate of merger, in
the form required by and executed in accordance with the Delaware Act, with
the Secretary of State of the State of Delaware in accordance with the
Delaware Act (the "Certificate of Merger"). The date and time when the Merger
shall become effective is herein referred to as the "Effective Time."
Section 1.03. Certificate of Incorporation and By-Laws of Surviving
Corporation. The Certificate of Incorporation and By-Laws of Acquisition
Corporation, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation and By-Laws of the Surviving Corporation
until thereafter amended as provided by law.
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Section 1.04. Directors and Officers of Surviving Corporation. The initial
directors and the initial officers of the Surviving Corporation shall be the
directors and officers of Acquisition Corporation, in each case until their
successors are elected and qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-Laws.
Section 1.05. Stockholders' Meetings. Each of Vitalink and Genesis shall
take all action necessary in accordance with applicable law and its respective
Certificate of Incorporation and By-Laws to call and convene a special meeting
of its respective stockholders (the "Special Meetings") as soon as practicable
to consider and vote upon the approval of this Agreement and the transactions
contemplated by this Agreement. Each of Vitalink and Genesis, through its
respective Board of Directors, (a) shall recommend to its respective
stockholders approval of this Agreement and the transactions contemplated by
this Agreement, which recommendation shall be contained in the proxy statement
of Vitalink and Genesis (the "Joint Proxy Statement"), and shall not withdraw,
modify or change in any manner or take action inconsistent with its
recommendation of this Agreement or the other transactions contemplated hereby
and shall not resolve to do any of the foregoing and publicly disclose such
resolution; provided, however, that the Board of Directors of each of Vitalink
and Genesis may fail to make its recommendation to its respective stockholders
or may withdraw, modify or change in any manner or take any action
inconsistent with such recommendation or resolve to do any of the foregoing
and publicly disclose such resolution if such Board of Directors believes,
after receiving a Superior Proposal (as hereinafter defined) which was not
solicited after the date hereof and (x) the advice of outside legal counsel
that failure to take such action would be inconsistent with its fiduciary
duties to its stockholders under applicable law and (y) the fairness opinion
of a financial advisor of nationally recognized reputation that the party
making such proposal is financially capable and that such Superior Proposal
would yield a higher value to its stockholders than the Merger, that the
making of such recommendation or the failure to so withdraw, modify or change
in any manner or take any action inconsistent with such recommendation or to
resolve to do any of the foregoing and publicly disclose such resolution would
be inconsistent with its fiduciary duties under applicable law and (b) shall
use all commercially reasonable efforts to solicit from its respective
stockholders proxies regarding approval and adoption of this Agreement.
Section 1.06. Filing of Certificate of Merger. At the Closing (as
hereinafter defined), Genesis, Acquisition Corporation and Vitalink shall
cause a Certificate of Merger to be executed and filed with the Secretary of
State of the State of Delaware as provided in the Delaware Act, and shall take
any and all other lawful actions and do any and all other lawful things to
cause the Merger to become effective.
Section 1.07. Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, obligation, title or interest in, to or under
any of the rights, properties or assets of either of the Constituent
Corporations acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
each of the Constituent Corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and
all right, obligation, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out
this Agreement.
ARTICLE II
Conversion of Shares
Section 2.01. Vitalink Common Stock. (a) At the Effective Time, each share
of common stock, par value $.01 per share, of Vitalink (the "Vitalink Common
Stock") outstanding immediately prior to the Effective Time (except for
shares, if any, owned by Vitalink as treasury stock or owned by any wholly
owned Subsidiary of Vitalink or Dissenting Stock) shall, by virtue of the
Merger and without any action on the part of the holder
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thereof, be converted into the right to receive for each share (x) $22.50 per
share in cash, subject to adjustment in accordance with this Section 2.01 (the
"Per Share Cash Consideration"), or (y) .045 of one validly issued, fully paid
and nonassessable share (the "Per Share Preferred Stock Consideration") of
convertible preferred stock, par value $.01 per share, of Genesis, with an
initial liquidation preference of $500.00 per share (the "Preferred Stock")
having the terms set forth in Schedule I hereto, or (z) a combination of a
fraction of a share of Preferred Stock and cash, determined in accordance with
Section 2.01(d), (e), (f) or (g), as applicable.
The cash and Preferred Stock to be delivered in exchange for shares of
Vitalink Common Stock pursuant to this Section 2.01(a) are hereinafter
sometimes called the "Closing Consideration."
(b) At the Effective Time all outstanding shares of Vitalink Common Stock,
by virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Vitalink Common Stock shall thereafter cease to have any rights with
respect to such shares of Vitalink Common Stock, except (i) the right to
receive the Closing Consideration for such shares of Vitalink Common Stock
specified in the foregoing clause (a) upon the surrender of such certificate
in accordance with Section 2.04 or (ii) dissenters' rights pursuant to Section
2.08.
(c) Election of Consideration. Subject to the allocation and election
procedures set forth in this Section 2.01 and Section 2.02, each holder of
record (as of the Effective Time) of shares of Vitalink Common Stock will be
entitled to, with respect to each such share, (i) elect to receive cash (a
"Cash Election"), (ii) elect to receive Preferred Stock (a "Preferred Stock
Election"), or (iii) indicate that such record holder has no preference as to
the receipt of cash or Preferred Stock (a "Non-Election"). All such elections
shall be made on a form designed for that purpose (a "Form of Election") in
accordance with the procedures specified in Section 2.02.
(d) Excess Cash Elections. If the aggregate number of shares of Vitalink
Common Stock covered by Cash Elections (the "Cash Election Shares") exceeds
the Cash Election Number (as defined below), all shares of Vitalink Common
Stock covered by Preferred Stock Elections and all shares of Vitalink Common
Stock covered by Non-Elections (the "Non-Election Shares") shall be converted
into the right to receive the Per Share Preferred Stock Consideration, and all
shares of Vitalink Common Stock covered by Cash Elections shall be converted
into the right to receive Preferred Stock and cash in the following manner:
each share shall be converted into the right to receive (i) an amount in cash,
without interest, equal to the product of (x) the Per Share Cash Consideration
and (y) a fraction (the "Cash Fraction"), the numerator of which shall be the
Cash Election Number and the denominator of which shall be the total number of
Cash Election Shares, and (ii) a number of shares of Preferred Stock equal to
the product of (x) the Per Share Preferred Stock Consideration and (y) a
fraction equal to one minus the Cash Fraction.
The "Cash Election Number" shall be equal to (i) 50% of the number of shares
of Vitalink Common Stock outstanding as of immediately prior to the Effective
Time, minus (ii) (a) the number of shares of Vitalink Common Stock represented
by Dissenting Stock (as defined below) and (b) the number of shares of
Vitalink Common Stock for which cash in lieu of fractional shares of Preferred
Stock is payable pursuant to Section 2.06; provided that the Cash Election
Number shall be subject to adjustment in accordance with Section 2.01(g)).
(e) Excess Preferred Stock Elections. If the aggregate number of shares
covered by Preferred Stock Elections (the "Preferred Stock Election Shares")
exceeds the Preferred Stock Election Number, then all shares of Vitalink
Common Stock covered by Cash Elections and all shares of Vitalink Common Stock
covered by Non-Elections shall be converted into the right to receive the Per
Share Cash Consideration, and all shares of Vitalink Common Stock covered by
Preferred Stock Elections shall be converted into the right to receive
Preferred Stock and cash in the following manner: each share shall be
converted into the right to receive (i) a number of shares of Preferred Stock
equal to a fraction (the "Preferred Stock Fraction"), the numerator of which
shall be the Preferred Stock Election Number and the denominator of which
shall be the total number of Preferred Stock Election Shares, and (ii) an
amount in cash, without interest, equal to the product of (x) the Per Share
Cash Consideration and (y) a fraction equal to one minus the Preferred Stock
Fraction.
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<PAGE>
The "Preferred Stock Election Number" shall be equal to 50% of the number of
shares of Vitalink Common Stock outstanding as of immediately prior to the
Effective Time; provided that the Preferred Stock Election Number shall be
subject to adjustment in accordance with this Section 2.01(g)).
(f) Insufficient Elections. In the event that neither Section 2.01(d) nor
Section 2.01(e) above is applicable, all shares of Vitalink Common Stock
covered by Cash Elections shall be converted into the right to receive the Per
Share Cash Consideration, all shares of Vitalink Common Stock covered by
Preferred Stock Elections shall be converted into the right to receive the Per
Share Preferred Stock Consideration, and the shares of Vitalink Common Stock
covered by Non-Elections, if any, shall be converted into the right to receive
Preferred Stock and cash in the following manner:
each share shall be converted into the right to receive (i) an amount in
cash, without interest, equal to the product of (x) the Per Share Cash
Consideration and (y) a fraction (the "Non-Election Fraction"), the
numerator of which shall be the excess, if any, of the Cash Election Number
over the total number of Cash Election Shares and the denominator of which
shall be the Non-Election Shares and (ii) a number of shares of Preferred
Stock equal to the product of (x) the Per Share Preferred Stock
Consideration and (y) a fraction equal to one minus the Non-Election
Fraction.
(g) If, after giving effect to the calculations made pursuant to Sections
2.01(d)-(f), the value on the Closing Date of Preferred Stock issued in the
Merger, as mutually agreed to by each of Genesis and Vitalink, would (before
giving effect to this Section 2.01(g)) constitute less than 50% of the sum of
(i) the value of the Closing Consideration and (ii) the cash paid or to be
paid to holders of Dissenting Stock, then the Cash Election Number shall be
reduced and the Preferred Stock Election Number shall be increased
correspondingly until the value of Preferred Stock issued in the merger
constitutes at least 50% of such sum.
Section 2.02. Election Procedures. (a) Elections shall be made by holders of
Vitalink Common Stock by mailing to the Exchange Agent a Form of Election. To
be effective, a Form of Election must be properly completed, signed and
submitted to the Exchange Agent and accompanied by Certificates representing
the shares of Vitalink Common Stock as to which the election is being made (or
by an appropriate trust company in the United States or a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD")). Holders of record of shares of
Vitalink Common Stock who hold such shares as nominees, trustees or in other
representative capacities (a "Representative") may submit multiple Forms of
Elections, provided that such Representative certifies in writing that each
such Form of Election covers all the shares of Vitalink Common Stock held by
each Representative for a particular beneficial owner. Vitalink shall have the
discretion, which it may delegate in whole or in part to the Exchange Agent,
to determine whether Forms of Election have been properly completed, signed
and submitted or revoked and to disregard immaterial defects in Forms of
Election. The decision of Vitalink (or the Exchange Agent) in such matters
shall be conclusive and binding. Neither Vitalink nor the Exchange Agent shall
be under any obligation to notify any person of any defect in a Form of
Election submitted to the Exchange Agent. The Exchange Agent shall also make
all computations contemplated by Section 2.01 and this Section 2.02 and all
such computations shall be conclusive and binding on the holders of Vitalink
Common Stock. Forms of Election and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected and
risk of loss and title to the Certificates theretofore representing shares of
Vitalink Common Stock shall pass, only upon proper delivery of such
Certificates to the Exchange Agent) in such form as Genesis and Vitalink shall
mutually agree shall be mailed on the date that the Joint Proxy Statement is
first mailed to the stockholders of Vitalink and Genesis.
(b) For the purposes hereof, a holder of Vitalink Common Stock who does not
submit a Form of Election which is received by the Exchange Agent prior to the
Election Deadline (as defined below) shall be deemed to have made a Non-
Election. If Vitalink or the Exchange Agent shall determine that any purported
Cash Election or Preferred Stock Election was not properly made with respect
to any or all of the shares of Vitalink Common
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<PAGE>
Stock of a holder, such purported Cash Election or Preferred Stock Election
shall be deemed to be of no force and effect and the stockholder making such
purported Cash Election or Preferred Stock Election shall, for purposes
hereof, be deemed to have made a Non-Election.
(c) Genesis and Vitalink shall each use its best efforts to mail the Form of
Election to all persons or entities who become holders of Vitalink Common
Stock during the period between the record date for the Special Meeting and
10:00 a.m., New York time, on the date five business days prior to the
anticipated Effective Time and to make the Form of Election available to all
persons or entities who become holders of Vitalink Common Stock subsequent to
such day and no later than the close of business on the business day prior to
the Effective Time. A Form of Election must be received by the Exchange Agent
by the close of business on the last business day prior to the Effective Time
(the "Election Deadline") in order to be effective. All elections may be
revoked until the Election Deadline.
Section 2.03. Acquisition Corporation Common Stock; Genesis Owned Common
Stock. (a) At the Effective Time, each share of common stock, no par value, of
Acquisition Corporation ("Acquisition Corporation Common Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into one validly issued, fully paid and nonassessable share, of common stock,
no par value, of the Surviving Corporation ("Surviving Corporation Common
Stock").
(b) At the Effective Time all outstanding shares of Vitalink Common Stock
owned by Genesis or Acquisition Corporation or any subsidiary thereof, by
virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Vitalink Common Stock shall thereafter cease to have any rights with
respect to such shares of Vitalink Common Stock and no consideration shall be
delivered in exchange therefor.
Section 2.04. Exchange of Shares. (a) Genesis shall designate one or more
persons who shall be reasonably satisfactory to Vitalink to act as the
Exchange Agent (the "Exchange Agent").
(b) As promptly as practicable after the Effective Time, Genesis shall cause
the Exchange Agent to mail to each record holder, as of the Effective Time, of
an outstanding certificate or certificates that immediately prior to the
Effective Time represented shares of Vitalink Common Stock (the
"Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for exchange.
(c) Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor that amount of cash and/or
Preferred Stock that such holder has the right to receive under this Article
II, and such Certificate shall forthwith be cancelled. If any shares of
Preferred Stock are to be issued to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
exchange that such surrendered Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay any transfer or other taxes required by reason of the
exchange by a person other than the registered holder of the Certificate
surrendered or such person shall establish to the satisfaction of Genesis that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.04, each Certificate shall represent,
for all purposes, the right to receive the Closing Consideration in respect of
the number of shares of Vitalink Common Stock evidenced by such Certificate.
No dividends or other distributions that are declared after the Effective Time
on shares of Preferred Stock and payable to the respective holders of record
thereof after the Effective Time will be paid to holders of Certificates until
such holders surrender their Certificates. Upon such surrender, Genesis shall
deposit with the Exchange Agent and shall cause the Exchange Agent to pay to
the record holder of the shares of Preferred Stock representing Closing
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<PAGE>
Consideration, the dividends or other distributions, excluding interest, that
became payable after the Effective Time and were not paid because of the delay
in surrendering Certificates for exchange.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer books of Vitalink of the shares of Vitalink Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Genesis or the Surviving
Corporation, they shall be cancelled and exchanged as provided in this Article
II.
(e) Neither Vitalink, Genesis nor the Surviving Corporation shall be liable
to any holder of Certificates with respect to any Closing Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 2.05. Effect on Options. (a) Prior to the Merger, the Vitalink Board
of Directors (or, if appropriate, any committee administering the Vitalink
Plans (as defined below)) shall adopt such resolutions or take such other
actions as are necessary to adjust, subject, if necessary, to obtaining
consents of the holders thereof, the terms of all outstanding employee stock
options to purchase shares of Vitalink Common Stock and all outstanding stock
appreciation rights related thereto theretofore granted under any stock option
or stock appreciation rights plan, program or arrangement of Vitalink (all
such stock option or stock appreciation rights plans, programs or arrangements
are collectively referred to as the "Vitalink Plans"), to provide for the
treatment of such options and stock appreciation rights as set forth in this
Section 2.05 and to ensure that, from and after the Effective Time, the
holders of such options have no rights thereto other than those specifically
provided for in this Section 2.05. Each option (and any stock appreciation
right related thereto) outstanding immediately prior to the Merger if not
already vested, by its terms, shall vest at the Effective Time. All such
options with an exercise price below the Per Share Cash Consideration (the
"Cash Out Options") shall be cancelled as of the Effective Time in exchange
for a payment from the Surviving Corporation (subject to any applicable
required withholding taxes) equal to the product of (x) the total number of
shares of Vitalink Common Stock subject to such option and (y) the excess of
the Per Share Cash Consideration over the exercise price per share of Vitalink
Common Stock subject to such option, payable in cash at the Effective Time.
Except as provided herein, or as otherwise agreed to by the parties, the
Vitalink Plans shall terminate as of the Effective Time and the provisions in
any other plan, program or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of Vitalink or any
Subsidiary thereof, shall be deleted as of the Effective Time.
(b) As of the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, all of the obligations of Vitalink under
the Vitalink Plans with respect to options other than Cash Out Options, shall
terminate except for such options which by their terms require that they
continue after the Merger (the "Continuing Options") which Continuing Options
shall be exchanged for options of Genesis upon the same terms and conditions
as under the applicable Genesis Plan and the applicable option agreement
issued thereunder except that (1) each such option shall be exercisable for
that number of shares equal to the number of shares of Genesis Common Stock
(rounded to the nearest full share with .5 shares being rounded up) equal to
the number of shares of Vitalink Common Stock subject to such options (a)
multiplied by the Per Share Cash Consideration and (b) divided by the market
price of Genesis Common Stock as of the Closing Date, and (2) the option price
per share of the Genesis Common Stock shall be determined in accordance with a
Black-Scholes pricing model based upon the relative market value of Genesis
Common Stock as of the Closing Date and the option price of the Vitalink
Common Stock.
Section 2.06. Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Vitalink Common Stock who upon surrender
of all the Certificates of such holder would be entitled to receive a fraction
of a share of Preferred Stock shall not be entitled to receive dividends on or
vote such fraction of a share of Preferred Stock and shall receive, in lieu of
such fraction of a share of Preferred Stock, cash in an amount equal to such
fraction multiplied by $22.50. All references in this Agreement to Preferred
Stock to be issued as Closing Consideration shall be deemed to include any
cash in lieu of fractional shares of Preferred Stock payable pursuant to this
Section 2.06.
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Section 2.07. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Exchange Agent, the posting by such person of a bond in such
reasonable amount as Genesis may direct as indemnity against any claim that
may be made against it with respect to such Certificate, Genesis will issue,
in exchange for such lost, stolen or destroyed Certificate, cash and/or
Preferred Stock and any cash in lieu of fractional shares, and any unpaid
dividends and distributions on shares of Preferred Stock deliverable in
respect thereof pursuant to this Agreement.
Section 2.08. Dissenting Stock. Each outstanding share of Vitalink Common
Stock as to which a written demand for appraisal is filed in accordance with
(S) 262 of the Delaware Act at or prior to the Special Meeting and not
withdrawn at or prior to the Special Meeting and which is not voted in favor
of the Merger shall not be converted into or represent a right to receive
Preferred Stock or cash hereunder unless and until the holder shall have
failed to perfect, or shall have effectively withdrawn or lost his or her
right to appraisal of and payment for his or her Vitalink Common Stock under
such (S) 262, at which time his or her shares shall be treated in accordance
with Section 2.09. All such shares of Vitalink Common Stock as to which such a
written demand for appraisal is so filed and not withdrawn at or prior to the
time of such vote and which are not voted in favor of the Merger, except any
such shares of Vitalink Common Stock the holder of which, prior to the
Effective Time, shall have effectively withdrawn or lost his or her right to
appraisal of payment for his or her shares of Vitalink Common Stock under such
(S) 262, are herein called "Dissenting Stock." Vitalink shall give Genesis
prompt notice upon receipt by Vitalink of any written demands for appraisal
rights, withdrawal of such demands, and any other instruments served pursuant
to (S) 262 of the Delaware Act, and Vitalink shall give Genesis the
opportunity to direct all negotiations and proceedings with respect to such
demands. Vitalink shall not voluntarily make any payment with respect to any
demands for appraisal rights and shall not, except with the prior written
consent of Genesis, settle or offer to settle any such demands. Each holder of
Vitalink Common Stock who becomes entitled, pursuant to (S) 262 of the
Delaware Act, to payment for his or her shares of Vitalink Common Stock under
the provisions of such section shall receive payment therefor from the
Surviving Corporation and such shares of Vitalink Common Stock shall be
cancelled.
Section 2.09. Conversion of Dissenting Stock. If prior to the Effective Time
any stockholder of Vitalink shall fail to perfect, or shall effectively
withdraw or lose, his or her right to appraisal of and payment for his or her
shares of Dissenting Stock under (S) 262 of the Delaware Act, the Vitalink
Common Stock of such holder shall be treated for purposes of this Article II
like any other shares of outstanding Vitalink Common Stock. If, after the
Effective Time, any holder of Vitalink Common Stock shall fail to perfect, or
shall effectively withdraw or lose, his or her right to appraisal of and
payment for his or her Dissenting Stock under (S) 262 of the Delaware Act,
each share of Dissenting Stock of such holder shall be treated in the same
manner as Non-Election Shares in accordance with the procedures, and subject
to the conditions, set forth in this Article II.
ARTICLE III
Representations and Warranties
of Genesis and Acquisition Corporation
Subject to the disclosure schedule delivered by Genesis (the "Genesis
Disclosure Statement"), the section numbers of which are numbered to
correspond to the sections of this Agreement to which they relate, each of
Genesis and Acquisition Corporation represents and warrants to Vitalink as
follows:
Section 3.01. Organization, Etc. Genesis is a corporation duly organized,
validly existing and in good standing under the laws of the state of
Pennsylvania and has all requisite power and authority to carry on its
business as it is now being conducted. Genesis is duly qualified as a foreign
corporation to do business, and is in good standing in each jurisdiction where
the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except for failures to be so
qualified or in good standing that would not, individually or in the
aggregate, have a Genesis Material Adverse Effect. "Genesis Material Adverse
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Effect" means a material adverse effect on the business, results of
operations, assets or condition (financial or otherwise) of Genesis and its
Subsidiaries taken as a whole, other than any change or effect arising out of
or resulting from general economic conditions or conditions generally
affecting, directly or indirectly, the eldercare, pharmacy and/or related
services industry. Complete and correct copies of the organizational
documents, as currently in effect, of Genesis have been made available to
Vitalink.
Section 3.02. Authority Relative to This Agreement. Each of Genesis and
Acquisition Corporation has full corporate power and authority to execute and
deliver this Agreement and to consummate the Merger and the other transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby have
been duly and validly authorized by the Boards of Directors of Genesis and
Acquisition Corporation, and no other corporate proceedings on the part of
Genesis or Acquisition Corporation are necessary to authorize this Agreement
or to consummate the Merger or the other transactions contemplated hereby
(other than, with respect to the Merger, the approval and adoption of this
Agreement at the Special Meeting or any adjournment thereof by a majority of
the outstanding shares of common stock, par value $.02 per share, of Genesis
(the "Genesis Common Stock"). This Agreement has been duly and validly
executed and delivered by each of Genesis and Acquisition Corporation and,
assuming the due authorization, execution and delivery hereof by Vitalink,
constitutes a valid and binding agreement of each of Genesis and Acquisition
Corporation, enforceable against Genesis and Acquisition Corporation in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally or by
general equitable principles.
Section 3.03. No Violations, Etc. (a) No filing or registration with, or
permit, authorization, consent or approval of, or notification or disclosure
to, any United States (federal, state or local) or foreign government, or
governmental, regulatory or administrative authority, agency or commission (a
"Governmental Authority") is required by Genesis or Acquisition Corporation in
connection with the execution and delivery of this Agreement or the
consummation by Genesis or Acquisition Corporation of the Merger and the other
transactions contemplated hereby, except (i) in connection with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) in connection with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act"), (iii) the filing of appropriate merger documents as required by the
Delaware Act, (iv) such consents, approvals, orders, permits, authorizations,
registrations, declarations and filings as may be required under the Blue Sky
laws of various states, (v) such filings, licenses, permits, authorizations,
consents, orders, registrations, filings, notifications and disclosures as may
be required to be made prior to or at the Effective Time and (vi) such
filings, licenses, permits, authorizations, consents, orders, registrations,
filings, notifications and disclosures as may be required to be made or
obtained after the Effective Time.
(b) Assuming that all filings, permits, authorizations, consents,
disclosures and approvals required prior to the Effective Time have been duly
made or obtained as contemplated by Section 3.03(a), the execution and elivery
of this Agreement and the consummation by Genesis and Acquisition Corporation
of the Merger and the other transactions contemplated hereby will not (i)
subject to obtaining the approval of a majority of the outstanding shares of
Genesis Common Stock as required by the rules of the New York Stock Exchange
violate any provision of the organizational documents of Genesis or any of its
Subsidiaries, (ii) violate any statute, rule, regulation, order or decree of
any Governmental Authority by which Genesis, any of its Subsidiaries or any of
their properties are bound or (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, acceleration, redemption
or repurchase) under, any of the terms, conditions or provisions of any (x)
note, bond, mortgage, indenture or deed of trust relating to indebtedness for
borrowed money or (y) license, lease, agreement or other instrument or
obligation to which Genesis or any of its Subsidiaries is a party or by which
any of them or any of their properties or assets may be bound, excluding from
the foregoing clauses (ii) and (iii)(y) violations, breaches or defaults that,
individually or in the aggregate, would not either impair Genesis's or
Acquisition Corporation's ability to
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consummate the Merger or the other transactions contemplated hereby or have a
Genesis Material Adverse Effect.
Section 3.04. Capitalization. (a) The authorized capital stock of Genesis
consists of 60,000,000 shares of Genesis Common Stock. As of December 31,
1997, there were 35,125,027 shares of Genesis Common Stock issued and
35,079,426 shares of Genesis Common Stock outstanding, 45,601 shares of
Genesis Common Stock held in Genesis's treasury and 4,434,415 shares of
Genesis Common Stock reserved for issuance upon the exercise of options
theretofore granted pursuant to the stock option or stock appreciation rights
plans, programs or arrangements of Genesis (collectively, the "Genesis
Plans"). All issued and outstanding shares of capital stock of Genesis are
duly authorized and validly issued, fully paid, nonassessable and free of
preemptive rights with respect thereto. Section 3.04 of the Genesis Disclosure
Statement lists each Genesis Plan, the number of shares of Genesis Common
Stock to be received upon exercise thereof and the average exercise price of
outstanding options (the "Genesis Common Stock Equivalents"). Except for the
Genesis Common Stock Equivalents, there are no options, warrants, calls,
subscriptions or other rights, agreements or commitments obligating Genesis to
issue, transfer or sell any shares of its capital stock or any other
securities convertible into or evidencing the right to subscribe for any such
shares. There are no outstanding stock appreciation rights with respect to the
capital stock of Genesis. Other than pursuant to the Genesis Common Stock
Equivalents, there has not been any issuance of capital stock of Genesis since
December 31, 1997.
