<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 1-11666
GENESIS HEALTH VENTURES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-1132947
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
148 West State Street
Kennett Square, Pennsylvania 19348
(Address, including zip code, of principal executive offices)
(610) 444-6350
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
YES [ x ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of February 9, 1998: 35,135,220 shares of common stock
<PAGE>
TABLE OF CONTENTS
Page
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS....................1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements.......................................2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings.........................................15
Item 2. Changes in Securities.....................................15
Item 3. Defaults Upon Senior Securities...........................15
Item 4 Submission of Matters to a Vote of Security Holders.......15
Item 5. Other Information.........................................15
Item 6. Exhibits and Reports on Form 8-K..........................15
SIGNATURES .................................................................17
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements concerning Medicaid and Medicare programs and the Company's
ability to meet its liquidity needs and control costs, certain statements in
Notes to Condensed Consolidated Financial Statements, such as certain Pro Forma
Financial Information; and other statements contained herein regarding matters
which are not historical facts are forward looking statements (as such term is
defined in the Securities Act of 1933) and because such statements involve risks
and uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to those discussed
below:
1. The Company's substantial indebtedness and significant debt service
obligations.
2. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth through acquisition and
development, as well as internal growth.
3. Changes in the United States healthcare system, including changes in
reimbursement levels under Medicaid and Medicare, and other changes in
applicable government regulations that might affect the profitability of
the Company.
4. The Company's continued ability to operate in a heavily regulated
environment and to satisfy regulatory authorities, thereby avoiding a
number of potentially adverse consequences, such as the imposition of
fines, temporary suspension of admission of patients, restrictions on the
ability to acquire new facilities, suspension or decertification from
Medicaid or Medicare programs, and, in extreme cases, revocation of a
facility's license or the closure of a facility, including as a result of
unauthorized activities by employees.
5. The occurrence of changes in the mix of payment sources utilized by the
Company's customers to pay for the Company's services.
6. The adoption of cost containment measures by private pay sources such as
commercial insurers and managed care organizations, as well as efforts by
governmental reimbursement sources to impose cost containment measures.
7. The level of competition in the Company's industry, including without
limitation, increased competition from acute care hospitals, providers of
assisted and independent living and providers of home health care and
changes in the regulatory system, such as changes in certificate of need
laws in the states in which the Company operates or anticipates operating
in the future that facilitate such competition.
8. The Company's ability to identify suitable acquisition candidates, to
consummate or complete development projects, or to profitably operate or
successfully integrate enterprises into the Company's other operations.
These and other factors have been discussed in more detail in the Company's
periodic reports including its Annual Report on Form 10-K/A for the fiscal
year ended September 30, 1997.
1
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Genesis Health Ventures, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
- -------------------------------------------------------------------------------------------------------------------------------
1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 13,528 $ 11,651
Investments in marketable securities 15,327 14,729
Assets held for sale 89,920 -
Accounts receivable, net of allowance for doubtful accounts of
$43,396 at December 31, 1997 and $39,418 at September 30, 1997 225,121 205,129
Cost report receivables 62,144 60,865
Income tax receivable 2,560 7,820
Inventory 28,505 25,568
Prepaid expenses and other current assets 29,823 26,675
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 466,928 352,437
- -------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 544,702 578,397
Notes receivable and other investments 104,098 108,714
Other long-term assets 58,225 31,722
Investments in unconsolidated affiliates 330,149 2,887
Goodwill and other intangibles, net 388,146 359,956
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,892,248 1,434,113
===============================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 109,711 $ 117,234
Current installments of long-term debt 29,259 8,273
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 138,970 125,507
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,086,457 651,667
Deferred income taxes 38,513 37,745
Deferred gain and other long-term liabilities 13,519 11,173
Shareholders' equity:
Common stock, par $.02, authorized 60,000,000 shares, issued and
outstanding 35,125,027 and 35,079,426 at December 31, 1997;
35,117,075 and 35,071,474 at September 30, 1997 719 702
Additional paid-in capital 453,085 457,232
Retained earnings 161,228 150,330
Treasury stock, at cost (243) (243)
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 614,789 608,021
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,892,248 $ 1,434,113
===============================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months
ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues:
Basic healthcare services $ 138,016 $ 134,092
Specialty medical services 142,665 114,179
Management services and other, net 21,884 10,273
- -------------------------------------------------------------------------------------------------------------------------
Total net revenues 302,565 258,544
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Salaries, wages and benefits 140,354 125,055
Other operating expenses 92,988 80,132
General corporate expense 12,037 9,622
Depreciation and amortization 11,686 9,481
Lease expense 6,643 6,938
Interest expense, net 19,643 9,195
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 19,214 18,121
Income taxes 7,013 6,613
- -------------------------------------------------------------------------------------------------------------------------
Earnings before equity of unconsolidated affiliates
and extraordinary item 12,201 11,508
Earnings in equity of unconsolidated affiliates 621 -
- -------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 12,822 11,508
Extraordinary item, net of tax (1,924) (553)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 10,898 $ 10,955
=========================================================================================================================
Per common share data:
Basic:
Earnings before extraordinary item $ 0.37 $ 0.35
Extraordinary item (0.05) (0.02)
Net income $ 0.31 $ 0.33
Weighted average shares of common stock 35,079,426 33,096,946
- -------------------------------------------------------------------------------------------------------------------------
Diluted:
Earnings before extraordinary item $ 0.36 $ 0.33
Extraordinary item (0.05) (0.01)
Net income $ 0.31 $ 0.32
Weighted average shares of common stock and equivalents 35,594,481 35,378,703
=========================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,898 $ 10,955
Adjustments to reconcile net income to
net cash provided by operating activities:
Charges (credits) included in operations not requiring funds:
Provision for deferred taxes 1,753 1,653
Depreciation and amortization 11,686 9,481
Amortization of deferred gain - (115)
Amortization of debt premium (98) -
Equity in earnings of unconsolidated affiliates (621) -
Extraordinary loss 1,924 553
Changes in assets and liabilities excluding the effects of acquisitions
Accounts receivable (12,312) (15,543)
Cost reports receivable (1,357) (7,012)
Inventory (2,812) (3,344)
Prepaid expenses and other current assets (1,618) (962)
Accounts payable and accrued expenses (8,622) (6,132)
Income taxes receivable and payable 5,260 3,863
- --------------------------------------------------------------------------------------------------------------------------
Total adjustments (6,817) (17,558)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 4,081 (6,603)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (10,925) (13,949)
Payments for acquisitions, net of cash acquired (41,174) (222,170)
Investments in unconsolidated affiliates (326,641) -
Cash paid for assets held for sale (20,109) -
Notes receivable and other investment and asset additions, net (12,805) 369
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (411,654) (235,750)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings (repayments) under working capital revolving credit (164,800) 118,113
Repayment of long term debt (1,973) (1,780)
Proceeds from issuance of long-term debt 600,000 125,000
Debt issuance costs (19,648) (3,750)
Purchase of common stock call options (4,442) -
Common stock options exercised 313 147
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 409,450 237,730
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 1,877 (4,623)
Cash and equivalents
Beginning of period 11,651 12,763
End of period $ 13,528 $ 8,140
==========================================================================================================================
Supplemental disclosure of cash flow information
Interest paid $ 22,550 $ 7,198
Income taxes paid $ - $ 1,774
==========================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
GENESIS HEATLH VENTURES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's annual report for the fiscal year ended
September 30, 1997. The information furnished is unaudited but reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial information for the periods shown. Such
adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results expected for the full year. Certain prior
period balances have been reclassified to conform with the current period
presentation.
2. Earnings Per Share
In the first quarter of 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128).
Statement 128, which makes the standards for computing earnings per share more
comparable to international standards, replaces the presentation of primary and
fully diluted earnings per share with a presentation of basic and diluted
earnings per share. Statement 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement of all entities
with complex capital structures. The Company has restated its earnings per share
data for the three months ended December 31, 1996 to conform to the provisions
of Statement 128.
3. Long-Term Debt
In October 1997, in connection with the Multicare Transaction (defined below),
Genesis entered into a new credit facility with Mellon Bank, N.A., Citicorp
Securities, Inc., Citibank N.A., First Union Capital Markets Corp., First Union
National Bank and NationsBank, N.A. (the "Lenders") pursuant to which the
Lenders provided Genesis and its subsidiaries with loan facilities totaling
$850,000,000 (the "Genesis Bank Financing") for the purpose of refinancing
certain existing indebtedness of Genesis; funding interest and principal
payments on the facilities and certain remaining indebtedness; funding permitted
acquisitions; funding Genesis' commitments in connection with the Merger
(defined below); and funding Genesis' and its subsidiaries' working capital for
general corporate purposes, including fees and expenses of the transactions. The
Genesis Bank Financing facilities consist of three $200,000,000 term loans
(collectively, the "Term Loans"), a $250,000,000 revolving credit loan (the
"Revolving Credit Facility") and one or more Swing Loans (collectively, the
"Swing Loan Facility") in integral principal multiples of $500,000 up to an
aggregate unpaid principal amount of $15,000,000. The Term Loans amortize in
quarterly installments beginning in fiscal 1998 through 2005, of which
$19,000,000 is payable in fiscal 1998. The Term Loans consist of (1) a
$200,000,000 six year term loan (the "Tranche A Term Facility"); (2) a
$200,000,000 seven year term loan (the "Tranche B Term Facility"); and (3) a
$200,000,000 eight year term loan (the "Tranche C Term Facility"). The Revolving
Credit Facility becomes payable in full on September 30, 2003.
