MULTICARE COMPANIES INC, S-3, 1996-09-27

MULTICARE COMPANIES INC
S-3, 1996-09-27
SKILLED NURSING CARE FACILITIES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MULTICARE COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-3152527
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
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411 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
(201) 488-8818
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
-------------------
BRADFORD C. BURKETT, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
THE MULTICARE COMPANIES, INC.
411 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
(201) 488-8818
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
CARL L. REISNER, ESQ. WILLIAM J. GRANT, JR., ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON WILLKIE FARR & GALLAGHER
1285 AVENUE OF THE AMERICAS ONE CITICORP CENTER
NEW YORK, NEW YORK 10019-6064 153 EAST 53RD STREET
(212) 373-3000 NEW YORK, NEW YORK 10022-4677
(212) 821-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered solely in connection with dividend or
interest reinvestment plans, please check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
AMOUNT PROPOSED PROPOSED
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value........................ 3,450,000 shares $19 7/8 $68,568,750 $23,644.40
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on prices of the Registrant's Common Stock on
the New York Stock Exchange on September 23, 1996.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1996

PROSPECTUS

3,000,000 SHARES
[MULTICARE THE MULTICARE COMPANIES, INC. LOGO]
COMMON STOCK
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All the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by The Multicare
Companies, Inc. (the "Company" or "Multicare").

The shares of Common Stock are listed on the New York Stock Exchange under
the symbol "MUL." The closing price of a share of Common Stock on September 26,
1996 was $21 1/8. See "Price Range of Common Stock."

-------------------

SEE "RISK FACTORS" AT PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $300,000.

(3) Certain stockholders have granted the Underwriters a 30-day option to
purchase, pro rata, up to 450,000 additional shares of Common Stock on the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If the option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, Proceeds to Company and
proceeds to such stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
-------------------

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
at the offices of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001.

-------------------

SMITH BARNEY INC.
COWEN & COMPANY
DEAN WITTER REYNOLDS INC.
NATWEST SECURITIES LIMITED

, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
GEOGRAPHIC CONCENTRATION
OF
MULTICARE FACILITIES

[MAP SHOWING STATES WHERE FACILITIES ARE LOCATED]

@ Corporate Headquarters
* Regional Office
# Pharmacy

FACILITIES(1) BEDS(1)
------------------------------
Owned 80 8,987
Leased 25 2,867
Managed 48 3,891
------------------------------
TOTAL 153 15,745

(1) Gives effect to the completion of the pending acquisition of A-D-S.
Excludes 14 facilities with 1,668 beds at which A-D-S provides consulting
services.

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

FOR UNITED KINGDOM PURCHASERS: The shares of Common Stock offered hereby may
not be offered or sold in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments, whether as principal or agent (except in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995 or the Financial Services Act 1986) and this
Prospectus may only be issued or passed on to any person in the United Kingdom
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or a person to whom
this Prospectus may otherwise lawfully be passed on.

2
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.

THE COMPANY

Multicare is a leading provider of high quality long-term care and specialty
medical services in selected geographic regions. The Company's long-term care
services include skilled nursing care, Alzheimer's care and related support
activities traditionally provided in long-term care facilities. Multicare's
specialty medical services consist of (i) rehabilitation therapies such as
occupational, physical and speech therapy and stroke and orthopedic
rehabilitation, (ii) subacute care such as ventilator care, intravenous therapy,
and various forms of coma, pain and wound management, and (iii) institutional
pharmacy services through which the Company provides prescription drugs,
infusion therapies and certain medical supplies to patients at the Company's
facilities, as well as to patients at unaffiliated long-term care facilities.
Specialty medical service revenues accounted for 18%, 30%, 40% and 39% of net
revenues for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996, respectively.

As of September 15, 1996, the Company operated 101 long-term care facilities
(including three assisted living facilities) and two outpatient rehabilitation
centers (68 owned, 23 leased, and 12 managed) in Connecticut, Illinois, New
Jersey, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and
Wisconsin with 11,561 beds. The Company's institutional pharmacies serve more
than 20,000 beds of which approximately one-third are owned, leased or managed
by Multicare. On June 17, 1996, the Company entered into a definitive agreement
to acquire The A.D.S Group ("A.D.S") which owns, operates or manages 50
facilities, including 23 long-term care facilities with 3,072 beds, 21
hospital-based subacute units with 534 beds, and six assisted living facilities,
totaling 578 beds, almost all of which are located in Massachusetts. A.D.S also
provides consulting services to an additional 14 facilities with 1,668 beds.
After giving effect to the acquisition of A.D.S, the Company will own, operate
or manage 151 long-term care facilities (including 9 assisted living facilities)
and two outpatient rehabilitation centers (80 owned, 25 leased and 48 managed)
and will provide consulting services to an additional 14 facilities, in 11
states. The completion of the acquisition of A.D.S is subject to a number of
conditions, including obtaining regulatory approvals.

Multicare has established a strong competitive position in the markets it
serves by providing high quality care in concentrated geographic regions. As a
result, the Company has achieved high occupancy rates, a favorable payor mix and
sustained growth in revenue and operating profits. Multicare's overall occupancy
rate for its owned and leased properties was approximately 92% for the year
ended December 31, 1995 and the six months ended June 30, 1996. The Company
achieved a quality mix (defined as non-Medicaid patient revenues) of 56%, 62%
and 66% of net revenues for the years ended December 31, 1993, 1994 and 1995,
respectively, and 64% for the six months ended June 30, 1996.

Multicare has implemented an operating and growth strategy designed to
sustain and enhance the Company's strong competitive position and to foster its
expansion into targeted geographic areas. The Company's operating strategy
focuses on providing high quality long-term care and specialty medical services
on a cost-effective basis. The Company seeks to maximize revenue and operating
profit by positioning itself as a premier provider in its markets thereby
achieving high occupancy rates and a favorable payor mix. The Company employs
rigorous managerial and financial controls which seek to contain cost without
compromising the quality of care provided. The Company also attempts to acquire
or develop facilities that are concentrated in selected geographic regions to
enable it to achieve operating efficiencies through economies of scale and
reduced corporate overhead.

3
<PAGE>
The Company's growth strategy emphasizes (i) the expansion and
diversification of its operations by selectively acquiring and developing
long-term care facilities, pharmacies and specialty medical service providers in
targeted geographic areas and (ii) further development of post-acute or
non-acute services in selected geographic areas to create a continuum of care
through the expansion of assisted living, home health care, hospital-based
subacute care and other related services. The Company has grown substantially
through acquisitions and through its ability to integrate newly acquired
operations into its existing operations and to increase their profitability by
implementing revenue enhancement and cost control programs. As a result of
acquisitions recently consummated and the Company's continued expansion of its
specialty medical services, the Company is now able to offer directly to many of
its patients, rather than relying on third party providers, pharmacy,
rehabilitation therapy, subacute care and other specialized services, which has
enabled the Company to better respond to the needs of its patients and to
control the costs related to such services.

THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares
Common Stock outstanding after the
Offering..................................... 29,566,086 shares (1)
Use of Proceeds.............................. Repayment of indebtedness under the Company's
bank credit facility. See "Use of Proceeds."
New York Stock Exchange symbol............... "MUL"
</TABLE>

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(1) Does not include (i) outstanding stock options to purchase 2,795,456 shares
of Common Stock, of which options to purchase 1,010,849 of such shares are
currently exercisable or will become exercisable within the next sixty days,
(ii) 4,975,962 shares issuable upon conversion of the Company's 7%
Convertible Subordinated Debentures due 2003 (the "Convertible Debentures")
or (iii) 554,973 shares to be issued in connection with the pending A.D.S
acquisition. See "Capitalization."

-------------------

References in this Prospectus to the "Company" or "Multicare" refer to The
Multicare Companies, Inc., its consolidated subsidiaries and their predecessors,
or to any of them, depending on the context. Except where otherwise indicated,
all share and per share data in this Prospectus assume no exercise of the
Underwriters' over-allotment option and give effect to the stock dividend
declared in February 1993, the stock dividend declared in July 1993, and the
stock dividend declared in May 1996 (collectively, the "Stock Splits").

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Net revenues...................... $87,838 $126,007 $162,384 $262,416 $353,048 $167,305 $251,946
Income from operations............ 6,984 12,580 25,073 40,362 52,010 25,002 33,088
Interest expense.................. 7,148 9,890 15,090 13,162 18,778 9,121 12,297
Income before income taxes and
extraordinary item(2).............. 14 3,170 11,844 27,496 35,945 16,806 21,004
Income (loss) before extraordinary
item(2)............................ (526) 1,750 7,117 17,042 22,147 10,358 12,977
Net income (loss)................. (526) 1,750 3,254 15,422 18,425 10,358 11,496
Income per common share data
assuming full dilution:
Income (loss) before
extraordinary item per
share.............................. $(.04) $.12 $.42 $.71 $.84 $.39 $.46
Net income (loss) per share..... $(.04) $.12 $.19 $.64 $.69 $.39 $.41
Weighted average number of
shares outstanding............ 14,646 14,646 16,962 23,967 26,513 29,863 32,511
OTHER DATA:
Income from operations before
owners' compensation(3)......... $18,961 $ 22,543 $ 25,073 $ 40,362 $ 52,010 $ 25,002 $ 33,088
Average number of licensed beds... 2,079 3,271 4,241 6,006 6,861 6,613 11,698
Average occupancy rate(4)......... 94.9% 91.0% 90.4% 92.2% 91.7% 91.2% 91.9%
Percentage of net revenues:
Quality mix(5).................. 54.2% 55.5% 56.0% 62.5% 66.3% 68.0% 64.4%
Medicaid........................ 45.8% 44.5% 44.0% 37.5% 33.7% 32.0% 35.6%
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------ --------------
<S> <C> <C>
PRO FORMA AS ADJUSTED STATEMENTS OF OPERATIONS DATA(6):
Net revenues........................................................... $524,074 $294,774
Income from operations................................................. 68,104 38,165
Other income (expense), net............................................ 32,486 13,783
Income before income taxes and extraordinary item(2)................... 35,618 24,382
Income before extraordinary item(2).................................... 21,207 14,606
Income before extraordinary item per common share assuming full
dilution................................................................ $ 0.71 $ 0.46
Weighted average number of shares outstanding assuming full dilution... 30,068 36,066
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:(7)
Working capital............................................... $ 68,841 $ 76,187 $ 76,187
Total assets.................................................. 650,153 771,541 771,541
Total indebtedness, including capitalized lease obligations... 420,562 510,681 453,681
Stockholders' equity.......................................... $130,902 $ 142,002 $ 199,002
</TABLE>

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(1) See footnote 1 to the Selected Consolidated Financial Data.