(b) There are no obligations, contingent or otherwise, of Genesis to (i)
repurchase, redeem or otherwise acquire any shares of Genesis Common Stock or
(ii) provide funds to, or make any investment in (in the form of a loan,
capital contribution or otherwise), or provide any guarantee with respect to
the obligations of, any other person. There are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings, or calculated in accordance therewith, of Genesis. There are no
voting trusts, proxies or other agreements or understandings to which Genesis
is a party or by which Genesis is bound with respect to the voting of any
shares of capital stock of Genesis.
Section 3.05. SEC Filings. (a) Genesis has timely filed with the Securities
and Exchange Commission (the "SEC") all required forms, reports, registration
statements and documents required to be filed by it with the SEC on or since
September 30, 1997 (collectively, the "Genesis SEC Reports"), all of which
complied as to form when filed in all material respects with the applicable
provisions of the Securities Act or the Exchange Act, as the case may be. As
of their respective dates, the Genesis SEC Reports (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Genesis will deliver to Vitalink as soon as they become available true
and complete copies of any report or statement mailed by Genesis to its
securityholders generally or filed by it with the SEC, in each case subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein provided
by Vitalink, as to which Genesis makes no representation) will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading and will comply
in all material respects with all applicable securities law requirements. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Genesis and its Subsidiaries to be included or
incorporated by reference in such reports and statements will be prepared in
accordance with U.S. generally accepted accounting principles, in each case
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) ("GAAP") and will fairly present the
consolidated financial position of Genesis and its Subsidiaries as of the
dates thereof and the consolidated results of operations and consolidated cash
flow for the periods then ended (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments and to the extent they
may not include footnotes or may be condensed or summary statements).
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Section 3.06. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Genesis
and its Subsidiaries included or incorporated by reference in any of the
Genesis SEC Reports have been prepared in accordance with GAAP, and fairly
present in all material respects the consolidated financial position of
Genesis and its Subsidiaries as of the dates thereof and the consolidated
results of operations and consolidated cash flows for the periods then ended
(subject, in the case of any unaudited interim financial statements, to normal
year-end adjustments and to the extent they may not include footnotes or may
be condensed or summary statements), and such audited consolidated financial
statements are accompanied by an unqualified opinion thereon by Genesis's
independent accountants. The Consolidated Balance Sheet as at September 30,
1997 of Genesis and its Subsidiaries contained in such financial statements is
hereinafter referred to as the "Genesis Balance Sheet."
Section 3.07. Absence of Undisclosed Liabilities. At September 30, 1997,
none of Genesis or its Subsidiaries has any liabilities of any nature, whether
absolute, accrued, unmatured, contingent or otherwise, whether due or about to
become due that are required to be recorded or reflected on a consolidated
balance sheet of Genesis under generally accepted accounting principles, or
any unsatisfied judgments, except for (i) the liabilities recorded on the
Genesis Balance Sheet and/or reflected in the notes thereto, and (ii)
liabilities disclosed in any Genesis SEC Report filed since September 30, 1997
and prior to the date of this Agreement.
Section 3.08. Absence of Changes or Events. Since December 31, 1997 and
except as set forth in the Genesis SEC Reports filed prior to the date hereof
or as a direct or indirect result of changes in the Medicare or Medicaid
reimbursement programs which are known or reasonably anticipated as of the
date hereof: (a) there has been no Genesis Material Adverse Effect and (b)
neither Genesis nor any of its Subsidiaries has, directly or indirectly:
(a) purchased or otherwise acquired, or agreed to purchase or otherwise
acquire, any shares of capital stock of Genesis or any of its Subsidiaries,
except as set forth on Section 3.08 of the Genesis Disclosure Statement, or
any options, warrants or other equity securities, debt securities or other
indebtedness of Genesis or any of its Subsidiaries, or declared, set aside
or paid any dividend or otherwise made a distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital
stock;
(b) (i) other than borrowings under Genesis's existing working capital
facilities, created or incurred any indebtedness for borrowed money in
excess of $20,000,000 in the aggregate; (ii) assumed, guaranteed, endorsed
or otherwise as an accommodation become responsible for the obligations of
any other individual, firm or corporation (other than any wholly owned
Subsidiary of Genesis), or made any loans or advances to any other
individual, firm or corporation (other than loans among Genesis and any of
its wholly owned Subsidiaries) except in the ordinary course of business
consistent with past practice; or (iii) incurred any liabilities, except
for liabilities that, individually or in the aggregate, would not
reasonably be expected to have a Genesis Material Adverse Effect;
(c) made any payment with respect to any option, warrant or other equity
security, or any debt security or other indebtedness, of Genesis or any of
its Subsidiaries (other than regular, periodic payments of principal and/or
interest required pursuant to the terms of the applicable security or
instrument);
(d) instituted any significant change in accounting methods, principles
or practices affecting its assets, liabilities or business, except insofar
as may be appropriate to conform to changes in law or GAAP; and
(e) agreed to do any of the things described in the preceding clauses (a)
through (d).
Section 3.09. Litigation. There is no (i) claim, action, suit or proceeding
pending or, to the best of Genesis's knowledge, threatened against Genesis or
any of its Subsidiaries or their respective properties, assets or operations
before any court or governmental or regulatory authority or body or
arbitration tribunal or (ii) outstanding judgment, order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal in a
proceeding to which Genesis, any of its Subsidiaries or any of their
respective assets was or is a party, except, in the case of clauses (i) and
(ii) above, such as would not, individually or in the aggregate, either impair
Genesis's or Acquisition Corporation's ability to consummate the Merger or the
other transactions contemplated hereby or have or reasonably be expected to
have a Genesis Material Adverse Effect.
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Section 3.10. Subsidiaries and Investments. Each Subsidiary of Genesis is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except for failures to be so organized, existing or in good
standing or to have such power or authority that, individually or in the
aggregate, would not have a Genesis Material Adverse Effect. Each Subsidiary
of Genesis is duly qualified to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for
failures to be so qualified or in good standing that, individually or in the
aggregate, would not have a Genesis Material Adverse Effect. All of the
outstanding shares of capital stock or share capital of each Subsidiary of
Genesis are validly issued, fully paid and nonassessable, and those owned by
Genesis or by a Subsidiary of Genesis are owned free and clear of any liens,
claims or encumbrances. There are no options, warrants, calls, subscriptions
or other rights, agreements or commitments obligating any of the Subsidiaries
of Genesis to issue, transfer or sell any shares of its capital stock or any
other securities convertible into or evidencing the right to subscribe for any
such shares.
Section 3.11. Compliance with Laws. (a) None of Genesis or any of its
Subsidiaries or Genesis Eldercare Corporation ("Eldercare") has violated or
failed to comply with any statute, law, ordinance, regulation, rule or order
of any Governmental Authority (including, without limitation, the Medicare and
Medicaid fraud and abuse provisions of the Social Security Act and the Civil
Monetary Penalty Law of the Social Security Act, the applicable recordkeeping,
inventory and other requirements and regulations of the Federal Food and Drug
Administration (the "FDA"), the Federal Drug Enforcement Agency (the "DEA")
and state pharmacy boards in jurisdictions in which Genesis conducts
business), or any judgment, decree or order of any court, applicable to its
business or operations, except for any such violations or failures to comply
that, individually or in the aggregate, have not had and would not reasonably
be expected to have a Genesis Material Adverse Effect.
(b) Each of Genesis and its Subsidiaries has such certificates, permits,
licenses, franchises, consents, approvals, orders, authorizations and
clearances from appropriate governmental agencies and bodies ("Genesis
Licenses") as are necessary to own, lease or operate its properties and to
conduct its business in the manner described in the Genesis SEC Reports and as
presently conducted and all such Genesis Licenses are valid and in full force
and effect, except for any failures to have any such Genesis License or any
failures of any such Genesis License to be valid and in full force and effect
that, individually or in the aggregate, would not have a Genesis Material
Adverse Effect. Each of Genesis and its Subsidiaries is, and within the period
of all applicable statutes of limitation has been, in compliance with its
obligations under such Genesis Licenses and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination of
such Genesis Licenses, except for any such failures to be in compliance with
such obligations or any such revocations or terminations that, individually or
in the aggregate, would not have a Genesis Material Adverse Effect. Genesis
has no knowledge of any facts or circumstances that could reasonably be
expected to result in an inability of Genesis or any of its Subsidiaries or
Eldercare to renew any Genesis License except for those inabilities to renew
any Genesis License which would not reasonably be expected to result in a
Genesis Material Adverse Effect. Neither the execution and delivery by Genesis
or Acquisition Corporation of this Agreement nor the consummation of the
Merger nor any of the other transactions contemplated herein will result in
any revocation or termination of any Genesis License except for a revocation
or termination of a Genesis License which would not reasonably be expected to
result in a Genesis Material Adverse Effect.
(c) Genesis and each of its Subsidiaries has delivered or made available
true and correct billing requests for reimbursement and underlying information
to, all governmental programs, including, but not limited to, the Medicare and
Medicaid programs, in compliance with all rules, regulations, policies and
procedures of such governmental programs and of the fiscal intermediaries of
such programs. To the best of Genesis's knowledge all such billings were for
goods actually provided, and at appropriate charges or costs, and Genesis has
appropriate documentation to support such billing requests.
Section 3.12. Intellectual Property Rights. To the best of Genesis's
knowledge, Genesis and its Subsidiaries own or have the right to use all
Genesis Intellectual Property Rights (as defined below) necessary to
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the conduct of their respective businesses. There have been no written claims
or assertions made by others that Genesis or any of its Subsidiaries has
infringed any material intellectual property rights of others by the sale of
products or any other activity in the preceding five year period and, to the
best of Genesis's knowledge, there has been no such infringement by Genesis or
any of its Subsidiaries during this period except for such infringements that,
individually or in the aggregate, would not have a Genesis Material Adverse
Effect. Genesis has no knowledge of any infringement of Genesis Intellectual
Property Rights by others, except for such infringements that, individually or
in the aggregate, would not have a Genesis Material Adverse Effect. All issued
patents, registered trademarks and service marks owned by Genesis or its
Subsidiaries are recorded on the public record in the name of Genesis or its
Subsidiaries. Genesis and its Subsidiaries have clear and unencumbered title
to all of the Genesis Intellectual Property Rights and such titles have not
been challenged, except as would not reasonably be expected to result in a
Genesis Material Adverse Effect.
"Genesis Intellectual Property Rights" shall mean and include rights
relating to Genesis's or its Subsidiaries' patents, trademarks, service marks,
trade names, copyrights, and all currently pending applications for any
thereof, and any inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software licenses or
options to obtain rights or licenses and any documentation relating to the
manufacture, marketing and maintenance of products.
Section 3.13. Taxes. (a) Genesis and each of its Subsidiaries have (i) filed
all federal, state, local and foreign tax returns required to be filed by them
prior to the date hereof (taking into account extensions), (ii) paid all taxes
shown to be due on such returns and all taxes not required to be shown as due
and payable on any tax return but which were otherwise due and payable, (iii)
paid all taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings and properly accrued), except in the case of clause (i), (ii) or
(iii) for any such filings or payments that, individually or in the aggregate,
would not have a Genesis Material Adverse Effect. Neither the Internal Revenue
Service ("IRS") nor any other Governmental Authority has asserted in writing
any claim for material taxes or, to the best of Genesis's knowledge, is
threatening to assert any claims for taxes. Genesis and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
Governmental Authorities (or are properly holding for such payment) all taxes
required by law to be withheld or collected. Neither Genesis nor any of its
Subsidiaries has made an election under Section 341(f) of the Code. There are
no liens for taxes upon the assets of Genesis or any of its Subsidiaries
(other than liens for taxes that are not yet due or that are being contested
in good faith by appropriate proceedings).
(b) To the best of Genesis's knowledge, Genesis has not taken or failed to
take any action, and there is no state of affairs with respect to the
activities or operations of Genesis, that would prevent the Merger from
constituting a transaction qualifying as a tax-free reorganization under
Section 368(a) of the Code.
Section 3.14. Employee Benefit Plans; ERISA. (a) Neither Genesis nor any
ERISA Affiliate of Genesis has (i) engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or (ii) incurred or reasonably expects to incur
prior to the Effective Time, (A) any liability under Title IV of ERISA arising
in connection with the termination of, or a complete or partial withdrawal
from, any plan covered or previously covered by Title IV of ERISA or (B) any
liability under Section 4971 of the Code that in either case could become a
liability of Genesis or any of its Affiliates after the Effective Time.
Nothing done or omitted to be done, and no transaction or holding of any asset
under or in connection with any "employee benefit plan" as defined in Section
3(3) of ERISA which (i) is subject to any provision of ERISA and (ii) is
maintained, administered or contributed to by Genesis or any Subsidiary of
Genesis and covers any employees or former employees of Genesis or any
Subsidiary of Genesis under which Genesis or any Subsidiary of Genesis has any
liability (each a "Genesis Employee Plan") has or will make Genesis or any
Subsidiary of Genesis, or any officer or director of Genesis or any Subsidiary
of Genesis, subject to any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code that could have a Genesis Material
Adverse Effect. For purposes of this Agreement, "ERISA Affiliate" shall mean
any person (as defined in Section 3(9) of ERISA) that is a member of any group
of persons described in Section 414(b), (c), (m) or (o) of the Code which
includes the referent person or its Subsidiaries.
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(b) With respect to each Genesis Employee Plan which is intended to be
qualified under Section 401(a) of the Code, Genesis has received a favorable
determination letter that the plan is so qualified and that each trust forming
a part thereof is exempt from tax pursuant to Section 501(a) of the Code. Each
Genesis Employee Plan has been maintained in all material respects in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA
and the Code, which are applicable to such Plan.
(c) Each employment, severance or other similar contract, arrangement or
policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not a Genesis
Employee Plan, (ii) is entered into, maintained or contributed to, as the case
may be, by Genesis or any of its Subsidiaries and (iii) covers any employee or
former employee of Genesis or any of its Subsidiaries (the "Genesis Benefit
Arrangements") has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules
and regulations that are applicable to such Genesis Benefit Arrangement.
(d) Genesis and its Subsidiaries are in compliance with all currently
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any
unfair labor practice, failure to comply with which or engagement in which, as
the case may be, would reasonably be expected to have a Genesis Material
Adverse Effect. There is no unfair labor practice complaint pending before the
National Labor Relations Board which would reasonably be expected to have a
Genesis Material Adverse Effect.
(e) Genesis has delivered or made available to Vitalink true and complete
copies of all "employee benefit plans" as defined in Section 3(3) of ERISA
(other than multiemployer plans as defined in Section 3(37) of ERISA)
maintained by Genesis or any of its Subsidiaries or to which Genesis or any of
its Subsidiaries, contributes or is obligated to make payments thereunder.
Section 3.15 Labor and Employment Matters. Each of Genesis and its
Subsidiaries is in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment, safety, wages
and hours, and neither Genesis nor any of its Subsidiaries is engaged in any
unfair labor practice in each case, except as would not, individually or in
the aggregate, reasonably be expected to have a Genesis Material Adverse
Effect. There is no labor strike, slowdown or stoppage pending (or, to the
best knowledge of Genesis, any labor strike, slowdown or stoppage threatened)
against or affecting Genesis or any of its Subsidiaries.
Section 3.16 Environmental Matters. (a) (i) Genesis and each of its
Subsidiaries possess all Environmental Permits (as defined below) currently
required under applicable Environmental Laws (as defined below) to conduct
their business and are, and within the last five years, have been, in
compliance with the terms and conditions of such Environmental Permits, except
where such failures to possess or comply, individually or in the aggregate,
would not have a Genesis Material Adverse Effect, nor has Genesis received
written notice that any Environmental Permits possessed by Genesis or any of
its Subsidiaries and material to their business will be revoked, suspended or
will not be renewed;
(ii) to Genesis's knowledge, all Environmental Permits necessary for the
conduct of the business of Genesis and its Subsidiaries as currently conducted
have been obtained except where the failure to have obtained such
Environmental Permits would not, individually or in the aggregate, have a
Genesis Material Adverse Effect;
(iii) to Genesis's knowledge after due inquiry, the execution and delivery
of this Agreement and the consummation by Genesis of the transactions
contemplated hereby will not affect the validity or require the transfer of
any Environmental Permits, and will not require any notification,
registration, reporting, filing, investigation, or remediation under any
Environmental Law;
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(iv) Genesis and each of its Subsidiaries are currently in compliance, and
within applicable statues of limitation, have complied, with all applicable
Environmental Laws, except where such failures to comply, individually or in
the aggregate, would not have a Genesis Material Adverse Effect;
(v) except as would not have a Genesis Material Adverse Effect, (a) there is
currently no civil, criminal or administrative action, suit, demand, claim,
hearing, notice of violation, investigation, notice or demand letter, or
request for information pending or, to the best of Genesis's knowledge,
threatened under any Environmental Law against Genesis or any of its
Subsidiaries; and (b) neither Genesis nor any of its Subsidiaries has received
written notice of actual or potential liability under any Environmental Law
that has not been resolved, including, but not limited to, any liability that
Genesis or its Subsidiaries may have retained or assumed either contractually
or by operation of law;
(vi) as of the date hereof, no property or facility currently, or to the
best of Genesis's knowledge, formerly owned, operated or leased by Genesis or
any of its present or former Subsidiaries, or by any respective predecessor in
interest, is listed or proposed for listing on the National Priorities List or
the Comprehensive Environmental Response, Compensation and Liability
Information System, both promulgated under the United States Comprehensive
Environmental Response, Compensation, and Liability Act, as amended
("CERCLA"), or on any comparable foreign or state list established under any
Environmental Law;
(vii) to the best of Genesis's knowledge, (a) there has been no disposal,
spill, discharge or release of any Hazardous Material (as defined below)
generated, used, owned, or stored by Genesis, any of its Subsidiaries or
respective predecessors in interest, on, at, or under any property presently
or formerly owned, leased or operated by Genesis, its Subsidiaries, or any
predecessor in interest, except for such disposals, spills, discharges and
releases that, individually or in the aggregate, would not have a Genesis
Material Adverse Effect; and (b) there are no Hazardous Materials located in,
at, on, or under such facility or property, or at any other location, in
either case that could reasonably be expected to require investigation,
removal, remedial or corrective action by Genesis or any of its Subsidiaries
or that would reasonably likely result in material liabilities of or losses,
damages or costs to Genesis or any of its Subsidiaries under any Environmental
Law;
(viii) except as would not have a Genesis Material Adverse Effect, (a) there
has not been any underground or aboveground storage tank or other underground
storage receptacle or related piping, or any impoundment or other disposal
area in each case containing Hazardous Materials located on any facility or
property currently owned, leased or operated by Genesis, any of its
Subsidiaries or respective predecessors in interest, and (b) no asbestos or
polychlorinated biphenyls have been used or disposed of, or have been located
at, on, or under any such facility or property in violation of any applicable
Environmental Law; and
(ix) to the best of Genesis's knowledge after due inquiry, no lien has been
recorded against any properties, assets or facilities currently owned, leased
or operated by Genesis or any of its Subsidiaries under any Environmental Law.
(b) Genesis has provided to Vitalink and its authorized representatives all
records and files, including but not limited to, all assessments, reports,
studies, analyses, tests and data available to Genesis and its Subsidiaries
concerning the existence of Hazardous Materials or any other environmental
concern at properties, assets or facilities currently or formerly owned,
operated or leased by Genesis or any present or former Subsidiary or
predecessor in interest, or concerning compliance by Genesis and its
Subsidiaries with, or liability under, any Environmental Laws.
(c) For purposes of this Section 3.16 and Section 4.18:
(i) "Environmental Law" shall mean CERCLA, the Resource Conservation and
Recovery Act of 1976, as amended, and any other applicable federal, state,
local, or foreign statute, rule, regulation, order, judgment, directive,
decree or common law as now or previously in effect and regulating,
relating to, or imposing liability or standards of conduct concerning air
emissions, water discharges, noise emissions, the release or threatened
release or discharge of any Hazardous Material into the environment, the
generation,
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handling, treatment, storage, transport or disposal of any Hazardous
Material, or otherwise concerning pollution or the protection of the
outdoor or indoor environment, or human health or safety.
(ii) "Environmental Permit" shall mean any permit, license, approval,
consent or other authorization by a federal, state, local or foreign
government or regulatory entity pursuant to any Environmental Law.
(iii) "Hazardous Material" shall mean any pollutant, contaminant or
hazardous, toxic, medical, biohazardous, infectious or dangerous waste,
substance, constituent or material, defined or regulated as such in, or for
purposes of, any Environmental Law, including, without limitation, any
asbestos, any petroleum, oil (including crude oil or any fraction thereof),
any radioactive substance, any polychlorinated biphenyls, any toxin,
chemical, virus, infectious disease or disease-causing agent or pathogen,
and any other substance that can give rise to liability under any
Environmental Law.
Section 3.17. Insurance. Genesis has insurance policies and fidelity bonds
covering its and its Subsidiaries' assets, business, equipment, properties,
operations, employees, officers and directors of the type and in amounts
customarily carried by persons conducting business similar to that of Genesis
and such Subsidiaries. All premiums due and payable under all such policies
and bonds have been paid, and Genesis is otherwise in full compliance with the
terms and conditions of all such policies and bonds, except where the failure
to have made payment or to be in full compliance would not, singularly or in
the aggregate with all such other failures, have a Genesis Material Adverse
Effect. The reserves established by Genesis in respect of all matters as to
which Genesis self-insures or carries retention and/or deductibles, including
for workers' medical coverage and workers' compensation, are adequate and
appropriate in light of Genesis's experience with respect thereto and Genesis
is not aware of any facts or circumstances existing as of the date hereof that
could reasonably be expected to cause such reserves to be inadequate or
inappropriate.
Section 3.18. Contracts and Commitments. None of Genesis or its Subsidiaries
is in breach of or default under any contract to which it is a party, except
for breaches or defaults that would not, individually or in the aggregate,
either impair Genesis's ability to consummate the Merger and the other
transactions contemplated hereby or have a Genesis Material Adverse Effect.
Section 3.19. Finders or Brokers. Other than Merrill Lynch, Pierce, Fenner &
Smith Incorporated, neither Genesis nor any of its Subsidiaries has employed
any investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission the receipt of which is conditioned upon consummation of the Merger
or the amount of which is calculated with reference to the Closing
Consideration.
Section 3.20. Board Recommendation. The Board of Directors of Genesis has,
by a unanimous vote at a meeting of such Board duly held on April 24, 1998,
approved and adopted this Agreement, the Merger and the other transactions
contemplated hereby, and prior to the date hereof has resolved to recommend
that the holders of Genesis Common Stock approve and adopt this Agreement, the
Merger and the other transactions contemplated hereby.
Section 3.21. Fairness Opinion. Genesis has received the opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated to the effect that on the date
hereof, the Closing Consideration is fair from a financial point of view to
Genesis.
ARTICLE IV
Representations and Warranties of Vitalink
Subject to the disclosure schedule delivered by Vitalink (the "Vitalink
Disclosure Statement"), the section numbers of which are numbered to
correspond to the section numbers of this Agreement to which they relate,
Vitalink represents and warrants to Genesis and Acquisition Corporation as
follows:
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Section 4.01. Organization, Etc. Vitalink is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Vitalink
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing that would not,
individually or in the aggregate, have a Vitalink Material Adverse Effect.
"Vitalink Material Adverse Effect" means a material adverse effect on the
business, results of operations, assets or condition (financial or otherwise)
of Vitalink and its Subsidiaries taken as a whole, other than any change or
effect arising out of or resulting from general economic conditions or
conditions generally affecting, directly or indirectly, the institutional
pharmacy services industry. Complete and correct copies of the organizational
documents, as currently in effect, of Vitalink have been made available to
Genesis.
Section 4.02. Authority Relative to This Agreement. Vitalink has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Vitalink, and no other corporate
proceedings on the part of Vitalink are necessary to authorize this Agreement
or to consummate the Merger and the other transactions contemplated hereby
(other than, with respect to the Merger, the approval of and adoption of this
Agreement at the Special Meeting or any adjournment thereof by a majority of
the outstanding shares of Vitalink Common Stock as required by the Delaware
Act). This Agreement has been duly and validly executed and delivered by
Vitalink and, assuming the due authorization, execution and delivery hereof by
each of Genesis and Acquisition Corporation, constitutes a valid and binding
agreement of Vitalink, enforceable against Vitalink in accordance with its
terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles.
Section 4.03. No Violations, Etc. (a) No filing or registration with, or
permit, authorization, consent or approval of, or notification or disclosure
to, any Governmental Authority is required by Vitalink in connection with the
execution and delivery of this Agreement or the consummation by Vitalink of
the Merger and the other transactions contemplated hereby, except (i) in
connection with the applicable requirements of the HSR Act, (ii) in connection
with the provisions of the Securities Act and the Exchange Act, (iii) the
filing of appropriate merger documents as required by the Delaware Act, (iv)
such consents, approvals, orders, permits, authorizations, registrations,
declarations and filings as may be required under the Blue Sky laws of various
states and (v) as listed in Section 4.03 of the Vitalink Disclosure Statement,
such filings, licenses, permits, authorizations as may be required to be made
or obtained prior to the Effective Time.