The Genesis Bank Financing facilities are secured by a first priority security
interest in all of the stock, partnership interests and other equity of all of
Genesis' present and future subsidiaries (including the Multicare Parent)
other than stock of Multicare and its subsidiaries. Loans under the Genesis
Bank Financing bear, at Genesis' option, interest at the per annum Prime Rate
as announced by the administrative agent, or the applicable Adjusted LIBOR.
Loans under the Tranche A Term Facility bear interest at an annual rate equal
to LIBOR plus a margin up to 2.5%, loans under the Tranche B Term Facility
bear interest at an annual rate equal to LIBOR plus a margin up to 2.75%;
loans under the Tranche C Term Facility bear interest at an annual rate equal
to LIBOR plus a margin up to 3.0%; loans under the Revolving Credit Facility
bear interest at a rate equal to LIBOR plus a margin up to 2.5%, and loans
under the Swing Loan Facility bear interest at the Prime Rate unless otherwise
agreed to by the parties. Subject to meeting certain financial covenants, the
above referenced interest rates will be reduced.
5
<PAGE>
4. Proforma Financial Information
On October 9, 1997 Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a
wholly-owned subsidiary of Genesis ElderCare Corp., a Delaware corporation
formed by Genesis, The Cypress Group L.L.C. (together with its affiliates,
"Cypress"), TPG Partners II, L.P., (together with its affiliates, "TPG") and
Nazem, Inc. (together with its affiliates "Nazem"), acquired 99.65% of the
shares of common stock of the Multicare Companies, Inc. ("Multicare"), pursuant
to a tender offer commenced on June 20, 1997 (the "Tender Offer"). On October
10, 1997, Genesis ElderCare Corp. completed the merger (the "Merger" or the
"Multicare Transaction") of Acquisition Corp. with and into Multicare in
accordance with the Agreement and Plan of Merger (the "Merger Agreement") dated
as of June 16, 1997, by and among Genesis ElderCare Corp., Acquisition Corp.,
Genesis and Multicare. Upon consummation of the Merger, Multicare became a
wholly-owned subsidiary of Genesis ElderCare Corp. Multicare is in the business
of providing eldercare and specialty medical services in selected geographic
regions. Included among the operations acquired by Genesis ElderCare Corp. are
operations relating to the provision of ( i ) eldercare services including
skilled nursing care, assisted living, Alzheimer's care and related support
activities traditionally provided in eldercare facilities, (ii) specialty
medical services consisting of (1) sub-acute care such as ventilator care,
intravenous therapy and various forms of coma, pain and wound management and (2)
rehabilitation therapies such as occupational, physical and speech therapy and
stroke and orthopedic rehabilitation and (iii) management services and
consulting services to eldercare centers.
In connection with the Merger, Multicare and Genesis entered into a management
agreement (the "Management Agreement") pursuant to which Genesis manages
Multicare's operations. The Management Agreement has a term of five years with
automatic renewals for two years unless either party terminates the Management
Agreement. Genesis is paid a fee of six percent of Multicare's net revenues
for its services under the Management Agreement provided that payment of such
fee in respect of any month in excess of the greater of ( i ) $1,992,000 or
(ii) four percent of Multicare's consolidated net revenues for such month,
shall be subordinate to the satisfaction of Multicare's senior and subordinate
debt covenants; and provided, further, that payment of such fee shall be no
less than $23,900,000 in any given year. Under the Management Agreement,
Genesis is responsible for Multicare's non-extraordinary sales, general and
administrative expenses (other than certain specified third-party expenses),
and all other expenses of Multicare are paid by Multicare. Genesis also
entered into an asset purchase agreement (the "Therapy Purchase Agreement")
with Multicare and certain of its subsidiaries pursuant to which Genesis
acquired all of the assets used in Multicare's outpatient and inpatient
rehabilitation therapy business for $24,000,000 subject to adjustment (the
"Therapy Purchase") and a stock purchase agreement (the "Pharmacy Purchase
Agreement") with Multicare and certain subsidiaries pursuant to which Genesis
will acquire all of the outstanding capital stock and limited partnership
interest of certain subsidiaries of Multicare that are engaged in the business
of providing institutional pharmacy services to third parties for $50,000,000
subject to adjustment. The Company expects to complete the pharmacy sale in
the second fiscal quarter of 1998.
Genesis ElderCare Corp. (the "Multicare Parent") paid approximately
$1,492,000,000 to (i) purchase the Shares pursuant to the Tender Offer and the
Merger, (ii) pay fees and expenses to be incurred in connection with the
completion of the Tender Offer, Merger and the financing transactions in
connection therewith, (iii) refinance certain indebtedness of Multicare and
(iv) make certain cash payments to employees. Of the funds required to finance
the foregoing, approximately $745,000,000 were furnished to Acquisition Corp.
as capital contributions by the Multicare Parent from the sale by Genesis
ElderCare Corp. of its Common Stock ("Genesis ElderCare Corp. Common Stock")
to Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased shares of
Genesis ElderCare Corp. Common Stock for a purchase price of $210,000,000,
$199,500,000 and $10,500,000, respectively, and Genesis purchased shares of
Genesis ElderCare Corp. Common Stock for a purchase price of $325,000,000 in
consideration for approximately 44% of the Common Stock of the Multicare
Parent. The balance of the funds necessary to finance the foregoing came from
(i) the proceeds of loans from a syndicate of lenders in the aggregate amount
of $525,000,000 and (ii) $246,800,000 of financing upon the completion of the
sale of 9% Senior Subordinated Notes due 2007 (the "9% Notes") sold by
Acquisition Corp. on August 11, 1997.
6
<PAGE>
In connection with the Multicare Transaction, Genesis, Cypress, TPG and Nazem
entered into an agreement (the "Put/Call Agreement") pursuant to which, among
other things, Genesis will have the option, on the terms and conditions set
forth in the Put/Call Agreement, to purchase (the "Call") Genesis ElderCare
Corp. Common Stock held by Cypress, TPG and Nazem commencing on October 9,
2001 and for a period of 270 days thereafter, at a price determined pursuant
to the terms of the Put/Call Agreement. Cypress, TPG and Nazem will have the
option, on the terms and conditions set forth in the Put/Call Agreement, to
require Genesis to purchase (the "Put") such Genesis ElderCare Corp. Common
Stock commencing on October 9, 2002 and for a period of one year thereafter,
at a price determined pursuant to the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's
Genesis ElderCare Corp. Common Stock, plus a portion of the Genesis Pharmacy
business (the "Calculated Equity Value"). The Calculated Equity Value will be
determined based upon a multiple of Genesis ElderCare Corp.'s earnings before
interest, taxes, depreciation, amortization and rental expenses, as adjusted
("EBITDAR") after deduction of certain liabilities, plus a portion of the
EBITDAR related to the Genesis pharmacy business. The multiple to be applied
to EBITDAR will depend on whether the Put or the Call is being exercised. Any
payment to Cypress, TPG or Nazem under the Call or the Put may be in the form
of cash or Genesis common stock at Genesis' option.
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum
their original investment plus a 25% compound annual return thereon regardless
of the Calculated Equity Value. Any additional Calculated Equity Value
attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. Common
Stock will be determined on the basis set forth in the Put/Call Agreement
which provides generally for additional Calculated Equity Value of Genesis
ElderCare Corp. to be divided based upon the proportionate share of the
capital contributions of the stockholders to Genesis ElderCare Corp. Upon
exercise of the Put by Cypress, TPG or Nazem, there will be no minimum return
to Cypress, or TPG or Nazem; any payment to Cypress, TPG or Nazem will be
limited to Cypress', TPG's or Nazem's share of the Calculated Equity Value
based upon a formula set forth in the terms of the Put/Call Agreement which
provides generally for the preferential return of the stockholders' capital
contributions (subject to certain priorities), a 25% compound annual return on
Cypress', TPG's or Nazem's capital contributions and the remaining Calculated
Equity Value to be divided based upon the proportionate share of the capital
contributions of the stockholders to Genesis ElderCare Corp.
Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated
upon an event of bankruptcy of Genesis, a change of control of Genesis or an
extraordinary dividend or distribution or the occurrence of the leverage
recapitalization of Genesis. Upon an event of acceleration or the failure by
Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and
Nazem will have the right to terminate the Stockholders' Agreement and
Management Agreement and to control the sale or liquidation of Genesis
ElderCare Corp. In the event of such sale, the proceeds from such sale will be
distributed among the parties as contemplated by the formula for the Put
option exercise price and Cypress, TPG and Nazem will retain a claim against
Genesis for the difference, if any, between the proceeds of such sale and the
put option exercise price. In the event of a bankruptcy or change of control
of Genesis, the option price shall be payable solely in cash provided any such
payment will be subordinated to the payment of principal and interest under
the Genesis Bank Financing.