(2) The Company incurred extraordinary charges of $3,863, $1,620, $3,722 and
$1,481, net of taxes, in the years 1993, 1994 and 1995 and in the six months
ended June 30, 1996, respectively, relating to early extinguishment of debt.

(3) Owners' compensation represents compensation paid to owners prior to the
Company's initial public offering.

(4) Facilities owned or leased by the Company.

(5) Quality mix is defined as non-Medicaid patient revenues.

(6) Pro forma statements of operations data assumes the completion of the
pending acquisition of A.D.S and certain other acquisitions that occurred in
1995 and 1996 and the Offering and the application of the net proceeds
therefrom, as of the beginning of the respective period. For a detailed
description of the foregoing see "Capitalization" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."

(7) Pro forma balance sheet data assumes the completion of the acquisition of
A.D.S as of June 30, 1996. Pro forma as adjusted balance sheet data is also
adjusted to reflect the Offering and the application of the net proceeds
therefrom as of June 30, 1996. See "Capitalization" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."

5
<PAGE>
RISK FACTORS

In evaluating the Company and its business, prospective investors should
consider carefully the following factors and other information contained in this
Prospectus before purchasing the Common Stock offered hereby.

HEALTHCARE REFORM

The Company is subject to extensive governmental healthcare regulation.
There are numerous legislative and executive initiatives at the Federal and
state levels for comprehensive reforms affecting the payment for and
availability of healthcare services. The Company is unable to predict the impact
of healthcare reform proposals on the Company or its stock price; however, it is
possible that such proposals could have a material adverse effect on the
Company. Any changes in reimbursement levels under Medicaid and Medicare and any
changes in applicable government regulations could significantly affect the
profitability of the Company. Various cost containment measures adopted by
governmental pay sources have begun to limit the scope and amount of
reimbursable healthcare expenses. Additional measures, including measures that
have already been proposed in states in which the Company operates, may be
adopted in the future as Federal and state governments attempt to control
escalating healthcare costs. There can be no assurance that currently proposed
or future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company. In particular, changes to the Medicare
reimbursement program that have recently been proposed could materially
adversely affect the Company's revenues derived from ancillary services. Concern
about the potential effects of proposed and unanticipated future reform measures
has contributed to the volatility of securities prices of companies in
healthcare and related industries and may similarly affect the Company's stock
price.

REIMBURSEMENT BY THIRD PARTY PAYORS

The Company typically receives a higher rate for services to private pay and
Medicare patients than for services to patients eligible for assistance under
Medicaid programs. For 1993, 1994, 1995 and the six months ended June 30, 1996,
the Company derived approximately 40%, 39%, 41% and 39%, respectively, of its
net revenues from private pay and other sources, 44%, 38%, 34% and 36%,
respectively, from Medicaid and 16%, 23%, 25% and 25%, respectively, from
Medicare. Changes in the number of private pay patients and changes among
different pay sources could significantly affect the profitability of the
Company.

Both governmental and other third-parties payors, such as commercial
insurers, managed care organizations, HMOs and PPOs, have instituted cost
containment measures designed to limit the scope and amount of payments made to
long-term care providers. These measures include the adoption of initial and
continuing recipient eligibility criteria, the adoption of coverage criteria and
the establishment of payment ceilings. Furthermore, governmental reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions. There
can be no assurance that payments under state and or Federal governmental
programs will remain at levels comparable to present levels or will be
sufficient to cover the costs allocable to patients eligible for reimbursement
pursuant to such programs. In addition, there can be no assurance that the
Company's facilities or the services provided by the Company will continue to
meet the requirements for participation in such programs or that the states in
which the Company operates will continue to meet their Medicaid reimbursement
obligations on a timely basis, if at all. Any of the foregoing could materially
adversely affect the Company.

The Company is subject to periodic audits by the Medicare and Medicaid
programs, and the paying agencies for these programs have various rights and
remedies against the Company if they assert that the Company has overcharged the
programs or failed to comply with program requirements. Such payment agencies
could seek to require the Company to repay any overcharges or amounts billed in

6
<PAGE>
violation of program requirements, or could make deductions from future amounts
due to the Company. Such agencies could also impose fines, criminal penalties or
program exclusions. Any such action could materially adversely affect the
Company.

REGULATION

The Federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
Medicaid and Medicare reimbursement rates, the development and operation of
long-term care facilities and the provision of long-term care services are
subject to Federal, state and local licensure and certification laws that
regulate with respect to a facility, among other things, the number of beds, the
provision of services, the distribution of pharmaceuticals, equipment, staffing
requirements, operating policies and procedures, fire prevention measures, and
compliance with building and safety codes and environmental laws. There can be
no assurance that Federal, state or local governments will not impose additional
restrictions on the Company's activities which might adversely affect the
Company's business. The failure to maintain or renew any required regulatory
approvals or licenses could adversely affect the Company's ability to provide
its services and receive reimbursement of its expenses.

Long-term care facilities are subject to periodic inspection by governmental
authorities to assure compliance with the various standards established for
continued licensing under state law and certification under the Medicaid or
Medicare programs. Failure to comply with these standards could result in the
denial of reimbursement, the imposition of fines, temporary suspension of
admission of new patients, suspension or decertification from the Medicaid or
Medicare program, restrictions on the ability to acquire new facilities or
expand existing facilities and, in extreme cases, revocation of the facility's
license or closure of a facility. There can be no assurance that the facilities
owned, leased or managed by the Company, or the provision of services and
supplies by the Company, will initially meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing authorities.

Most states have adopted Certificate of Need or similar laws which generally
require that the appropriate state regulatory agency approve the construction or
acquisition of, or the addition of beds or services to, a long-term care
facility. To the extent that a Certificate of Need or other similar approval is
required for the acquisition or construction of new facilities or the expansion
of beds, services or existing facilities, the Company could be adversely
affected by the failure or inability to obtain such approval, changes in the
standards applicable to such approval and possible delays and expenses
associated with obtaining such approval. In addition, in most states the
reduction of beds or the closure of a facility requires the approval of the
appropriate state regulatory agency and, if the Company were to determine to
reduce beds or close a facility, the Company could be adversely affected by a
failure to obtain or a delay in obtaining such approval.

The Company is also subject to Federal and state laws that govern financial
and other arrangements between healthcare providers. Federal laws, as well as
the laws of certain states, prohibit direct or indirect payments or fee
splitting arrangements between healthcare providers that are designed to induce
or encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the Federal
"anti-kickback law" which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. A wide array of relationships and
arrangements, including ownership interests in a company by persons in a
position to refer patients and personal service agreements have, under certain
circumstances, been alleged to violate these provisions. A violation of the
Federal anti-kickback law could result in the loss of eligibility to participate
in Medicare or Medicaid, or in civil or criminal penalties for individuals or
entities. Violation of state anti-kickback laws could lead to loss of licensure,
significant fines and other penalties for individuals or entities.

7
<PAGE>
LEVERAGE

As of June 30, 1996, the Company's long-term indebtedness, including
capitalized leases and excluding current maturities, was $419.5 million or 76.2%
of total capitalization. See "Capitalization." After the Offering and the
application of $57.0 million of the proceeds therefrom to reduce amounts
outstanding under the Company's $350 million bank credit facility (the "Credit
Facility") and the consummation of the proposed acquisition of A.D.S, it is
expected that $451.5 million of long-term indebtedness, including capitalized
leases and excluding current maturities, or 69.4% of total capitalization, will
remain outstanding. A substantial portion of the Company's cash flow from
operations will continue to be required for principal and interest payments on
the Company's long-term indebtedness after the Offering. Although the Indenture
(the "Note Indenture") pursuant to which the Company's 12 1/2% Senior
Subordinated Notes due 2002 (the "12 1/2% Notes") were issued and the agreements
governing the Credit Facility restrict the Company's ability to incur
indebtedness, the Company still has the ability to incur additional indebtedness
and there will be approximately $81.4 million available for borrowings under the
Credit Facility after the completion of the pending A.D.S acquisition, the
Offering and the application of $57.0 million of the proceeds to reduce amounts
outstanding thereunder.

EXPANSION THROUGH ACQUISITION

A key element of the Company's growth to date, and of the Company's strategy
for the future, is expansion through the acquisition and development of
long-term care facilities. There can be no assurance that future suitable
acquisition candidates will be located, that acquisitions can be consummated or
construction projects completed successfully, or that added facilities can be
operated profitably or integrated successfully into the Company's operations.

Growth in the Company's operations entails certain risks. In order to
integrate new facilities into the Company's operations, the Company will be
required to expend significant management and financial resources. There can be
no assurance that the Company will be able to integrate successfully new
facilities into the Company's operations or that the Company's management
techniques will continue to be effective in a larger organization. In addition,
growth through acquisition entails certain risks in that the acquired facilities
could be subject to unanticipated business uncertainties or legal liabilities.
The Company seeks to minimize these risks through the due diligence and
documentation process undertaken in connection with its acquisitions.
Notwithstanding the Company's due diligence investigation when it undertakes
acquisitions, there can be no assurance that there do not exist environmental or
other liabilities that could have a material adverse effect on the Company. The
purchase of facilities from a bankruptcy estate, such as the Company's purchase
of 13 such facilities from Adventist Living Centers, Inc. in May 1992, or the
purchase of the stock of a publicly traded company, such as the purchase of
Concord Health Group, Inc. ("Concord") in February 1996, are circumstances in
which it is very unlikely that the Company would be able to recover any losses
attributable to the purchased business.

GEOGRAPHIC PAYOR CONCENTRATION

The Company's operations are located in Connecticut, Illinois, New Jersey,
Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and
Wisconsin. Any adverse change in the regulatory environment or the reimbursement
rates paid under the Medicaid program in the states in which the Company
operates, and particularly in New Jersey, Pennsylvania, West Virginia and
Connecticut (in each of which the Company derived more than 10% of its total
revenues in the six months ended June 30, 1996), could have a material adverse
effect on the Company.