(b) Assuming that all filings, permits, authorization, consents, disclosures
and approvals required prior to the Effective Time have been duly made or
obtained as contemplated by Section 4.03(a), the execution and delivery of
this Agreement and the consummation by Vitalink of the Merger and the other
transactions contemplated hereby will not (i) subject to obtaining the
approval of a majority of the outstanding shares of Vitalink Common Stock as
required by the Delaware Act, violate any provision of the organizational
documents of Vitalink or any of its Subsidiaries, (ii) violate any statute,
rule, regulation, order or decree of any Governmental Authority by which
Vitalink, any of its Subsidiaries or any of their properties are bound or
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, acceleration, redemption or repurchase) under, any
of the terms, conditions or provisions of any (x) note, bond, mortgage,
indenture or deed of trust relating to indebtedness for borrowed money or (y)
license, lease, agreement or other instrument or obligation to which Vitalink
or any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be found, excluding from the foregoing clauses (ii)
and (iii)(y) violations, breaches or defaults that, individually or in the
aggregate, would not either impair Vitalink's ability to consummate the Merger
or the other transactions contemplated hereby or have a Vitalink Material
Adverse Effect.
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Section 4.04. Capitalization. (a) The authorized capital stock of Vitalink
consists of 80,000,000 shares of Vitalink Common Stock. As of April 15, 1998,
there were 26,127,886 shares of Vitalink Common Stock outstanding, no shares
of Vitalink Common Stock held in Vitalink's treasury and 1,552,095 shares of
Vitalink Common Stock reserved for issuance upon the exercise of options
theretofore granted pursuant to the Vitalink Plans and 22,950 shares of
Vitalink Common Stock reserved for issuance upon the vesting of employee and
director stock grants. All issued and outstanding shares of capital stock of
Vitalink are duly authorized and validly issued, fully paid, nonassessable and
free of preemptive rights with respect thereto. Section 4.04 of the Vitalink
Disclosure Statement lists each Vitalink Plan and each outstanding option and
stock grant as of April 15, 1998, the number of shares of Vitalink Common
Stock to be received upon exercise thereof and the exercise price of each such
option (the "Vitalink Common Stock Equivalents"). Except for the Vitalink
Common Stock Equivalents, there are no options, warrants, calls,
subscriptions, or other rights, agreements or commitments obligating Vitalink
to issue, transfer or sell any shares of its capital stock or any other
securities convertible into or evidencing the right to subscribe for any such
shares. There are no outstanding stock appreciation rights with respect to the
capital stock of Vitalink except for tandem stock appreciation rights
according to the terms of the Vitalink Plans. Other than stock issued upon the
exercise of stock options or the vesting of stock grants and pursuant to the
Vitalink Common Stock Equivalents, there has not been any issuance of capital
stock of Vitalink since September 30, 1997.
(b) There are no obligations, contingent or otherwise, of Vitalink to (i)
repurchase, redeem or otherwise acquire any shares of Vitalink Common Stock or
(ii) provide funds to, or make any investment in (in the form of a loan,
capital contribution or otherwise), or provide any guarantee with respect to
the obligations of, any other person. There are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings, or calculated in accordance therewith, of Vitalink. There are no
voting trusts, proxies or other agreements or understandings to which Vitalink
is a party or by which Vitalink is bound with respect to the voting of any
shares of capital stock of Vitalink.
Section 4.05. SEC Filings. (a) Vitalink has timely filed with the SEC all
required forms, reports, registration statements and documents required to be
filed by it with the SEC on or since May 31, 1997 (collectively, the "Vitalink
SEC Reports"), all of which complied as to form when filed in all material
respects with the applicable provisions of the Securities Act or the Exchange
Act, as the case may be. As of their respective dates, the Vitalink SEC
Reports (including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) Vitalink will deliver to Genesis as soon as they become available true
and complete copies of any report or statement mailed by Vitalink to its
securityholders generally or filed by it with the SEC, in each case subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein provided
by Genesis, as to which Vitalink makes no representation) will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading and will comply
in all material respects with all applicable securities law requirements. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Vitalink and its Subsidiaries to be included or
incorporated by reference in such reports and statements will be prepared in
accordance with GAAP and will fairly present the consolidated financial
position of Vitalink and its Subsidiaries as of the dates thereof and the
consolidated results of operations and consolidated cash flow for the periods
then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments and to the extent they may not
include footnotes or may be condensed or summary statements).
Section 4.06. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Vitalink
and its Subsidiaries included or incorporated by reference in any of the
Vitalink SEC Reports have been prepared in accordance with GAAP, and fairly
present in all
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material respects the consolidated financial position of Vitalink and its
Subsidiaries as of the dates thereof and the consolidated results of
operations and consolidated cash flows for the periods then ended (subject, in
the case of any unaudited interim financial statements, to normal year-end
adjustments and to the extent they may not include footnotes or may be
condensed or summary statements), and such audited consolidated financial
statements are accompanied by an unqualified opinion thereon by Vitalink's
independent accountants. The Consolidated Balance Sheet as at May 31, 1997 of
Vitalink and its Subsidiaries contained in such financial statements is
hereinafter referred to as the "Vitalink Balance Sheet."
Section 4.07. Absence of Undisclosed Liabilities. At May 31, 1997, none of
Vitalink or its Subsidiaries has any liabilities of any nature, whether
absolute, accrued, unmatured, contingent or otherwise, whether due or about to
become due that are required to be recorded or reflected on a consolidated
balance sheet of Vitalink under generally accepted accounting principles, or
any unsatisfied judgments, except for (i) the liabilities recorded on the
Vitalink Balance Sheet and/or reflected in the notes thereto, and (ii)
liabilities disclosed in any Vitalink SEC Report filed since May 31, 1997 and
prior to the date of this Agreement.
Section 4.08. Absence of Changes or Events. Since February 28, 1998 and
except as set forth in the Vitalink SEC Reports filed prior to the date hereof
or as a direct or indirect result of changes in the Medicare or Medicaid
reimbursement programs which are known or reasonably anticipated as of the
date hereof: (a) there has been no Vitalink Material Adverse Effect and (b)
neither Vitalink nor any of its Subsidiaries has, directly or indirectly:
(a) other than under employee stock purchase plans, purchased or
otherwise acquired, or agreed to purchase or otherwise acquire, any shares
of capital stock of Vitalink or any of its Subsidiaries, or any options,
warrants or other equity securities, debt securities or other indebtedness
of Vitalink or any of its Subsidiaries, or declared, set aside or paid any
dividend or otherwise made a distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock;
(b) (i) excluding the rollover of amounts borrowed under the existing
credit facility of Vitalink, created or incurred any indebtedness for
borrowed money in excess of $10,000,000 in the aggregate; (ii) assumed,
guaranteed, endorsed or otherwise as an accommodation become responsible
for the obligations of any other individual, firm or corporation (other
than any wholly owned Subsidiary of Vitalink), or made any loans or
advances to any other individual, firm or corporation (other than loans
among Vitalink and any of its wholly owned Subsidiaries) except in the
ordinary course of business consistent with past practice; (iii) entered
into any commitment or transaction material to Vitalink and its
Subsidiaries taken as a whole; or (iv) incurred any liabilities, except for
liabilities that, individually or in the aggregate, would not reasonably be
expected to have a Vitalink Material Adverse Effect;
(c) made any payment with respect to any option, warrant or other equity
security, or any debt security or other indebtedness, of Vitalink or any of
its Subsidiaries (other than regular, periodic payments of principal and/or
interest required pursuant to the terms of the applicable security or
instrument);
(d) instituted any significant change in accounting methods, principles
or practices affecting its assets, liabilities or business, except insofar
as may be appropriate to conform to changes in law or GAAP;
(e) suffered any damage, destruction or loss, whether covered by
insurance or not, except for such that, individually or in the aggregate,
would not have a Vitalink Material Adverse Effect;
(f) since the date of the information contained in Vitalink's proxy
statement dated November 5, 1997 and other than as contemplated or
permitted in this Agreement, (i) increased in any manner the compensation
of any of its directors or, except in the ordinary course of business
consistent with past practice, officers or employees, except in each case
as required under plans or arrangements existing at November 5, 1997; (ii)
paid or agreed to pay any pension, retirement allowance or other employee
benefit not required under agreements, plans or arrangements existing at
November 5, 1997; (iii) granted any severance or termination pay to any
person, or entered into any employment, consulting and severance agreement
with any person providing for total compensation and severance payments in
excess of $50,000, other than severance or termination payment reserved in
the Vitalink Balance Sheet; or (iv) become
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obligated under any new pension plan, welfare plan, multiemployer plan,
employee benefit plan, benefit arrangement or similar plan or arrangement
(including any bonus, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other benefit plan, contract, agreement or understanding)
that was not in existence prior to the date hereof, or amended any such
plan or arrangement in existence at or prior to the date hereof, in each
case except as may be required by applicable law;
(g) sold, transferred, pledged, mortgaged, or otherwise disposed of, or
leased or licensed to or from any person, or encumbered, any material
properties, real, personal or mixed, except in the ordinary course of
business; and
(h) agreed to do any of the things described in the preceding clauses (a)
through (g).
Section 4.09. Litigation. (a) There is no (i) claim, action, suit or
proceeding pending or, to the best of Vitalink's knowledge, threatened against
Vitalink or any of its Subsidiaries or their respective properties, assets or
operations before any court or governmental or regulatory authority or body or
arbitration tribunal or (ii) outstanding judgment, order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal in a
proceeding to which Vitalink, any of its Subsidiaries or any of their
respective assets was or is a party, except, in the case of clauses (i) and
(ii) above, such as would not, individually or in the aggregate, either impair
Vitalink's ability to consummate the Merger or the other transactions
contemplated hereby or have or reasonably be expected to have a Vitalink
Material Adverse Effect.
(b) Section 4.09(b) of the Vitalink Disclosure Statement lists all actions,
suits or proceedings to which Vitalink or any of its Subsidiaries is a party
as of the date hereof.
Section 4.10. Subsidiaries and Investments. (a) Section 4.10(a) of the
Vitalink Disclosure Statement contains a complete list as of the date hereof
of each Subsidiary of Vitalink and sets forth with respect to each of
Vitalink's Subsidiaries its name and jurisdiction of organization and, with
respect to each Subsidiary of Vitalink that is not wholly owned, the number of
issued and outstanding shares of capital stock or share capital and the number
of shares of capital stock or share capital owned by Vitalink or a Subsidiary
of Vitalink. Each Subsidiary of Vitalink is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each Subsidiary of
Vitalink is duly qualified to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for
failures to be so qualified or in good standing that, individually or in the
aggregate, would not have a Vitalink Material Adverse Effect. All of the
outstanding shares of capital stock or share capital of each Subsidiary of
Vitalink are validly issued, fully paid and nonassessable, and those owned by
Vitalink or by a Subsidiary of Vitalink are owned free and clear of any liens,
claims or encumbrances. There are no options, warrants, calls, subscriptions
or other rights, agreements or commitments obligating any of the Subsidiaries
of Vitalink to issue, transfer or sell any shares of its capital stock or
other securities convertible into or evidencing the right to subscribe for any
such shares.
(b) Section 4.10(b) of the Vitalink Disclosure Statement lists, as of the
date hereof, each corporation, partnership, joint venture or other business,
association or entity (other than its Subsidiaries) in which Vitalink or any
of its Subsidiaries owns, directly or indirectly, an equity interest other
than any ownership interest of less than 2% of the outstanding equity
securities of any issuer whose securities are registered under the Exchange
Act (the "Vitalink Investees"). To the best of Vitalink's knowledge, each such
Vitalink Investee is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
Section 4.11. Compliance with Laws. (a) None of Vitalink or its Subsidiaries
has violated or failed to comply with any statute, law, ordinance, regulation,
rule or order of any Governmental Authority (including, without limitation,
the Medicare and Medicaid fraud and abuse provisions of the Social Security
Act and the
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Civil Monetary Penalty Law of the Social Security Act, the applicable
recordkeeping, inventory and other requirements and regulations of the FDA,
the DEA and state pharmacy boards in jurisdictions in which Vitalink conducts
business), or any judgment, decree or order of any court, applicable to its
business or operations, except for any such violations or failures to comply
that, individually or in the aggregate, have not had and would not reasonably
be expected to have a Vitalink Material Adverse Effect.
(b) Each of Vitalink and its Subsidiaries has such certificates, permits,
licenses, franchises, consents, approvals, orders, authorizations and
clearances from appropriate governmental agencies and bodies ("Vitalink
Licenses") as are necessary to own, lease or operate its properties and to
conduct its business in the manner described in the Vitalink SEC Reports and
as presently conducted and all such Vitalink Licenses are valid and in full
force and effect, except for any failures to have any such Vitalink License or
any failures of any such Vitalink License to be valid and in full force and
effect that, individually or in the aggregate, would not have a Vitalink
Material Adverse Effect. Each of Vitalink and its Subsidiaries is, and within
the period of all applicable statutes of limitation has been, in compliance
with its obligations under such Vitalink Licenses and no event has occurred
that allows, or after notice or lapse of time would allow, revocation or
termination of such Vitalink Licenses, except for any such failures to be in
compliance with such obligations or any such revocations or terminations that,
individually or in the aggregate, would not have a Vitalink Material Adverse
Effect. Vitalink has no knowledge of any facts or circumstances that could
reasonably be expected to result in an inability of Vitalink or any of its
Subsidiaries to renew any Vitalink License. Except as set forth in Section
4.11 of the Vitalink Disclosure Statement, neither the execution and delivery
by Vitalink of this Agreement nor the consummation of the Merger or any of the
other transactions contemplated herein will result in any revocation or
termination of any Vitalink License.
Section 4.12. Institutional Pharmacy Business. (a) Section 4.12 of the
Vitalink Disclosure Statement lists each Pharmacy utilized by Vitalink in
connection with its pharmacy business and indicates (i) the location of such
Pharmacy and (ii) whether such Pharmacy is owned or held pursuant to a
leasehold interest. No other person or entity has any beneficial ownership or
interest in or to any such Pharmacy nor does any other person or entity have
any right or option to acquire any beneficial ownership or interest in or to
any such Pharmacy.
(b) Vitalink has not violated, and is not now in violation of, the Medicare
and Medicaid fraud and abuse provisions of the Social Security Act, the Civil
Monetary Penalties Law of the Social Security Act, or any other federal or
state law, statute, rule or regulation relating to the business conducted by
Vitalink and its Subsidiaries.
(c) Vitalink is duly licensed to provide pharmacy services in all states in
which it does business, and is also a participant in the Medicare program and
the Medicaid programs of the states listed in Section 4.12 of the Vitalink
Disclosure Statement. Vitalink is in compliance with all laws, rules and
regulations affecting or in connection with the Pharmacies, Vitalink and their
licenses with respect thereto and their participation in the Medicare and
Medicaid programs.
(d) Vitalink and each of its Subsidiaries have delivered or made available
true and correct billing requests for reimbursement and underlying information
to all governmental programs, including, but not limited to, the Medicare and
Medicaid programs, in compliance with all rules, regulations, policies and
procedures of such governmental programs and of the fiscal intermediaries of
such programs. To the best of Vitalink's knowledge, all such billings were for
goods actually provided, and at appropriate charges or costs, and Vitalink has
appropriate documentation to support such billing requests.
(e) Section 4.12 of the Vitalink Disclosure Statement lists all of the
customers to which Vitalink and its Subsidiaries provide pharmacy services
pursuant to oral or written contracts (the "Vitalink Pharmacy Contracts").
Except as set forth in Section 4.12 of the Vitalink Disclosure Statement,
Vitalink has not received written notice nor has any senior management of
Vitalink been informed that any Pharmacy Contract listed in Section 4.12 of
the Vitalink Disclosure Statement will be terminated with or without cause.
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Section 4.13. Intellectual Property Rights. To the best of Vitalink's
knowledge, Vitalink and its Subsidiaries own or have the right to use all
Vitalink Intellectual Property Rights (as defined below) necessary to the
conduct of their respective businesses. There have been no written claims or
assertions made by others that Vitalink or any of its Subsidiaries has
infringed any material intellectual property rights of others by the sale of
products or any other activity in the preceding five year period and, to the
best of Vitalink's knowledge, there has been no such infringement by Vitalink
or any of its Subsidiaries during this period except for such infringements
that, individually or in the aggregate, would not have a Vitalink Material
Adverse Effect. Vitalink has no knowledge of any infringement of Vitalink
Intellectual Property Rights by others, except for such infringements that,
individually or in the aggregate, would not have a Vitalink Material Adverse
Effect. All issued patents, registered trademarks and service marks owned by
Vitalink or its Subsidiaries are recorded on the public record in the name of
Vitalink or its Subsidiaries.
Section 4.13 of the Vitalink Disclosure Statement contains a list of all
patents, trade names, registered and unregistered copyrights, trademarks and
service marks and applications for the foregoing owned by Vitalink or its
Subsidiaries. Except as set forth in Section 4.13 of the Vitalink Disclosure
Statement, Vitalink and/or its Subsidiaries have clear and unencumbered title
to the Vitalink Intellectual Property Rights set forth in such Section 4.13
and such title has not been challenged (pending or threatened) by others
except for the encumbrances listed therein. True and complete copies of all
material listed in Section 4.13 of the Vitalink Disclosure Statement have been
delivered or made available to Genesis.
"Vitalink Intellectual Property Rights" shall mean and include rights
relating to Vitalink's or its Subsidiaries, patents, trademarks, service
marks, trade names, copyrights, and all currently pending applications for any
thereof, and any inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software licenses or
options to obtain rights or licenses and any documentation relating to the
manufacture, marketing and maintenance of products.
Section 4.14. Taxes. (a) Vitalink and each of its Subsidiaries have (i)
filed all federal, state, local and foreign tax returns required to be filed
by them prior to the date hereof (taking into account extensions), (ii) paid
all taxes shown to be due on such returns and all taxes not required to be
shown as due and payable on any tax return but which were otherwise due and
payable, (iii) paid all taxes for which a notice of assessment or collection
has been received (other than amounts being contested in good faith by
appropriate proceedings and properly accrued), except in the case of clause
(i), (ii) or (iii) for any such filings or payments that, individually or in
the aggregate, would not have a Vitalink Material Adverse Effect. Neither the
IRS nor any other Governmental Authority has asserted in writing any claim for
taxes or, to the best of Vitalink's knowledge, is threatening to assert any
claims for taxes. Vitalink and its Subsidiaries have open years for federal,
state, local and foreign income tax returns only as set forth in Section 4.14
of the Vitalink Disclosure Statement. Vitalink and each of its Subsidiaries
have withheld or collected and paid over to the appropriate Governmental
Authorities (or are properly holding for such payment) all taxes required by
law to be withheld or collected. Neither Vitalink nor any of its Subsidiaries
has made an election under Section 341(f) of the Code. There are no liens for
taxes upon the assets of Vitalink or any of its Subsidiaries (other than liens
for taxes that are not yet due or that are being contested in good faith by
appropriate proceedings).
Except as set forth on Section 4.14 of the Vitalink Disclosure Statement,
neither Vitalink nor any of its Subsidiaries has any liability for the taxes
of any person or entity other than that of Vitalink and its Subsidiaries under
Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign law, as
a transferee or successor, by contract, or otherwise). Except as set forth on
Section 4.14 of the Vitalink Disclosure Statement, neither Vitalink nor its
Subsidiaries is obligated to make any payments, or as a result of the
transaction set forth herein, will become obligated to make any payments that
will not be deductible by reason of Section 280G of the Code.
(b) To the best of Vitalink's knowledge, Vitalink has not taken or failed to
take any action, and there is no state of affairs with respect to the
activities or operations of Vitalink, that would prevent the Merger from
constituting a transaction qualifying as a tax-free reorganization under
Section 368(a) of the Code.
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Section 4.15. Employee Benefit Plans; ERISA. (a) Vitalink has disclosed to
Genesis all "employee pension benefit plans" as defined in Section 3(2) of
ERISA covering employees (or former employees) employed in the United States,
maintained or contributed to by Vitalink or any of its Subsidiaries or any of
their ERISA Affiliates, or to which Vitalink or any of its Subsidiaries or any
of their ERISA Affiliates contributes or is obligated to make payments
thereunder or otherwise may have any liability ("Vitalink Pension Benefit
Plans").
(b) Vitalink has delivered or made available to Genesis true and complete
copies of all "welfare benefit plans" (as defined in Section 3(1) of ERISA)
covering employees (or former employees) employed in the United States,
maintained or contributed to by Vitalink or any of its Subsidiaries ("Vitalink
Welfare Plans"), all multiemployer plans (as defined in Section 3(37) of
ERISA) covering employees (or former employees) employed in the United States
to which Vitalink or any of its Subsidiaries or any of their ERISA Affiliates
is required to make contributions or otherwise may have any liability, and, to
the extent covering employees (or former employees) employed in the United
States, all stock bonus, stock option, restricted stock, stock appreciation
right, stock purchase, bonus, incentive, deferred compensation, severance and
vacation plans maintained or contributed to by Vitalink or a Subsidiary of
Vitalink.
(c) Vitalink and each of its Subsidiaries, and each of the Vitalink Pension
Benefit Plans and Vitalink Welfare Plans, are in compliance with the
applicable provisions of ERISA and other applicable laws except where the
failure to comply would not, singly or in the aggregate, reasonably be
expected to have a Vitalink Material Adverse Effect.
(d) All contributions to, and payments from, the Vitalink Pension Benefit
Plans which are required to have been made in accordance with the Vitalink
Pension Benefit Plans and, when applicable, Section 302 of ERISA or Section
412 of the Code have been timely made except where the failure to make such
contributions or payments on a timely basis would not, singly or in the
aggregate, reasonably be expected to have a Vitalink Material Adverse Effect.
(e) The Vitalink Pension Benefit Plans intended to qualify under Section 401
of the Code have been determined by the IRS to be so qualified and nothing has
occurred with respect to the operation of such Vitalink Pension Benefit Plans
which would cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
(f) There are (i) no investigations pending, to the best knowledge of
Vitalink, by any governmental entity involving the Vitalink Pension Benefit
Plans or Vitalink Welfare Plans, (ii) no termination proceedings involving the
Vitalink Pension Benefit Plans and (iii) no pending or, to the best of
Vitalink's knowledge, threatened claims (other than routine claims for
benefits), suits or proceedings against any Vitalink Pension Benefit Plan or
Vitalink Welfare Plan, against the assets of any of the trusts under any
Vitalink Pension Benefit Plan or Vitalink Welfare Plan or against any
fiduciary of any Vitalink Pension Benefit or Vitalink Welfare Plan with
respect to the operation of such plan or asserting any rights or claims to
benefits under any Vitalink Pension Benefit Plan or against the assets of any
trust under such plan, except for those which would not, singly or in the
aggregate, give rise to any liability which would reasonably be expected to
have a Vitalink Material Adverse Effect, nor, to the best of Vitalink's
knowledge, are there any facts which would give rise to any liability except
for those which would not, singly or in the aggregate, reasonably be expected
to have a Vitalink Material Adverse Effect in the event of any such
investigation, claim, suit or proceeding.
(g) None of Vitalink, any of its Subsidiaries or any employee of the
foregoing, nor any trustee, administrator, other fiduciary or any other "party
in interest" or "disqualified person" with respect to the Vitalink Pension
Benefit Plans or Vitalink Welfare Plans, has engaged in a "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section
406 of ERISA) which would be reasonably likely to result in a tax or penalty
on Vitalink or any of its Subsidiaries under Section 4975 of the Code or
Section 502(i) of ERISA, except any such event which would not, singly or in
the aggregate, reasonably be expected to have a Vitalink Material Adverse
Effect.
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(h) Neither the Vitalink Pension Benefit Plans subject to Title IV of ERISA
nor any trust created thereunder has been terminated nor have there been any
"reportable events" (as defined in Section 4043 of ERISA and the regulations
thereunder) with respect to either thereof, except any such event which would
not, singly or in the aggregate, reasonably be expected to have a Vitalink
Material Adverse Effect, nor has there been any event with respect to any
Vitalink Pension Benefit Plan requiring disclosure under Section 4063(a) of
ERISA or any event with respect to any Vitalink Pension Benefit Plan requiring
disclosure under Section 4041(c)(3)(C) of ERISA, except any such event which
would not, singly or in the aggregate, reasonably be expected to have a
Vitalink Material Adverse Effect.
(i) Neither Vitalink nor any Subsidiary of Vitalink nor any ERISA Affiliate
has incurred any currently outstanding liability to the Pension Benefit
Guaranty Corporation (the "PBGC") or to a trustee appointed under Section
4042(b) or (c) of ERISA other than for the payment of premiums, all of which
have been paid when due. No Vitalink Pension Benefit Plan has applied for, or
received, a waiver of the minimum funding standards imposed by Section 412 of
the Code. The information supplied to the actuary by Vitalink or any of its
Subsidiaries for use in preparing the most recent actuarial report for the
Vitalink Pension Benefit Plans is complete and accurate in all material
respects.
(j) Neither Vitalink, any of its Subsidiaries nor any of their ERISA
Affiliates has any liability (including any contingent liability under Section
4204 of ERISA) with respect to any multiemployer plan, within the meaning of
Section 3(37) of ERISA, covering employees (or former employees) employed in
the United States.
(k) With respect to each of the Vitalink Pension Benefit Plans and Vitalink
Welfare Plans, true, correct and complete copies of the following documents
have been delivered or made available to Buyer: (i) the current plans and
related trust documents, including amendments thereto, (ii) any current
summary plan descriptions, (iii) the most recent Forms 5500, financial
statements and actuarial reports, if applicable, and (iv) the most recent IRS
determination letter, if applicable.
(l) Neither Vitalink, any of its Subsidiaries, any organization to which
Vitalink is a successor or parent corporation, within the meaning of Section
4069(b) of ERISA, nor any of their ERISA Affiliates has engaged in any
transaction, within the meaning of Section 4069(a) of ERISA, except where the
liability therefor would not, singly or in the aggregate, reasonably be
expected to have a Vitalink Material Adverse Effect.