The following unaudited pro forma statement of operations information gives
effect to the Multicare Transaction, which was accounted for using the equity
method of accounting and the Therapy Purchase and Pharmacy Purchase, using the
purchase method of accounting as though they had occurred on October 1, 1996,
after giving effect to certain adjustments, including recognition of management
fee income, amortization of goodwill, additional depreciation expense and
increased interest expense on debt related to the transactions. The pro forma
financial information, which includes preliminary allocations of purchase price
to goodwill and property, plant and equipment that are subject to change, does
not necessarily reflect the results of operations that would have occurred had
the transactions occurred at the beginning of periods presented.
7
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Three Months Ended
Pro Forma Statement of Operations Information: December 31, 1996 December 31, 1997
------------------- ------------------
<S> <C>
Total net revenues $283,900 $318,586
Earnings before extraordinary item 7,006 12,787
Net income 6,453 10,863
Earnings per share, before extraordinary item, diluted 0.20 0.36
Earnings per share, net income, diluted $ 0.19 $ 0.31
</TABLE>
5. Summary Financial Information Of Unconsolidated Affiliate
The following unaudited summary financial data for the Multicare Companies is
as of and for the three months ended December 31, 1997. Multicare is the
Company's only significant unconsolidated affiliate.
(in thousands)
Total assets $ 1,721,848
Long-term debt 751,187
Total liabilities 975,490
Revenues 185,778
Net income $ 1,358
6. Subsequent Event
On January 30, 1998, Genesis successfully completed deleveraging transactions
with ElderTrust, a newly formed Maryland healthcare real estate investment
trust. Genesis, a co-registrant on the ElderTrust initial public offering,
received approximately $78,000,000 in proceeds from the sale of 13 properties
to ElderTrust, including four properties it had purchased from Crozer-Keystone
Health System in anticipation of resale to ElderTrust. Genesis anticipates
receiving an additional $14,000,000 from the sale of a loan and two additional
assisted living facilities and the recoupment of amounts advanced and expenses
incurred in connection with the formation of ElderTrust. Additionally,
ElderTrust has funded approximately $13,200,000 of a commitment to finance the
development and expansion of four additional assisted living facilities.
Genesis intends to repay a portion of the revolving credit component of its
bank credit facility with the proceeds from these transactions.
The Company has reflected $89,920,000 of assets held for sale in its December
31, 1997 balance sheet representing assets subsequently sold or expected to be
sold to ElderTrust.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Since the Company began operations in July 1985, it has focused its efforts on
providing an expanding array of specialty medical services to geriatric
patients. The delivery of these services was originally concentrated in the
eldercare centers owned and leased by the Company, but now also includes
managed eldercare centers, independent healthcare facilities, outpatient
clinics and home health care. The Company generates revenues from three
sources: basic healthcare services, specialty medical services and management
services and other. The Company includes in basic healthcare services revenues
all room and board charges for its eldercare customers at its 109 owned and
leased eldercare centers. Specialty medical services include all revenues from
providing rehabilitation therapies, institutional pharmacy and medical supply
services, professional pharmacy services, subacute care programs, home health
care, physician services, and other specialized services to all centers owned,
leased or managed by Genesis, as well as to over 800 independent healthcare
providers. Management services and other include fees earned for management of
eldercare centers, other service related businesses and transactional
revenues. Genesis ElderCare Network Services manages 210 eldercare centers,
116 of which are jointly-owned (including the impact of the Multicare
Transaction defined in Certain Transactions).
Certain Transactions
On October 9, 1997, Genesis ElderCare Acquisition Corp. ("Acquisition Corp."),
a wholly-owned subsidiary of Genesis ElderCare Corp., a Delaware corporation
formed by Genesis, The Cypress Group L.L.C. (together with its affiliates,
"Cypress"), TPG Partners II, L.P., (together with its affiliates, "TPG") and
Nazem, Inc. (together with its affiliates, "Nazem"), acquired 99.65% of the
shares of common stock of the Multicare Companies, Inc. ("Multicare"),
pursuant to a tender offer commenced on June 20, 1997 (the "Tender Offer"). On
October 10, 1997, Genesis ElderCare Corp. completed the merger (the "Merger or
the Multicare Transaction") of Acquisition Corp. with and into Multicare in
accordance with the Agreement and Plan of Merger (the "Merger Agreement")
dated as of June 16, 1997 by and among Genesis ElderCare Corp., Acquisition
Corp., Genesis and Multicare. Upon consummation of the Merger, Multicare
became a wholly-owned subsidiary of Genesis ElderCare Corp. Multicare is in
the business of providing eldercare and specialty medical services in selected
geographic regions. Included among the operations acquired by Genesis
ElderCare Corp. are operations relating to the provision of ( i ) eldercare
services including skilled nursing care, assisted living, Alzheimer's care and
related support activities traditionally provided in eldercare facilities,
(ii) specialty medical services consisting of (1) sub-acute care such as
ventilator care, intravenous therapy and various forms of coma, pain and wound
management and (2) rehabilitation therapies such as occupational, physical and
speech therapy and stroke and orthopedic rehabilitation and (iii) management
services and consulting services to eldercare centers.
In connection with the Merger, Multicare and Genesis entered into a management
agreement (the "Management Agreement") pursuant to which Genesis manages
Multicare's operations. The Management Agreement has a term of five years with
automatic renewals for two years unless either party terminates the Management
Agreement. Genesis is paid a fee of six percent of Multicare's net revenues for
its services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of ( i ) $1,992,000 or (ii) four
percent of Multicare's consolidated net revenues for such month, shall be
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23,900,000 in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare are paid by Multicare. Genesis also entered into an asset
purchase agreement (the "Therapy Purchase Agreement") with Multicare and certain
of its subsidiaries pursuant to which Genesis acquired
9
<PAGE>
all of the assets used in Multicare's outpatient and inpatient rehabilitation
therapy business for $24,000,000 subject to adjustment (the "Therapy Purchase")
and a stock purchase agreement (the "Pharmacy Purchase Agreement") with
Multicare and certain subsidiaries pursuant to which Genesis will acquire all of
the outstanding capital stock and limited partnership intersest of certain
subsidiaries of Multicare that are engaged in the business of providing
institutional pharmacy services to third parties for $50,000,000, subject to
adjustment. The Company expects to complete the pharmacy sale in the first
calendar quarter of 1998.
Genesis Eldercare Corp. (the "Multicare Parent") paid approximately
$1,492,000,000 to (i) purchase the Shares pursuant to the Tender Offer and the
Merger, (ii) pay fees and expenses to be incurred in connection with the
completion of the Tender Offer, Merger and the financing transactions in
connection therewith, (iii) refinance certain indebtedness of Multicare and
(iv) make certain cash payments to employees. Of the funds required to finance
the foregoing, approximately $745,000,000 were furnished to Acquisition Corp.
as capital contributions by the Multicare Parent from the sale by Genesis
ElderCare Corp. of its Common Stock ("Genesis ElderCare Corp. Common Stock")
to Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased shares of
Genesis ElderCare Corp. Common Stock for a purchase price of $210,000,000,
$199,500,000 and $10,500,000, respectively, and Genesis purchased shares of
Genesis ElderCare Corp. Common Stock for a purchase price of $325,000,000 in
consideration for approximately 44% of the Common Stock of the Multicare
Parent. The balance of the funds necessary to finance the foregoing came from
(i) the proceeds of loans from a syndicate of lenders in the aggregate amount
of $525,000,000 and (ii) $246,800,000 of financing upon completion of the sale
of 9% Senior Subordinated Notes due 2007 (the "9% Notes") sold by Acquisition
Corp. on August 11, 1997.
Results of Operations
Three months ended December 31, 1997 compared to three months ended December
31, 1996.
The Company's total net revenues for the quarter ended December 31, 1997 were
$302,565,000 compared to $258,544,000 for the quarter ended December 31, 1996,
an increase of $44,021,000 or 17%. Basic healthcare services increased
$3,924,000 or 3% due to providing care to higher acuity patients and to rate
increases. Specialty medical services revenue increased $28,486,000 or 25% of
which approximately $5,100,000 is attributed to the purchase of the Multicare
rehabilitation therapy business and the remaining increase of approximately
$23,386,000 is due to other volume growth in the institutional pharmacy,
medical supply and contract therapy divisions and increased acuity in the
health centers division. Specialty medical service revenue per patient day in
the eldercare centers increased 22% to $34.75 in the quarter ended December
31, 1997 compared to $28.43 in the quarter ended December 31, 1996 primarily
due to treatment of higher acuity patients. Management services and other
income increased $11,611,000 or 113%. This increase is primarily due to
management fee revenue earned from the management of the operations of the
Multicare business.