COMPETITION

The long-term care industry is highly competitive. The Company competes with
other providers on the basis of the breadth and quality of its services, the
quality, appearance and reputation of its facilities

8
<PAGE>
and price. The Company also competes in the recruitment and retention of
qualified healthcare personnel and the acquisition and development of additional
facilities. The Company's current and potential competitors include national,
regional and local operators of long-term care facilities, as well as acute care
hospitals and rehabilitation hospitals, some of whom have significantly greater
financial and other resources than the Company. The Company also faces
competition from assisted living operators as well as providers of home
healthcare. In addition, the Company competes with a number of non-profit
organizations and similar businesses which can finance capital expenditures on a
tax-exempt basis or receive charitable contributions unavailable to the Company.
There can be no assurance that the Company will not encounter increased
competition in the future which could adversely affect the Company's operating
results, particularly if existing restrictive policies relating to the issuance
of Certificates of Need are relaxed.

The Company expects competition for the acquisition and development of
long-term care facilities to increase in the future as the demand for long-term
care increases. Construction of new (or the expansion of existing) long-term
care facilities near the Company's facilities could adversely affect the
Company's business. State regulations generally require a Certificate of Need
before a new long-term care facility can be constructed or additional licensed
beds can be added to existing facilities. Certificate of Need legislation is in
place in all states in which the Company operates. The Company believes that
these regulations reduce the possibility of overbuilding and promote higher
utilization of existing facilities. However, a relaxation of Certificate of Need
requirements could lead to an increase in competition. In addition, as cost
containment measures have reduced occupancy rates at acute care hospitals, a
number of these hospitals have converted portions of their facilities into
subacute units. Competition from acute care hospitals could adversely affect the
Company and certain states in which the Company operates have considered or are
considering action that could facilitate such competition.

STAFFING AND LABOR COSTS

Staffing and labor costs represent the Company's largest expense. Labor
costs accounted for 65%, 63%, 63% and 63% of the Company's total facility
operating expenses in 1993, 1994 and 1995 and the six months ended June 30,
1996, respectively. The Company competes with other healthcare providers in
attracting and retaining qualified or skilled personnel. The long-term care
industry has, at times, experienced shortages of qualified personnel. A shortage
of nurses or other trained personnel or general economic inflationary pressures
may require the Company to enhance its wage and benefits package in order to
compete with other employers. There can be no assurance that the Company's labor
costs will not increase or, if they do, that they can be matched by
corresponding increases in private-payor revenues or governmental reimbursement.
Failure by the Company to attract and retain qualified employees, to control its
labor costs or to match increases in its labor expenses with corresponding
increases in revenues could have a material adverse effect on the Company.
Approximately 3,600 employees at 28 of the Company's facilities are covered by
collective bargaining agreements. Although the Company believes that it
maintains good working relationships with its employees and the unions that
represent certain of its employees, it cannot predict the impact of continued or
increased union representation or organizational activities on its future
operations.

DEPENDENCE UPON KEY PERSONNEL

The success of the Company and its growth strategy is dependent upon the
active involvement of a small group of key management personnel. The loss of
services of any of these individuals could have a material adverse effect on the
Company.

CONCENTRATION OF OWNERSHIP; SHARES ELIGIBLE FOR FUTURE SALE

Following the Offering, certain members of the Straus family (the "Principal
Stockholders") will own beneficially approximately 50.3% of the outstanding
shares of Common Stock. Accordingly, these

9
<PAGE>
stockholders will have the power to elect the Company's directors and control
the outcome of other stockholder activity.

Sales of Common Stock in the public market following the Offering could
adversely affect prevailing market prices. The Company, its officers and
directors and the Principal Stockholders have agreed not to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable for, Common Stock, for a period of 90 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc. as
representative of the Underwriters. Upon the expiration of such agreements, the
holders of such shares of Common Stock could cause the Company to register such
shares under the Securities Act. In addition, approximately 4,975,962 shares of
Common Stock are issuable upon conversion of the Convertible Debentures and such
shares should be freely tradeable following conversion.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Restated Certificate of Incorporation and By-laws
of the Company, as well as Delaware corporate law, contain provisions that may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder of the Company might
consider in its best interest, including an attempt that might result in the
receipt of a premium over the then current market price for the shares held by
stockholders. Certain of these provisions allow the Company to issue, without
stockholder approval, preferred stock having rights senior to those of the
Common Stock. Other provisions impose various procedural and other requirements
that could make it more difficult for stockholders to effect certain corporate
actions. In addition, the Company is subject to Section 203 of the Delaware
General Corporation Law which under certain circumstances can make it more
difficult for a third party to gain control of the Company without approval of
the Board of Directors.

------------

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included in or incorporated by reference in this
Prospectus constitute "Forward-Looking Statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
desires to take advantage of certain "Safe Harbor" provisions of the Reform Act
and is including this special note to enable the Company to do so.
Forward-Looking Statements included or incorporated by reference in this
Prospectus involve known and unknown risks, uncertainties, and other factors
which would cause the Company's actual results, performance (financial or
operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such Forward-Looking Statements. A number of the important factors that could
cause such material differences to occur are set forth in the Company's Form
10-K for the year ended December 31, 1995, and are incorporated herein by
reference.

10
<PAGE>
RECENT DEVELOPMENTS

As part of its growth strategy, the Company continually evaluates
acquisition candidates and opportunities to construct new facilities and expand
existing facilities. The Company has developed significant in-house legal,
financial, regulatory and construction expertise needed to undertake this type
of growth. The Company has grown through acquisition, construction, lease and
management agreements. Since January 1, 1995, the Company has added 94
facilities with 9,201 licensed beds in eight states (including facilities to be
acquired in the pending A.D.S acquisition, but excluding 14 facilities to which
A.D.S provides consulting services).

THE A.D.S ACQUISITION

On June 17, 1996, a wholly-owned subsidiary of the Company entered into a
definitive agreement to acquire A.D.S, a long-term care company headquartered in
Newton, Massachusetts. A.D.S owns, operates or manages 50 facilities, including
23 long-term care facilities with 3,072 beds, 21 hospital-based subacute units
with 534 beds and six assisted living facilities, totaling 578 beds, almost all
of which are located in Massachusetts. A.D.S also provides consulting services
to an additional 14 facilities with 1,668 beds, operates several ancillary
businesses including home health, both Medicare certified and private, and
provides out-patient rehabilitation services at numerous locations. Under the
terms of the agreement, the Company will pay approximately $62.1 million in
cash, assume or repay approximately $27.0 million in debt and issue 554,973
shares of its Common Stock upon the closing of the acquisition of A.D.S. The
closing is subject to a number of significant conditions, including, among
others, the receipt of all required regulatory and other consents and licenses,
the approval of A.D.S's shareholders, the satisfactory completion of Multicare's
due diligence and the receipt of consent of the banks which are parties to the
Credit Facility. The transaction is expected to be completed during the fourth
quarter of 1996. There can be no assurance, however, that the A.D.S acquisition
will be consummated.

The Company believes that the A.D.S acquisition will further the Company's
long range growth strategy because it permits the Company to become the largest
provider of long-term care in Massachusetts with the acquisition of a cluster of
regionally concentrated facilities. In addition, the acquisition is expected to
enhance and complement the Company's capabilities in the area of assisted living
and subacute care and in developing regional networks of post-acute care, as
well as advance the Company's capabilities to manage facilities, including, in
particular, transitional and other long-term care units that are located in
acute care hospitals. The Company also believes that A.D.S is positioned to
benefit from the purchasing power and certain management systems that the
Company is able to provide. The A.D.S acquisition will also provide Multicare
with an experienced management team which will be responsible for the Company's
operations in Massachusetts as well as the entire New England region.

Alan D. Solomont, founder, chairman and a principal stockholder of A.D.S,
has been a member of the Company's Board of Directors since 1994. Mr. Solomont
will become vice chairman of Multicare upon consummation of the A.D.S
acquisition. Susan S. Bailis, currently president, chief operating officer and a
principal of A.D.S, will join Multicare as a senior vice president, and will
serve as president of a new A.D.S/Multicare subsidiary that will have operating
control over Multicare's New England operations, including the operations
acquired as part of the A.D.S acquisition. Mr. Solomont and Ms. Bailis will
receive employment agreements which will provide for an initial term of three
years which will be renewed automatically at the end of the initial three-year
term for additional one-year periods unless, not less than 180 days prior to the
end of the initial term or any such additional term, notice of non-renewal is
given either by the Company or the executive. Mr. Solomont's agreement will
provide for an annual base salary of $300,000 and Ms. Bailis' agreement will
provide for an annual base salary of $200,000, which in each case may be
increased at the discretion of the Board of Directors. Each executive will be
eligible to receive a bonus to be determined pursuant to the Company's Key
Employee Incentive Compensation Plan. The other terms of the employment
agreements are substantially the

11
<PAGE>
same as the employment agreements currently in effect with the Company's
Executive Vice President. Each of the executives will also be entitled to
certain life and disability insurance benefits. Mr. Solomont will receive
options to purchase 300,000 shares of Common Stock and Ms. Bailis will receive
options to purchase 97,500 shares of Common Stock, at the market price of the
Common Stock at the time the A.D.S acquisition is consummated. Mr. Solomont and
Ms. Bailis will also enter into three-year non-competition agreements as part of
the acquisition agreement. The Company has agreed to permit Mr. Solomont and Ms.
Bailis and other stockholders of A.D.S who are receiving Common Stock in the
acquisition to include the Common Stock acquired by them as part of the
acquisition in any registration statement under the Securities Act effected by
the Company for the benefit of certain Principal Stockholders occuring after the
first anniversary of the closing of the A.D.S acquisition, subject to certain
limitations.

OTHER RECENT ACQUISITIONS

The following other significant acquisitions and developments have taken
place:

In January 1995, the Company acquired the assets and operations of an
institutional pharmacy business located in New Jersey which currently services
over 20,000 beds.

In December 1995, the Company acquired the outstanding capital stock of
Glenmark Associates, Inc. ("Glenmark"), a long-term care provider operating 21
facilities and several ancillary businesses with approximately 1,700 beds,
located principally in West Virginia.

In December 1995 and February 1996, the Company acquired the assets and
operations of two long-term care facilities with an aggregate of 356 beds in
Connecticut and commenced management of three long-term care facilities in Rhode
Island with approximately 373 beds.

In February 1996, the Company acquired the outstanding capital stock of
Concord, a publicly traded company that operated 15 long-term care facilities
with approximately 2,600 beds, including three assisted living facilities, and
several ancillary businesses in Pennsylvania.