(m) None of the Vitalink Welfare Plans maintained by Vitalink or any of its
Subsidiaries are retiree life or retiree health insurance plans which provide
for continuing benefits or coverage for any participant or any beneficiary of
a participant following termination of employment, except as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), or except at the expense of the participant or the participant's
beneficiary. Vitalink and each of its Subsidiaries which maintain a "group
health plan" within the meaning of Section 5000(b)(1) of the Code have
complied with the notice and continuation requirements of Section 4980B of the
Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations
thereunder except where the failure to comply would not, singly or in the
aggregate, reasonably be expected to have a Vitalink Material Adverse Effect.
(n) No liability under any Vitalink Pension Benefit Plan or Vitalink Welfare
Plan has been funded nor has any such obligation been satisfied with the
purchase of a contract from an insurance company as to which Vitalink or any
of its Subsidiaries has received notice that such insurance company is in
rehabilitation.
(o) The execution of, and consummation of the transactions contemplated by,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment or funding of any benefits or
compensation payable to or in respect of any employee or former employee of
Vitalink or any of its Subsidiaries. Vitalink has disclosed to Buyer in
Section 4.15 of the Vitalink Disclosure Statement any severance agreements or
severance policies of Vitalink or its Subsidiaries providing benefits in the
event of a change of control of Vitalink.
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(p) Vitalink has disclosed to Buyer in Section 4.15 of the Vitalink
Disclosure Statement each of Vitalink's material Foreign Plans to the extent
the benefits provided thereunder are not mandated by the laws of the
applicable foreign jurisdiction. Vitalink and each of its Subsidiaries and
each of such Foreign Plans are in compliance with applicable laws and all
required contributions have been made to the Foreign Plans, except where the
failure to comply or make contributions would not, singly or in the aggregate,
reasonably be expected to have a Vitalink Material Adverse Effect.
Section 4.16. Labor and Employment Matters. (a) Each of Vitalink and its
Subsidiaries is in compliance in all material respects with all applicable
laws respecting employment and employment practices, terms and conditions of
employment, safety, wages and hours, and neither Vitalink nor any of its
Subsidiaries is engaged in any unfair labor practice in each case, except as
would not, individually or in the aggregate, reasonably be expected to have a
Vitalink Material Adverse Effect. There is no labor strike, slowdown or
stoppage pending (or, to the best knowledge of Vitalink, any labor strike,
slowdown or stoppage threatened) against or affecting Vitalink or any of its
Subsidiaries. None of Vitalink or its Subsidiaries is a party to any union
contract or collective bargaining agreement. To the best of Vitalink's
knowledge, no union organizing activities with respect to any of its or its
Subsidiaries' employees are occurring or threatened.
(b) Except as disclosed on Section 4.16 of the Vitalink Disclosure
Statement, neither Vitalink nor any of its Subsidiaries is a party to any
employment, management services, consultation or other contract or agreement
with any past or present officer, director or employee or, to the best of
Vitalink's knowledge, any entity affiliated with any past or present officer,
director or employee, other than the agreements executed by employees
generally, the forms of which have been provided to Genesis.
Section 4.17. No Change of Control Puts. Neither the execution and delivery
by Vitalink of this Agreement nor the consummation of any of the transactions
contemplated hereby gives rise to any obligation of Vitalink or any of its
Subsidiaries to, or any right of any holder of any security of Vitalink or any
of its Subsidiaries to, require Vitalink to purchase, offer to purchase,
redeem or otherwise prepay or repay any such security, or deposit any funds to
effect the same except as contemplated in Section 4.08.
Section 4.18. Environmental Matters. (a) (i) Vitalink and each of its
Subsidiaries possess all Environmental Permits currently required under
applicable Environmental Laws to conduct their business and are, and within
the period of applicable statutes of limitation, have been, in compliance with
the terms and conditions of such Environmental Permits, except where such
failures to possess or comply, individually or in the aggregate, would not
have a Vitalink Material Adverse Effect, nor has Vitalink received written
notice that any Environmental Permits possessed by Vitalink or any of its
Subsidiaries and material to their business will be revoked, suspended or will
not be renewed;
(ii) to Vitalink's knowledge, all Environmental Permits necessary for the
conduct of the business of Vitalink and its Subsidiaries as currently
conducted have been obtained except where the failure to have obtained such
Environmental Permits would not, individually or in the aggregate, have a
Vitalink Material Adverse Effect;
(iii) to Vitalink's knowledge after due inquiry, the execution and delivery
of this Agreement and the consummation by Vitalink of the transactions
contemplated hereby will not affect the validity or require the transfer of
any Environmental Permits, and will not require any notification,
registration, reporting, filing, investigation, or remediation under any
Environmental Law;
(iv) Vitalink and each of its Subsidiaries are currently in compliance, and
within applicable statutes of limitations have complied, with all applicable
Environmental Laws, except where such failures to comply, individually or in
the aggregate, would not have a Vitalink Material Adverse Effect;
(v) except as would not have or reasonably be expected to have a Vitalink
Material Adverse Effect, (a) there is currently no civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation,
investigation, notice or demand letter, or request for information pending or,
to the best of Vitalink's knowledge,
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threatened under any Environmental Law against Vitalink or any of its
Subsidiaries; and (b) neither Vitalink nor any of its Subsidiaries has
received written notice of actual or potential liability under any
Environmental Law that has not been resolved, including, but not limited to,
any liability that Vitalink or its Subsidiaries may have retained or assumed
either contractually or by operation of law;
(vi) as of the date hereof, no property or facility currently or to the best
of Vitalink's knowledge, formerly owned, operated or leased by Vitalink or any
of its present or former subsidiaries, or by any respective predecessor in
interest, is listed or proposed for listing on the National Priorities List or
the Comprehensive Environmental Response, Compensation and Liability
Information System, both promulgated under CERCLA or on any comparable foreign
or state list established under any Environmental Law;
(vii) to the best of Vitalink's knowledge, (a) there has been no disposal,
spill, discharge or release of any Hazardous Material generated, used, owned,
or stored by Vitalink, any of its Subsidiaries or respective predecessors in
interest, on, at, or under any property presently or formerly owned, leased or
operated by Vitalink, its Subsidiaries or any predecessor in interest, except
for such disposals, spills, discharges and releases that, individually or in
the aggregate, would not have a Vitalink Material Adverse Effect; and (b)
there are no Hazardous Materials located in, at, on, or under such facility or
property, or at any other location, in either case that could reasonably be
expected to require investigation, removal, remedial or corrective action by
Vitalink or any of its Subsidiaries or that would reasonably likely result in
material liabilities of or losses, damages or costs to Vitalink or any of its
Subsidiaries under any Environmental Law;
(viii) except as would not have a Vitalink Material Adverse Effect, (a)
there has not been any underground or aboveground storage tank or other
underground storage receptacle or related piping, or any impoundment or other
disposal area in each case containing Hazardous Materials located on any
facility or property currently owned, leased or operated by Vitalink, any of
its Subsidiaries or respective predecessors in interest, and (b) no asbestos
or polychlorinated biphenyls have been used or disposed of, or have been
located at, on, or under any such facility or property in violation of any
applicable Environmental Law; and
(ix) to the best of Vitalink's knowledge after due inquiry, no lien has been
recorded against any properties, assets or facilities currently owned, leased
or operated by Vitalink or any of its Subsidiaries under any Environmental
Law.
(b) Vitalink has provided to Genesis and its authorized representatives all
records and files, including but not limited to, all assessments, reports,
studies, analyses, tests and data available to Vitalink and its Subsidiaries
concerning the existence of Hazardous Materials or any other environmental
concern at properties, assets or facilities currently or formerly owned,
operated, or leased by Vitalink or any present or former Subsidiary or
predecessor in interest, or concerning compliance by Vitalink and its
Subsidiaries with, or liability under, any Environmental Laws.
Section 4.19. Insurance. Vitalink has insurance policies and fidelity bonds
covering its and its Subsidiaries' assets, business, equipment, properties,
operations, employees, officers and directors of the type and in amounts
customarily carried by persons conducting business similar to that of Vitalink
and such Subsidiaries. All premiums due and payable under all such policies
and bonds have been paid, and Vitalink is otherwise in full compliance with
the terms and conditions of all such policies and bonds, except where the
failure to have made payment or to be in full compliance would not, singularly
or in the aggregate with all such other failures, have a Vitalink Material
Adverse Effect. The reserves established by Vitalink in respect of all matters
as to which Vitalink self-insures or carries retention and/or deductibles,
including for workers' medical coverage and workers' compensation, are
adequate and appropriate in light of Vitalink's experience with respect
thereto and Vitalink is not aware of any facts or circumstances existing as of
the date hereof that could reasonably be expected to cause such reserves to be
inadequate or inappropriate. Section 4.19 of the Vitalink Disclosure Statement
sets forth a true and complete list of all insurance policies, including
retention and/or deductible programs, and fidelity bonds of Vitalink.
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Section 4.20. Leases. Neither Vitalink nor any of its Subsidiaries owns any
real property. There have been delivered or made available to Vitalink true
and complete copies of each lease requiring the payment of rentals
aggregating, or pursuant to which the annual rentals are reasonably expected
to be, at least $100,000 per annum pursuant to which real property is held
under lease by Vitalink or any of its Subsidiaries, and true and complete
copies of each lease pursuant to which Vitalink or any of its Subsidiaries
leases real property to others. Section 4.20 of the Vitalink Disclosure
Statement sets forth a true and complete list of all such leases. All of the
leases of Vitalink or its Subsidiaries, whether or not listed on Section 4.20
of the Vitalink Disclosure Statement, are valid and subsisting and in full
force and effect with respect to Vitalink and its Subsidiaries, as the case
may be, and, to Vitalink's knowledge, with respect to any other party thereto
except any such failures to be in full force and effect as would not be
reasonably expected to have a Vitalink Material Adverse Effect. Neither
Vitalink nor any of its Subsidiaries nor, to the best of Vitalink's knowledge,
any landlord is in default of its obligations under any lease to which
Vitalink is bound and, to the best of Vitalink's knowledge, there are no
conditions which, given notice and the passage of time, could constitute a
default under such lease, except for any defaults which would not reasonably
be expected to have a Vitalink Material Adverse Effect. Vitalink or its
Subsidiaries, as the case may be, have valid leasehold interests in all
properties leased thereunder free and clear of all liens created by, through
or under Vitalink or its Subsidiaries other than Vitalink Permitted
Encumbrances. The leased real properties are in good operating order and
condition.
Section 4.21. Contracts and Commitments. (a) As of the date hereof, none of
Vitalink or any of its Subsidiaries is a party to any existing contract,
obligation or commitment of any type in any of the following categories except
as set forth in Section 4.21 of the Vitalink Disclosure Statement (true and
complete copies of such contracts have been delivered to or made available to
Genesis):
(i) contracts that provide for annual payments by Vitalink aggregating in
excess of $250,000;
(ii) any contract under which Vitalink or any Subsidiary has, except by
way of endorsement of negotiable instruments for collection in the ordinary
course of business and consistent with past practice, become absolutely or
contingently or otherwise liable for (x) the performance under a contract
of any other person, firm or corporation or (y) the whole or any part of
the indebtedness or liabilities of any other person, firm or corporation;
(iii) any contract with any director, officer or more than 5% stockholder
of Vitalink other than in such person's capacity as a director or officer
of Vitalink or any contract with any entity in which, to the best of
Vitalink's knowledge, any director, officer or more than 5% stockholder or
any family member of any director, officer or stockholder has a material
economic interest;
(iv) any contract that limits or restricts in any material respect where
Vitalink or any of its Subsidiaries may conduct its or their business or
the type or line of business that Vitalink or any of its Subsidiaries may
engage in; and
(v) any material contract containing any agreement with respect to any
change of control.
(b) All of the contracts listed in Section 4.21 of the Vitalink Disclosure
Statement are in full force and effect, except for those contracts the
ineffectiveness of which would not reasonably be expected to have a Vitalink
Material Adverse Effect. None of Vitalink or its Subsidiaries is in breach of
or default under any contract to which it is a party, except for breaches or
defaults that would not, individually or in the aggregate, either impair
Vitalink's ability to consummate the Merger or the other transactions
contemplated hereby or have a Vitalink Material Adverse Effect.
Section 4.22. Finders or Brokers. Other than SBC Warburg Dillon Read Inc.,
neither Vitalink nor any of its Subsidiaries has employed any investment
banker, broker, finder or intermediary in connection with the transactions
contemplated hereby who might be entitled to a fee or any commission the
receipt of which is conditioned upon consummation of the Merger or the amount
of which is calculated with reference to the Closing Consideration.
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Section 4.23. Fairness Opinion. Vitalink has received the opinion of SBC
Warburg Dillon Read Inc. to the effect that as of the date hereof, the Closing
Consideration is fair to Vitalink's stockholders.
Section 4.24. Board Recommendation. The Board of Directors of Vitalink has,
by a unanimous vote at a meeting of such Board duly held on April 23, 1998,
approved and adopted this Agreement, the Merger and the other transactions
contemplated hereby, and determined that the Agreement, the Merger and the
other transactions contemplated hereby, taken together, are in the best
interest of the stockholders of Vitalink, and prior to the date hereof has
resolved to recommend that the holders of Vitalink Common Stock approve and
adopt this Agreement, the Merger and the other transactions contemplated
hereby.
Section 4.25. State Antitakeover Statutes. Vitalink has granted all
approvals and taken all other steps necessary to exempt the Voting Agreement,
the Merger and the other transactions contemplated hereby from the
requirements and provisions of Section 203 of the Delaware Act and any other
state antitakeover statute or regulation to the extent applicable such that
none of the provisions of such "business combination," "moratorium," "control
share," or other state antitakeover statute or regulation (x) prohibits or
restricts Vitalink's ability to perform its obligations under this Agreement
or its ability to consummate the merger and the other transactions
contemplated hereby, (y) would have the effect of invalidating or voiding this
Agreement or any provisions hereof, or (z) would subject Genesis to any
material impediment or condition in connection with the exercise of any of
their respective rights under this Agreement.
Section 4.26. Banks. There is set forth in Section 4.26 of the Vitalink
Disclosure Statement a true and complete list showing the account numbers and
names of each bank in which any of the Subsidiaries has an account or safe
deposit box and the names of all authorized signatories with respect thereto.
ARTICLE V
Covenants
Subject to the Vitalink Disclosure Statement and the Genesis Disclosure
Statement, the section numbers of which are numbered to correspond to the
sections of this Agreement to which they relate, each of Vitalink and its
Subsidiaries and Genesis and its Subsidiaries covenants as follows:
Section 5.01. Conduct of Business of Vitalink and Genesis. Except as
contemplated by this Agreement or as expressly agreed to in writing by
Vitalink or Genesis, as the case may be, during the period from the date of
this Agreement to the Effective Time, each of Vitalink and its Subsidiaries
and each of Genesis and its Subsidiaries will conduct its operations as set
forth below.
(a) Each of Vitalink and its Subsidiaries will conduct its operations
according to its ordinary and usual course of business consistent with past
practice, and will use all commercially reasonable efforts to preserve intact
its business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with suppliers, vendors,
contractors, customers and others having significant business relationships
with it and will take no action that would adversely affect its ability to
consummate the Merger or the other transactions contemplated hereby. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time, neither Vitalink nor
any of its Subsidiaries will do or agree to do any of the following, without
the prior written consent of Genesis:
(i) amend its organizational documents;
(ii) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock including but not limited to the Financial Condition Fee (as
defined) of $30,000,000 (to the extent such amount is payable pursuant to
Section 5.13), or, except pursuant to agreements in effect on the date of
execution of this Agreement, purchase, prepay, redeem or otherwise acquire
any shares of its own capital stock or any of its Rights or any
indebtedness or debt security;
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(iii) consolidate or merge with or into any person or sell or transfer
any capital stock or sell or transfer 5% or more of its assets to another
person;
(iv) enter into, or permit any of its Subsidiaries to enter into, any
material agreement or arrangement with any of their respective affiliates
(other than wholly owned Subsidiaries) on terms less favorable to such
party than could reasonably be expected to have been obtained with an
unaffiliated third party on an arm's length basis;
(v) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with any other person with respect to any plan of liquidation or
dissolution;
(vi) except in the ordinary course of business consistent with past
practice, enter into a material contract or any amendment or modification
of any material contract or release or relinquish any material contract
rights and even in the ordinary course, enter into a supply or vendor
agreement, which agreement requires annual payments in excess of $250,000,
which is not terminable by Vitalink upon 30 days' or less notice;
(vii) authorize or commit to make capital expenditures in excess of
$3,000,000 per calendar quarter;
(viii) permit any material insurance policy naming it as a beneficiary or
a loss payee to be cancelled, terminated or materially altered;
(ix) maintain its books and records in a manner not in the ordinary
course of business consistent with past practice;
(x) institute any significant change in accounting methods, principles or
practices affecting its assets, liabilities or business except insofar as
may be appropriate to conform to changes in law or GAAP;
(xi) revalue any of its respective assets, including without limitation,
writing down the value of inventory or writing off notes or accounts
receivables, in each case, except in the ordinary course of business
consistent with past practice and except insofar as may be appropriate to
conform to changes in law or GAAP;
(xii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than as required by law
or in the ordinary course of business consistent with past practice;
(xiii) take any action that is likely to (i) have a material adverse
effect on the ability of Vitalink or Genesis, as the case may be, to
consummate the transactions contemplated by this Agreement or (ii) delay
materially the consummation of the transactions contemplated by this
Agreement;
(xiv) authorize for issuance, issue, sell, deliver, grant any options,
warrants, calls, subscriptions or other rights (the "Rights") for, or
otherwise agree or commit to issue, sell or deliver any shares of any class
of its capital stock or the capital stock of any of its Subsidiaries or any
securities convertible into or exchangeable or exercisable for shares of
any class of its capital stock or the capital stock of any of its
Subsidiaries other than pursuant to and in accordance with and subject to
the terms of outstanding Vitalink Common Stock Equivalents or pursuant to
agreements in existence as of the date hereof;
(xv) (A) create or incur indebtedness for borrowed money other than
indebtedness incurred under existing working capital facilities of Vitalink
to fund working capital but in no event in excess of $10,000,000 in the
aggregate at any one time outstanding, (B) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any other
individual, firm or corporation or make any loans or advances, except for
indebtedness incurred in the ordinary course of business consistent with
past practice, (C) enter into any commitment or transaction material to
Vitalink and its Subsidiaries, taken as a whole, other than in the ordinary
course of business consistent with past practice, or (D) incur any
liabilities, except for liabilities that, individually or in the aggregate,
would not have a Vitalink Material Adverse Effect;
(xvi) except as set forth on Section 5.01 of the Vitalink Disclosure
Statement, (A) increase in any manner the compensation of any directors or,
except in the ordinary course of business consistent with past practice,
its officers or other employees; (B) pay or agree to pay any pension,
retirement allowance or other
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employee benefit, or enter into any contract, agreement or understanding
with any of its or its Subsidiaries' past or present employees relating to
any such pension, retirement allowance or other employee benefit, except
(as to other than directors or officers) in the ordinary course of business
consistent with past practice or except as required under agreements, plans
or arrangements existing as of the date hereof; (C) grant any severance or
termination pay to, or enter into or amend any severance agreement with,
any person, except as required under agreements existing as of the date
hereof; (D) enter into or amend any contract, agreement or understanding
with any past or present officers or directors or, except in the ordinary
course of business consistent with past practice, with past or present
other employees; and (E) except as may be required to comply with
applicable law, become obligated under any new pension plan, welfare plan,
multiemployer plan, employee benefit plan, benefit arrangement, or similar
plan or arrangement that was not in existence prior to the date hereof,
including any bonus, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other benefit plan, or amend any such plans, contracts,
agreements or understandings in existence prior to the date hereof, except
for the renewal of existing bonus or incentive plans in the ordinary course
of business;
(xvii) sell, transfer, pledge, mortgage, or otherwise dispose of, or
lease or license to or from any person, or encumber, any material real or
personal properties, except in the ordinary course of business;
(xviii) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof, other
than acquisitions of assets in the ordinary course of business consistent
with past practice; or
(xix) grant or acquire any material licenses to use any Intellectual
Property Rights; and
(b) Prior to the Effective Time, neither Genesis nor any of its
Subsidiaries will do or agree to do any of the following without the prior
written consent of Vitalink:
(i) amend its organizational documents;
(ii) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of
its capital stock, or, except pursuant to agreements in effect on the
date of execution of this Agreement, purchase, prepay, redeem or
otherwise acquire any shares of its own capital stock or any of its
rights or any indebtedness or debt security;
(iii) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in
principle or an agreement with any other person with respect to any
plan of liquidation or dissolution;
(iv) maintain its books and records in a manner not in the ordinary
course of business consistent with past practice;
(v) institute any significant change in accounting methods,
principles or practices affecting its assets, liabilities or business
except insofar as may be appropriate to conform to change in law or
GAAP;
(vi) revalue any of its respective assets, including without
limitation, writing down the value of inventory or writing off notes or
accounts receivables, in each case, except in the ordinary course of
business consistent with past practice and except insofar as may be
appropriate to conform to changes in law or GAAP;
(vii) take any action that is likely to (i) have a material adverse
effect on the ability of Vitalink or Genesis, as the case may be, to
consummate the transactions contemplated by this Agreement or (ii)
delay materially the consummation of the transactions contemplated by
this Agreement;
(viii) except as otherwise agreed to between the parties, take any
action to sell, transfer or otherwise dispose of, or enter into any
agreement to sell, transfer or otherwise dispose of, any institutional
pharmacy of Vitalink; or
(ix) other than debt incurred in order to fund the Closing
Consideration hereunder, enter into any Credit Impairing Transaction.
For purposes of this Agreement, "Credit Impairing Transaction" shall
mean any transaction that results, directly or indirectly, in (A) any
breach or violation of any financial
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covenants contained in Genesis's Third Amended and Restated Credit
Agreement dated as of October 9, 1997, as in effect on the date hereof
or (B) any downgrade in the rating of any debt instrument issued by
Genesis or any of its Subsidiaries by a nationally recognized
statistical rating organization or (C) an event of default under any
agreement governing any debt instrument with outstanding principal
amount in excess of $30,000,000 issued by Genesis or any of its
Subsidiaries.
Section 5.02. No Solicitation. (a) Each of Vitalink and its Subsidiaries
agrees that it shall not, and shall use its best efforts to cause its and its
Subsidiaries' respective directors, officers, employees, investment bankers,
attorneys and other agents and representatives not to, directly or indirectly,
(x) solicit, initiate, or knowingly facilitate or encourage (including by way
of furnishing or disclosing information) any inquiries or the making of any
offer or proposal by any corporation, partnership, trust, person or other
entity or group (a "Third Party") with respect to, or that could reasonably be
expected to lead to, any merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction regarding
it or any of its Subsidiaries and involving the acquisition of all or
substantially all of the assets of it and any of its Subsidiaries, taken as a
whole, or a significant equity interest in (including by way of tender offer),
or a recapitalization or restructuring of, it or any of its Subsidiaries (any
of the foregoing being an "Acquisition Transaction") or (y) negotiate, explore
or otherwise communicate in any way with any Third Party with respect to any
Acquisition Transaction or enter into, approve or recommend any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this
Agreement; provided, however, that Vitalink may, in response to a Superior
Proposal (as defined below) which was not solicited after the date hereof,
furnish information to, or engage in discussions and negotiations with, such
Third Party, but only if (A) its Board of Directors, having received (x) the
advice of outside legal counsel that failure to take such action would be
inconsistent with its fiduciary duties to its stockholders under applicable
law and (y) the fairness opinion of a financial advisor of nationally
recognized reputation that the party making such proposal is financially
capable and that such Superior Proposal would yield a higher value to its
stockholders than the Merger, reasonably determines in good faith that taking
such action is reasonably likely to lead to an Acquisition Transaction that is
more favorable to it and its stockholders than the Merger and that failing to
take such action would be inconsistent with the directors' fiduciary duties
under applicable law, and (B) prior to furnishing or disclosing any non-public
information to, or entering into discussions or negotiations with, such Third
Party, it receives from such Third Party an executed confidentiality agreement
with terms no less favorable in the aggregate to it than those contained in
the Confidentiality Agreement, but which confidentiality agreement shall not
provide for any exclusive right to negotiate with Vitalink or any payments by
Vitalink. Nothing in this Section 5.02 shall prohibit the Board of Directors
of Vitalink from complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer. As used herein, "Superior Proposal"
means a bona fide, written offer made by a financially responsible Third Party
with respect to an Acquisition Transaction.
(b) Vitalink shall (w) no later than the end of the next business day notify
Genesis in writing of receipt of any inquiries, proposals or offers with
respect to an Acquisition Transaction or any request for nonpublic information
relating to it in connection with an Acquisition Transaction or for access to
its or any of its Subsidiaries' properties, books or records by any Third
Party that informs its Board of Directors that such Third Party is considering
making, or has made, a proposal or offer with respect to an Acquisition
Transaction, (x) in such written notice, indicate in reasonable detail the
identity of such Third Party (including the name of such Third Party) and the
terms and conditions of such proposal or offer, (y) immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing,
and take the necessary steps to inform such individuals or entities of the
obligations undertaken in this Section 5.02, and (z) promptly notify Genesis
of any determination by its Board of Directors to furnish information or
engage in discussions or negotiations with any Third Party.
Section 5.03. Access to Information. Subject to the terms of the
Confidentiality Agreement, dated October 28, 1997 (the "Confidentiality
Agreement"), between Vitalink and Genesis, from the date hereof until the
Effective Time, each party will give the other party and its authorized
representatives (including counsel,
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consultants, accountants, auditors and agents) reasonable access during normal
business hours to all facilities and to all books and records of it and its
Subsidiaries and will cause its officers and those of its Subsidiaries to
furnish the other party with such reasonable financial and operating data and
other information with respect to its business and properties as the other
party may from time to time reasonably request, in each case, in a manner that
does not unduly interfere with the normal operations of its business.