The Company's operating expenses before depreciation, amortization, lease
expense and interest expense were $245,379,000 for the quarter ended December
31, 1997 compared to $214,809,000 for quarter ended December 31, 1996, an
increase of $30,570,000 or 14%, of which approximately $4,300,000 is due to
additional operating costs incurred to service the Multicare management
contract, approximately $4,300,000 is due to the acquisition of the Multicare
therapy business and the remaining increase of approximately $22,000,000 is
attributed to growth in the institutional pharmacy, medical supply and
contract therapy divisions.
Interest expense increased $10,448,000 or 114% in the quarter ended December
31, 1997 compared to the quarter ended December 31, 1996. This increase in
interest expense was primarily due to additional borrowings used to finance
the Company's investment in Multicare, the purchase of the Multicare therapy
business, and the acquisition and development of eldercare centers, assisted
living facilities and ancillary businesses.
10
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In connection with the early repayment of debt in the quarters ended December
31, 1997 and 1996, the Company recorded an extraordinary loss net of tax of
approximately $1,924,000 ($3,030,000 before tax) and $553,000 ($871,000 before
tax), respectively, to write off unamortized deferred financing fees.
Liquidity and Capital Resources
Working capital increased $101,028,000 to $327,958,000 at December 31, 1997 from
$226,930,000 at September 30, 1997. Approximately rehabilitation $90,000,000 of
this increase is due to the recognition of current assets held for sale to
ElderTrust. Accounts receivable increased to $225,121,000 at December 31, 1997
from $205,129,000 at September 30, 1997. Approximately $6,500,000 of this
increase relates to balances acquired in the Multicare rehabilitation therapy
business while the remaining increase of $13,492,000 relates primarily to the
continuing shift in business mix to specialty medical services, which typically
have a longer collection period. Days revenue in accounts receivable increased
to 68 days during this period from 65 days for the quarter ended September 30,
1997. The Company's cash flow from operations for the three months ended
December 31, 1997 resulted in a source of cash of approximately $4,081,000
compared to a use of cash of approximately $6,600,000 for the three months ended
December 31, 1996. The improvement in operating cash flow is primarily due to
growth in operations.
Investing activities for the quarter ended December 31, 1997 include
approximately $10,925,000 of capital expenditures primarily related to
betterments and expansion of eldercare centers and investment in data
processing hardware and software. In addition, the Company purchased three
skilled nursing facilities for total consideration of approximately
$30,500,000, including approximately $12,500,000 of assumed indebtedness.
These properties are included in assets held for resale to ElderTrust.
During the three months ended December 31, 1997, other long term assets
increased approximately $26,503,000, principally due to approximately
$20,000,000 of financing and other transaction costs incurred in connection with
the Multicare Transaction and the purchase of the Multicare rehabilitation
therapy business, and approximately $5,700,000 of subordinated management fees
due from Multicare.
In October 1997, in connection with the Multicare Transaction, Genesis entered
into a new credit facility with Mellon Bank, N.A., Citicorp Securities, Inc.,
Citibank N.A., First Union Capital Markets Corp., First Union National Bank
and NationsBank, N.A. (the "Lenders") pursuant to which the Lenders provided
Genesis and its subsidiaries with loan facilities totaling $850,000,000 (the
"Genesis Bank Financing") for the purpose of refinancing certain existing
indebtedness of Genesis; funding interest and principal payments on the
facilities and certain remaining indebtedness; funding permitted acquisitions;
funding Genesis' commitments in connection with the Merger; and funding
Genesis' and its subsidiaries' working capital for general corporate purposes,
including fees and expenses of the transactions. . The Genesis Bank Financing
facilities consist of three $200,000,000 term loans (collectively, the "Term
Loans"),a $250,000,000 revolving credit loan (the "Revolving Credit Facility")
and one or more Swing Loans (collectively, the "Swing Loan Facility") in
integral principal multiples of $500,000 up to an aggregate unpaid principal
amount of $15,000,000. The Term Loans amortize in quarterly installments
beginning in fiscal 1998 through 2005, of which $19,000,000 is payable in
fiscal 1998. The Term Loans consist of (1) a $200,000,000 six year term loan
(the "Tranche A Term Facility"); (2) a $200,000,000 seven year term loan (the
"Tranche B Term Facility"); and (3) a $200,000,000 eight year term loan (the
"Tranche C Term Facility"). The Revolving Credit Facility becomes payable in
full on September 30, 2003.
The Genesis Bank Financing facilities are secured by a first priority security
interest in all of the stock, partnership interests and other equity of all of
Genesis' present and future subsidiaries (including the Multicare Parent)
other than stock of Multicare and its subsidiaries. Loans under the Genesis
Bank Financing bear, at Genesis' option, interest at the per annum Prime Rate
as announced by the administrative agent, or the applicable Adjusted LIBOR.
Loans under the Tranche A Term Facility bear interest at an annual rate equal
to LIBOR plus a margin up to 2.5%, loans under the Tranche B Term Facility
bear interest at an annual rate equal to LIBOR plus a margin up to 2.75%;
loans under the Tranche C Term Facility bear interest at an annual rate equal
to LIBOR plus a margin up to 3.0%; loans under the Revolving Credit Facility
bear interest at a rate equal to LIBOR plus a margin up to 2.5%, and loans
under the Swing Loan Facility bear interest at the Prime Rate unless otherwise
agreed to by the parties. Subject to meeting certain financial covenants, the
above referenced interest rates will be reduced.
11
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The Genesis Bank Financing contains a number of covenants that, among other
things, restrict the ability of Genesis and its subsidiaries to dispose of
assets, incur additional indebtedness, make loans and investments, pay
dividends, engage in mergers or consolidations, engage in certain transactions
with affiliates and change control of capital stock, and to make capital
expenditures; prohibit the ability of Genesis and its subsidiaries to prepay
debt to other persons, make material changes in accounting and reporting
practices, create liens on assets, give a negative pledge on assets, make
acquisitions and amend or modify documents; causes Genesis and its affiliates
to maintain the Management Agreement, the Put/Call Agreement, as defined
below, and corporate separateness; and will cause Genesis to comply with the
terms of other material agreements as well as comply with usual and customary
covenants for transactions of this nature.
In connection with the Multicare Transaction, Genesis, Cypress, TPG and Nazem
entered into an agreement (the "Put/Call Agreement") pursuant to which, among
other things, Genesis will have the option, on the terms and conditions set
forth in the Put/Call Agreement to purchase (the "Call") Genesis ElderCare
Corp. Common Stock held by Cypress, TPG and Nazem commencing on October 9,
2001 and for a period of 270 days thereafter, at a price determined pursuant
to the terms of the Put/Call Agreement. Cypress, TPG and Nazem will have the
option, on the terms and conditions set forth in the Put/Call Agreement, to
require Genesis to purchase (the "Put") such Genesis ElderCare Corp. Common
Stock commencing on October 9, 2002 and for a period of one year thereafter,
at a price determined pursuant to the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's
Genesis ElderCare Corp. Common Stock, plus a portion of the Genesis pharmacy
business (the "Calculated Equity Value"). The Calculated Equity Value will be
determined based upon a multiple of Genesis ElderCare Corp.'s earnings before
interest, taxes, depreciation, amortization and rental expenses, as adjusted
("EBITDAR") after deduction of certain liabilities, plus a portion of the
EBITDAR related to the Genesis pharmacy business. The multiple to be applied
to EBITDAR will depend on whether the Put or the Call is being exercised. Any
payment to Cypress, TPG or Nazem under the Call or the Put maybe in the form
of cash or Genesis common stock at Genesis' option.
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum
their original investment plus a 25% compound annual return thereon regardless
of the Calculated Equity Value. Any additional Calculated Equity Value
attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. Common
Stock will be determined on the basis set forth in the Put/Call Agreement
which provides generally for additional Calculated Equity Value of Genesis
ElderCare Corp. to be divided based upon the proportionate share of the
capital contributions of the stockholders to Genesis ElderCare Corp. Upon
exercise of the Put by Cypress, TPG or Nazem, there will be no minimum return
to Cypress, TPG or Nazem; any payment to Cypress, TPG or Nazem will be limited
to Cypress' TPG's or Nazem's share of the Calculated Equity Value based upon a
formula set forth in the terms of the Put/Call Agreement which provides
generally for the preferential return of the stockholders' capital
contributions (subject to certain priorities), a 25% compound annual return on
Cypress', TPG's and Nazem capital contributions and the remaining Calculated
Equity Value to be divided based upon the proportionate share of the capital
contributions of the stockholders to Genesis ElderCare Corp.
Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated
upon an event of bankruptcy of Genesis, a change of control of Genesis or an
extraordinary dividend or distribution or the occurrence of the leverage
recapitalization of Genesis. Upon an event of acceleration or the failure by
Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and
Nazem will have the right to terminate the Stockholders' Agreement and
Management Agreement and to control the sale or liquidation of Genesis
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ElderCare Corp. In the event of such sale, the proceeds from such sale will be
distributed among the parties as contemplated by the formula for the Put
option exercise price and Cypress, TPG and Nazem will retain a claim against
Genesis for the difference, if any, between the proceeds of such sale and the
put option exercise price. In the event of a bankruptcy or change of control
of Genesis, the option price shall be payable solely in cash provided any such
payment will be subordinated to the payment of principal and interest under
the Genesis Bank Financing.