The Company frequently is in discussions with third parties concerning the
possible acquisition of long-term care facilities. Although the Company
regularly considers and evaluates opportunities for expansion and from time to
time enters into letters of intent that provide the Company with an exclusivity
period during which it considers possible acquisitions, the Company does not at
this time have any firm commitments to make any material acquisitions of
long-term care facilities other than the A.D.S transaction.

The following table summarizes the growth in facilities and beds of the
Company since January 1, 1995, giving effect to the acquisition of A.D.S:

<TABLE>
<CAPTION>
JANUARY 1, 1995 SEPTEMBER 15, 1996
---------------------- --------------------------
STATE FACILITIES BEDS FACILITIES(1) BEDS(1)
- ----------------------------------------------- ---------- ----- ------------- -------
<S> <C> <C> <C> <C>
Massachusetts.................................. -- -- 49 4,094
New Jersey..................................... 19 2,341 21 2,719
Pennsylvania................................... 3 416 17 2,370
West Virginia.................................. -- -- 21 1,857
Ohio........................................... 14 1,266 13 1,087
Connecticut.................................... 5 660 8 1,106
Wisconsin...................................... 7 1,006 7 957
Illinois....................................... 9 707 11 949
Rhode Island................................... -- -- 3 373
Virginia....................................... 1 90 2 175
Vermont........................................ 1 58 1 58
-- ----- --- -------
Total...................................... 59 6,544 153 15,745
-- ----- --- -------
-- ----- --- -------

</TABLE>

- ------------

(1) Excludes 1,668 beds in 14 facilities in which A.D.S provides consulting
services.

12
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company, are approximately $57.0 million. At the present time, the
Company intends to use the net proceeds of the Offering to repay outstanding
indebtedness under the Credit Facility which were incurred to finance certain of
the acquisitions listed under "Recent Developments." The Company anticipates
that future borrowings under the Credit Facility may be made for general
corporate purposes, including working capital and future acquisitions, including
the acquisition of A.D.S; however, the Company also is considering alternative
sources of debt or lease financing for such purposes. Borrowings under the
Credit Facility are due on February 28, 2000, and bear interest at prime or
LIBOR-based rates, subject in the case of LIBOR-based loans to an applicable
margin that varies in accordance with the Company's interest coverage ratio. The
Company's interest rate under the Credit Facility is currently approximately
6.7%.

PRICE RANGE OF COMMON STOCK

Multicare's Common Stock is listed on the New York Stock Exchange under the
symbol "MUL." The Company's Common Stock was traded on the Nasdaq National
Market under the symbol "MLTI" from August 18, 1993 until August 30, 1995. Prior
to August 18, 1993, there was no public trading market for the Common Stock. The
following table sets forth for each period indicated the high and low last or
closing sale prices for the Common Stock as reported by the Nasdaq National
Market for the period from January 1, 1995 to August 30, 1995 and by the New
York Stock Exchange for the period from August 31, 1995 to September 24, 1996.
Prices have been adjusted for a 50% stock dividend in May 1996.
<TABLE>
<CAPTION>
PRICE
--------------------------
HIGH LOW
----------- -----------
<S> <C> <C>
Calendar year 1995
First Quarter............................................................. $ 15 1/2 $ 11 5/8
Second Quarter............................................................ 15 1/8 11 1/4
Third Quarter............................................................. 15 5/8 11 1/4
Fourth Quarter............................................................ 16 1/8 11 3/4
Calendar year 1996..........................................................
First Quarter............................................................. 19 1/4 14 7/8
Second Quarter............................................................ 20 7/8 17 1/2
Third Quarter (through September 26, 1996)................................ 21 1/8 18
</TABLE>

The closing price of a share of Common Stock on September 26, 1996 was $21
1/8.

DIVIDEND POLICY

Since its inception in March 1992, the Company has not paid any cash
dividends on its Common Stock and does not anticipate paying any dividends in
the foreseeable future. The agreement governing the Credit Facility and the Note
Indenture restrict the Company's ability to pay dividends. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, contractual restrictions, capital requirements, business
prospects and such other factors as the Board of Directors deems relevant.

13
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) on a pro forma basis to reflect consummation of the pending
A.D.S acquisition and (iii) as further adjusted to reflect the Offering and the
application of the net proceeds therefrom to repay certain indebtedness. See
"Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Short-term debt:
Notes payable and current portion of long-term debt and
capitalized lease obligations.............................. $ 1,052 $ 2,193 $ 2,193
-------- --------- -----------
-------- --------- -----------
Long-term debt, excluding current portion:
Bank Debt................................................ $263,429 $ 325,570 $ 268,570
7% Convertible Subordinated Debentures due 2003.......... 86,250 86,250 86,250
12 1/2% Senior Subordinated Notes due 2002............... 29,688 29,688 29,688
Other.................................................... 29,932 56,769 56,769
Capitalized lease obligations............................ 10,211 10,211 10,211
-------- --------- -----------
Total long-term debt, excluding current portion........ 419,510 508,488 451,488

Stockholders' equity(1)(2):
Preferred stock, $.01 par value, 7,000,000 shares
authorized; none issued and outstanding................ -- -- --
Common stock, $.01 par value, 70,000,000 shares
authorized; 26,541,592 shares issued and outstanding;
pro forma 27,096,565; pro forma as adjusted, 30,096,565 265 271 301
Additional paid-in capital............................... 80,930 92,024 148,994
Retained earnings........................................ 49,707 49,707 49,707
-------- --------- -----------
Total stockholders' equity............................. 130,902 142,002 199,002
-------- --------- -----------
Total capitalization................................. $550,412 $ 650,490 $ 650,490
-------- --------- -----------
-------- --------- -----------
</TABLE>

- ------------

(2) On May 29, 1996, the Company increased its authorized capitalization to
70,000,000 shares of Common Stock and 7,000,000 shares of preferred stock.
The outstanding share data gives effect to the 50% stock dividend effected
on that date.

14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated historical financial data presented below with
respect to 1991, 1992, 1993, 1994 and 1995 are derived from and should be used
in conjunction with the Company's audited consolidated financial statements and
related notes which, as to 1993, 1994 and 1995 are incorporated herein by
reference. The consolidated historical amounts prior to November 18, 1992
comprise the accounts of various entities, interests in which were exchanged for
Common Stock of the Company. See "The Reorganization." The consolidated
historical financial data as of June 30, 1996 and for the six months ended June
30, 1995 and 1996 are derived from and should be read in conjunction with the
Company's unaudited consolidated financial statements which are incorporated
herein by reference. The unaudited data has been prepared on the same basis as
the other financial statements of the Company and, in the opinion of management,
include all adjustments (consisting only of normal, recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of the Company for such periods. Results for interim periods are not
necessarily indicative of those to be expected for the year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Net revenues........................... $87,838 $126,007 $162,384 $262,416 $353,048 $167,305 $251,946
Expenses:
Operating expenses(2)................ 63,378 93,649 124,681 201,250 270,224 127,696 196,238
Corporate, general and
administrative.......................... 1,309 4,081 6,338 11,446 17,643 8,262 12,413
Depreciation and amortization........ 4,190 5,734 6,292 9,358 13,171 6,345 10,207
Owners' compensation(3).............. 11,977 9,963 -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Total expenses...................... 80,854 113,427 137,311 222,054 301,038 142,303 218,858
------- -------- -------- -------- -------- -------- --------
Income from operations................. 6,984 12,580 25,073 40,362 52,010 25,002 33,088
------- -------- -------- -------- -------- -------- --------
Other income (expense):
Investment income.................... 178 480 1,861 296 2,713 925 213
Interest expense..................... (7,148) (9,890) (15,090) (13,162) (18,778) (9,121) (12,297)
------- -------- -------- -------- -------- -------- --------
Total other income (expense)........ (6,970) (9,410) (13,229) (12,866) (16,065) (8,196) (12,084)
------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................... 14 3,170 11,844 27,496 35,945 16,806 21,004
Income tax expense(4).................. 540 1,420 4,727 10,454 13,798 6,448 8,027
------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item.................................... (526) 1,750 7,117 17,042 22,147 10,358 12,977
Extraordinary item, net of tax
benefit(5).............................. -- -- 3,863 1,620 3,722 -- 1,481
------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (526) $ 1,750 $ 3,254 $ 15,422 $ 18,425 $ 10,358 $ 11,496
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Income per common share assuming full
dilution(6):
Income (loss) before extraordinary
item.................................... $ (.04) $ .12 $ .42 $ .71 $ .84 $ .39 $ .46
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (.04) $ .12 $ .19 $ .64 $ .69 $ .39 $ .41
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Weighted average number of shares
outstanding............................. 14,646 14,646 16,962 23,967 26,513 29,863 32,511
OTHER DATA:
Average number of licensed beds........ 2,079 3,271 4,241 6,006 6,861 6,613 11,698
Average occupancy rate(7).............. 94.9% 91.0% 90.4% 92.2% 91.7% 91.2% 91.9%
Percentage of net revenues:
Quality mix(8)....................... 54.2% 55.5% 56.0% 62.5% 66.3% 68.0% 64.4%
Medicaid............................. 45.8% 44.5% 44.0% 37.5% 33.7% 32.0% 35.6%
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
DECEMBER 31, PRO FORMA
--------------------------------------------------- AS
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(9) ADJUSTED(9)
------- -------- -------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital................ $ 1,231 $ 39,696 $ 15,158 $ 34,005 $ 55,542 $ 68,841 $ 76,187 $ 76,187
Total assets................... 73,598 155,485 162,255 308,755 470,958 650,153 771,541 771,541
Long-term debt including
current portion................. 37,721 114,285 79,583 130,260 256,933 410,071 500,190 443,190
Capitalized lease obligations
including current portion.... 32,938 32,621 26,554 26,618 26,149 10,491 10,491 10,491
Stockholders' equity
(deficit)....................... $(8,370) $(11,276) $ 32,591 $100,105 $113,895 $130,902 $142,002 $ 199,002
</TABLE>

- ------------
(1) The consolidated statement of operations data and consolidated balance sheet
data for the years 1991 and 1992 combined the historical results of
operations of the various business entities and real property interests
owned by the Company's stockholders which were consolidated under a single
entity on November 18, 1992 (the "Reorganization").

(2) Operating expenses include salaries, wages and benefits paid to facility
personnel and other facility expenses consisting principally of
housekeeping, food, contracted professional services, rent, maintenance, and
utilities.

(3) Represents compensation paid to owners prior to the Company's initial public
offering.