Section 5.04. Registration Statement and Proxy Statement. (a) Vitalink and
Genesis shall jointly prepare and file with the SEC as soon as is reasonably
practicable after the date hereof the Joint Proxy Statement and Genesis shall
prepare and file with the SEC as soon as is reasonably practicable after the
date hereof the Registration Statement in connection with the registration
under the Securities Act of the shares of Preferred Stock to be issued at the
Effective Time (the "Registration Statement"), in which the Joint Proxy
Statement shall be included (the "Joint Proxy Statement/Prospectus"); provided
that at either party's election, the Joint Proxy Statement/Prospectus shall be
filed as confidential proxy material and the filing of the Registration
Statement shall be made at such later date prior to the clearance by the SEC
of the Joint Proxy Statement/Prospectus as the parties jointly shall
determine. The respective parties will cause the Joint Proxy
Statement/Prospectus and the Registration Statement to comply as to form in
all material respects with the applicable provisions of the Securities Act and
the Exchange Act. Genesis shall use its commercially reasonable efforts, and
Vitalink will cooperate with Genesis, to have the Registration Statement
declared effective by the SEC as promptly as practicable after the filing
thereof (including, without limitation, responding to any comments received
from the SEC with respect thereto) and to keep the Registration Statement
effective as long as is necessary to consummate the Merger. Each of Vitalink
and Genesis shall, as promptly as practicable, provide to the other copies of
any written comments received from the SEC with respect to the Joint Proxy
Statement/Prospectus or the Registration Statement and advise the other of any
oral comments with respect to the Joint Proxy Statement/Prospectus or the
Registration Statement received from the SEC. Genesis shall use its
commercially reasonable efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or Blue Sky permits
or approvals required to carry out the transactions contemplated by this
Agreement and will pay all expenses incident thereto.
(b) Each party agrees that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in the Registration
Statement or the Joint Proxy Statement/Prospectus (i) in the case of the Joint
Proxy Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the stockholders meetings
contemplated by Section 1.05, or (ii) in the case of the Registration
Statement and each amendment or supplement thereto, at the time it is filed or
become effective and at the Effective Time, will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the Effective Time an event with respect to Vitalink or its Subsidiaries or
Genesis or its Subsidiaries, as the case may be, shall occur that is required
to be described in the Joint Proxy Statement/Prospectus or the Registration
Statement, such event shall be so described, and an amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated to
the stockholders of Vitalink and Genesis. No amendment or supplement to the
Joint Proxy Statement/Prospectus will be made by Vitalink or Genesis without
the approval of the other party. Genesis will advise the other party, promptly
after it receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, the
issuance of any stop order, or the suspension of the qualification of the
Preferred Stock issuable in connection with the Merger for offering or sale in
any jurisdiction or any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
Section 5.05. Other Actions; Filings; Consents. Subject to the terms and
conditions herein provided, Vitalink and Genesis shall (i) use their
commercially reasonable efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate under applicable laws and regulations or required to be taken by
any Governmental Authority to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, (ii) use their
commercially reasonable
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efforts to make, as promptly as practicable, all necessary filings, and
thereafter make any other required submissions with respect to this Agreement
and the Merger required under (A) the Securities Act, the Exchange Act and any
other applicable federal or state securities laws or regulations, (B) the HSR
Act and any related governmental request thereunder and (C) any other
applicable federal, state, local or foreign statute, law, rule or regulation,
(iii) use their commercially reasonable efforts to obtain from any
Governmental Authorities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Vitalink or
Genesis or any of their respective Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, (iv) use their commercially
reasonable efforts to resolve any objections as may be asserted by any
Governmental Authority with respect to the Merger and the transactions
contemplated hereby under any antitrust or trade or regulatory laws or
regulations of any Governmental Authority, (v) furnish the other with copies
of all correspondence, filings and communications between them and their
affiliates and their respective representatives, on the one hand, and any
Governmental Authority or member of their respective staffs, on the other
hand, with respect to this Agreement and the transactions contemplated hereby,
(vi) furnish the other with such necessary information and reasonable
assistance as the other may reasonably request in connection with their
preparation of necessary filings, registrations or submissions of information
to any Governmental Authority and (vii) use their commercially reasonable
efforts to lift, remove or rescind any injunction or restraining order or
other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby and to defend vigorously any litigation
seeking to enjoin, prevent or delay the consummation of the Merger or the
transactions contemplated hereby or seeking material changes.
Section 5.06. Public Announcements. The initial press release relating to
the Merger and the other transactions contemplated by this Agreement shall be
in a form agreed to by Vitalink and Genesis. Thereafter, Vitalink and Genesis
will, subject to their respective legal obligations (including requirements of
the New York Stock Exchange and other similar regulatory bodies), consult with
each other, and agree upon the text of any press release, before issuing any
such press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any
Governmental Authority or with any national securities exchange with respect
thereto.
Section 5.07. Notification of Certain Matters. Each party shall cause one or
more of its representatives to confer on a regular and frequent basis with
representatives of the other and to report on the general status of its
ongoing operations. Each party shall give prompt notice to the other parties
of (i) any written notice or other communication from any Third Party alleging
that the consent of such Third Party is or may be required in connection with
the Merger or other transactions contemplated hereby, (ii) its receipt of
written notice of any governmental complaints, investigations or hearings or
any litigation, in each case, that in its good faith judgment is likely to
impair its ability to consummate the transactions contemplated hereby or to
have a Vitalink Material Adverse Effect or a Genesis Material Adverse Effect,
as the case may be, (iii) any change or event that in its good faith judgment
is likely to impair its ability to consummate the transactions contemplated
hereby or to have a Vitalink Material Adverse Effect or Genesis Material
Adverse Effect, as the case may be, or (iv) the occurrence or existence of any
event that would, or could with the passage of time or otherwise, make any
representation or warranty contained herein untrue.
Section 5.08. Expenses. Except as set forth in Section 10.04, Vitalink and
Genesis shall bear their respective expenses incurred in connection with the
Agreement, the Merger and the transactions contemplated hereby, including,
without limitation, the preparation, execution and performance of this
Agreement and the transactions contemplated hereby and all fees and expenses
of investment bankers, finders, brokers, agents, representatives, counsel and
accountants, except that expenses incurred in printing, mailing and filing
(including without limitation, SEC filing fees and stock exchange listing
application fees) the Joint Proxy Statement/Prospectus and Registration
Statement shall be paid equally by Genesis and Vitalink.
Section 5.09. Affiliates. Section 5.09 of the Vitalink Disclosure Statement
lists all persons who may currently be deemed to be "affiliates" of Vitalink
for purposes of Rule 145 under the Securities Act
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("Affiliates"), and Vitalink shall advise Genesis in writing of any person who
becomes an Affiliate after the date hereof and prior to the Effective Time,
and shall use its commercially reasonable efforts to cause each such person to
deliver to Genesis, at or prior to the Effective Time, a written agreement
substantially in the form of Exhibit C hereto.
Section 5.10. Employee Benefit Matters. (a) Genesis hereby agrees to honor
and perform all obligations of Vitalink in existence at the time of the Merger
under all employee benefit plans, employment agreements and all other
agreements with any employee of Vitalink which relate to employment,
compensation or benefits. Genesis shall provide the employees of Vitalink and
its Subsidiaries who are employees immediately after the Effective Time with
compensation and employee benefits substantially equivalent to the
compensation and employee benefits offered to employees of Genesis in similar
positions.
(b) After the Effective Time, Genesis shall grant all of the employees of
Vitalink and its Subsidiaries credit for all service with Vitalink or its
Subsidiaries prior to the Effective Time for all purposes for which such
service was recognized by Vitalink, and Genesis shall waive any pre-existing
condition exclusions and actively-at-work requirements and provide that any
expenses incurred on or before the Effective Time by an employee of Vitalink
or its Subsidiaries or such employee's covered dependents shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions.
(c) Genesis hereby agrees to provide employees of Vitalink or its
Subsidiaries who are voluntarily or involuntarily terminated within the
specified period after the Effective Time with a severence/retention incentive
plan, the terms and conditions of which plan are set forth in Section 4.08 of
the Vitalink Disclosure Statement.
Section 5.11. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date hereof and until the Effective Time, each party hereto shall use its
commercially reasonable efforts to cause the Merger to qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code and will not
knowingly take any actions or cause any actions to be taken that (i) could
prevent the Merger from qualifying as a tax-free reorganization within the
meaning of Section 368(a) of the Code or (ii) could prevent Vitalink's
stockholders from receiving tax-free treatment on their exchange of shares.
Section 5.12. Indemnification of Directors, Officers, etc. (a) Genesis and
the Surviving Corporation shall indemnify, defend and hold harmless the
present and former directors and officers of Vitalink and Genesis shall cause
the Surviving Corporation to indemnify, defend and hold harmless the present
and former employees and agents of Vitalink (collectively, the "Indemnified
Parties"), in each case, against all losses, claims, damages, expenses or
liabilities arising out of actions or omissions or alleged actions or
omissions occurring at or prior to the Effective Time to the same extent and
on the same terms and conditions (including with respect to advancement of
expenses) permitted or required under applicable law and Vitalink's
Certificate of Incorporation, By-Laws and indemnification agreements in effect
at the date hereof. Genesis or the Surviving Corporation shall pay all
reasonable expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided
for in this Section 5.12.
(b) For a period of six years after the Effective Time, Genesis shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by Vitalink (provided that Genesis may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous), which
obligation may, at Genesis's discretion, be satisfied by Vitalink purchasing,
at Genesis's request, at the Effective Time insurance coverage extending its
existing directors' and officers' liability insurance policies, on the same
terms and conditions, covering claims made with respect to the period prior to
the Effective Time; provided, however, that if the premiums with respect to
such insurance exceed 300% of the annual premiums paid as of the date hereof
by Vitalink for such insurance, Genesis shall be obligated to purchase
directors' and officers' liability insurance with the maximum coverage as can
be obtained at an annual premium equal to 300% of the annual premiums paid by
Vitalink as of the date hereof.
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Section 5.13. Financing Condition Fee. Genesis agrees to use its
commercially reasonable best efforts to satisfy the Financing Condition. In
order for Genesis to induce Vitalink to enter into this Agreement and to
reimburse Vitalink for its costs and expenses related to entering into this
Agreement and seeking to consummate the Merger, Genesis will pay on July 10,
1998 $30,000,000 (the "Financing Condition Fee") in cash if Genesis has not
waived in writing the Financing Condition on or prior to such date.
Section 5.14. Update Disclosure Statements. Vitalink and Genesis shall have
the obligation to update their respective Disclosure Statements as of the
Closing Date and deliver the amended Disclosure Statements to the other party
except for such updates to the Disclosure Statements that would not reasonably
be expected to have a Vitalink Material Adverse Effect or a Genesis Material
Adverse Effect, as the case may be; provided, however, any amendments to the
Disclosure Statements shall not affect the requirements that the
representations and warranties of the parties shall be true and correct as of
the Closing Date.
Section 5.15. Licenses. Vitalink agrees that no later than 30 days from the
date hereof it shall provide Genesis with a true and complete list of all
Vitalink Licenses which are necessary for the conduct of its business as
presently conducted by Vitalink and its Subsidiaries and which are held by
Vitalink and its Subsidiaries.
ARTICLE VI
Conditions to the Obligations
of Vitalink, Genesis and Acquisition Corporation
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing (as defined in Section
9.01) of each of the following conditions:
Section 6.01. Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act. No
stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and remain in effect.
Section 6.02. Stockholder Approvals. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by (a) the
affirmative vote of the holders of a majority of the outstanding Vitalink
Common Stock in accordance with the Delaware Act and Vitalink's Certificate of
Incorporation and (b) the affirmative vote of the holders of a majority of the
outstanding Genesis Common Stock in accordance with the rules of the New York
Stock Exchange and Genesis's Certificate of Incorporation.
Section 6.03. Certain Proceedings; HSR Act. No writ, order, decree or
injunction of a court of competent jurisdiction or governmental entity shall
have been entered against Vitalink or Genesis which would prohibit or restrict
the consummation of the Merger and any waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
Section 6.04. Tax Opinions. Vitalink and Genesis shall have made
representations substantially in the form attached hereto as Exhibit D-1 and
Exhibit D-2, respectively, and shall have received opinions of Cahill Gordon &
Reindel and Blank Rome Comisky & McCauley LLP, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit E-1 and Exhibit E-2,
respectively, that (1) the Merger will be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Code; (2) each of Vitalink and
Genesis will be a party to such reorganization within the meaning of Section
368(b) of the Code; and (3) except for cash received in lieu of fractional
shares of Preferred Stock, no gain or loss will be recognized by a Vitalink
stockholder with respect to the shares of Preferred Stock received in the
Merger.
Section 6.05. Financing. Genesis shall have received financing in an amount
sufficient to fund the cash portion of the Closing Consideration (the
"Financing Condition"). Any agreements entered into in connection with such
financing shall not contain any restrictions on Genesis's ability to pay
dividends on the Preferred Stock.
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ARTICLE VII
Conditions to the Obligations of Genesis
and Acquisition Corporation
The obligation of Genesis and Acquisition Corporation to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions, any one or more of which may be waived by
Genesis:
Section 7.01. Representations and Warranties True. The representations and
warranties of Vitalink contained herein that are qualified with reference to a
Vitalink Material Adverse Effect or materiality shall be true and correct and
the representations and warranties of Vitalink contained herein that are not
so qualified shall be true and correct in all material respects, in each case,
as of the Effective Time as though made as of such date, except that those
representations and warranties that address matters only as of a particular
date shall remain true and correct as of such date.
Section 7.02. Performance. Vitalink shall have performed and complied with
all agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, except for
those failures to so perform or comply that individually or in the aggregate
would not either impair Vitalink's ability to consummate the Merger and the
other transactions contemplated hereby or have a Vitalink Material Adverse
Effect.
Section 7.03. Certificates. Vitalink shall furnish such certificates of its
officers to evidence compliance with the conditions set forth in Sections 7.01
and 7.02 as may be reasonably requested by Genesis.
Section 7.04. Material Adverse Change. There shall not have occurred since
the date hereof any changes in the business, results of operations, assets or
condition (financial or otherwise) of Vitalink and its Subsidiaries taken as a
whole, except for (a) such changes that, individually or in the aggregate,
would not have a Vitalink Material Adverse Effect or (b) any changes in
Medicare or Medicaid reimbursement programs which are known or reasonably
anticipated as of the date hereof. It is understood that the changes relating
to items specified in Section 5.01(b)(viii) of the Vitalink Disclosure
Statement as not constituting a Vitalink Material Adverse Effect shall not
constitute changes that have had or would have had a Vitalink Material Adverse
Effect for purposes of this Section 7.04.
Section 7.05. Approval and Consents. All consents, waivers, approvals,
authorizations or orders of (or filings or registrations with) any
Governmental Authority necessary to be obtained prior to the Effective Time,
except those consents, waivers, approvals, authorizations or orders the
failure to obtain prior to the Effective Time would not, individually or in
the aggregate, have a Vitalink Material Adverse Effect, shall have been
obtained or made.
Section 7.06. Dissenting Shares. Holders of not more than 10% of the
Vitalink Common Stock issued and outstanding as of the record date for the
Special Meeting shall have demanded payment pursuant to the provisions of
Section 262 of the Delaware Act.
ARTICLE VIII
Conditions to the Obligations of Vitalink
The obligations of Vitalink under this Agreement to effect the Merger shall
be subject to the fulfillment on or before the Closing Date of each of the
following additional conditions, any one or more of which may be waived by
Vitalink:
Section 8.01. Representations and Warranties True. The representations and
warranties of Genesis and Acquisition Corporation contained herein that are
qualified with reference to a Genesis Material Adverse Effect
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or materiality shall be true and correct and the representations and
warranties of Genesis and Acquisition Corporation contained herein that are
not so qualified shall be true and correct in all material respects, in each
case, as of the Effective Time as though made as of such date, except that
those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date.
Section 8.02. Performance. Genesis and Acquisition Corporation shall have
performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by them on or prior to the Closing Date, except for those
failures to so perform or comply that, individually or in the aggregate, would
not either impair the ability of Genesis or Acquisition Corporation to
consummate the Merger and the other transactions contemplated hereby or have a
Genesis Material Adverse Effect.
Section 8.03. Certificates. Genesis and Acquisition Corporation shall
furnish such certificates of their officers to evidence compliance with the
conditions set forth in Sections 8.01 and 8.02 as may be reasonably requested
by Vitalink.
Section 8.04. Material Adverse Change. There shall not have occurred since
the date hereof any changes in the business, results of operations, assets or
condition (financial or otherwise) of Genesis and its Subsidiaries taken as a
whole, except for (a) such changes that, individually or in the aggregate,
would not have a Genesis Material Adverse Effect or (b) any changes in
Medicare or Medicaid reimbursement programs which are known or reasonably
anticipated as of the date hereof. It is understood that a decline in the
price of the Genesis Common stock shall not, in and of itself, constitute a
change that has had or would have a Genesis Material Adverse Effect for
purposes of this Section 8.04.
Section 8.05. Stockholders Rights Plan. Prior to the Effective Time, Genesis
shall have taken appropriate action with respect to its stockholders rights
plan so as to exempt (a) the holders of Preferred Stock or (b) any person that
is the direct assignee of any holder of Preferred Stock to the extent that
such assignee (i) acquires in a single transaction from a holder of Preferred
Stock over 15% of the shares of capital stock of Genesis entitled to vote
generally in the election of directors and (ii) owns no other shares of
capital stock of Genesis entitled to vote generally in the election of
directors from the restrictions of such stockholders rights plan with respect
to the acquisition of such shares of Preferred Stock and shares of Genesis
Common Stock issuable upon conversion thereof.
Section 8.06. Approval and Consents. All consents, waivers, approvals,
authorizations or orders of (or filings or registrations with) any
Governmental Authority necessary to be obtained prior to the Effective Time,
except those consents, waivers, approvals, authorizations or orders the
failure to obtain prior to the Effective Time would not, individually or in
the aggregate, have a Genesis Material Adverse Effect, shall have been
obtained or made.
ARTICLE IX
Closing
Section 9.01. Time and Place. Subject to the provisions of Articles VI, VII,
VIII and X, the closing of the Merger (the "Closing") shall take place at the
offices of Cahill Gordon & Reindel, as soon as practicable but in no event
later than 9:30 A.M., local time, on the first business day after the date on
which each of the conditions set forth in Articles VI, VII and VIII have been
satisfied or waived by the party or parties entitled to the benefit of such
conditions; or at such other place, at such other time, or on such other date
as Vitalink and Genesis may mutually agree. The date on which the Closing
actually occurs is herein referred to as the "Closing Date."
Section 9.02. Filings at the Closing. Subject to the provisions of Articles
VI, VII, VIII and X, Vitalink, Genesis and Acquisition Corporation shall cause
to be executed and filed at the Closing the Certificate of Merger and shall
cause the Certificate of Merger to be recorded in accordance with the
applicable provisions of the
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Delaware Act and shall take any and all other lawful actions and do any and
all other lawful things necessary to cause the Merger to become effective.
ARTICLE X
Termination and Abandonment
Section 10.01 Termination. This Agreement may be terminated and the Merger
may be abandoned any time prior to the Effective Time:
(a) by mutual written consent of the Boards of Directors of Vitalink and
Genesis;
(b) by either Vitalink or Genesis if, without fault of such terminating
party, the Merger shall not have been consummated on or before November 30,
1998, which date may be extended by mutual consent of the parties hereto;
provided, however, that the right to terminate this Agreement pursuant to
this Section 10.01(b) shall not be available to any party whose failure to
perform or observe in any material respect any of its obligations under
this Agreement in any manner shall have been the cause of, or resulted in,
the failure of the Merger to occur on or before such date and provided,
further, that if, on November 30, 1998, the Merger could be consummated but
for the failure to obtain consents, waivers, approvals, authorizations or
orders of a Governmental Entity as contemplated by Section 7.05 or Section
8.06, either Vitalink or Genesis may, upon notice to the other, extend the
period for consummation of the Merger to the earlier of the date on which
such approvals are obtained or December 31, 1998, but only so long as the
party requesting such extension shall be using its best efforts to obtain
receipt of such consents, waivers, approvals, authorizations or orders;
(c) by either Vitalink or Genesis if any court of competent jurisdiction
or other Governmental Authority shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger, and such order,
decree, ruling or other action shall have become final and nonappealable;
(d) by either Vitalink or Genesis, if the stockholders of Vitalink or
Genesis shall have failed to approve and adopt this Agreement and the
Merger at a meeting duly convened therefor;
(e) by Vitalink upon written notice to Genesis, if Genesis or Acquisition
Corporation has materially breached any representation, warranty, covenant
or agreement contained herein and has not cured such breach within ten (10)
business days of receipt of written notice from Vitalink or by the Closing
Date, if earlier;
(f) by Genesis upon written notice to Vitalink if Vitalink has materially
breached any representation, warranty, covenant or agreement contained
herein and has not cured such breach within ten (10) business days of
receipt of such notice from Genesis or by the Closing Date, if earlier;
(g) by Genesis if Vitalink's Board of Directors shall have (1) withdrawn,
changed or modified in any manner its recommendation that its stockholders
vote in favor of this Agreement and the Merger or (2) adopted resolutions
approving or otherwise authorized or recommended an Acquisition Transaction
(other than the Merger) to its stockholders;
(h) by Vitalink if Genesis's Board of Directors shall have withdrawn,
changed or modified in any manner its recommendation that its stockholders
vote in favor of this Agreement and the Merger;
(i) by Vitalink, if Genesis has not delivered to Vitalink its written
waiver of the Financing Condition on or prior to July 10, 1998 (the 75th
day after the date hereof); or
(j) by Vitalink prior to the approval by its stockholders of the Merger
if (1) Vitalink shall have received a Superior Proposal which was not
solicited after the date hereof, (2) after receiving (x) the advice of
outside legal counsel that failure to take such action would be
inconsistent with the fiduciary duties of the Board of Directors of
Vitalink to its stockholders under applicable law and (y) the fairness
opinion of a financial advisor of nationally recognized reputation that the
party making such proposal is financially
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<PAGE>
capable and that such Superior Proposal is more favorable to it and its
stockholders than the Merger, the Board of Directors of Vitalink]
reasonably determines in good faith that such Superior Proposal would yield
a higher value to its stockholders than the Merger and that failing to take
such action would be inconsistent with the directors' fiduciary duties
under applicable law and (3) Vitalink shall have given Genesis three days'
written notice prior to such termination; provided that such termination
shall not be effective until the fee specified in Section 10.04 has been
paid.
Section 10.02 Procedure for Termination. In the event of termination and
abandonment of the Merger by any party pursuant to this Article X, notice
thereof shall immediately be given to the other party.
Section 10.03 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to
Section 10.01, this Agreement shall become void and have no effect, without
liability on the part of any party (or any of its directors, officers or
stockholders), except under this Section 10.03, Sections 5.02, 5.06, 5.08 and
10.04, Article XII and the Confidentiality Agreement. Nothing herein shall
relieve any party from liability for any breach of this Agreement occurring
before such termination or shall prejudice the ability of a non-breaching
party from seeking damages from any other party for any breach of this
Agreement, including, without limitation, reasonable attorneys' fees and the
right to pursue any remedy at law or in equity.
Section 10.04 Termination Fees. In order for Vitalink to induce Genesis to
enter into this Agreement and to reimburse Genesis for its costs and expenses
related to entering into this Agreement and seeking to consummate the Merger,
if (1) Vitalink terminates this Agreement pursuant to 10.01(j); (2) Vitalink
terminates this Agreement pursuant to Section 10.01 hereof and at such time
Genesis would have been permitted to terminate this Agreement under Section
10.01(g) hereof; (3) Genesis terminates this Agreement pursuant to Section
10.01(g) hereof; or (4) Genesis or Vitalink terminates this Agreement pursuant
to Section 10.01(b), (c), (d) or (f) and within one year of such termination
Vitalink shall have consummated, or have entered into a definitive agreement
with respect to, an Acquisition Transaction on terms more favorable than the
terms of this Agreement (without taking into account the payment of the fee
provided for in this Section 10.04), then Vitalink shall pay to Genesis,
within one business day following (in the case of clauses (1), (2) and (3))
such termination and, in the case of clause (4), such consummation or entering
into of a definitive agreement, a fee, in cash, of $20,000,000.
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<PAGE>
ARTICLE XI
Definitions
Section 11.01 Terms Defined in This Agreement. The following capitalized
terms used herein shall have the meanings ascribed in the indicated sections.