On January 30, 1998, Genesis successfully completed deleveraging transactions
with ElderTrust, a newly formed Maryland healthcare real estate investment
trust. Genesis, a co-registrant on the ElderTrust initial public offering,
received approximately $78,000,000 in proceeds from the sale of 13 properties
to ElderTrust, including four properties it had purchased from Crozer-Keystone
Health System in anticipation of resale to ElderTrust. Genesis anticipates
receiving an additional $14,000,000 from the sale of a loan and two additional
assisted living facilities and the recoupment of amounts advanced and expenses
incurred in connection with the formation of ElderTrust. Additionally,
ElderTrust has funded approximately $13,200,000 of a commitment to finance the
development and expansion of four additional assisted living facilities.
Genesis intends to repay a portion of the revolving credit component of its
bank credit facility with the proceeds from these transactions. The Company
has reflected $89,920,000 of assets held for sale in its December 31, 1997
balance sheet representing assets subsequently sold or expected to be sold to
ElderTrust.
In December 1997, the Company announced that its Board of Directors approved
the purchase of long-term call options on up to 1,500,000 shares of the
Company's Common Stock. The call options will be purchased by the Company from
time to time in privately negotiated transactions designated to take advantage
of attractive share price levels, as determined by the Company's management,
in compliance with covenants governing existing financing arrangements. The
timing and the terms of the transactions, including maturities, will depend on
market conditions, the Company's liquidity and covenant requirements under its
financing arrangements, and other considerations. The Board of Directors also
approved a Senior Executive Stock Ownership Program. Under the terms of the
program, certain of the Company's current senior executive employees will be
required to own shares of the Company's Common Stock having a market value
based upon a multiple of the executive's salary. Each executive is required to
own the shares within three years of the date of the adoption of the program.
Subject to applicable laws, the Company may lend funds to one or more of the
senior executive employees for his or her purchase of the Company's Common
Stock.
In October 1996, the Company completed an offering of $125,000,000 9 1/4%
Senior Subordinated Notes due 2006. The Company used the net proceeds of
approximately $121,250,000 together with borrowings under the Credit Facility,
to pay the cash portion of the purchase price of the Geriatric and Medical
Companies (GMC) Transaction, to repay certain debt assumed as a result of the
GMC Transaction and to repurchase GMC accounts receivable which were
previously financed.
Certain of the Company's other outstanding loans contain covenants which,
without the prior consent of the lenders, limit certain activities of the
Company. Such covenants contain limitations relating to the merger or
consolidation of the Company and the Company's ability to secure indebtedness,
make guarantees, grant security interests and declare dividends. In addition,
the Company must maintain certain minimum levels of cash flow and debt service
coverage, and must maintain certain liabilities to net worth. Under these
loans, the Company is restricted from paying cash dividends on the Common
Stock, unless certain conditions are met. The Company has not declared or paid
any cash dividends on its Common Stock since its inception.
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made
under the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Implementation of the
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Company's strategy to expand specialty medical services to independent
providers should reduce the impact of changes in the Medicare and Medicaid
reimbursement programs on the Company as a whole. Within the statutory
framework of the Medicare and Medicaid programs, there are substantial areas
subject to administrative rulings and interpretations which may further affect
payments made under those programs. Further, the federal and state governments
may reduce the funds available under those programs in the future or require
more stringent utilization and quality reviews of eldercare centers.
The Company believes that its liquidity needs can be met by expected operating
cash flow and availability of borrowings under its credit facilities. At
February 10, 1998, approximately $100,000,000 was outstanding under the
Revolving Credit Facility, and approximately $131,300,000 was available under
the Revolving Credit Facility after giving effect to approximately $18,700,000
in outstanding letters of credit issued under the Revolving Credit Facility.
Seasonality
The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing of
Medicaid rate increases, seasonal census cycles and the number of calendar
days in a given quarter.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation and marketplace labor shortages. To date,
the Company has offset its increased operating costs by increasing charges for
its services and expanding its services. Genesis has also implemented cost
control measures to limit increases in operating costs and expenses but cannot
predict its ability to control such operating cost increases in the future.
14
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.1 Assignment and Assumption Agreement among Genesis
Health Ventures, Inc., ET Capital Corp. and Age
Institute of Florida.
10.2 Amended and Restated Promissory Note among Genesis
Health Ventures, Inc. and, ET Capital Corp. and
Age Institute of Florida.
10.3(1) Form of Asset Transfer Agreement between the
Operating Partnership and Genesis (Heritage Woods,
Willowbrook, Riverview Ridge, Pleasant View,
Rittenhouse, Lopatcong, Phillipsburg, Wayne, POB
1, Lacey Bank Building, Belvedere, Chapel Manor and
Pennsburg Manor).
10.4(1) Form of Right of First Refusal Agreement between
the Operating Partnership and Genesis.
10.5(1) Form of Minimum Rent Lease between the Operating
Partnership and Genesis (Heritage Woods, Highgate
at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg
and Wayne).
11 Statement re computation of per share earnings
27 Financial Data Schedule
(1) Incorporated by reference to the Company's
Registration Statement on Form S-3 (Registration No.
333-3745)
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K,
dated October 9, 1997 reporting a wholly-owned
subsidiary of Genesis ElderCare Corp., a Delaware
corporation formed by Genesis Health Ventures,
Inc., the Cypress Group L.L.C., TPG Partners II,
L.P. and Nazem, Inc., acquired 32,790,495 shares of
The Multicare Companies, Inc., which represented
approximately 99.65% of Multicare's outstanding
shares of common stock, part value $.01 per share,
for a cash price of $28.00 per share, pursuant to a
tender offer commenced on June 20, 1997.
The Company filed a current report on Form 8-K/A,
dated October 10, 1997 amending the current report
dated October 9, 1997 to include or incorporate by
reference the following financial information:
15
<PAGE>
Financial Statements of businesses acquired:
The Multicare Companies, Inc.
(1) Independent Auditors' Report
(2) Consolidated Balance Sheets as of
December 31, 1995 and 1996
(3) Consolidated Statements of Operations
for the years ended December 31, 1994,
1995 and 1996.
(4) Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996.
(5) Consolidated Statements of Cash Flows
for the years ended December 31, 1994,
1995 and 1996.
(6) Notes to Consolidated Financial
Statements
(7) Unaudited Consolidated Balance Sheet as
of September 30, 1997
(8) Unaudited Consolidated Statement of
Operations for the three and nine
months ended September 30, 1997
(9) Unaudited Consolidated Statement of
Cash Flows for the nine months ended
September 30, 1997.
(10) Unaudited Notes to Consolidated
Financial Statements
Genesis Health Ventures, Inc. and Subsidiaries
Pro Forma Financial Statements
(1) Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of
September 30, 1997 and Notes Thereto
(2) Unaudited Pro Forma Condensed
Consolidated Statement of Operations
for the Twelve Months Ended September
30, 1997 and Notes Thereto
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereto duly authorized.
GENESIS HEALTH VENTURES, INC.
Date: February 13, 1998 _________________________________________________
George V. Hager, Jr.
Senior Vice President and Chief Financial Officer
17
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[Governing Rights Among Junior Lenders/
Option to Purchase Note]
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made
and entered into as of January ____, 1998, among (i) Genesis Health Ventures,
Inc., a Pennsylvania corporation, in its capacity as the assigning lender
hereunder ("Genesis"), (ii) ET Capital Corp., a Delaware corporation ("ET
Capital", together with Genesis and their successors and assigns, the
"Lenders") and in its capacity as agent for the Lenders (the "Agent") and
(iii) Age Institute of Florida, Inc., a Florida non-profit corporation
(together with its successors and assigns, the "Borrower").
WHEREAS, Genesis and the Borrower entered into that certain Working
Capital Loan and Security Agreement, dated as of August 31, 1996 (as may be
amended or assigned from time to time, the "Loan Agreement"), pursuant to
which Genesis agreed to make a loan to the Borrower in the aggregate principal
amount of $10,000,000 (the "Loan") and the Borrower granted Genesis a security
interest in certain collateral to secure its obligations in connection with
the Loan;
WHEREAS, the Loan was evidenced by that certain Promissory Note,
dated August 31, 1996 (the "Note"), payable to the order of Genesis in the
principal amount of $10,000,000;
WHEREAS, simultaneously with the execution and delivery of the Loan
Agreement, the Borrower and Genesis entered into that certain Security
Agreement, dated as of August 31, 1996 (the "Security Agreement"), whereby the
Borrower granted Genesis a security interest in all of its accounts,
inventory, equipment and general intangibles to secure the obligations of the
Borrower in connection with, among other things, the Loan;
WHEREAS, ET Capital has agreed to purchase, and Genesis has agreed to
sell, a portion of the principal amount of the Note equal to $7,500,000 on the
terms and conditions set forth herein;
WHEREAS, ET Capital wishes to become a party to the Loan Agreement as
a lender and is willing to assume the rights and obligations of a lender
therein contained;
WHEREAS, Genesis and ET Capital, as lenders, wish to appoint ET
Capital to act as their Agent under the Loan Agreement, the Security Agreement
and the other agreements, instruments and documents executed and delivered in
connection therewith;
<PAGE>
WHEREAS, Genesis has agreed to grant ET Capital an option to purchase
the remaining principal amount of the Note on the terms and conditions set
forth herein; and
WHEREAS, in connection with this Agreement, (i) the Lenders and the
Borrower are entering into an Amendment to Working Capital Loan Agreement,
dated as of the date hereof, (ii) the Lenders and the Borrower are entering
into an Assignment and Amendment to Security Agreement, dated as of the date
hereof; and (iii) the Borrower is granting a mortgage and security interest in
the Facilities (as defined in the Loan Agreement) and related property
pursuant to a Second Mortgage, Assignment of Rents and Security Interest,
dated as of the date hereof (the "Mortgage").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the
following meanings:
"$2,500,000 Amended and Restated Note" means the Amended and Restated
Promissory Note executed by the Borrower payable to the order of Genesis in
the principal amount of $2,500,000, in substantially the form attached hereto
as Exhibit A.