(4) In connection with the Reorganization on November 18, 1992, the Company, a C
corporation, assumed the tax basis of the assets and liabilities of the
(terminated) S corporations and partnerships. Income tax expense reflects
income taxes as if the Company had been subject to Federal and state income
taxes for each of the years 1991 and 1992, presuming a consolidated Federal
income tax return.

(5) The Company incurred extraordinary charges relating to early extinguishment
of debt.

(6) For all periods presented prior to June 30, 1996, primary earnings per share
are the same as income per common share assuming full dilution. Primary
earnings per share for the six months ended June 30, 1996 are $.47 and $.42
for income before extraordinary item and net income, respectively.

(7) Facilities owned or leased by the Company.

(8) Quality mix is defined as non-Medicaid patient revenues.

(9) Pro forma balance sheet data assumes the completion of the acquisition of
A.D.S as of June 30, 1996. Pro forma as adjusted balance sheet data is also
adjusted to reflect the Offering and the application of the net proceeds
therefrom as of June 30, 1996. See "Capitalization" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."

16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed consolidated balance sheet at
June 30, 1996, has been prepared as if the proposed acquisition of A.D.S had
been consummated, and the shares offered under this Prospectus had been issued,
on June 30, 1996. The accompanying unaudited pro forma condensed statements of
operations for the year ended December 31, 1995 and the six months ended June
30, 1996 have been prepared as if the Glenmark acquisition, the Concord
acquisition and the proposed acquisition of A.D.S had been consummated on
January 1, 1995. All of these acquisitions are accounted for as purchases. The
unaudited pro forma condensed consolidated statements of operations are further
adjusted to reflect the sale of shares of Common Stock offered under this
Prospectus and the repayment of certain debt with the proceeds thereof as
described under "Use of Proceeds." The unaudited pro forma financial information
has been prepared on the basis of assumptions described in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial Statements. The Unaudited
Pro Forma Condensed Consolidated Financial Statements are not necessarily
indicative of actual results that would have been achieved had the acquisitions
and Offering actually been completed as of the dates indicated. The Unaudited
Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the respective historical financial statements and the related
notes thereto of the Company and certain of the acquired entities incorporated
by reference therein, and of A.D.S included elsewhere in this Prospectus. There
can be no assurance, however, that the A.D.S acquisition will be consummated.

17
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
MULTICARE
HISTORICAL PRO FORMA MULTICARE OFFERING PRO FORMA
MULTICARE A.D.S ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 2,034 $ 4,956 $ 6,990 $ 6,990
Marketable securities......... -- 897 897 897
Accounts receivable, net...... 107,356 9,098 116,454 116,454
Prepaid expense and other
current asset................... 13,318 2,207 15,525 15,525
Deferred taxes................ 3,498 3,498 3,498
---------- ------- ----------- --------- ----------- -----------
Total current assets...... 126,206 17,158 143,364 143,364
Property, plant and equipment,
net 382,140 28,584 $ 28,744(1) 439,468 439,468
Goodwill, net................... 115,528 40,485(2) 156,013 156,013
Debt issuance costs, net........ 5,622 462 (462)(3) 5,622 5,622
Other assets.................... 20,657 6,417 27,074 27,074
---------- ------- ----------- --------- ----------- -----------
$ 650,153 $52,621 $ 68,767 $ 771,541 $ -- $ 771,541
---------- ------- ----------- --------- ----------- -----------
---------- ------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities..................... $ 56,313 $ 8,671 $ 64,984 $ 64,984
Current portion of long-term
debt and capitalized lease
obligations..................... 1,052 1,141 2,193 2,193
---------- ------- ----------- --------- ----------- -----------
Total current
liabilities..................... 57,365 9,812 67,177 67,177
Long-term debt and capitalized
lease obligations............... 419,510 26,837 $ 62,141(4) 508,488 $ (57,000)(7) 451,488
Deferred taxes................ 42,376 11,498(5) 53,874 53,874
Stockholders' equity:
Common stock.................. 265 324 (318)(6) 271 30(8) 301
Additional paid-in capital.... 80,930 2,358 8,736(6) 92,024 56,970(8) 148,994
Retained earnings............. 49,707 13,257 (13,257)(6) 49,707 49,707
Unrealized gain on marketable
securities...................... 33 (33)(6)
---------- ------- ----------- --------- ----------- -----------
Total stockholders'
equity.......................... 130,902 15,972 (4,872) 142,002 57,000 199,002
---------- ------- ----------- --------- ----------- -----------
$ 650,153 $52,621 $ 68,767 $ 771,541 $ -- $ 771,541
---------- ------- ----------- --------- ----------- -----------
---------- ------- ----------- --------- ----------- -----------
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

18
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
MULTICARE
HISTORICAL PRO FORMA MULTICARE OFFERING PRO FORMA
MULTICARE GLENMARK(9) CONCORD(10) A.D.S(11) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....... $353,048 $52,395 $52,609 $66,022 $524,074 $ 524,074
Expenses:
Operating
expenses........... 270,224 43,759 39,204 54,715 407,902 407,902
Corporate, general
and
administrative..... 17,643 4,710 3,574 3,521 $ (4,000) 14) 25,448 25,448
Depreciation and
amortization....... 13,171 1,768 2,286 1,486 3,909(15) 22,620 22,620
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
Total
expenses........... 301,038 50,237 45,064 59,722 (91) 455,970 -- 455,970
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
Income from
operations......... 52,010 2,158 7,545 6,300 91 68,104 68,104

Other income
(expense).......... (16,065) (4,070) (3,563) (2,135) (10,786) 16) (36,619 ) $ 4,133(18) (32,486)
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
Income (loss)
before income
taxes and
extraordinary
item............... 35,945 (1,912) 3,982 4,165 (10,695) 31,485 4,133 35,618
Income tax expense
(benefit).......... 13,798 1,290 51 (2,400) 17) 12,739 1,672(17) 14,411
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
Income (loss)
before
extraordinary
item............... $ 22,147 $(1,912) $ 2,692 $ 4,114 $ (8,295) $ 18,746 $ 2,461 $ 21,207
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
---------- ----------- ----------- --------- ----------- --------- ----------- -----------
Income before
extraordinary item
per common share
assuming full
dilution........... $ 0.84 $ 0.69 $ 0.71
Weighted average
number of shares
outstanding........ 26,513 555 27,068 3,000 30,068
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

19
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
MULTICARE
HISTORICAL PRO FORMA MULTICARE OFFERING PRO FORMA
MULTICARE CONCORD(12) A.D.S(13) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............. $ 251,946 $ 8,090 $ 34,738 $ 294,774 $ 294,774
Expenses:
Operating expenses..... 196,238 6,081 28,071 230,390 230,390
Corporate, general and
administrative........... 12,413 545 1,723 $ (850)(14) 13,831 13,831
Depreciation and
amortization............. 10,207 351 732 1,098(15) 12,388 12,388
---------- ----------- --------- ----------- --------- ----------- -----------
Total expenses..... 218,858 6,977 30,526 248 256,609 -- 256,609
---------- ----------- --------- ----------- --------- ----------- -----------
Income from
operations............... 33,088 1,113 4,212 (248) 38,165 38,165
Other income (expense)... (12,084) (520) (850) (2,182)(16) (15,636) $ 1,853(18) (13,783)
---------- ----------- --------- ----------- --------- ----------- -----------
Income (loss)
before income
taxes and
extraordinary
item..................... 21,004 593 3,362 (2,430) 22,529 1,853 24,382
Income tax expense....... 8,027 201 40 765(17) 9,033 743(17) 9,776
---------- ----------- --------- ----------- --------- ----------- -----------
Income before
extraordinary
item..................... $ 12,977 $ 392 $ 3,322 $(3,195) $ 13,496 $ 1,110 $ 14,606
---------- ----------- --------- ----------- --------- ----------- -----------
---------- ----------- --------- ----------- --------- ----------- -----------
Income before
extraordinary item per
common share assuming
full dilution (19)....... $0.46 $0.47 $0.46
Weighted average number
of shares outstanding.... 32,511 555 33,066 3,000 36,066
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

20
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has entered into a definitive agreement to acquire A.D.S
(including all assets and liabilities) for $62.1 million of cash and issuance of
554,973 shares of Common Stock valued at $11.1 million. The preliminary
allocation of the purchase price to property, plant and equipment and goodwill
was determined by management estimates, as appraisals are not yet available.

<TABLE>
<C> <S>
(1) The allocation of the purchase price of the proposed acquisition of A.D.S to property,
plant and equipment based on estimated fair market values.

(2) Increase in goodwill resulting from purchase price in excess of estimated fair market
value of net assets acquired.

(3) The elimination of deferred financing costs.

(4) Additional borrowings under the Company's Credit Facility to complete the proposed
acquisition of A.D.S.

(5) Increase in deferred taxes relating to the proposed A.D.S acquisition to reflect the
difference in estimated fair market values and tax bases of assets and liabilities
acquired.

(6) The issuance of 554,973 shares of the Company's Common Stock to complete the proposed
acquisition of A.D.S and elimination of historical equity of A.D.S.

(7) The application of the net proceeds of the Offering to repay $57.0 million of long-term
debt outstanding under the Company's revolving Credit Facility.

(8) Issuance of Common Stock in connection with the Offering, net of underwriter's discount
and expenses.

(9) Reflects historical operations of Glenmark and the elimination of the results of
operations for a Glenmark entity not acquired by the Company for the eleven months
ended November 30, 1995. Also reflects the historical operations for the eleven months
ended November 30, 1995 of four long-term care facilities for which Glenmark entered
into a lease agreement in November 1995. The historical results of these leased
facilities have been adjusted to eliminate management fees, record rent expense and
eliminate depreciation and interest expense.

(10) Represents historical operations of Concord for the year ended December 31, 1995. These
amounts have been derived by adding the results of operations for the six months ended
December 31, 1995 to and deducting the results for the six months ended December 31,
1994 from the audited financial statement amounts for the year ended June 30, 1995,
incorporated by reference herein.

(11) Reflects the historical results of operations for A.D.S for the year ended December 31,
1995.

(12) Represents historical results of operations for Concord from January 1, 1996 to
February 21, 1996.

(13) Represents historical results of operations for A.D.S for the six months ended June 30,
1996.