<TABLE>
<S> <C> <C>
Acquisition Transaction..................................... 5.02
Affiliates.................................................. 5.09
Agreement................................................... First Paragraph
Cash Election............................................... 2.01
Cash Election Number........................................ 2.01
Cash Election Shares........................................ 2.01
Cash Flow Coverage.......................................... 5.01
Cash Fraction............................................... 2.01
Cash Out Options............................................ 2.05
CERCLA...................................................... 3.16
Certificate of Merger....................................... 1.02
Certificates................................................ 2.04
Closing..................................................... 9.01
Closing Consideration....................................... 2.01
Closing Date................................................ 9.01
COBRA....................................................... 4.15
Code........................................................ Recitals
Confidentiality Agreement................................... 5.03
Constituent Corporations.................................... First Paragraph
Continuing Options.......................................... 2.05
Credit Impairing Transaction................................ 5.01
DEA......................................................... 3.11
Delaware Act................................................ 1.01
Delaware Courts............................................. 12.06
Dissenting Stock............................................ 2.08
Effective Time.............................................. 1.02
Eldercare................................................... 3.11
Election Deadline........................................... 2.02
Environmental Law........................................... 3.16
Environmental Permit........................................ 3.16
ERISA....................................................... 3.14
ERISA Affiliate............................................. 3.14
Exchange Act................................................ 3.03
Exchange Agent.............................................. 2.04
FDA......................................................... 3.11
Financing Condition......................................... 6.05
Financing Condition Fee..................................... 5.13
Foreign Plan................................................ 3.14
Form of Election............................................ 2.01
GAAP........................................................ 3.05
Genesis..................................................... First Paragraph
Genesis Balance Sheet....................................... 3.06
Genesis Benefit Arrangements................................ 3.14
Genesis Common Stock........................................ 3.02
Genesis Common Stock Equivalents............................ 3.04
Genesis Disclosure Statement................................ 3.00
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Genesis Employee Plan........................................... 3.14
Genesis Intellectual Property Rights............................ 3.12
Genesis Licenses................................................ 3.11
Genesis Material Adverse Effect................................. 3.01
Genesis Plans................................................... 3.04
Genesis SEC Reports............................................. 3.05
Genesis Welfare Plans........................................... 3.14
Governmental Authority.......................................... 3.03
Hazardous Material.............................................. 3.16
HSR Act......................................................... 3.03
Indemnified Parties............................................. 5.12
IRS............................................................. 3.13
Joint Proxy Statement........................................... 1.05
Joint Proxy Statement/Prospectus................................ 5.04
Leverage Ratio.................................................. 5.01
Merger.......................................................... Recitals
Acquisition Corporation......................................... First Paragraph
Acquisition Corporation Common Stock............................ 2.03
NASD............................................................ 2.02
Non-Election.................................................... 2.01
Non-Election Fraction........................................... 2.01
Non-Election Shares............................................. 2.01
PBGC............................................................ 4.15
Per Share Cash Consideration.................................... 2.01
Per Share Preferred Stock Consideration......................... 2.01
Person.......................................................... 12.09
Preferred Stock................................................. 2.01
Preferred Stock Election........................................ 2.01
Preferred Stock Election Number................................. 2.01
Preferred Stock Election Shares................................. 2.01
Preferred Stock Fraction........................................ 2.01
Registration Statement.......................................... 5.04
Representative.................................................. 2.02
Rights.......................................................... 5.01
Rights Agreement................................................ Recitals
SEC............................................................. 3.05
Securities Act.................................................. 3.03
Special Meetings................................................ 1.05
Subsidiary...................................................... 12.09
Superior Proposal............................................... 5.02
Surviving Corporation........................................... 1.01
Surviving Corporation Common Stock.............................. 2.03
Third Party..................................................... 5.02
Vitalink........................................................ First Paragraph
Vitalink Balance Sheet.......................................... 4.06
Vitalink Common Stock........................................... 2.01
Vitalink Common Stock Equivalents............................... 4.04
Vitalink Disclosure Statement................................... 4.00
Vitalink Intellectual Property Rights........................... 4.13
Vitalink Investees.............................................. 4.10
Vitalink Licenses............................................... 4.11
Vitalink Material Adverse Effect................................ 4.01
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Vitalink Pension Benefit Plans......................................... 4.15
Vitalink Pharmacy Contracts............................................ 4.12
Vitalink Plans......................................................... 2.05
Vitalink SEC Reports................................................... 4.05
Vitalink Welfare Plans................................................. 4.15
Voting Agreement....................................................... Recitals
</TABLE>
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<PAGE>
ARTICLE XII
Miscellaneous
Section 12.01 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
of Vitalink and Genesis at any time prior to the Effective Time with respect
to any of the terms contained herein; provided, however, that after this
Agreement is adopted by the stockholders of Vitalink or Genesis, no such
amendment or modification shall change the amount or form of the Closing
Consideration.
Section 12.02 Waiver of Compliance; Consents. At any time prior to the
Effective Time, any party hereto may (a) extend the time for the performance
of any obligation or other act of any other party hereto, (b) waive any
inaccuracy in the representations and warranties made to such party contained
herein or in any document delivered pursuant thereto or (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall only be valid if set forth in any instrument in
writing signed on behalf of such party. Any waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 12.02.
Section 12.03 Survival of Representations and Warranties;
Investigations. The respective representations and warranties of Vitalink,
Genesis and Acquisition Corporation contained herein or in any certificates or
other documents delivered prior to or at the Closing shall not be deemed
waived or otherwise affected by any investigation made by any party hereto.
The representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant hereto by any person shall terminate at the
Effective Time, except that the agreements set forth in Articles I, II and XII
and Sections 5.10 and 5.12 in the agreements delivered pursuant to this
Agreement shall survive the Merger.
Section 12.04 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally, by next-day courier or mailed
by registered or certified mail (return receipt requested), first class
postage prepaid, or sent by facsimile, telegram or telex, to the parties at
the addresses specified below (or at such other address for a party as shall
be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof). Any such notice shall be
effective upon receipt, if personally delivered or telecommunicated, one day
after delivery to a courier for next-day delivery, or three days after
mailing, if deposited in the U.S. mail, first class postage prepaid.
(a) if to Vitalink, to:
Vitalink Pharmacy Services, Inc.
1250 East Diehl Road
Suite 208
Naperville, Illinois 60563
Attention: Robert W. Horner, III
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Telecopy: (212) 269-5420
Attention: W. Leslie Duffy, Esq.
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<PAGE>
(b) if to Genesis, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Ira Gubernick
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Stephen E. Luongo, Esq.
Section 12.05 Assignment; Third Party Beneficiaries. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties. This Agreement is not intended to confer
any rights or remedies hereunder upon any other person except for employees of
Vitalink pursuant to Section 5.10 and officers, directors, employees or agents
of Vitalink pursuant to Section 5.12.
Section 12.06 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware (regardless of the laws that might otherwise govern
under applicable Delaware principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies. Each of the parties hereto irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in an inconvenient forum.
Each of the parties hereto hereby agrees to service of process in any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby by certified mail, return receipt requested, postage
prepaid to it at its address for notice specified in Section 12.04.
Section 12.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12.08 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall
only apply as to such party in the specific jurisdiction where such judgment
shall be made.
Section 12.09 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"Person" shall mean and include an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof; and (ii) the term "Subsidiary" of any specified
corporation shall mean any corporation of which at least a majority of the
outstanding securities having ordinary voting power to elect a majority of the
board of directors is directly or indirectly owned or controlled by such
specified corporation, any person of which such corporation is a general
partner, or any other person of which at least a majority of the equity
interests therein is, directly or indirectly, owned or controlled by such
specified corporation and, with respect to Genesis, shall include Genesis
Eldercare corporation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any
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<PAGE>
gender shall include both genders. In this Agreement, the phrase "to the
knowledge of" and similar phrases relating to knowledge of Vitalink or Genesis
shall mean the actual knowledge of its executive officers.
Section 12.10 Entire Agreement. This Agreement, including the exhibits
hereto and the documents and instruments referred to herein, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein and supersedes all prior agreements and
understandings among the parties with respect thereto. There are no
representations, promises, warranties, covenants or undertakings by any party,
other than those expressly set forth or referred to herein and therein.
Section 12.11 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur to a party in the event any provision of this
Agreement was not performed by the other party in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
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<PAGE>
In Witness Whereof, Vitalink, Genesis and Acquisition Corporation have
caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
Vitalink Pharmacy Services, Inc.
/s/ Scott T. Macomber
By: _________________________________
Name: Scott T. Macomber
Title:Senior Vice President
Genesis Health Ventures, Inc.
/s/ Ira C. Gubernick
By: _________________________________
Name: Ira C. Gubernick
Title: General Counsel--Corporate
and Secretary
V Acquisition Corporation
/s/ Ira C. Gubernick
By: _________________________________
Name: Ira C. Gubernick
Title:Vice President and Secretary
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<PAGE>
SCHEDULE I
GENESIS HEALTH VENTURES, INC.
CERTIFICATE OF DESIGNATION OF SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK
Genesis Health Ventures, Inc. (hereinafter referred to as the "Company"), a
corporation organized and existing under the Pennsylvania Business Corporation
Law of 1988, as amended (the "Pennsylvania Law"), in accordance with the
provisions thereof, does HEREBY CERTIFY:
That, pursuant to authority expressly granted to and vested in the Board of
Directors of the Company (the "Board of Directors") by the provisions of
Article 6 of the Amended and Restated Articles of Incorporation of the Company
(the "Articles") and the provisions of Sections 1521 and 1522 of the
Pennsylvania Law, the Board of Directors hereby creates a series of the
Company's previously authorized preferred stock, par value $.01 per share (the
"Preferred Stock"), and determines the designation and number of shares which
constitute such series and the relative rights, preferences and limitations of
such series as follows:
SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series G Cumulative Convertible Preferred Stock" (the "Series G
Preferred Stock") and the number of shares constituting the Series G Preferred
Stock shall be [ ]. Capitalized terms used without previous definition
herein are defined in Section 10 hereof.
Section 2. Dividends.
(a) Payment of Dividends. The holders of shares of Series G Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Company legally available therefor,
cumulative preferential cash dividends at the rate per annum of 5.9375% of the
liquidation preference, as may be adjusted in accordance with the provisions
hereof.
The rate per annum at which dividends on the Series G Preferred Stock will
accrue shall be increased as follows on the indicated date:
<TABLE>
<S> <C>
Fourth anniversary of the Issue Date................................. 6.1875%
Fifth anniversary of the Issue Date.................................. 6.6250%
Ninth anniversary of the Issue Date.................................. 7.0625%
Eleventh anniversary of the Issue Date............................... 7.5000%
Thirteenth anniversary of the Issue Date............................. 7.9375%
</TABLE>
Dividends shall be payable in arrears on each March 31, June 30, September
30 and December 31, commencing on the last day of the first full calendar
quarter after the Issue Date (each such date being hereinafter referred to as
a "Dividend Payment Date"). The first dividend payment shall be for the period
from the date of original issuance of the Series G Preferred Stock (the "Issue
Date") to December 31, 1998 and each dividend payment thereafter shall be for
the period from the most recent Dividend Payment Date on which dividends have
been paid to but excluding the first Dividend Payment Date thereafter. Each
quarterly period beginning on January 1, April 1, July 1 and October 1 in each
year and ending on and including the day next preceding the first day of the
next such quarterly period shall be a "Dividend Period". Dividends (or amounts
equal to accrued and unpaid dividends) payable on Series G Preferred Stock for
any period less than a full quarterly Dividend Period will be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in any period less than one month. The Board of Directors may fix a
record date for determination of holders of Series G Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon,
1
<PAGE>
which record date shall be no less than 30 and no more than 60 calendar days
prior to the date fixed for the payment thereof.
Dividends on the Series G Preferred Stock will accrue, whether or not there
are funds legally available for the payment of such dividends and whether or
not such dividends are declared, on a daily basis from the previous Dividend
Payment Date. Dividends will cease to accrue in respect of Series G Preferred
Stock on the date of the conversion thereof.
If, for four consecutive Dividend Periods, dividends are not declared and
paid or funds are not legally available for the payment of dividends,
dividends will accumulate as of the Dividend Payment Dates, but such
accumulated unpaid dividends shall not bear interest. However, if, after such
four consecutive Dividend Periods, dividends are not declared and paid or
funds continue not to be legally available for the payment of dividends,
dividends that accrue thereafter shall be payable in additional shares of
Series G Preferred Stock (the "Dividend Shares") until such time as all
accrued and unpaid dividends are paid in full in cash. To the extent dividends
are payable in whole or in part in Dividend Shares, such Dividend Shares shall
be valued at $500.00 per share with a liquidation value of $500.00 per share
and shall have all rights and preferences of the Series G Preferred Stock
hereunder, including dividends payable at the rates specified herein.
Dividends on the Dividend Shares shall accrue from the date such Dividend
Shares are issued.
Dividends paid on the shares of Series G Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
(b) Payment of Dividends on Junior Stock. As long as any Series G Preferred
Stock is outstanding, no dividends or other distributions for any Dividend
Period (other than dividends payable in shares of, or warrants, rights or
options exerciseable for or convertible into shares of, common stock, par
value $.02 per share, of the Company (the "Common Stock") or any other capital
stock of the Company ranking junior to the Series G Preferred Stock as to the
payment of dividends and the distribution of assets upon liquidation ("Junior
Stock"), and cash in lieu of fractional shares of such Junior Stock in
connection with any such dividends) will be paid on any Junior Stock unless:
(i) full dividends on all outstanding shares of Preferred Stock that by its
terms ranks pari passu with the Series G Preferred Stock with respect to the
payment of dividends ("Parity Preferred Stock"), and the Series G Preferred
Stock have been paid, or declared and set aside for payment, for all Dividend
Periods terminating on or prior to the payment date of such Junior Stock
dividend or distribution and for the current Dividend Period, to the extent
such Parity Preferred Stock dividends are cumulative; (ii) the Company has
paid or set aside all amounts, if any, then or theretofore required to be paid
or set aside for all purchase, retirement and sinking funds, if any, for any
outstanding shares of Parity Preferred Stock; and (iii) the Company is not in
default on any of its obligations to redeem any outstanding shares of Parity
Preferred Stock or Series G Preferred Stock.
In addition, as long as any Series G Preferred Stock is outstanding, no
shares of any Junior Stock may be purchased, redeemed or otherwise acquired by
the Company or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares of
such Junior Stock in connection therewith) or in accordance with the Put/Call
Agreement, or outstanding call options) nor may any funds be set aside or made
available for any sinking fund for the purchase or redemption of any Junior
Stock unless: (i) full dividends on all outstanding shares of Parity Preferred
Stock and Series G Preferred Stock have been paid, or declared and set aside
for payment, for all dividends periods terminating on or prior to the date of
such purchase, redemption or acquisition and for the current Dividend Period,
to the extent such Parity Preferred Stock dividends are cumulative; (ii) the
Company has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement and sinking
funds, if any, for any outstanding shares of Parity Preferred Stock; and (iii)
the Company is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Series G Preferred Stock.
2
<PAGE>
Subject to the provisions described above, such dividends or other
distributions (payable in cash, property or Junior Stock) as may be determined
from time to time by the Board of Directors may be declared and paid on the
shares of any Junior Stock and from time to time Junior Stock may be
purchased, redeemed or otherwise acquired by the Company or any of its
subsidiaries. In the event of the declaration and payment of any such
dividends or other distributions, the holders of such Junior Stock will be
entitled, to the exclusion of holders of any outstanding Parity Preferred
Stock or Series G Preferred Stock, to share therein according to their
respective interests.
(c) Payment of Dividends on Parity Preferred Stock. As long as any Series G
Preferred Stock is outstanding, dividends or other distributions for any
Dividend Period may not be paid on any outstanding shares of Parity Preferred
Stock (other than dividends or other distributions payable in Junior Stock and
cash in lieu of fractional shares of such Junior Stock in connection
therewith), unless either: (i) (A) full dividends on all outstanding shares of
Parity Preferred Stock and Series G Preferred Stock have been paid, or
declared and set aside for payment, for all Dividend Periods terminating on or
prior to the payment date of such Parity Preferred Stock dividend or
distribution and for the current Dividend Period, to the extent such Parity
Preferred Stock dividends are cumulative; (B) the Company has paid or set
aside all amounts, if any, then or theretofore required to be paid or set
aside for all purchase, retirement and sinking funds, if any, for any
outstanding shares of Parity Preferred Stock; and (C) the Company is not in
default on any of its obligations to redeem any outstanding shares of Parity
Preferred Stock or Series G Preferred Stock; or (ii) any such dividends are
declared and paid pro rata so that the amounts of any dividends declared and
paid per share on outstanding Series G Preferred Stock and each other share of
such Parity Preferred Stock will in all cases bear to each other the same
ratio that accrued and unpaid dividends (including any accumulation with
respect to unpaid dividends for prior Dividend Periods, if such dividends are
cumulative) per share of outstanding Series G Preferred Stock and such other
outstanding shares of Parity Preferred Stock bear to each other.
In addition, as long as any Series G Preferred Stock is outstanding, the
Company may not purchase, redeem or otherwise acquire any Parity Preferred
Stock (except with any Junior Stock and cash in lieu of fractional shares of
such Junior stock in connection therewith) unless: (i) full dividends on all
outstanding shares of Parity Preferred Stock and Series G Preferred Stock have
been paid, or declared and set aside for payment, for all Dividend Periods
terminating on or prior to the payment date of such Parity Preferred Stock
purchase, redemption or other acquisition and for the current Dividend Period,
to the extent such Parity Preferred Stock dividends are cumulative; (ii) the
Company has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement and sinking
funds, if any, for any outstanding shares of Parity Preferred Stock; and (iii)
the Company is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Series G Preferred Stock
(unless all Parity Preferred Stock as to which such a default exists is
purchased or redeemed on a pro rata basis).
(d) Any dividend payment made on the Series G Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Series G Preferred Stock.
Section 3. Voting Rights. The holders of shares of Series G Preferred Stock
shall have the following voting rights:
(a) The holders of the Series G Preferred Stock (in addition to their
rights set forth in this Section 3 and otherwise provided by law) shall be
entitled to such number of votes for each share held as equals the number
of shares of Common Stock into which such shares are convertible on the
record date set for determining who is entitled to vote a particular matter
and shall vote together with the holders of Common Stock (and any other
class or series of Preferred Stock, if any, similarly entitled to vote
(such Preferred Stock, together with the Common Stock, the "Voting
Securities") as a single class, on all matters to be voted on by holders of
Common Stock of the Company. In addition to such voting rights, holders of
the Series G Preferred Stock shall be entitled to vote as a separate class
on matters as to which the Pennsylvania Law requires a separate class vote
of the Series G Preferred Stock, and shall have such other voting rights as
are set forth in this Section 3.
3
<PAGE>
(b) Whenever dividends payable on shares of Series G Preferred Stock as
provided in Section 2 are in arrears and unpaid for four consecutive
Dividend Periods, thereafter and until all accrued and unpaid dividends,
whether or not declared, on the outstanding shares of Series G Preferred
Stock shall have been paid in full in cash or declared and cash set apart
for the payment thereof, the number of directors of the Company shall be
increased by two and the holders of the Series G Preferred Stock shall have
the right, voting separately as a class, by a vote of holders of a majority
of the number of outstanding shares of Series G Preferred Stock, to elect
two directors of the Company, and the remaining directors of the Company
shall be elected by the classes of stock entitled to vote therefor, voting
together, including the Series G Preferred Stock, at each meeting of the
shareholders held for the purpose of electing directors, all in accordance
with the terms and procedures set forth in the Company's Articles and By-
Laws. The Company agrees to call a meeting of holders of the Series G
Preferred Stock in order that the Series G Preferred Stock may be
represented on the Board of Directors in accordance hereof. At such time as
the accrued and unpaid dividends shall have been paid in full in cash or
declared and cash set apart for the payment thereof, the right of the
holders to vote for directors as provided herein shall terminate and the
term of office of any director(s) then in office who were elected pursuant
to this Section 3(b) shall immediately terminate.
(c) So long as any shares of Series G Preferred Stock are outstanding,
subject to the applicable provisions of the Pennsylvania Law, the Company
shall not, without consent of the holders of at least two-thirds of the
number of shares of Series G Preferred Stock at the time outstanding, given
in person or by proxy, either in writing or by vote at a special meeting
called for the purpose, (i) increase the number of shares of authorized
Series G Preferred Stock or issue any additional shares of Series G
Preferred Stock other than Dividend Shares; (ii) amend or modify the
powers, preferences or rights of the Series G Preferred Stock or amend,
alter or repeal any of the provisions of the Company's Articles or By-Laws
(including by merger or similar transaction) so as to eliminate the Series
G Preferred Stock or otherwise affect adversely the powers, preferences or
rights of the holders of Series G Preferred Stock; provided, however, that
the Company may authorize and issue classes or series of stock ranking
senior to, or on a parity with the Series G Preferred Stock either in the
payment of dividends or in the distribution of assets upon any liquidation,
dissolution or winding-up of the affairs of the Company, or that the
Company may be required to redeem or repurchase before all of the Series G
Preferred Stock has been redeemed without the consent of the holders of the
Series G Preferred Stock; or (iii) enter into any plan of complete
liquidation or dissolution or otherwise effect the voluntary liquidation,
dissolution or winding-up of the Company unless, as a result of such
liquidation, dissolution or winding-up, the liquidation preference on the
Series G Preferred Stock is satisfied in full pursuant to Section 7 hereof.
Section 4. Conversion at the Option of the Company.
(a) From and after April 26, 2001, the Company at its option may convert the
Series G Preferred Stock in whole at any time at a conversion price equal to
100% of the Liquidation Amount, plus accrued and unpaid dividends to the date
of conversion, if the Current Market Price on the date of such notice was in
excess of 120% of the Conversion Price (as defined herein) on the date of such
notice.
(b) From and after April 26, 2002, the Company at its option may convert the
Series G Preferred Stock in whole at any time at the conversion price set
forth below, stated as a percentage of the Liquidation Amount, in each case
plus accrued and unpaid dividends to the date of conversion, if converted
during the twelve-month period beginning April 26:
<TABLE>
<CAPTION>
YEAR PRICE
---- ------
<S> <C>
2002................................................................. 104.50%
2003................................................................. 103.75%
2004................................................................. 103.00%
2005................................................................. 102.25%
2006................................................................. 101.50%
2007................................................................. 100.75%
2008 and thereafter.................................................. 100.00%
</TABLE>
4
<PAGE>
(c) The conversion prices for Series G Preferred Stock set forth in (a) and
(b) above are payable by the Company solely in Common Stock. The Company shall
on the date of conversion deliver to each holder of Series G Preferred Stock
for each share of Series G Preferred Stock a number of shares of validly
issued, fully paid and nonassessable Common Stock with an aggregate Market
Price on such date equal to the applicable conversion price.
(d) At least 30 days and not more than 60 days prior to the date of
conversion, written notice (the "Conversion Notice") shall be given by first-
class mail, postage prepaid, to each holder of the Series G Preferred Stock at
such holder's address as it appears on the stock books of the Company. The
Conversion Notice shall state:
(A) Whether the conversion is pursuant to paragraph (a) or (b) of this
Section 4;
(B) the price at which the shares of Series G Preferred Stock shall be
converted;
(C) the date of conversion; and
(D) that dividends on the shares of the Series G Preferred Stock to be
converted shall cease to accumulate on such date of conversion unless the
Company defaults in the payment of the applicable conversion price.
Each holder of Series G Preferred Stock shall surrender the certificate or
certificates representing such shares of Series G Preferred Stock to the
Company, duly endorsed (or otherwise in proper form for transfer, as determined
by the Company), in the manner and at the place designated in the Conversion
Notice, and on the date of conversion the conversion price for such shares
shall be payable to the holder thereof, and each surrendered certificate shall
be cancelled and retired.
Section 5. Conversion at the Option of the Holders.
(a) Procedure. At the option of the holders, each share of Series G Preferred
Stock shall be convertible at any time into Common Stock at a conversion price
of $37.20 per share of the underlying Common Stock (equivalent to a conversion
rate of 13.441 shares of Common Stock for each share of Series G Preferred
Stock), such initial conversion price being subject to adjustment as set forth
below (the "Conversion Price").
(i) Conversion of Series G Preferred Stock may be effected by delivering
certificates evidencing such shares, together with written notice of conversion
and a proper assignment of such certificates to the Company or in blank, to the
office or agency to be maintained by the Company for that purpose (and, if
applicable, cash payment of an amount equal to the dividend payable on such
shares), and otherwise in accordance with conversion procedures established by
the Company. Each optional conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the foregoing
requirements shall have been satisfied and dividends will cease to accrue in
respect of Series G Preferred Stock at such time. The conversion shall be at
the Conversion Price in effect at such time and on such date.
(ii) On and after the date of conversion, unless the Company fails to issue
certificates evidencing the Common Stock, dividends on the Series G Preferred
Stock called for conversion shall cease to accumulate on the date of
conversion, and all rights of the holders of converted shares shall terminate
with respect thereto on the date of conversion, other than the right to receive
the Common Stock into which each share of Series G Preferred Stock shall be
converted.
(b) Receipt of Dividends. Holders of Series G Preferred Stock at the close of
business on a record date for any payment of declared dividends shall be
entitled to receive the full dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the conversion of such
shares following such record date and prior to the corresponding Dividend
Payment Date. However, shares of Series G Preferred Stock surrendered for
conversion after the close of business on a record date for any payment of
declared dividends and before the opening of business on the next succeeding
Dividend Payment Date must be accompanied by payment to the Company in cash of
an amount equal to the dividend declared on such shares of Series G
5
<PAGE>
Preferred Stock to be converted and to be payable on such Dividend Payment Date
unless a Conversion Notice from the Company shall have been delivered to the
Holders and the date of conversion is on or before the next succeeding Dividend
Payment Date. Holders thereof shall continue to be entitled to receive from the
Company any accrued but unpaid dividends thereon. Such accrued but unpaid
dividends may be declared and paid at any time, without reference to any
regular Dividend Payment Date. Except as provided above, upon any conversion at
the option of the holder of Series G Preferred Stock, the Company shall make no
payment or allowance for unpaid dividends for the Dividend Period during which
such conversion occurs, whether or not in arrears, on such converted Series G
Preferred Stock or for previously declared dividends or distributions on the
shares of Common Stock issued upon such conversion.
(c) Adjustment for Stock Transactions. In case the Company shall (i)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (ii) combine its outstanding shares of Common Stock into a smaller
number of shares, or (iii) issue by reclassification of its shares of Common
Stock any shares of its capital stock, each such transaction being called a
"Stock Transaction"), then and in each such case, the Conversion Price in
effect immediately prior thereto shall be adjusted so that the holder of a
share of Series G Preferred Stock surrendered for conversion after the record
date fixing shareholders to be affected by such Stock Transaction shall be
entitled to receive upon conversion the number of such shares of Common Stock
and/or other capital stock which such holder would have been entitled to
receive after the happening of such event had such share of Series G Preferred
Stock been converted immediately prior to such record date.