"$7,500,000 Amended and Restated Note" means the Amended and Restated
Promissory Note executed by the Borrower payable to the order of ET Capital in
the principal amount of $7,500,000, in substantially the form attached hereto
as Exhibit B.
"Amended and Restated Notes" means, collectively, the $2,500,000
Amended and Restated Note and the $7,500,000 Amended and Restated Note.
"Collateral" means, collectively, the "Collateral" as defined in the
Loan Agreement, the "Collateral" as defined in the Security Agreement and the
"Property" as defined in the Mortgage.
"Intercreditor Agreement" means that certain Intercreditor Agreement,
dated as of the date hereof, among Genesis, in its capacity as senior lender,
junior lender and agent, ET Capital and the Borrower.
"Loan Documents" means the Loan Agreement, the Amended and Restated
Notes, the Security Agreement, the Mortgage and all other agreements,
instruments and documents executed in connection therewith, as such documents
may be amended, renewed, modified, extended, assigned, refinanced or replaced
from time to time.
-2-
<PAGE>
Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Loan Agreement.
2. ASSIGNMENT AND ASSUMPTION.
2.1 At or before 12:00 noon on January 30, 1998, ET Capital shall pay
to Genesis, in immediately available funds, an amount equal to Seven Million
Five Hundred Thousand Dollars ($7,500,00.00) (the "Purchase Price"). Effective
upon the date of receipt by Genesis of the Purchase Price (the "Transfer
Effective Date"), Genesis hereby irrevocably sells, assigns and transfers to
ET Capital, without recourse, and ET Capital hereby irrevocably purchases,
takes and assumes from Genesis a portion of the outstanding principal amount
under the Loan equal to seventy-five percent (75%). Genesis shall retain a
twenty-five percent (25%) portion of such outstanding principal amount of the
Loan.
2.2 From and after the Transfer Effective Date, ET Capital shall be a
party to the Loan Agreement as a lender for all purposes thereof.
2.3 All principal payments that would otherwise be payable from and
after the Transfer Effective Date to or for the account of Genesis pursuant to
the Working Capital Loan Agreement or the Note shall instead be payable to
Genesis and ET Capital, on a pari passu basis, in accordance with their
respective interests as reflected in Section 2.1 hereof.
2.4 All interest, fees and other amounts that otherwise accrue for
the account of Genesis from and after the Transfer Effective Date pursuant to
the Loan Agreement and the Note shall, instead, accrue for the account of, and
be payable to, Genesis and ET Capital, as the case may be, on a pari passu
basis, in accordance with their respective interests as reflected in Section
2.1 hereof.
2.5 As a condition to the obligation to purchase, and on or prior to
the Transfer Effective Date, the Borrower shall execute and deliver to the
Agent the Amended and Restated Notes reflecting the interests set forth in
Section 2.1 hereof, and shall have executed and delivered an amendment of the
Loan Documents as contemplated hereby and an amendment of any and all
management agreements pertaining to the Facilities in form satisfactory to the
Lenders which provides for subordination of certain management fees in the
event of default under the Loan Documents as agreed between the parties.
Promptly after the Transfer Effective Date, the Agent will deliver to Genesis
the $2,500,000 Amended and Restated Note and will deliver to ET Capital the
$7,500,000 Amended and Restated Note, and Genesis will surrender the Note to
the Borrower, marked "Canceled by Substitution."
-3-
<PAGE>
2.6 Each of the Lenders shall be secured by the security interests
granted under the Security Agreement, the Loan Agreement and the Mortgage to
secure the obligations of the Borrower in connection with the Loan on a pro
rata basis in proportion to the portion of the outstanding principal amount of
the Loan owed to each Lender. Each of the Lenders and the Agent acknowledges
that in accordance with the terms of the Intercreditor Agreement, the security
interests granted under the Loan Agreement, the Security Agreement and the
Mortgage to secure the obligations of the Borrower in connection with the Loan
are subordinated to the security interests granted by the Borrower to secure
the obligations of the Borrower in connection with the Acquisition Loan (as
defined in the Security Agreement).
2.7 Concurrently with the execution of this Agreement, Genesis will
provide to ET Capital conformed copies of all of the Loan Documents.
2.8 By executing and delivering this Agreement, Genesis and ET
Capital confirm and agree as follows:
(a) other than the representation and warranty that it is
the legal and beneficial owner of the interest being assigned thereby free and
clear of any adverse claim, Genesis makes no representation and warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or any other
Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement, the Note or any other
Loan Document;
(b) Genesis makes no representation and warranty and assumes
no responsibility with respect to the financial condition of the Borrower or
the performance or observance by the Borrower of any of its obligations under
any of the Loan Documents;
(c) ET Capital has received a copy of each of the Loan
Documents together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Agreement; and
(d) ET Capital will, independently and without reliance upon
Genesis, continue to make its own credit decisions in taking or not taking
action under the Loan Documents.
-4-
<PAGE>
3. AGENCY.
3.1 The Lenders hereby appoint and authorize the Agent to act as
their agent under the Loan Agreement, the Security Agreement, the Mortgage and
each of the other Loan Documents, and the Agent hereby accepts such
appointment and authorization. Each of the Lenders and any subsequent holder
of the Amended and Restated Notes by its acceptance thereof, irrevocably
authorizes the Agent to execute and take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers hereunder and
thereunder as are specifically delegated to the Agent by the terms hereof and
thereof and such powers as are reasonably incidental thereto. The Agent is
hereby expressly authorized on behalf of the Lenders, without limiting any
implied authority, (i) to execute any and all Loan Documents on behalf of the
Lenders, except where Lenders are parties thereto, (ii) to distribute to each
Lender copies of all notices, agreements and other material as provided for in
the Loan Agreement, the Security Agreement or in the other Loan Documents,
(iii) to hold and apply any and all Collateral, and the proceeds thereof, on
behalf of the Lenders on a pari passu basis, subject to the terms of and
rights set forth in the Intercreditor Agreement, (iv) to exercise any and all
rights, powers and remedies of the Lenders under the Loan Documents, (v) to
execute and deliver and file and possess instruments and documents, including
without limitation financing statements, financing statement amendments and
continuation statements, on behalf of any or all of the Lenders; and (vi) in
the event of any acceleration of the Loan or any amounts due under the Amended
and Restated Notes, to use its best efforts to sell or otherwise liquidate or
dispose of the Collateral and otherwise exercise the rights of the Lenders
under the Loan Agreement, the Security Agreement and the Mortgage.
3.2 Each Lender agrees (a) to reimburse the Agent in the amount of
such Lender's pro rata share based on its percentage of the outstanding
principal amount of the Loan for any expenses incurred by the Agent for the
benefit of the Lenders, including counsel fees and compensation of agents and
employees, and all other amounts paid by the Agent respectively, for services
rendered on behalf of the Lenders and (b) to indemnify and hold harmless the
Agent and any of its directors, officers, employees or agents, on demand, in
the amount of its pro rata share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in its capacity as the Agent or
any of its directors, officers, employees or agents in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Agent
or any of its directors, officers, employees or agents under the Loan
Documents, to the extent not reimbursed by the Borrower; provided, however,
that no Lender shall be liable to the Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgment,
suits, costs, expenses or disbursements resulting from the gross negligence or
willful misconduct of the Agent, or any of its directors, officers, employees
or agents.
-5-
<PAGE>
3.3 Neither the Agent nor any of its officers, directors, employees
or agents will be liable to the Lenders for any action taken or omitted
hereunder or in connection herewith or in connection with any document or
instrument now or hereafter executed in connection herewith unless caused by
its gross negligence or willful misconduct. The Agent will not be responsible
for any recitals, warranties or representations in the Loan Agreement, the
Mortgage or any other Loan Document. The Lenders acknowledge that they have
reviewed the Loan Agreement, the Amended and Restated Notes, the Security
Agreement, the Mortgage and all of the other Loan Documents and are fully
aware of the terms hereof and thereof. The Agent may execute any of its duties
by or through agents or employees and will be entitled to advice of counsel,
accountants or other professionals of its selection concerning all matters
pertaining to the Loan Documents and its duties hereunder and thereunder. The
Agent will be entitled to rely upon any writing or other document, telegram or
telephone conversation believed by it to have been signed, sent or made by the
proper person or persons and, in respect of legal matters, upon the advice of
counsel selected by the Agent. The Agent shall be fully justified in failing
or refusing to take any action under the Loan Agreement and the other Loan
Documents unless it shall first receive such advice or concurrence of all the
Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action except for its own gross negligence or willful misconduct. The Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the other Loan Documents in accordance with a request
of all the Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders
of the Amended and Restated Notes.