(14) Corporate, general and administrative expense has been adjusted to reflect the
elimination of duplicative positions at A.D.S and Concord, which have been or will be
vacated and will not be replaced, consolidation and closing of Concord corporate
offices, elimination of various public company costs incurred by Concord, and reduction
of professional and accounting fees.
</TABLE>

21
<PAGE>
<TABLE>
<C> <S>
(15) Depreciation and amortization expense has been increased by amortization of goodwill
incurred in the consummated and proposed acquisitions and depreciation resulting from
the allocation of the Company's purchase price for the acquisitions to property, plant
and equipment. Goodwill is being amortized over periods of twenty-five to forty years.
(16) Net interest expense has been increased to reflect the financing of the consummated and
proposed acquisitions with the Company's revolving credit facility bearing interest at
7.25% and 6.5%, for the year ended December 31, 1995 and the six months ended June 30,
1996, respectively.
(17) Income tax expense has been adjusted to reflect a consolidated effective tax rate of
approximately 40%.
(18) Interest expense has been reduced for the repayment of long-term debt with the net
proceeds of the Offering.
(19) Income before extraordinary item per share was determined on the assumption that the
Company's Convertible Debentures were converted on January 1, 1996 and was adjusted for
the amounts representing interest and amortization of debt issuance costs, net of tax
effect.
</TABLE>

22
<PAGE>
BUSINESS

INTRODUCTION

Multicare is a leading provider of high quality long-term care and specialty
medical services in selected geographic regions. The Company's long-term care
services include skilled nursing care, Alzheimer's care and related support
activities traditionally provided in long-term care facilities. Multicare's
specialty medical services consist of (i) rehabilitation therapies such as
occupational, physical and speech therapy and stroke and orthopedic
rehabilitation, (ii) subacute care such as ventilator care, intravenous therapy,
and various forms of coma, pain and wound management, and (iii) institutional
pharmacy services through which the Company provides prescription drugs,
infusion therapies and certain medical supplies to the Company's patients and to
patients at unaffiliated long-term care facilities.

INDUSTRY BACKGROUND

The long-term care industry encompasses a broad range of healthcare services
provided to the elderly and to other patients with medically complex needs who
can be cared for outside of the acute care hospital environment. Long-term care
facilities offer skilled nursing care, routine rehabilitation therapy and other
support services, primarily to elderly patients. In addition, long-term care
facilities may provide a broad range of specialty medical services. The Company
believes that demand for the services provided by long-term care facilities will
increase substantially during the next decade due primarily to demographic
trends, advances in medical technology and emphasis on healthcare cost
containment. At the same time, government restrictions and high construction and
start-up costs are expected to limit the supply of long-term care facilities. In
addition, a trend toward consolidation in the industry is expected to provide
the Company with opportunities for future growth.

COMPANY STRATEGY

Multicare has implemented an operating strategy and growth strategy designed
to sustain and enhance the Company's strong competitive position and to foster
its expansion into targeted geographic areas. The Company's operating strategy
focuses on providing high quality long-term care and specialty medical services
on a cost-effective basis. The Company seeks to maximize revenue and operating
profit by positioning itself as a premier provider in its markets thereby
achieving high occupancy rates and a favorable payor mix. The Company employs
rigorous managerial and financial controls which seek to contain costs without
compromising the quality of care provided. The Company also attempts to acquire
or develop facilities that are concentrated in selected geographic regions to
enable it to achieve operating efficiencies through economies of scale and
reduced corporate overhead.

The Company's growth strategy emphasizes (i) the expansion and
diversification of its operations by selectively acquiring and developing
long-term care facilities, pharmacies and specialty medical service providers in
targeted geographic areas and (ii) further development of post-acute or
non-acute services in selected geographic areas to create a continuum of
services through the expansion of assisted living, home health care,
hospital-based subacute care and other related care. The Company has grown

23
<PAGE>
substantially through acquisitions and through its ability to integrate newly
acquired operations into its existing operations and to increase their
profitability by implementing revenue enhancement and cost control programs.
There can be no assurance, however, that future suitable acquisition candidates
will be located, that acquisitions can be consummated or that added facilities
can be operated profitably or integrated successfully into the Company's
operations. As a result of acquisitions recently consummated and the Company's
continued expansion of its specialty medical services, the Company is now able
to offer directly to many of its patients, rather than relying on third party
providers, pharmacy, rehabilitation, therapy, subacute care and other
specialized services, which has enabled the Company to better respond to the
needs of its patients and to control the costs related to such services.

The following summarizes the key elements of the Company's strategy:

Provide High Quality Care. In order to provide quality care to its
residents, the Company seeks to employ highly qualified administrators and
nurses, and to retain the services of qualified medical directors. Regional
quality assurance professionals and committees at the facility level (composed
of the facility administrator and the facility's senior medical professionals)
continually monitor the quality of care provided to ensure compliance with
Company and governmental standards. The Company believes that its commitment to
providing high quality care and services has enhanced the reputation and the
competitive position of its facilities in the markets they serve.

Achieve Operating Efficiencies. Multicare has maintained its strong
operating performance through effective managerial and financial control systems
and geographic concentration. The Company believes that concentrating its
long-term care facilities within selected geographic regions enables the Company
to achieve operating efficiencies through economies of scale, reduced corporate
overhead and more effective management supervision and financial controls.
Geographic concentration also allows the Company to establish more effective
working relationships with referral sources and regulatory authorities in the
states in which it operates. The Company's management philosophy stresses close
oversight of facility operations by individuals in three levels of management
(facility, divisional and corporate). Divisional controllers ensure that
facility revenue and expense items are properly captured and are also
responsible for the preparation of monthly financial reports. The Company's
centralized, automated financial reporting system enables corporate financial
personnel to monitor key operating and financial data and budget variances on a
timely basis.

Maintain High Occupancy Rates and Quality Mix. An important strategy in
expanding the revenues and profitability of the Company's facilities is to
maintain high occupancy and achieve a favorable payor mix. The Company seeks to
achieve this by: (i) expanding the breadth and quality of services offered,
including the addition of pharmacy and other specialty medical services and (ii)
adding marketing programs designed to increase occupancy, improve quality mix
and develop additional referral sources.

Expand Specialty Medical Services. Specialty medical services include
subacute care for medically complex patients, intensive rehabilitation therapies
and in-house pharmacy services. These services are usually provided at higher
profit margins than routine services and compete with significantly higher cost
hospital care. The Company operates units dedicated to subacute care within
certain of its long-term care facilities, in addition to providing subacute
services throughout the majority of its facilities. The Company also operates
two outpatient rehabilitation centers. The Company provides therapies including
physical, occupational and speech services at all its skilled nursing facilities
and respiratory services at selected facilities. Multicare currently owns and
operates institutional pharmacies that service in excess of 20,000 beds.

Acquire Additional Facilities. In its existing regions, the Company seeks to
strengthen its operations base through acquiring or constructing individual
facilities. The Company believes that expansion into new geographic regions can
be achieved most economically through the acquisition of multi-facility
operations. In identifying and selecting acquisition candidates, the Company
takes into

24
<PAGE>
consideration opportunities for revenue expansion, either through quality
improvements or changes in the mix of services offered, and cost control, as
well as community demographics, historical occupancy rates, existing payor mix,
reputation, regulatory compliance history, state reimbursement policies and the
physical condition and appearance of the facility. The Company believes it has
been successful to date in improving the operating performance of acquired
facilities through increased occupancy rates, expansion of the scope of
specialty medical services offered, improved payor mix, modernization and
renovation and introduction of its buying power and management and financial
control systems.

Construct and Expand Facilities. The Company maintains a construction
division that is responsible for the supervision of new construction, renovation
and additions. The Company's construction capabilities enable it to capitalize
on new development opportunities in its markets and to effectively expand and
renovate its existing facilities when permitted by law. The Company completed
two newly constructed skilled nursing facilities in the past year and has three
additional facilities under construction scheduled for opening by the first
quarter of 1997. In addition, the Company has three assisted living facilities
under construction with one scheduled to open during the fourth quarter of 1996.
The Company anticipates that it will continue to develop facilities and
estimates capital expenditures for construction, renovation and additions of $37
million over the next twelve months (exclusive of A.D.S). The Company does not
act as a general contractor, but has in-house architects and has developed a
facility prototype for use at its new facilities. In selecting development
sites, the Company takes into account community demographics, historical
occupancy rates of facilities in the same area, state reimbursement policies and
site conditions.

PATIENT SERVICES

Basic Patient Services

Basic patient services are those traditionally provided to elderly patients
in long-term care facilities with respect to daily living activities and general
medical needs. The Company provides 24-hour skilled nursing care by registered
nurses, licensed practical nurses and certified nursing aides in all of its
skilled nursing facilities. Each facility is managed by an on-site licensed
administrator who is responsible for the overall operations of the facility,
including quality of care. The medical needs of patients are supervised by a
medical director who is a licensed physician. While treatment of patients is the
responsibility of patients' attending physicians who are not employed by the
Company, the medical director monitors all aspects of patient treatment. The
Company also provides a broad range of support services including dietary
services, therapeutic recreational activities, social services, housekeeping and
laundry services, pharmaceutical and medical supplies, and routine
rehabilitation therapy. Each facility offers a number of activities designed to
enhance the quality of life for patients. These activities include entertainment
events, musical productions, arts and crafts and programs encouraging community
interaction with patients and visits to the facility.

The Company currently provides specialized care for Alzheimer's patients
under the supervision of specially trained skilled nursing, therapeutic
recreation and social services personnel. The Company's Alzheimer's programs
include music therapy, gross and fine motor activity, reality orientation and
cognitive stimulation designed to counter the hyperactivity, memory loss,
confusion and reduced learning ability experienced by Alzheimer's patients.

Specialty Medical Services

Specialty medical services are provided to patients with medically complex
needs who generally require more extensive treatment and a higher level of
skilled nursing care. These services typically generate higher profit margins
than basic patient services because the higher complexity of the patients'
medical conditions results in a need for increased levels of care and ancillary
services.

25
<PAGE>
Institutional Pharmacy Services. The Company operates six institutional
pharmacies which served a total of approximately 20,000 beds at September 15,
1996, of which approximately one-third are owned, leased or managed by the
Company. The pharmacies provide long-term health care facilities and other
institutions a variety of products and services including prescription drugs,
pharmacy consulting, and enteral, urological and intravenous therapies. The
Company's concentration of facilities in certain targeted geographic regions
enables it to provide these services to not only its facilities in those regions
but to facilities not operated by the Company.