(d) Adjustment for Dividends. In the event the Company shall at any time or
from time to time while any shares of Series G Preferred Stock are outstanding
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property
or rights or warrants to subscribe for securities of the Company or any of its
subsidiaries by way of dividend or distribution or evidences of indebtedness of
the Company or any other person) on its Common Stock, other than (A) regular
dividends payable in cash or (B) any dividend or distribution on the Company's
Common Stock if in conjunction therewith the Company declares and pays or makes
a dividend or distribution on each share of Series G Preferred Stock which is
the same as the dividend or distribution that would have been made or paid with
respect to such share of Series G Preferred Stock had such share been converted
into shares of Common Stock immediately prior to the record date for any such
dividend or distribution on the Company's Common Stock, then, and in each such
case, an appropriate adjustment to the Conversion Price shall be made so that
the holder of each share of Series G Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the number of shares of Common Stock into which
such share was convertible on the day immediately prior to the record date
fixed for the determination of shareholders entitled to receive such dividend
or distribution by (2) a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock as of such record date, and the
denominator of which shall be such Current Market Price per share of Common
Stock less the Fair Market Value per share of Common Stock of such dividend or
distribution (as determined in good faith by the Board of Directors, a
certified resolution with respect to which shall be mailed to each holder of
shares of Series G Preferred Stock); provided, however, that in the event of a
distribution of shares of capital stock of a subsidiary of the Company (a
"Spin-Off") made to holders of shares of Common Stock, the numerator of such
fraction shall be the sum of the Current Market Price per share of Common Stock
as of the 30th trading day after the effective date of such Spin-Off and the
Current Market Price of the number of shares (or the fraction of a share) of
capital stock of the subsidiary which is distributed in such Spin-Off in
respect of one share of Common Stock as of such 30th trading day and the
denominator of which shall be the Current Market Price per share of Common
Stock as of such 30th trading day. An adjustment made pursuant to this
paragraph (d) shall be made upon the opening of business on the next business
day following the date on which any such dividend or distribution is made and
shall be effective retroactively to the day immediately after the close of
business on the record date fixed for the determination of shareholders
entitled to receive such dividend or distribution; provided, however, if the
proviso to the preceding sentence applies, then such adjustment shall be made
and be effective as of such 30th trading day after the effective date of such
Spin-Off.
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<PAGE>
(e) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this paragraph (e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this Section (other than
this paragraph (e)) not later than such time as may be required in order to
preserve the tax free nature of the distribution to the holders of shares of
Common Stock. All calculations under this Section 5 shall be made to the
nearest one-hundredth of a share.
If any action or transaction would require adjustment to the Conversion Price
pursuant to more than one paragraph of this Section 5, only one adjustment
shall be made and such adjustment shall be the amount of the adjustment that
has the highest absolute value.
(f) Fractional Shares. No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of any share of
Series G Preferred Stock. If the conversion thereof results in a fraction, an
amount equal to such fraction multiplied by the Current Market Price per share
of Common Stock as of the conversion date shall be paid to such holder in cash
by the Company. If more than one share shall be surrendered for conversion at
one time by or for the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of Series G Preferred Stock so surrendered.
(g) Capital Reorganizations; Change in Control. In the event of any capital
reorganization or reclassification of outstanding shares of Common Stock (other
than a reclassification covered by paragraph (c) of this Section 5), or in case
of any merger, consolidation or other corporate combination of the Company with
or into another corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety (each of the foregoing being referred to as a "Transaction"), each
share of Series G Preferred Stock shall be exchanged for a new series of
preferred stock of the Surviving Person, or in the case of a Surviving Person
other than a corporation, comparable securities of such Surviving Person, in
either case having economic terms as nearly equivalent as possible to, and with
the same voting and other rights as, the Series G Preferred Stock; except that
any holder of Series G Preferred Stock shall be entitled to receive, upon
conversion subsequent to the consummation of such Transaction, the kind and
amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series G Preferred
Stock was convertible immediately prior to such Transaction. Notwithstanding
the foregoing, upon a Change in Control (as defined below) at the option of the
holder of any shares of Series G Preferred Stock the holder thereof shall be
entitled to receive, upon presentation of the certificates therefor to the
Surviving Person subsequent to the consummation of such Transaction, cash equal
to the Liquidation Amount as of the consummation of such transaction. If
necessary, appropriate adjustment (as determined by the Board of Directors in
good faith) shall be made in the application of the provisions set forth in
this Section 5 with respect to the rights and interests thereafter of the
holders of shares of Series G Preferred Stock to the end that the provisions
set forth herein for the protection of the conversion rights of the Series G
Preferred stock shall thereafter be applicable, as nearly as reasonably may be,
to any such other shares of stock and other securities and property deliverable
upon conversion of the shares of Series G Preferred Stock remaining outstanding
(with such adjustments in the Conversion Price and number of shares issuable
upon conversion and such other adjustments in the provisions hereof as the
Board of Directors in good faith shall determine to be appropriate). In case
securities or property other than Common stock shall be issuable or deliverable
upon conversion as aforesaid, then all references in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the Company will
not effect any Transaction unless, prior to the consummation thereof, (a)
proper provision is made to ensure that the holders of shares of Series G
Preferred Stock will be entitled to receive the benefits afforded by this
paragraph (i) and (b) if, following the Transaction, one or more entities other
than the Company shall be required to deliver securities or other property upon
the conversion of the Series G Preferred Stock, such entity or entities shall
assume, by written
7
<PAGE>
instrument delivered to each holder of shares of Series G Preferred Stock the
obligation to deliver to such holder the securities and property to which, in
accordance with the foregoing provisions, such holder is entitled.
"Change in Control" means (A) when the shareholders of Gemini approve an
agreement or plan (i) to merge or consolidate Gemini with or into another
company (other than a merger or consolidation which would result in the Voting
Securities outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) more than 50% of the combined voting power of the
voting securities of Gemini or such surviving entity outstanding immediately
after such merger or consolidation), or (ii) to sell, or otherwise dispose of,
all or substantially all of Gemini's property and assets, or (B) when Gemini is
the subject of a transaction pursuant to Rule 13e-3 under the Exchange Act.
(h) Notice of Certain Events. In case at any time or from time to time, the
Company shall pay any dividend or make any other distribution to the holders of
its Common Stock, or shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or any other
right, or there shall be any capital reorganization or reclassification of the
Common Stock of the Company or merger, consolidation or other corporate
combination of the Company with or into another corporation, or any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then, in any one or more
of said cases the Company shall give written notice at the same time as, or as
soon as practicable after, such event is first communicated (including by
announcement of a record date in accordance with the rules of any stock
exchange on which the Common Stock is listed or admitted to trading) to holders
of Common Stock, but in any event within 30 days of occurrence of such event
(the time of mailing of such notice shall be deemed to be the time of delivery
thereof) to the registered holders of the Series G Preferred Stock at the
addresses of each as shown on the books of the Company maintained by the
transfer agent thereof of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution,
subscription rights or Repurchase or (ii) such reorganization,
reclassification, merger, consolidation, corporate combination, sale or
conveyance, dissolution, liquidation or winding-up shall take place, as the
case may be. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution,
subscription rights or Repurchase or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such registration,
reclassification, merger, consolidation, corporate combination, sale or
conveyance or participate in such dissolution, liquidation or winding-up, as
the case may be, as well as the Conversion Price and the number of shares into
which each share of Series G Preferred Stock may be converted at such time,
failure to give such notice shall not invalidate any action so taken.
(i) Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the Series
G Preferred Stock, such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of the
Series G Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series G Preferred Stock, at
the Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
Section 6. Liquidation Preference. (a) The Series G Preferred Stock will rank
on a parity as to preference on distribution of assets upon liquidation with
each other series of Parity Preferred Stock then outstanding, and with any
future Preferred Stock issued by the Company that by its terms ranks pari passu
with the Series G Preferred Stock with respect to distribution of assets upon
liquidation.
(b) The Series G Preferred Stock will be subordinate as to preference on
distribution of assets upon liquidation of dividends to each other series of
existing and future Preferred Stock issued by the Company that by its terms is
senior to the Series G Preferred Stock with respect to distribution of assets
upon liquidation.
8
<PAGE>
(c) In the event of the liquidation, dissolution or winding-up of the
business of the Company, whether voluntary or involuntary, the holders of
Series G Preferred Stock then outstanding, after payment or provision for
payment of the debts and other liabilities of the Company and the payment or
provision for payment of any distribution on any shares of the Company having
a preference and a priority over the Series G Preferred Stock on liquidation,
and before any distribution to holders of any shares of the Company that are
junior and subordinate to the Series G Preferred Stock on liquidation shall be
entitled to be paid out of the assets of the Company available for
distribution to its stockholders the Liquidation Amount, plus an amount equal
to all accrued and unpaid dividends thereon, and shall, after the holders of
Common Stock have received an amount per share of Common Stock equal to the
amount paid per share of Series G Preferred Stock, be entitled to participate
on a pro rata basis with the holders of Common Stock. In the event the assets
of the Company available for distribution to the holders of the Series G
Preferred Stock upon any dissolution, liquidation or winding-up of the Company
shall be insufficient to pay in full the liquidation payments payable to the
holders of outstanding Series G Preferred Stock and of all other series of
Preferred Stock that rank on a parity with the Series G Preferred Stock in the
event of liquidation, the holders of Series G Preferred Stock and of all other
series of such parity Preferred Stock shall share ratably in such distribution
of assets in proportion to the amount which would be payable on such
distribution if the amounts to which the holders of outstanding Series G
Preferred Stock and the holders of outstanding shares of such Parity Preferred
Stock were paid in full. Except as provided in this Section 6, holders of
Series G Preferred Stock shall not be entitled to any distribution in the
event of liquidation, dissolution or winding-up of the affairs of the Company.
(d) For the purposes of this Section 6, none of the following shall be
deemed to be a voluntary or involuntary liquidation, dissolution or winding-up
of the Company:
(i) the sale, lease, transfer or exchange of all or substantially all of
the assets of the Company; or
(ii) the consolidation or merger of the Company with one or more other
corporations (whether or not the Company is the corporation surviving such
consolidation or merger).
Section 7. Non-Transferability. Until the filing by the Company of a
registration statement with the Securities and Exchange Commission covering
the sale of shares of Series G Preferred Stock by holders, no holder shall
transfer the Series G Preferred Stock without the consent of the Company.
Section 8. Re-issuance. Series G Preferred Stock that has been issued and
reacquired in any manner, including shares purchased, exchanged or converted,
shall not be reissued as shares of this Series G Cumulative Convertible
Preferred Stock and shall (upon compliance with any applicable provisions of
the laws of the Commonwealth of Pennsylvania) have the status of authorized
and unissued shares of the Preferred Stock undesignated as to series and may
be redesignated and reissued as part of any series of Preferred Stock.
Section 9. Definitions.
For the purposes hereof, the following definitions shall apply:
"Closing Price" of publicly traded shares of Common Stock or any other class
of capital stock or other security of the Company or any other issuer for a
day shall mean the last reported sales price, regular way, or, in case no sale
takes place on such day, the average of the reported closing bid and asked
prices, regular way, in either case as reported on the New York Stock
Exchange--Composite Transactions Tape or, if such security is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which such security is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange,
on the NASDAQ National Market System or, if such security is not quoted on
such National Market System, the average of the closing bid and asked prices
on each such day in the over-the-counter market as reported by NASDAQ or, if
bid and asked prices for such security on each such day shall not have been
reported through NASDAQ, the average of the bid and asked prices for such day
as furnished by any New York Stock Exchange member firm regularly making a
market in such security selected for such purpose by the Board of Directors or
a committee thereof. If the Common Stock or other class of capital stock or
security in question is not publicly held or so listed or publicly traded,
"Closing Price" shall mean the Fair Market Value thereof.
9
<PAGE>
"Current Market Price" per share of Common Stock on any date shall be deemed
to be the average of the daily Closing Prices per share for the 20 trading days
ending on the trading day immediately preceding the date in question.
"Fair Market Value" of any consideration other than cash or of any securities
shall mean the amount which a willing buyer would pay to a willing seller in an
arm's length transaction as determined by an independent investment banking or
appraisal firm experienced in the valuation of such securities or property
selected in good faith by the Board of Directors or a committee thereof.
"Liquidation Amount" per share shall be $500.00.
"Market Price" per share at any date shall be the Closing Price on the
specified date.
"Surviving Person" shall mean the continuing or surviving Person of a merger,
consolidation or other corporate combination, the Person receiving a transfer
of all or a substantial part of the properties and assets of the Company, or
the Person consolidating with or merging into the Company in a merger,
consolidation or other corporate combination in which the Company is the
continuing or surviving Person, but in connection with which the Series G
Preferred Stock or Common Stock of the Company is exchanged, converted or
reclassified into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
subsidiary of a Qualified Person, the parent entity that is a Qualified Person
shall be the Surviving Person.
"Qualified Person" shall mean any Person that, immediately after giving
effect to the applicable Transaction, (i) is a solvent corporation or other
entity organized under the laws of any state of the United States of America
having its common stock or, in the case of an entity other than a corporation,
equivalent equity securities, listed on the New York Stock Exchange or the
American Stock Exchange or quoted by the NASDAQ National Market System or any
successor thereto or comparable system and such common stock or equivalent
equity security continues to meet the requirements for such listing or
quotation and (ii) is required to file, and in each of its three fiscal years
immediately preceding the consummation of the applicable Transaction (or, if
sooner, since its inception) has filed, reports with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act").
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
and
That the issuance of [ ] shares of Series G Cumulative Convertible
Preferred Stock has been initially authorized by the Board of Directors of said
Company.
10
<PAGE>
In Witness Whereof, Genesis has caused this Certificate of Designation to be
signed and acknowledged by , and its corporate seal to be hereunto
affixed and attested by , , this the day of April, 1998.
Genesis Health Ventures, Inc.
By: _________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: _________________________________
Name:
Title:
11
<PAGE>
APPENDIX B
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
FAIRNESS OPINION OF MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED
April 24, 1998
Board of Directors
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, PA 19348
Members of the Board of Directors:
Vitalink Pharmacy Services, Inc. (the "Company"), Genesis Health Ventures,
Inc. (the "Acquiror") and a newly formed, wholly owned subsidiary of the
Acquiror (the "Merger Sub"), propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which the Company would be merged
with and into the Merger Sub in a merger (the "Merger") in which each
outstanding share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") (other than shares held by the Company or its
wholly owned subsidiaries and dissenting shares) would be converted into the
right to receive, at the holder's option, (x) $22.50 per share in cash, (y)
.045 of a share of convertible preferred stock, par value $.01 per share, of
the Acquiror, with an initial liquidation preference of $500.00 per share (the
"Acquiror Preferred Stock"), or (z) a combination of the foregoing; provided
that 50% of the shares of Company Common Stock would be converted into the
right to receive Acquiror Preferred Stock. The cash and shares of Acquiror
Preferred Stock to be delivered in exchange for shares of Company Common Stock
pursuant to the Merger are hereinafter referred to as the "Merger
Consideration."
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Acquiror, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the
Merger (the "Expected Synergies"), furnished to us by management of the
Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters set
forth in clauses (1) and (2) above, as well as their respective businesses
and prospects before and after giving effect to the Merger;
(4) Reviewed the market prices and valuation multiples for the Company
Common Stock and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to be
relevant;
(7) Participated in discussions and negotiations among representatives of
the Company and the Acquiror and their financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger on the
Acquiror;
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(9) Reviewed the Merger Agreement;
(10) Reviewed the Voting Agreement (the "Voting Agreement") between the
Acquiror and certain stockholders of the Company and the Rights Agreement
(the "Rights Agreement") between the Acquiror and certain stockholders of
the Company;
(11) Reviewed the form of the Certificate of Designation of the Acquiror
(the "Certificate of Designation") setting forth the preferences, rights
and designations for the Acquiror Preferred Stock which is attached as an
Exhibit to the Merger Agreement; and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With
respect to the financial forecast information and the Expected Synergies
furnished to or discussed with us by the Acquiror or the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's or the Acquiror's management
as to the expected future financial performance of the Company or the
Acquiror, as the case may be, and the Expected Synergies.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger. We have further assumed,
with your consent, that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a
significant portion of which is contingent upon the consummation of the
Merger. In addition, the Acquiror has agreed to indemnify us for certain
liabilities arising out of our engagement. We are currently providing, and
have in the past provided, financial advisory and financing services to the
Acquiror and may continue to do so and have received, and may receive, fees
for the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade debt and/or equity securities of the Company
or the Acquiror for our own account and for the accounts of customers, and
accordingly may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision
by the Acquiror to effect the Merger and does not constitute a recommendation
to any stockholder of the Acquiror as to how such stockholder should vote on
the Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
common stock of the Acquiror will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Consideration is fair from a financial point of
view to the Acquiror.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
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APPENDIX C
[LETTERHEAD OF SBC WARBURG DILLON READ]
FAIRNESS OPINION OF SBC WARBURG DILLON READ INC.
April 26, 1998
The Board of Directors
Vitalink Pharmacy Services, Inc.
1250 East Diehl Road, Suite 208
Naperville, IL 60563
Gentlemen:
We understand that Genesis Health Ventures, Inc., a Pennsylvania corporation
("Genesis"), is contemplating a transaction whereby Vitalink Pharmacy
Services, Inc., a Delaware corporation ("Vitalink") will merge with and into
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Genesis,
pursuant to the terms of a draft Agreement and Plan of Merger and the exhibits
thereto, to be dated April 26, 1998 (the "Merger Agreement"), such that
Vitalink will become a wholly owned subsidiary of Genesis (the "Transaction").
Pursuant to the Transaction, each outstanding share of Vitalink's Common
Stock, $.01 par value (the "Vitalink Common Stock"), shall be converted into
the right to elect to receive either (i) $22.50 in cash or (ii) .045 of one
share of convertible preferred stock, par value $.01 per share, of Genesis,
with an initial liquidation preference of $500.00 per share (the "Genesis
Convertible Preferred Stock"), provided, however, that 50% of total
consideration will be in the form of Genesis Convertible Preferred Stock (the
"Consideration"). The terms and conditions of the Transaction are more fully
set forth in the draft Merger Agreement.
You have requested our opinion as to whether the Consideration to be
received by the holders of Vitalink Common Stock (the "Holders") in the
Transaction is fair to such Holders, from a financial point of view.
SBC Warburg Dillon Read Inc. and its predecessors have acted as financial
advisor to the Board of Directors of Vitalink in connection with the
Transaction and will receive a fee upon the consummation thereof. In the past,
SBC Warburg Dillon Read Inc. and its predecessors have provided investment
banking services to Vitalink and Manor Care, Inc., the holder of approximately
50% of Vitalink Common Stock, and has received customary compensation for the
rendering of such services. In the ordinary course of business, SBC Warburg
Dillon Read Inc., its predecessors and affiliates, may have traded the
securities of Vitalink and Genesis for their own accounts and, accordingly,
may at any time hold a long or short position in such securities.
Our opinion does not address Vitalink's underlying business decision to
effect the Transaction. In rendering this opinion, we are not rendering any
opinion as to the value of Genesis or making any recommendation to the Holders
with respect to the advisability of disposing of, electing to receive or
retaining Genesis Convertible Preferred Stock or the underlying common stock
received in the Transaction. In addition, we are not making any recommendation
regarding whether or not it is advisable for Holders to vote in favor of the
Transaction.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to Vitalink and Genesis, (ii) reviewed certain internal non-public
estimates and company financial forecasts prepared by the managements of
Vitalink and Genesis, (iii) reviewed certain financial information and other
data provided to us by Vitalink that is not publicly available relating to the
business and prospects of Vitalink, (iv) reviewed certain financial
information and other data provided to us by Genesis that is not publicly
available relating to the business and prospects of Genesis, (v) conducted
discussions with members of the senior managements of Vitalink and Genesis
with respect to the operations, financial condition, history and prospects of
each company, (vi) reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business we believe to be
generally comparable
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to those of Vitalink and Genesis, (vii) considered the pro forma effects of
the Transaction on Genesis's financial statements and reviewed certain
estimates of synergies prepared by the management of Genesis, (viii) reviewed
the historical market prices of the Vitalink Common Stock and the Genesis
Common Stock, (ix) compared the financial terms of the Transaction with the
financial terms of certain other transactions which we believe to be generally
comparable to the Transaction, (x) reviewed the financial terms of the Genesis
Convertible Preferred Stock, (xi) reviewed the draft Merger Agreement, and
(xii) conducted such other financial studies, analyses, and investigations,
and considered such other information as we deemed necessary or appropriate.
In connection with our review we have not, at your direction, independently
verified any of the information relied upon by us for the purpose of this
opinion and have, with your consent, relied on its being complete and accurate
in all material respects. In addition, we have not made or received any
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Vitalink and Genesis. With respect to the financial forecasts,
pro forma effects and estimates of synergies referred to above, we have
assumed, at your direction, that the Vitalink and Genesis company financial
forecasts, pro forma information and estimates of synergies have been prepared
reasonably on a basis reflecting the best currently available estimates and
judgments of the respective managements as to the future financial performance
of their respective companies and will be realized in the amounts and at the
times contemplated thereby. Further, our opinion is necessarily based on
economic, monetary, and other market conditions existing on, and the
information made available to us as of, the date hereof. In con-nection with
our engagement, we were requested to approach, and held discussions with,
third parties to solicit indications of interest in a possible acquisition of
Vitalink.
Our opinion may not be published or otherwise referred to, nor shall any
public reference to SBC Warburg Dillon Read Inc. be made, without our prior
written consent. This opinion is being rendered solely to the Board of
Directors of Vitalink for its use in evaluating the Transaction and is neither
for the benefit of nor being rendered to the Holders or any other person.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the Holders in the
Transaction is fair to such Holders from a financial point of view.
Very truly yours,
SBC Warburg Dillon Read Inc.
Corporate Finance
/s/ Christopher J. Seiter /s/ David Gottlieb
Associate Director Executive Director
Vitalink Pharmacy Services, Inc.
April 26, 1998
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APPENDIX D
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. (S) 262
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by a
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation, or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of the mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be
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not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereof of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
in the written approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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[GENESIS LOGO]
LOGO
GENESIS HEALTH VENTURES, INC.
AND
VITALINK PHARMACY SERVICES, INC.
JOINT PROXY STATEMENT/ PROSPECTUS
, 1998
THE EXCHANGE AGENT IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
450 WEST 33 STREET, 14TH FLOOR
NEW YORK, NEW YORK 10001
<PAGE>
Exhibit 99.2
LOGO
PROXY
GENESIS HEALTH VENTURES, INC.
SPECIAL MEETING OF SHAREHOLDERS , 1998 SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF GENESIS HEALTH VENTURES, INC.
The undersigned hereby constitutes and appoints Michael R. Walker and Richard
R. Howard, and each of them, as attorneys and proxies for the undersigned, with
full power of substitution, for and in the name, place and stead of the
undersigned, to represent the undersigned at the Special Meeting of the
Shareholders of Genesis Health Ventures, Inc. (the "Company") to be held on the
day of , 1998, and at any postponement or adjournement thereof, and to
vote, as directed below, with all powers and authority the undersigned would
possess if personally present.
PROPOSAL 1. Approval of the Merger Agreement and the transactions contemplated
thereby.
For [_] Against [_] Abstain [_]
PROPOSAL 2. To transact such other business as may properly come before the
Special Meeting.
For [_] Against [_] Abstain [_]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
LOGO
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS TO THE CONTRARY
ARE INDICATED, THE PROXY AGENTS INTEND TO VOTE FOR THE PROPOSALS.
BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTE (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL OF THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY
WITH RESPECT TO CERTAIN MATTERS, AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT PROSPECTUS.
The undersigned hereby
acknowledges receipt of the
Company's Joint Proxy
Statement/Prospectus and Notice of
the Company's Special Meeting of
Shareholders.
Date: ______________________________
(Please date this Proxy)
Signature: _________________________
Signature (if held jointly): _______
Please sign your name exactly as it
appears on this proxy indicating
any official position or
representative capacity. If shares
are registered in more than one
name, all owners must sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
<PAGE>
Exhibit 99.3
LOGO
VITALINK PHARMACY SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF
STOCKHOLDERS ON JULY 31, 1998
The undersigned stockholder of Vitalink Pharmacy Services, Inc., a Delaware
corporation (the "Company"), acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Joint Proxy Statement/Prospectus, each dated ,
1998, and the undersigned revokes all other proxies and appoints James H. Rempe
and Anil K. Gupta, each of them, the attorneys and proxies for the undersigned,
each with full power of substitution, to attend and act for the undersigned at
the Company's Special Meeting of Stockholders at 9:00 a.m., local time, on July
31, 1998 and at any adjournments of postponements thereof in connection
therewith to vote and represent all of the shares of the Company's Common Stock
which the undersigned would be entitled to vote.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
LOGO
1. To approve the Agreement and Plan of Merger by and among the Company,
Genesis Health Ventures, Inc. ("Genesis"), a Pennsylvania corporation, and V
Acquisition Corporation, a wholly owned subsidiary of Genesis and a Delaware
corporation, dated as of April 26, 1998, and the transactions contemplated
thereby.
Approve [_] Disapprove [_] Abstain [_]
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. Each of the above-referenced
present at said meeting, either in person or by substitute, shall have and
exercise all the powers of said proxies hereunder. This proxy will be voted in
accordance with the choices specified by the undersigned. (If no specifications
to the contrary are indicated hereon, this proxy will be treated as a grant of
authority to vote on proposal 1.) Please sign, date and return your proxy
promptly in the postage prepaid envelope provided.
Date: ______________________________
Signature: _________________________
Note: Please sign exactly as your
name appears hereon. When signing
as an attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
shares are held jointly, each
holder should sign.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Genesis. Section 1741 through 1750 of Subchapter D, Chapter 17, of the
PBCL contain provisions for mandatory and discretionary indemnification of a
corporation's directors, officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed circumstances
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with an action or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his being a representative, director or
officer of the corporation or serving at the request of the corporation as a
representative of another corporation, partnership, joint venture, trust or
other enterprise, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. Under Section 1743, indemnification is mandatory to the
extent that an officer or director has been successful on the merits or
otherwise in defense of any action or proceeding if the appropriate standards of
conduct are met.
Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct, and such determination will be made by the board
of directors: (i) by a majority vote of a quorum of directors not parties to the
action or proceeding; (ii) if a quorum of directors not parties to the action is
not obtainable, or if obtainable and a majority of disinterested directors so
directs, by independent legal counsel; or (iii) by the shareholders.
Section 1745 provides that expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action or proceeding may be
paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding that office.
Section 1747 grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred by
him or her in his or her capacity as an officer and/or
II-1
<PAGE>
director, whether or not the corporation would have the power to indemnify him
or her against the liability under Subchapter 17D of the BCL.