3.4 Each Lender acknowledges that the Agent has not made any
representation or warranty to it and that no act taken by the Agent will be
deemed to constitute a representation or warranty by the Agent to any Lender.
Each Lender further acknowledges that it has taken and will continue to take
such action and to make such investigation as it deems necessary to inform
itself of the affairs of the Borrower and that it has made and will continue
to make its own independent investigation of the creditworthiness and the
business and operations of the Borrower. In making an advance hereunder, each
Lender represents that it has not relied and will not rely upon any
information or representations furnished or given by the Agent. The Agent will
be under no duty or responsibility to the Lenders to ascertain or to inquire
into the performance or observance by the Borrower of any of the provisions of
this Agreement or any document or instrument now or hereafter executed in
connection herewith. The Agent will not have any duty or responsibility to
provide any Lender with any credit or other information concerning the
affairs, financial condition or business of the Borrower or any affiliate
thereof which may come into the possession of the Agent. The Lenders
understand and agree that the Agent will not be deemed to have knowledge of
the existence, occurrence or continuance of any event of default under any of
the Loan Documents, unless the officers of the Agent immediately responsible
for matters concerning this Agreement will have actual knowledge of such
occurrence or will have been notified in writing by any Lender or Borrower
that the Lender or the Borrower, as applicable, considers that such event of
default has occurred and is continuing and specifying the nature thereof.
-6-
<PAGE>
3.5 Upon the occurrence and during the continuation of an Event of
Default (as defined in the Loan Agreement), and following a declaration by a
Lender that a Amended and Restated Note is due and payable, the Agent upon the
request of the Lender, will proceed to enforce the rights of the Lender under
the Amended and Restated Note by such proceedings as the Agent may deem
appropriate, whether at law or in equity. The Agent, on behalf of all the
Lenders, will hold in accordance with the Loan Agreement, the Security
Agreement and the Mortgage, subject to the provisions of the Intercreditor
Agreement, all items of Collateral received or held by the Agent. Subject to
the Agent's rights to reimbursement for its costs and expenses hereunder and,
subject to the provisions of the Intercreditor Agreement, each Lender will
have an interest in any Collateral in the same proportions that the aggregate
outstanding principal obligations owed such Lender pursuant to the Loan
Agreement bear to the aggregate outstanding principal obligations owed to all
the Lenders, without priority or preference among the Lenders.
3.6 The Agent, in all cases, will be fully protected in acting, or in
refraining from acting, hereunder or in connection with any other documents or
instruments now or hereafter executed in connection herewith in accordance
with written instructions of the Lenders.
3.7 Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Lenders will have the right to
appoint a successor Agent. If no successor Agent will have been so appointed
by the Lenders and will have accepted such appointment within thirty (30) days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the
acceptance of any appointment as Agent hereunder by a successor, such
successor will thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent
will be discharged from its duties and obligations hereunder and under the
Loan Documents. After any Agent's resignation hereunder, the provisions of
this Section 3 will continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Agent.
-7-
<PAGE>
4. PURCHASE OPTION
At any time prior to the close of business on January 30, 1999, ET
Capital shall have the right to purchase from Genesis all, but not part, of
the outstanding principal amount of the Loan held by Genesis evidenced by the
$2,500,000 Amended and Restated Note (the "Option Asset") by delivering to
Genesis written notice (the "Exercise Notice") on or prior to said date. The
Exercise Notice shall state ET Capital's intention to exercise the purchase
option pursuant to this Section 4 and shall further specify the closing date
of such purchase (the "Closing Date"); provided, however, that such Closing
Date shall not be sooner than five (5) business days nor later than twenty
(20) business days after the date of delivery of the Exercise Notice. The
purchase price for the Option Asset shall be an amount (the "Purchase Price")
equal to the outstanding principal amount of the $2,500,000 Amended and
Restated Note on the date of such purchase, together with any accrued and
unpaid interest thereon. On the Closing Date, (i) ET Capital shall deliver the
Purchase Price to Genesis in immediately available funds, (ii) Genesis shall
deliver the $2,500,000 Amended and Restated Note to the Agent, the Borrower
shall issue a new promissory note in favor of ET Capital in the amount of the
outstanding principal amount of the Loan being purchased and the Agent shall
surrender the $2,500,000 Amended and Restated Note to the Borrower marked
"Canceled by Substitution," (iii) ET Capital, Genesis and the Borrower shall
execute and deliver an Assignment and Assumption Agreement containing
provisions substantially similar to the provisions contained in Section 2
hereof; and the agency relationship hereunder shall terminate. Notwithstanding
any provision herein to the contrary, in the event an Exercise Notice is not
delivered on or before January 30, 1999, the provisions of this Section 4
shall be of no further force and effect.
5. MISCELLANEOUS.
5.1 This Agreement shall be binding and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors
and assigns.
5.2 If any of the provisions or terms of this Agreement shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term had never been
contained herein.
5.3 This Agreement may be executed in one or more counterparts, each
of which shall constitute an original Agreement but all of which together
shall constitute one and the same instrument.
5.4 The descriptive headings herein are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.
Words used herein, regardless of the number and gender specifically used shall
be deemed and construed to include any other number, singular, or plural, and
any other gender, masculine, feminine or neuter, as the context requires.
-8-
<PAGE>
5.5 All notices, requests, consents, demands, approvals and other
communications hereunder shall be deemed to have been duly given, made or
served if in writing and when delivered personally (including without
limitation by means of telex, telecopies or telefax systems), or the day
following delivery to a nationally recognized, reputable overnight courier
service which guarantees delivery within twenty-four hours, charges prepaid,
to the respective parties to this Agreement as follows:
(a) If to the Borrower, to:
Age Institute of Florida, Inc.
Professional Arts Building
25 Penncraft Avenue
Chambersburg, Pennsylvania 17201
Attention: Carol A. Tschop, President
With a copy (which shall not constitute notice) to:
Blank, Rome, Comisky & McCauley
1 Logan Square
Philadelphia, Pennsylvania 19103
Attention: Harry A. Madonna, Esq.
(b) If to Genesis, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: President
With a copy (which shall not constitute notice) to:
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: George P. Barsness, Esq.
(c) If to the Agent or to ET Capital, to:
ET Capital Corporation
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: President
With a copy (which shall not constitute notice) to:
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D. C. 20004
Attention: George P. Barsness, Esq.
-9-
<PAGE>
The designation of the person to be so notified or the address of
such person for the purposes of such notice may be changed from time to time
by similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given and made when received by the
party to whom such communication was sent.
5.6 The validity, meaning and effect of this Agreement shall be
determined in accordance with the laws of the State of Florida without regard
to conflicts of laws principles thereof.
5.7 No provision of this Agreement may be amended, modified,
terminated or waived except by a writing duly executed by each party sought to
be bound by such amendment, modification, termination or waiver.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
-10-
<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed or caused
this Assignment and Assumption Agreement to be duly executed on such party's
behalf as of the date first above written.
GENESIS HEALTH VENTURES, INC.,
as a Lender
By:___________________________________
Name:_________________________________
Title:________________________________
ET CAPITAL CORPORATION
as a Lender
By:___________________________________
Name:_________________________________
Title:________________________________
AGE INSTITUTE OF FLORIDA
Borrower
By:___________________________________
Name:_________________________________
Title:________________________________
-11-
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
$7,500,000.00 January 30, 1998
WHEREAS, GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation
(hereinafter, "Genesis") and AGE INSTITUTE OF FLORIDA, INC., a Florida not for
profit corporation (hereinafter, together with its successors and assigns,
called "Borrower"), entered into that certain Working Capital Loan and
Security Agreement, dated as of August 31, 1996 as amended as of January 30,
1998 (as amended and in effect from time to time, the "Loan Agreement"),
pursuant to which the Lender agreed to make a loan to the Borrower in the
principal amount of $10,000,000 (the "Loan");
WHEREAS, to evidence the Loan, Borrower executed and delivered that
certain Promissory Note, dated August 31, 1996 (the "Original Note"), payable
to the order of Genesis in the principal amount of $10,000,000;
WHEREAS, pursuant to that certain Assignment and Assumption
Agreement, dated as of the date hereof (the "Assignment"), Genesis has
assigned and transferred to ET CAPITAL CORPORATION (together with its
successors and assigns, "ET Capital" or "Holder") a portion of the principal
amount of the Original Note equal to $7,500,000 evidenced by this Amended and
Restated Promissory Note in said amount (the "Note");
WHEREAS, Genesis has retained a portion of the principal amount of
the Original Note equal to $2,500,000 evidenced by a separate Amended and
Restated Promissory Note in said amount; and
WHEREAS, Borrower has agreed to execute and deliver this Note payable
to the order of ET Capital in the principal amount of $7,500,000, dated as of
the date hereof, as well as said separate Amended and Restated Promissory
Note, which shall remain payable to the order of Genesis, in the principal
amount of $2,500,000, also dated as of the date hereof, in exchange for the
Original Note.