Subacute Care. Subacute care includes services provided to patients with
medically complex conditions who require ongoing nursing and medical supervision
and access to specialized equipment and services, but do not require many of the
other services provided by an acute care hospital. Services in this category
include ventilator care, intravenous therapy, wound care management, traumatic
brain injury care, post-stroke CVA (cardiovascular accident) care, CAPD
(continuous ambulatory peritoneal dialysis), pain management, hospice care, and
tracheostomy and other ostomy care. The Company provides a range of subacute
care services to patients at its facilities. The Company plans to continue to
expand its subacute care capabilities by supplementing and expanding currently
available services and by developing expertise in additional services.

Rehabilitation Therapies. The Company provides rehabilitation therapy
programs at substantially all of its facilities. To complement the routine
rehabilitation therapy services provided to its long-term care patients, the
Company has developed specialized rehabilitation therapy programs to serve
patients with complex care needs, such as motor vehicle and other accident
victims, persons suffering from job-related injuries and disabilities, and
joint-replacement patients. The Company has full time in-house therapists,
including physical, occupational, and speech therapists, at a majority of its
facilities. The Company also offers respiratory services at selected facilities.
In addition, the Company operates two outpatient rehabilitation facilities in
New Jersey and Illinois.

OPERATIONS

General. The day-to-day operations of each facility are managed by an
on-site state licensed administrator who is responsible for the overall
operation of the facility, including quality of care, marketing, and financial
performance. The administrator is assisted by an array of professional and
non-professional personnel (some of whom may be independent providers),
including a medical director, nurses and nursing assistants, social workers,
therapists, dietary personnel, therapeutic recreation staff, and housekeeping,
laundry and maintenance personnel. The business office staff at each facility
manage the day-to-day administrative functions, including data processing,
accounts payable, accounts receivable, billing and payroll.

The facilities operated by the Company are currently divided into four
divisions, each of which is supervised by a team including a divisional
director, a divisional controller, a marketing director, and a clinical services
director. The divisional and facility personnel are supported by a corporate
staff based at the Company's New Jersey headquarters. Corporate personnel are
responsible for the establishment of policies and procedures, training, goals,
and strategies; quality assessment and assurance oversight; reimbursement,
accounting, information technology, cash management, and treasury functions; the
development of monitoring systems and operational procedures; construction and
development programs; human resources management; and the development and
implementation of new programs.

Management and Financial Controls. Consistent with its strategy of
maintaining strict control over costs, the Company has developed an integrated
structure of management and financial systems and controls intended to maximize
operating efficiency. The Company stresses frequent communication among
facility, divisional and corporate personnel and active involvement by
management in the day-to-day operations of the facilities. The Company's
integrated management and financial information systems enable management to
monitor key operations and financial data on a timely basis. Key operating data,
such as payables and billing data, cash collections and admissions/discharge
data, are

26
<PAGE>
entered into the system daily from workstations located at each facility. This
information forms the basis for a variety of management and financial reports,
including monthly financial statements.

Quality Assurance. The Company has developed a comprehensive quality
assurance program involving personnel at all levels and designed to maintain
standards of care at each of the Company's facilities. Each facility maintains a
quality assurance committee comprised of facility management and senior medical
professionals. The committee is responsible for monitoring and evaluating all
aspects of the facility's operations, including patient care, physical
environment, staff appearance, patient rights, patient activities, and dietary
regimen. Facility administrators and divisional directors are encouraged to play
an active role in quality assurance by maintaining a high-profile presence and
closely monitoring all aspects of operations. The Company believes its quality
assurance process is unique in that the scored internal assessment tools that
measure quality and quantify standards are used by both facility staff and
corporate evaluators. The tools incorporate federal guidelines, standards of
practice, and corporate policies and procedures. State guidelines are included
as applicable during the evaluation process. All medical and other consulting
personnel are required to prepare and submit reports at the end of each
scheduled visit identifying any patient care or other quality related issues.
Patient satisfaction surveys are conducted periodically and provide a
confidential method for patients and their families to comment on the Company's
patient care services. Discharge interviews allow the Company to assess patient
satisfaction and to isolate potential patient care issues.

Marketing. The Company engages in local and divisional marketing efforts to
promote and maintain occupancy rates, to improve its quality mix and to enter
into and maintain arrangements with managed care providers. The Company's
marketing activities are overseen by a corporate director of marketing who
oversees the marketing efforts of the Company's marketing directors and facility
admissions directors and administrators, who together seek to establish
relationships with referring physicians, hospital discharge planners, managed
care companies, social workers, community organizations, local attorneys, bank
trust officers, and senior citizens', Alzheimer's and other support groups. The
Company believes that many of the services and programs provided by its
facilities supplement formal marketing efforts by promoting a facility's
reputation in the community as the provider of choice in the local markets. For
example, the availability of specialty medical services can be a key factor in
the selection of a long-term care facility. In addition, each facility offers a
variety of community programs and activities which are designed primarily as a
service to the community and as a means to enhance the quality of patient life.
The Company believes these programs also contribute to increased occupancy by
making the facility a more attractive choice to prospective residents.

SOURCES OF REVENUES

The Company derives its revenues principally by providing skilled nursing
services and specialty medical services which include institutional pharmacy
services, rehabilitation therapies, subacute care, sales of medical supplies,
home health care and other specialized services. The sources of the Company's
revenues are a combination of private payment sources, state Medicaid programs
for indigent patients and the Federal Medicare program for certain elderly and
disabled patients. The Company's skilled nursing revenues are determined by a
number of factors, including the licensed bed capacity of its facilities; the
occupancy rates at its facilities; the mix of patients and the rates of
reimbursement among payor categories (private, Medicaid and Medicare); and the
extent to which certain ancillary services the Company provides to patients in
its facilities are utilized by the patients and paid for by the respective
payment sources. The Company employs reimbursement specialists to monitor
applicable cost ceilings and other regulatory developments, to comply with all
reporting requirements and to assist the Company in recovering reimbursement
payments. While the Company believes that it has been successful in meeting
applicable cost ceilings and in obtaining reimbursement, there can be no
assurance that reimbursement rates will remain at present levels. In particular,
cost containment proposals at both the Federal and state levels may have an
adverse effect on the Company's ability to recover its costs of providing
services to Medicaid and Medicare patients. See "--Governmental Regulation."

27
<PAGE>
The following table identifies the Company's net revenues attributable to
each of its revenue sources for the periods indicated below.

NET REVENUES

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ JUNE 30,
1993 1994 1995 1996
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Private pay and other............................... 40% 39% 41% 39%
Medicaid............................................ 44% 38% 34% 36%
Medicare............................................ 16% 23% 25% 25%
---- ---- ---- -----
Total........................................... 100% 100% 100% 100%
---- ---- ---- -----
---- ---- ---- -----
</TABLE>

Private Pay and Other. Private pay revenues include payments from
individuals who pay directly for services without governmental assistance and
include payments from commercial insurers, Blue Cross organizations, health
maintenance organizations, preferred provider organizations, workers'
compensation programs and other similar payment sources. The Company's rates for
private pay patients are typically higher than rates for patients eligible for
assistance under state-administered reimbursement programs. The private pay
rates charged by the Company are influenced primarily by the rates charged by
other providers in the local market and by Medicaid and Medicare reimbursement
rates. Competitor analyses are undertaken periodically to discern local market
pricing. Specialty medical services are usually reimbursed under casualty and
health insurance coverages. The acuity levels for these insurance patients are
generally higher and require additional staff and increased utilization of
facility resources, resulting in higher payment rates. Individual cases are
either negotiated on a case by case basis with the insurer or the rates are
prescribed through managed care contract provisions. Also included are revenues
derived from pharmacy services, management fees, and certain other ancillary
businesses.

Medicaid. Substantially all of the facilities operated by the Company
participate in the Medicaid program. Under the Federal Medicaid statute and
related regulations, state Medicaid programs must provide facility rates that
are reasonable and adequate to cover the costs of efficiently and economically
operated facilities providing services in conformity with state and Federal
standards. Furthermore, payments must be sufficient to enlist enough providers
so that service under the state's Medicaid plan are available to recipients at
least to the extent that those services are available to the general population.
The Medicaid programs in the states within which the Company operates pay a per
diem rate for providing services to Medicaid patients upon historical costs
adjusted for inflation and subject to restrictive limitations. Reimbursement
rates are determined by the state, while the Federal government retains the
right to approve or disapprove individual state plans. Medicaid programs in
certain states in which the Company operates currently include incentive
allowances for providers whose costs are less than certain ceilings and who meet
other requirements. See "--Governmental Regulation."

Medicare. Substantially all of the Company's facilities are certified
Medicare providers. Medicare is a federally funded and administered health
insurance program primarily designed for individuals who are age 65 or over and
are entitled to receive Social Security benefits. The Medicare program consists
of two parts. The first part (Part A) covers inpatient hospital services and
services furnished by other institutional healthcare providers, such as
long-term care facilities. The second part (Part B) covers the services of
doctors, suppliers of medical items and services, and various types of
outpatient services. Part B services include physical, speech and occupational
therapy, medical supplies, certain intensive rehabilitation and psychiatric
services, ancillary diagnostic services, and other services of the type provided
by long-term care or acute care facilities. Part A coverage is limited to a
specified term (generally 100 days in a long-term care facility) and requires
beneficiaries to share some of the cost of

28
<PAGE>
covered services through the payment of a deductible and a co-insurance payment.
There are no limits on duration of coverage for Part B services, but there is an
annual deductible and a co-insurance requirement for most services covered by
Part B.

The Medicare program is a retrospective program. An interim rate based upon
historical cost factors is paid by Medicare during the cost reporting period and
a cost settlement is made based on actual costs for the period. Final
settlements are subject to an audit of the filed cost report whereby adjustments
may result in additional payments being made to the Company or in recoupments
from the Company. Under the Medicare program, the Company is reimbursed for its
direct costs plus an allocation of indirect costs up to a regional limit. As the
Company expands its specialty medical services, the costs of care for these
patients may exceed the regional reimbursement limits. As a result, the Company
has submitted and will be required to submit further exception requests to
recover the excess costs from Medicare. There is no assurance the Company will
be able to recover such excess costs under pending or future requests. The
failure to recover these excess costs in the future would adversely affect the
Company's financial position and results of operations.

To date, adjustments from Medicare and Medicaid audits have not had a
material adverse effect on the Company. There can be no assurance that future
adjustments will not have a material adverse effect on the Company.