Sections 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations resulting from consolidation, merger or division.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL, shall, unless
otherwise provided when authorized or ratified, continue as to a person unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.
The Bylaws of Genesis provide in general that Genesis shall indemnify its
officers and directors to the fullest extent authorized by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
NUMBER DOCUMENT
- ------ --------
2.1 Agreement and Plan of Merger dated April 26, 1998, by and among
Vitalink Pharmacy Services, Inc., a Delaware corporation, Genesis
Health Ventures, Inc. ("Genesis"), a Pennsylvania corporation and V
Acquisition Corporation, a Delaware corporation and wholly owned
subsidiary of Genesis. (Included in Part I of this Registration
Statement as Appendix A to the Joint Proxy Statement-Prospectus).
2.2 (15) Rights Agreement, dated as of April 26, 1998, by and between Genesis
and Manor Care Inc., a Delaware corporation.
2.3 (15) Voting Agreement, dated as of April 26, 1998 among Genesis, Manor
Care, Inc., a Delaware corporation and Manor Healthcare Services,
Inc., a Delaware corporation.
2.4 (1) Agreement and Plan of Reorganization, dated September 19, 1993, by and
among Genesis, MI Acquisition Corporation, a Pennsylvania corporation
and a wholly-owned subsidiary of Genesis, MHC Acquisition Corporation,
a Pennsylvania corporation and a wholly-owned subsidiary of Genesis,
PEI Acquisition Corporation, a Pennsylvania corporation and a wholly-
owned subsidiary of Genesis, TW Acquisition Corporation, a
Pennsylvania corporation and a wholly-owned subsidiary of Genesis, SRS
Acquisition, a Pennsylvania corporation and a wholly-owned subsidiary
of Genesis, Meridian Healthcare, Inc., a Maryland corporation,
Meridian Inc., a Maryland corporation ("MI"), Pharmacy Equities, Inc.,
a Maryland corporation, The Tidewater Healthcare Shared Services
Group, Inc., a Maryland corporation, Staff Replacement Services, Inc.,
a Maryland corporation, Michael J. Batza, Jr., Edward A. Burchell,
Earl L. Linehan, Roger C. Lipitz and Arnold I. Richman (collectively
the "Reorganization Agreement").
II-2
<PAGE>
2.5 (2) Amended and Restated Amendment to Reorganization Agreement dated
November 23, 1993.
2.6 (3) Agreement made as of the 18th day of August, 1995 by and among
Genesis, and Accumed, Inc., a New Hampshire corporation, McKerley
Health Care Centers, Inc., a New Hampshire corporation, McKerley
Health Care Center-Concord, Inc., a New Hampshire corporation,
McKerley Health Facilities, a New Hampshire general partnership and
McKerley Health Care Center-Concord, L.P., a New Hampshire limited
partnership (collectively, the "Purchase Agreement").
2.7 (4) Amendment Number One to Purchase Agreement dated November 30, 1995.
2.8 (9) Stock Purchase Agreement, dated April 21, 1996, by and among Genesis,
and NeighborCare Pharmacies, Inc., a Maryland corporation,
Professional Pharmacy Services, Inc., a Maryland corporation, Medical
Services Group, Inc., a Maryland corporation, CareCard, Inc., a
Maryland corporation, Transport Services, Inc., a Maryland
corporation, Michael G. Bronfein, Jessica Bronfein, Stanton G. Ades,
Renee Ades, The Chase Manhattan Bank, N.A. and PPS Acquisition Corp.,
a Maryland corporation and a wholly-owned subsidiary of Genesis.
2.9 (9) Merger Agreement, dated April 21, 1996, by and among Professional
Pharmacies, Inc., Genesis and PPS Acquisition Corp.
2.10 (10) Purchase Agreement, dated May 3, 1996, by and among Mark E. Hamister,
Oliver C. Hamister, George E. Hamister, Julia L. Hamister, The George
E. Hamister Trust, The Oliver C. Hamister Trust, National health Care
Affiliates, Inc., Oak Hill Health Care Center, Inc., Derby Nursing
Center Corporation, Delaware Avenue Partnership, EIDOS, Inc.,
VersaLink Inc., certain other individuals and Genesis.
2.11 (10) Purchase Agreement Addendum, dated July 24, 1996, by and among Mark
E. Hamister, Oliver C. Hamister, George E. Hamister, Julia L.
Hamister, The George E. Hamister Trust, The Oliver C. Hamister Trust,
National Health Care Affiliates, Inc., Oak Hill Health Care Center,
Inc., Derby Nursing Center Corporation, Delaware Avenue Partnership,
EIDOS, Inc., VersaLink Inc., certain other individuals and Genesis.
2.12 (12) Agreement and Plan of Merger, dated as of July 11, 1996, by and among
Genesis, Acquisition Corporation, a Delaware corporation, and
Geriatric & Medical Companies, Inc., a Delaware corporation.
2.13 (14) Stock Purchase Agreement dated October 10, 1997 among Genesis, The
Multicare Companies, Inc., Concord Health Group, Inc., Horizon
Associates, Inc., Horizon Medical Equipment and Supply, Inc.,
Institutional Health Services, Inc. Care4 L.P., Concord Pharmacy
Services, Inc., Compass Health Services, Inc. and Encare of
Massachusetts, Inc.
2.14 (14) Asset Purchase Agreement dated October 11, 1997 among Genesis, The
Multicare Companies, Inc., Health Care Rehab Systems, Inc., Horizon
Rehabilitation, Inc., Progressive Rehabilitation Centers, Inc., and
Total Rehabilitation Centers, L.L.C.
II-3
<PAGE>
2.15 (14) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis
ElderCare Corp., Genesis ElderCare Acquisition Corp., Genesis, and the
Multicare Companies, Inc.
4.1 (2) Indenture dated as of November 30, 1993, between Genesis and First
Fidelity Bank, N.A., Pennsylvania.
4.2 (5) Specimen of Common Stock Certificate.
4.3 (6) Specimen of Genesis's First Mortgage Bonds (Series A) due 2007.
4.4 (7) Indenture of Mortgage and Deed of Trust, dated as of September 1,
1992, by and among Genesis, Delaware Trust Company and Richard N.
Smith.
4.5 (8) Rights Agreement between Genesis and Mellon Securities Trust Company.
4.6 (11) Indenture dated as of June 15, 1995 between Genesis and Delaware
Trust Company.
4.7 (11) Specimen of the Genesis 9-3/4% Senior Subordinated Debentures due
2005.
4.8 (13) Indenture dated as of October 7, 1996 between Genesis and First
Union National Bank.
4.9 (13) Specimen of the Genesis 9-1/4% Senior Subordinated Notes due 2006.
5.1 Opinion of Blank Rome Comisky & McCauley LLP.
8.1 Opinion of Blank Rome Comisky & McCauley regarding Federal income tax
matters (Included in Part I of this Registration Statement under the
heading "Certain Federal Income Tax Consequences").
8.2 Opinion of Cahill Gordon & Reindel regarding federal income tax
matters (Included in Part I of this Registration Statement under the
heading "Certain Federal Income Tax Consequences").
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen, LLP.
23.3 Consent of Blank Rome Comisky & McCauley LLP. (Included with Exhibit
5.1)
23.4 Consent of Cahill Gordon & Reindel.
24.1 Power of attorney of certain signatories (set forth on the Signature
Page in Part II of this Registration Statement).
99.1 Side Agreement by and among the Company, Vitalink Pharmacy Services,
Inc., a Delaware corporation and Manor Care, Inc., a Delaware
corporation, dated April 26, 1998.
99.2 Genesis Proxy Card.
99.3 Vitalink Proxy Card.
________________
(1) Incorporated by reference to the Company's Form 8-K dated September 19,
1993.
(2) Incorporated by reference to the Company's Form 8-K dated November 30,
1993.
II-4
<PAGE>
(3) Incorporated by reference to the Company's Form 8-K dated August 18, 1995.
(4) Incorporated by reference to the Company's Form 8-K dated November 30,
1995.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-40007).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-51670).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
(9) Incorporated by reference to Form 8-K, as amended, dated May 3, 1996.
(10) Incorporated by reference to Form S-3, dated June 20, 1995 (File No.33-
9350).
(11) Incorporated by reference to Form 8-K, as amended, dated July 11, 1996.
(12) Incorporated by reference to Form S-4, dated October 31, 1996 (File No.333-
15267).
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
(14) Incorporated by reference to Genesis Health Ventures, Inc.'s Current Report
on Form 8-K dated October 10, 1997.
(15) Incorporated by reference to the Company's Quarterly Report for the quarter
ended March 31, 1998.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 (' 230.415 of this chapter), will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective,
II-6
<PAGE>
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the Company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Kennett Square, Pennsylvania, on the
date indicated.
GENESIS HEALTH VENTURES, INC.
Date: June 30, 1998 By: /s/ Michael R. Walker
--------------------------
Michael R. Walker,
Chairman, Chief Executive Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael R. Walker and Richard R. Howard and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution or resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documentation in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ ---------------------------------- ------------------
<S> <C> <C>
Chairman, Director and Chief
/s/ Michael R. Walker Executive Officer June 30, 1998
- ------------------------------
Michael R. Walker
President, Chief Operating
/s/ Richard R. Howard Officer and Director June 30, 1998
- ------------------------------
Richard R. Howard
Senior Vice President and
/s/ George V. Hager, Jr. Chief Financial Officer June 30, 1998
- ------------------------------
George V. Hager, Jr.
Vice President and Corporate
/s/ James V. McKeon Controller June 30, 1998
- ------------------------------
James V. McKeon
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------- ------------------------ --------------------------
<S> <C> <C>
- ------------------------------- Director June __, 1998
Allen R. Freedman
/s/ Samuel H. Howard June 30, 1998
- ------------------------------- Director
Samuel H. Howard
/s/ Roger C. Lipitz June 30, 1998
- ------------------------------- Director
Roger C. Lipitz
/s/ Stephen E. Luongo June 30, 1998
- ------------------------------- Director
Stephen E. Luongo
/s/ Alan B. Miller June 30, 1998
- ------------------------------- Director
Alan B. Miller
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT SEQUENTIAL PAGE #
- --------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated April 26,
1998, by and among Vitalink Pharmacy Services,
Inc., a Delaware corporation, Genesis Health
Ventures, Inc. ("Genesis"), a Pennsylvania
corporation and V Acquisition Corporation, a
Delaware corporation and wholly owned
subsidiary of Genesis. (Included in Part I of
this Registration Statement as Appendix A to
the Joint Proxy Statement-Prospectus).
5.1 Opinion of Blank Rome Comisky McCauley LLP
regarding the legality of the securities
registered.
8.1 Opinion of Blank Rome Comisky & McCauley LLP regarding
federal income tax matters (Included in Part I of the
Registration Statement under the heading "Certain Federal
Income Tax Consequences").
8.2 Opinion of Cahill Gordon & Reindel regarding federal
income tax matters (Included in Part I of the Registration
Statement under the heading "Certain Federal Income Tax
Consequences").
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen, LLP.
23.3 Consent of Blank Rome Comisky McCauley LLP. (Included in
Exhibit 5.1)
23.4 Consent of Cahill Gordon & Reindel
24.1 Power of Attorney set forth on the signature
page in Part II of the Registration Statement.
27 Financial Data Schedule.
99.1 Side Agreement by and among Genesis Health
Venture, Inc., a Pennsylvania corporation,
Vitalink Pharmacy Services, Inc., a Delaware
corporation and Manor Care, Inc., a Delaware
corporation dated April 26, 1998.
99.2 Genesis Proxy Card.
99.3 Vitalink Proxy Card.
</TABLE>
II-10
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BLANK ROME COMISKY & McCAULEY LLP]
June 30, 1998
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Gentlemen:
We have acted as counsel to Genesis Health Ventures, Inc. (the "Company")
in connection with the preparation of the Registration Statement on Form S-4
("Registration Statement") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the registration of 609,942 shares of Series G Cumulative Convertible Preferred
Stock, par value $.01 per share ("Preferred Stock"). The Preferred Stock will be
issued pursuant to the Agreement and Plan of Merger dated April 26, 1998 by and
among the Company, Vitalink Pharmacy Services, Inc. and V Acquisition
Corporation, a wholly-owned subsidiary of the Company, (the "Merger Agreement").
This opinion is furnished pursuant to the requirement of Item 601(b)(5) of
Regulation S-K.
Although as counsel to the Company we have advised the Company in
connection with a variety of matters referred to us by it, our services are
limited to specific matters so referred. Consequently, we may not have knowledge
of many transactions in which the Company has engaged or its day-to-day
operations.
In rendering this opinion, we have examined the following documents: (i)
the Company's Articles of Incorporation and Bylaws, (ii) the Company's Minute
Books; (iii) the Registration Statement; (iv) the Merger Agreement; and (v) a
certification from the Company's transfer agent. We have assumed and relied, as
to questions of fact and mixed questions of law and fact, on the truth,
completeness, authenticity and due authorization of all documents and records
examined and the genuineness of all signatures. We have also assumed that prior
to the issuance of the Preferred Stock, the Certificate of Designation of the
Preferred Stock attached as Schedule I to the merger agreement (the "Certificate
of Designation") will have been duly filed with the Department of State of the
Commonwealth of Pennsylvania.
We have not made any independent investigation in rendering this opinion
other than the document examination described. Our opinion is therefore
qualified in all respects by the scope of that document examination. We make no
representation as to the sufficiency of our investigation for your purposes.
This opinion is limited to the laws of the Commonwealth of Pennsylvania. In
rendering this opinion we have assumed (i) compliance with all other laws,
including federal laws and (ii) compliance with all Pennsylvania securities and
antitrust laws.
Based upon and subject to the foregoing, we are of the opinion (i) that the
shares of Preferred Stock, when issued in accordance with the provision of the
Merger Agreement and (ii) that the shares of the Company's Common Stock, par
value $.02 per share, which may be issued upon conversion of the Preferred
Stock, when issued by the Company in accordance with the provisions of the
Certificate of Designation will be legally issued, fully paid and non-
assessable.
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to our attention or any changes in laws which may hereafter
occur.
This opinion is strictly limited to the matters stated herein and no other
or more extensive opinion is intended, implied or to be inferred beyond the
matters expressly stated herein.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the captions "Certain Federal
Income Tax Consequences" and "Legal Matters" in the Registration Statement.
Sincerely,
/s/ Blank Rome Comisky & McCauley LLP
-------------------------------------
BLANK ROME COMISKY & McCAULEY LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
Genesis Health Ventures, Inc.
We consent to the use of our reports on the consolidated financial statements of
Genesis Health Ventures, Inc. and subsidiaries at September 30, 1997 and 1996,
and for each of the years in the three-year period ended September 30, 1997 and
the related schedules included in the Genesis Health Ventures, Inc. Annual
Report on Form 10-K, as amended, incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the joint proxy
statement/prospectus of Genesis Health Ventures, Inc. and Vitalink Pharmacy
Services, Inc.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 30, 1998
<PAGE>
Consent of Independent Auditors
-------------------------------
The Board of Directors
Genesis Health Ventures, Inc.
We consent to the use of our reports on the consolidated financial statements of
The Multicare Companies, Inc. and subsidiaries as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31, 1996
and the related schedules included in The Multicare Companies, Inc. 1996 Annual
Report on Form 10-K incorporated herein by reference in Genesis' Form 8-K/A
dated December 23, 1997, and to the reference to our firm under the heading
"Experts" in the joint proxy statement/prospectus of Genesis Health Ventures,
Inc. and Vitalink Pharmacy Services, Inc.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 30, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-4 registration statement of our reports dated June 27,
1997 included in Vitalink Pharmacy Services, Inc.'s 10-K/A for the fiscal year
ended May 31, 1997 and to all references to our Firm included in this
registration statement .
Arthur Andersen LLP
Washington, D.C.
June 30, 1998
<PAGE>
Exhibit 23.4
[CAHILL GORDON & REINDEL LETTERHEAD]
June 29, 1998
(212) 701-3000
Dear Sirs:
We hereby consent to the reference to our firm appearing under the
caption "Certain Federal Income Tax Consequences" and "Legal Matters" in the
Joint Proxy Statement/Prospectus forming part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
person whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ CAHILL GORDON & REINDEL
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000874265
<NAME> GENESIS HEALTH VENTURES, INC. & SUBSIDIARIES
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 15,574,000 13,835,000
<SECURITIES> 18,839,000 0
<RECEIVABLES> 309,212,000 233,518,000
<ALLOWANCES> (53,095,000) (36,531,000)
<INVENTORY> 35,778,000 24,866,000
<CURRENT-ASSETS> 440,290,000 320,140,000
<PP&E> 680,366,000 633,540,000
<DEPRECIATION> (107,617,000) (77,879,000)
<TOTAL-ASSETS> 1,917,012,000 1,341,213,000
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</TABLE>
<PAGE>
EXHIBIT 99.1
SIDE AGREEMENT
April 26, 1998
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, Maryland 20878
Vitalink Pharmacy Services, Inc.
1250 East Diehl Road, Suite 208
Naperville, Illinois 60563
Attention:
Ladies and Gentlemen:
Genesis Health Ventures, Inc. ("Genesis") and Vitalink Pharmacy
Services, Inc. ("Vitalink") have executed on even date herewith an Agreement and
Plan of Merger (the "Merger Agreement") whereby Genesis will acquire Vitalink
through merger (the "Merger").
This agreement is intended to set forth the agreements and
understandings between Manor Care, Inc. ("Manor Care"), Vitalink and Genesis
relating to the subject matter hereof. All capitalized terms used herein have
the definitions ascribed to such terms in the Merger Agreement.
In consideration of, and as a condition and material inducement to,
Genesis's willingness to enter into the Merger Agreement with Vitalink, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the undersigned on behalf of Manor Care and Vitalink,
respectively, confirms this agreement with Genesis as follows:
1. Manor Care agrees to indemnify and hold harmless Genesis and its
directors and officers, its agents and representatives retained in connection
with the Merger Agreement, and Vitalink from any and all liabilities,
proceedings, suits, actions proceedings, hearings, investigations, charges,
complaints, claims, demands, injunctions, judgments, orders, decrees, rulings,
damages, dues, penalties, fines, costs, amounts paid in settlement, losses,
expenses and fees and, subject to Section 4, attorneys' fees and expenses
(including any liability to a director, agent, representative or employee of
Vitalink under any provisions contained in the Articles of Incorporation or
Bylaws of Vitalink or any agreement of Vitalink existing at or prior to the
Effective Time to the extent not covered by insurance) which arise out of or
relate to any shareholder's allegation or claim that the Board of Directors of
Vitalink, as constituted at or prior to the Effective Time, has violated its
fiduciary duties or other obligations to the shareholders of Vitalink in
approving the Merger Agreement and the transactions contemplated thereby.
2. Manor Care agrees to indemnify and hold harmless Vitalink and its
subsidiaries for the taxes, interest and penalties of any person other than
Vitalink and its subsidiaries under Treasury Regulation Section 1.1502-6 for
periods during which Vitalink was a member of Manor Care's affiliated group for
U.S. federal income tax purposes (or any similar provision of state, local or
foreign law) in excess of the
<PAGE>
amount of taxes, interest and penalties allocated to Vitalink pursuant to the
Tax Agreement between Manor Care, Inc. and Total Care Pharmacy Services, Inc.,
dated June 1, 1991.
3. Each of Manor Care and Vitalink agrees that from and after the
Effective Time, such party shall not take any action against the other to
collect any amounts for services rendered by such party to the other prior to
the Effective Time, except for amounts for which such party has billed the other
as of the Effective Time as reflected in the books and records of such other
party as of the Effective Time and amounts owed to Vitalink for services
rendered to Manor Care's patients prior to the Effective Time.
4. Manor Care agrees to indemnify and hold harmless Vitalink and its
Subsidiaries against all losses, claims, damages, expenses or liabilities
("Losses") arising out of or related to any claim or action against Vitalink or
its subsidiaries prior to the third anniversary of the Effective Time, in the
case of clauses (i) and (ii) of this Section 4, and prior to the term of the
applicable statute of limitations, in the case of clause (iii) of this Section
4, based upon (i) any action or omission by Manor Care in providing billing and
collection services to Vitalink and its subsidiaries or (ii) any action or
omission by Manor Care in billing and collecting amounts payable or reimbursable
in respect of services rendered by Vitalink to Manor Care and its patients prior
to the Effective Time or (iii) allegations of fraud or any violations of
applicable law, rule or regulation by Manor Care or its Subsidiaries (other than
Vitalink and its Subsidiaries) arising out of the execution of the Contracts or
the illegality or alleged illegality of any provision of the Contracts;
provided, however, that the indemnification provided for under this Section 4
- -------- --------
shall not be available with respect to any Losses arising out of or based upon
any claim or action against Vitalink or its Subsidiaries (x) alleging that
amounts indicated by Vitalink as due and owing for providing services to
patients of Manor Care was not reasonable, was in excess of amounts owed or was
otherwise improperly paid and (y) alleging fraud or any violations of applicable
law by Vitalink or any of its Subsidiaries. As used in this agreement,
"Contracts" shall mean the Master Agreement for Pharmacy Services, Master
Pharmacy Consulting Agreement and Master Agreement for Infusion Therapy Products
and Services, each between Vitalink and ManorCare Health Services, Inc., as
amended and in effect as of the date hereof.
5. If any action is brought against an indemnified party in Sections
1, 2, 3 or 4 above, such indemnified party shall promptly notify the
indemnifying party in writing of the institution of such action. The
indemnifying party shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to Genesis. The omission to notify
Manor Care as required herein shall not relieve Manor Care from any liability
which it may have to any indemnified party, except to the extent Manor Care is
prejudiced by such omission. Manor Care shall not be liable for any settlement
of any such claim or action effected without its written consent, but if settled
with the written consent of Manor Care, Manor Care agrees to indemnify and hold
harmless any indemnified party from and against any loss or liability by reason
of such settlement. Manor Care shall not, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in which any indemnified party is or could have been a party and for
which indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
6. (a) Noncompetition. For a period of ten (10) years after the
--------------
date hereof (the "Term") neither Manor Care nor any of its affiliates shall,
directly or indirectly engage in the institutional pharmacy business in any
state in which Genesis or any affiliate of Genesis now or at anytime during the
Term owns or operates an institutional pharmacy business (the "Territory"), or
establish, acquire, engage, own, manage, operate, or control, or participate in
the establishment, ownership, management, operation or control of any Person in
the institutional pharmacy business in the Territory. Notwithstanding the
foregoing, Manor
<PAGE>
Care may acquire an entity which among other businesses owns and operates an
institutional pharmacy business so long as the institutional pharmacy business
is not the primary business of the acquired entity and the institutional
pharmacy business is sold within one year of its acquisition. It is understood
that this Section 6 is for the benefit of Genesis and any third party to whom
Genesis sells any of the institutional pharmacies of Vitalink. As used herein,
"institutional pharmacy business" means the services provided under the
Contracts.
(b) Enforcement. Manor Care acknowledges that any breach by Manor
-----------
Care of any of the covenants and agreements of this Section 6 (the "Covenants")
will result in irreparable injury to Vitalink and Genesis for which money
damages could not adequately compensate Vitalink, and therefore, in the event of
any such breach, Vitalink and Genesis shall be entitled, in addition to all
other rights and remedies which Vitalink or Genesis may have at law or in
equity, to have an injunction issued by any competent court enjoining and
restraining Manor Care and/or all other Persons involved therein from continuing
such breach.
(c) Scope. If any portion of any Covenant or its application is
-----
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
(d) Termination. If the term of the Contracts has been extended
-----------
through September 30, 2008 by virtue of automatic renewal or otherwise, these
provisions shall terminate.
7. This agreement will be governed and construed in accordance with
the laws of the State of Delaware.
8. This agreement shall be effective from and after the Effective
Time. If the Merger is not consummated this shall terminate and be of no further
force or effect. This agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
9. Nothing in this agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this agreement.
10. This letter agreement shall be binding upon Manor Care and its
successors and assigns and upon any entity to which all or substantially all of
the assets of Manor Care and its subsidiaries taken as a whole are transferred
in any corporate reorganization, division, split-up or spin-off; provided,
--------
however, that Manor Care may assign all of its rights and obligations under this
- -------
agreement to a direct or indirect subsidiary of Manor Care which is to be spun
off as provided in the Form 10 filed with the Securities and Exchange Commission
by New ManorCare Health Services, Inc. and Manor Care shall be released from any
further obligations under or with respect to this agreement.
11. This agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement
<PAGE>
or condition otherwise required to be complied with by such other party
hereunder, but any such waiver shall be effective only in writing executed by
the waiving party.
12. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid.
13. In case any one or more of the provisions contained in this
agreement should be invalid, illegal or unenforceable in any respect against a
party hereto, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby
and such invalidity, illegality or unenforceability shall only apply as to such
party in the specific jurisdiction where such judgment shall be made.
14. All rights, powers and remedies provided under this agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any rights, powers and remedies by any
party shall not preclude the simultaneous or subsequent exercise of any other
such right, power or remedy by such party. The failure of any party hereto to
exercise any right, power or remedy provided under this agreement or otherwise
available in respect hereof at law or in equity, or to insist upon compliance by
any other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not constitute
a waiver by such party of its right to exercise any such or other right, power
or remedy or to demand such compliance.
15. This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
If you agree with the foregoing, please so indicate by signing and
returning one executed copy of this letter, which will constitute our agreement
with respect to the subject matter of this letter.
Very truly yours,
GENESIS HEALTH VENTURES, INC.
By: /s/ Ira C. Gubernick
------------------------------------
Name: Ira C. Gubernick
Title: General Counsel - Corporate
and Secretary
Confirmed and Agreed as of the date written above:
MANOR CARE, INC.
By: /s/ James H. Rempe
------------------------------------
Name: James H. Rempe
Title: Senior Vice President
VITALINK PHARMACY SERVICES, INC.
By: /s/ Scott T. Macomber
------------------------------------
Name: Scott T. Macomber
Title: Senior Vice President