NOW THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower hereby covenants and agrees as follows:
NOTHING CONTAINED IN THIS NOTE SHALL BE DEEMED TO IMPAIR OR DISTURB THE
OBLIGATIONS OF THE BORROWER CREATED ON AUGUST 31, 1996 PURSUANT TO THE LOAN
AGREEMENT OR THE AGREEMENTS, INSTRUMENTS AND DOCUMENTS EXECUTED AND DELIVERED
IN CONNECTION THEREWITH. THIS NOTE AMENDS AND RESTATES THE TERMS OF THE
ORIGINAL NOTE.
<PAGE>
FOR VALUE RECEIVED, Borrower promises to pay to the order of ET
Capital at its offices at 148 West State Street, Kennett Square, Pennsylvania
19348, in lawful money of the United States of America in immediately
available funds:
(a) the principal amount of SEVEN MILLION FIVE HUNDRED
THOUSAND DOLLARS ($7,500,000.00); and
(b) interest on the principal balance hereof from time to
time outstanding from the date hereof through and including the date on which
such principal amount is paid in full, at the times and at the rates provided
in the Loan Agreement.
Capitalized terms used and not otherwise defined in this Note shall
have the meanings given to them in the Loan Agreement.
This Note evidences borrowings under and has been issued by Borrower
in accordance with the terms of the Loan Agreement. Pursuant to the
Assignment, Holder is entitled to the benefits of the Loan Agreement and may
enforce the agreements of Borrower contained therein, and may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All rights and
remedies given by this Note and the Loan Agreement are cumulative and not
exclusive of any thereof or of any other rights or remedies available to
Holder and no course of dealing between Borrower and Holder or any delay or
omission in exercising any right or remedy shall operate as a waiver of any
other right or remedy at any time and from time to time thereafter, and every
right and remedy may be exercised from time to time and as often as shall be
deemed appropriate by Holder or any other holder hereof.
If any one or more Events of Default under the Loan Agreement shall
occur, the entire unpaid principal amount of this Note and all of the unpaid
interest accrued thereon may become or be declared due and payable in the
manner and with the effect provided in the Loan Agreement.
Borrower waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note, assent to any extension or postponement
of the time of payment or any other indulgence, and to the addition or release
of any other party or person primarily or secondarily liable.
IN ANY LITIGATION ARISING OUT OF OR RELATING TO ANY OF THE MATTERS
CONTAINED IN THIS NOTE OR ANY OF THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH IN WHICH THE HOLDER AND BORROWER ARE ADVERSE PARTIES, THE HOLDER (BY
ITS ACCEPTANCE HEREOF) AND BORROWER EACH WAIVE TRIAL BY JURY.
-2-
<PAGE>
The Borrower shall have the right, at any time during the term
hereof, to prepay the entire outstanding principal balance provided that the
Borrower provide the Holder with at least ninety (90) days' prior written
notice of its intent to prepay, which notice once given may not be revoked,
and provided further, that the Borrower pay to the Holder (upon the date for
prepayment specified in the Borrower's written notice), together with the
entire outstanding principal balance, all accrued and unpaid interest and any
other costs, charges and sums due under this Note and all the other Loan
Documents, a "Prepayment Fee". The Prepayment Fee shall be equal to (and
defined herein as) the greater of: (i) the present value, discounted by the
Current Rate (as hereinafter defined), of the difference between (a) the
product of the Interest Rate then in effect multiplied by the then outstanding
amount due under the Note, multiplied by the remaining number of years (or
fraction thereof) of the term hereof and (b) the product of the annual rate of
interest (as of the date of prepayment) of actively traded marketable United
States Treasury Securities bearing a fixed rate of interest adjusted for a
constant maturity equal to the remaining number of years (rounded to the
nearest year) of the term hereof (hereinafter referred to as the "Current
Rate"), multiplied by the then outstanding amount due under the Note,
multiplied by the remaining number of years (or fraction thereof) of the term
hereof or (ii) one percent (1%) of the then outstanding amount due under the
Note.
If any of the terms of this Note or any instrument securing payment
hereof shall be deemed invalid by any court of competent jurisdiction, such
invalidity shall not affect any of the other terms hereof or of such other
instrument.
If the Holder of this Note engages the services of an attorney for
the purpose of exercising its rights hereunder or under the Loan Agreement,
Borrower shall pay the reasonable fees and disbursements thereby incurred
promptly upon demand, all of which will be deemed to be sums becoming due
hereunder.
Notwithstanding anything to the contrary contained in this Note, the
liability and obligation of Borrower to perform and observe and make good the
obligations contained in this Note and to pay the obligations hereunder in
accordance with the provisions of this Note shall not be enforced by any
action or proceeding wherein damages or any money judgment or any deficiency
judgment or any judgment establishing any personal obligation or liability
shall be sought, collected or otherwise obtained against Borrower or against
any past, present or future partner, officer, director, shareholder or member
of Borrower, and Holder for itself and its successors and assigns hereby
irrevocably, knowingly, voluntarily and intentionally waives any and all right
to use for, seek or demand any such damages, money judgment, deficiency
judgment or personal judgment against Borrower or against any past, present or
future partner, officer, director, shareholder or member of Borrower under or
by reason of or in connection with this Note or any other Loan Document and
agrees to look solely to the Collateral held under or in connection with this
Note for the enforcement of such liability and obligation of Borrower.
This Note shall be governed and construed in accordance with the
substantive laws of the State of Florida.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its officer thereunto duly authorized, as of the date first above
written.
AGE INSTITUTE OF FLORIDA, INC.
By:______________________________
Name:
Title:
_____________________________________
COUNTY OF ___________________________
The foregoing instrument was acknowledged before me this
______ day of __________________________, 1998, by__________________________
_______________________________________, ____________________________ of AGE
INSTITUTE OF FLORIDA, INC., a Florida not for profit corporation, on behalf of
the corporation. He/She who is personally known to me/has produced
__________________________________________________ as identification.
(SEAL)
__________________________________
Printed/Typed Name: _____________
Notary Public
Commission Number:
<PAGE>
GENESIS HEALTH VENTURES AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
QUARTERS ENDED DECEMBER 31, 1997 AND 1996 Exhibit 11
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------------ -----------------
<S> <C> <C>
Basic Earnings Per Share:
Earnings before extraordinary item $ 12,822 $ 11,508
Extraordinary item, net of tax (1,924) (553)
------------------ -----------------
Net income $ 10,898 $ 10,955
------------------ -----------------
Weighted average shares 35,079,426 33,096,946
EPS before extraordinary item $ 0.37 $ 0.35
EPS extraordinary item, net of tax (0.05) (0.02)
------------------ -----------------
EPS net income $ 0.31 $ 0.33
================== =================
Diluted Earnings Per Share:
Earnings before extraordinary item $ 12,822 $ 11,508
Extraordinary item, net of tax (1,924) (553)
------------------ -----------------
Net income $ 10,898 $ 10,955
------------------ -----------------
Adjustments to net income
Interest expense, amortization and other costs
related to the assumed conversion of the
convertible debentures, net of tax - 303
------------------ -----------------
Adjusted net income $ 10,898 $ 11,258
------------------ -----------------
Weighted average shares & common stock equivalents
Common shares 35,079,426 33,096,946
Dilutive effect of unexcersised stock options 515,055 535,552
Convertible debenture shares - 1,746,205
------------------ -----------------
Total 35,594,481 35,378,703
------------------ -----------------
EPS before extraordinary item $ 0.36 $ 0.33
EPS extraordinary item, net of tax (0.05) (0.01)
------------------ -----------------
EPS net income $ 0.31 $ 0.32
================== =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874265
<NAME> GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,528,000
<SECURITIES> 15,327,000
<RECEIVABLES> 268,517,000
<ALLOWANCES> (43,396,000)
<INVENTORY> 28,505,000
<CURRENT-ASSETS> 466,928,000
<PP&E> 642,776,000
<DEPRECIATION> (98,074,000)
<TOTAL-ASSETS> 1,892,248,000
<CURRENT-LIABILITIES> 138,970,000
<BONDS> 0
0
0
<COMMON> 719,000
<OTHER-SE> 614,070,000
<TOTAL-LIABILITY-AND-EQUITY> 1,892,248,000
<SALES> 302,565,000
<TOTAL-REVENUES> 302,565,000
<CGS> 0
<TOTAL-COSTS> 245,379,000
<OTHER-EXPENSES> 18,329,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,643,000
<INCOME-PRETAX> 19,214,000
<INCOME-TAX> 7,013,000
<INCOME-CONTINUING> 12,822,000
<DISCONTINUED> 0
<EXTRAORDINARY> 1,924,000
<CHANGES> 0
<NET-INCOME> 10,898,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