PROPERTIES

The Company has sought to retain ownership of a significant portion of its
real estate and it believes that this provides the Company with substantial
financing flexibility. The following table summarizes by state certain
information regarding the Company's facilities and outpatient rehabilitation
centers before giving effect to the A.D.S acquisition.
<TABLE>
<CAPTION>
OWNED LEASED MANAGED TOTAL
------------------ ------------------ ------------------ -------------------
FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
---------- ----- ---------- ----- ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey......................... 13 1,425 8 1,294 -- -- 21 2,719
Pennsylvania....................... 13 1,512 -- -- 4 858 17 2,370
West Virginia...................... 12 1,046 4 331 5 480 21 1,857
Ohio............................... 9 837 4 250 -- -- 13 1,087
Connecticut........................ 5 766 2 250 -- -- 7 1,016
Wisconsin.......................... 5 726 2 231 -- -- 7 957
Illinois........................... 10 857 1 92 -- -- 11 949
Rhode Island....................... -- -- -- -- 3 373 3 373
Virginia........................... -- -- 2 175 -- -- 2 175
Vermont............................ 1 58 -- -- -- -- 1 58
-- ----- -- ----- -- ----- --- ------
68 7,227 23 2,623 12 1,711 103 11,561
-- ----- -- ----- -- ----- --- ------
-- ----- -- ----- -- ----- --- ------

</TABLE>

The Company has granted security interests in substantially all of its
assets to secure its credit facilities. Twenty of the Company's facilities are
leased by the respective operating entities from third parties. One of the
Company's Connecticut facilities and one of the Company's New Jersey facilities
are leased from related parties owned by the Principal Stockholders of the
Company and one of the Company's New Jersey facilities is leased from a related
party 50% owned by certain Principal Stockholders of the Company. The inability
of the Company to make rental payments could result in loss of the leased
property through eviction or other proceedings. Certain facility leases do not
provide for non-disturbance from the mortgagee of the fee interest in the
property and consequently each such lease is subject to termination in the event
that the mortgage is foreclosed following a default by the owner. The Company's
headquarters in Hackensack, New Jersey is leased under a seven-year lease,
expiring in 1998.

29
<PAGE>
The Company considers its properties to be in good operating condition and
suitable for the purposes for which they are being used. See "Recent
Developments" for a description of recently completed and pending acquisitions.

COMPETITION

The Company competes with other providers on the basis of the breadth and
quality of services, the quality, appearance and reputation of its facilities
and price. The Company also competes in the recruitment of qualified healthcare
personnel and the acquisition and development of additional facilities. The
Company's current and potential competitors include national, regional and local
long-term care providers as well as acute care hospitals and rehabilitation
hospitals, some of whom have significantly greater financial and other resources
than the Company. The Company also faces competition from assisted living
operators and providers of home healthcare. In addition, certain competitors are
operated by not-for-profit organizations and similar businesses which can
finance capital expenditures on a tax-exempt basis or receive charitable
contributions unavailable to the Company. There can be no assurance that the
Company will not encounter increased competition in the future which could
adversely affect the Company's operating results, particularly if existing
restrictive policies relating to the issuance of Certificates of Need are
relaxed.

GOVERNMENTAL REGULATION

The Federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
rates by governmental payor sources, the development and operation of long-term
care facilities and the provision of long-term care services are subject to
Federal, state and local licensure and certification laws which regulate with
respect to a facility, among other matters, the number of beds, the services
provided, the distribution of pharmaceuticals, equipment, staffing requirements,
operating policies and procedures, fire prevention measures, and compliance with
building and safety codes and environmental laws. There can be no assurance that
Federal, state or local governments will not impose additional restrictions
which might adversely affect the Company's ability to provide its services and
receive reimbursement of its expenses.

All of the facilities operated by the Company as of September 15, 1996, are
licensed under applicable state laws and have the required Certificates of Need
from responsible state authorities. Substantially all of the Company's
facilities are certified or approved as providers under the Medicaid and
Medicare programs. Further, the Company has no reason to believe that any
individual providers of healthcare services at the Company's facilities do not
meet applicable licensing requirements. Both initial and continuing
qualification of a long-term care facility to participate in such programs
depend upon many factors, including accommodations, equipment, services,
non-discrimination policies against indigent patients, patient care, quality of
life, residents' rights, safety, personnel, physical environment,

30
<PAGE>
and adequacy of policies, procedures and controls. Licensing, certification and
other applicable standards vary from jurisdiction to jurisdiction and are
revised periodically. State agencies survey or inspect all long-term care
facilities on a regular basis to determine whether such facilities are in
compliance with the requirements for participation in government sponsored third
party payor programs. Failure to comply with these standards could result in the
denial of reimbursement, the imposition of fines, temporary suspension of
admission of new patients, suspension or decertification from the Medicaid or
Medicare program, restrictions on the ability to acquire new facilities or
expand existing facilities and, in extreme cases, revocation of the facility's
license or closure of a facility. There can be no assurance that the facilities
owned, leased or managed by the Company, or the provision of services and
supplies by the Company, will initially meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing authorities. Changes in the Federal survey regulations became
effective July 1, 1995. These Federal regulations affect the Federal and state
survey process and the imposition of sanctions. The breadth of the new rules and
their recent effective date create uncertainty over how the rules will be
implemented. The Company is unable to predict how these regulatory changes and
their implementation will affect the Company.

The Company believes that its facilities are in substantial compliance with
all statutes, regulations, standards and requirements applicable to its
business. However, the compliance history of a prior operator may be used by
state or Federal regulators in determining possible actions against a successor
operator, and in the ordinary course of business, the Company's facilities
receive notices of deficiencies following surveys for failure to comply with
various regulatory requirements. In most cases, the Company and the reviewing
agency will agree upon corrective measures to be taken to bring the facility
into compliance. From time to time, survey deficiencies have resulted in various
penalties against certain facilities and the Company. These penalties have
included monetary fines, temporary bans on the admission of new patients and the
placement of restrictions on the Company's ability to obtain or transfer
certificates of need in certain states. To date, no survey deficiencies or any
resulting penalties have had any material adverse affect on the Company's
operations, however, there can be no assurance that future surveys will not
result in penalties which could have a material adverse affect on the Company.
The State of Connecticut may take the view that the issuance of the Common Stock
pursuant to the Offering requires regulatory approval as a change in ownership.
The Company will be applying for such approvals as may be required.

The Omnibus Budget Reconciliation Act of 1993 (the "OBRA") affected Medicare
reimbursement for skilled nursing services in two ways, both of which have had a
minimal effect on the Company's earnings. First, the current limits on the
portion of the Medicare reimbursement known as "routine service costs"
(excluding capital-related expenses) were frozen for two consecutive years
beginning on October 1, 1993. Second, the return of equity included in Medicare
reimbursement was eliminated beginning October 1, 1993. While the Company
believes that it is in substantial compliance with the current requirements of
OBRA, it is unable to predict how future interpretation and enforcement of
regulations promulgated under OBRA by the state and Federal governments could
affect the Company in the future.

The Company is also subject to Federal and state laws which govern financial
and referral arrangements between healthcare providers. Federal laws, as well as
the law of certain states, prohibit direct or indirect payments of fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products or services. These laws include the Federal
"anti-kickback law" which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. A wide array of relationships and
arrangements, including ownership interests in a company by persons who are in a
position to refer patients and personal service agreements have, under certain
circumstances, been alleged to violate these provisions. Certain discount
arrangements may also violate the law. A violation of the Federal anti-kickback
law

31
<PAGE>
could result in the loss of eligibility to participate in Medicare or Medicaid,
or in criminal and civil penalties.

In addition, the Federal government and some states restrict certain
business relationships between physicians and other providers of healthcare
services. Effective January 1, 1995, the Stark law prohibits any physician with
a financial relationship (defined as a direct or indirect ownership or
investment interest or compensation arrangement) with an entity from making a
referral for a "designed health service" to that entity, and prohibits that
entity from billing for such services. "Designated health services" do not
include skilled nursing services, but do include many services which nursing
facilities provide to their patients including therapy and enteral and
parenteral nutrition.

All states in which the Company operates have adopted Certificate of Need or
similar laws which generally require that a state agency approve certain
acquisitions and changes in ownership and determine that a need exists prior to
the addition or reduction of beds or services, the implementation of other
changes, the incurrence of certain capital expenditures or, in certain states,
the closure of a facility. State approvals are generally issued for a specified
maximum expenditure and require implementation of the proposal within a
specified period of time. Failure to obtain the necessary state approval can
result in the inability of the facility to provide the service, operate the
facility, or complete the acquisition, addition or other change, and may also
result in the imposition of sanctions or other adverse action on the facility's
license and reimbursement.

On August 21, 1996, President Clinton signed the Health Insurance
Portability and Accountability Act ("HR 3103"). HR 3103 contains a variety of
significant healthcare fraud and abuse provisions, including creation of a
coordinated federal healthcare fraud and abuse program; establishment of a
Medicare integrity program; expansion of current healthcare fraud and abuse
sanctions; creation of a healthcare fraud criminal sanction; creation of a
criminal penalty for fraudulent disposition of assets in order to obtain
Medicaid benefits; and expansion of the authority to impose, and increasing the
amount of, civil monetary penalties.

There are numerous legislative and executive initiatives at the Federal and
state levels for healthcare reform with a view toward, among other things,
slowing the overall rate of growth in healthcare expenditures. The Company is
unable to predict the impact of healthcare reforms on the Company or its stock
price; however it is possible that such proposals could have a material adverse
effect on the Company.

The Company is also subject to a wide variety of Federal, state and local
environmental and occupational health and safety laws and regulations. Among the
types of regulatory requirements faced by health care providers are: air and
water quality control requirements; waste management requirements; specific
regulatory requirements applicable to asbestos, polychlorinated biphenyls, and
radioactive substances; requirements for providing notice to employees and
members of the public about hazardous materials and wastes; and certain other
requirements.

In its role as owner and/or operator of properties or facilities, the
Company may be subject to liability for investigating and remedying any
hazardous substances that have come to be located on the property, including
such substances that may have migrated off, or emitted, discharged, leaked,
escaped or been transported from, the property. Ancillary to the Company's
operations are, in various combinations, the handling, use, storage,
transportation, disposal and/or discharge of hazardous, infectious, toxic,
radioactive, flammable and other hazardous materials, wastes, pollutants or
contaminants. Such activities may result in damage to individuals, property or
the environment; may interrupt operations and/or increase their costs; may
result in legal liability, damages, injunctions or fines; may result in
investigations, administrative proceedings, penalties or other governmental
agency actions; and may not be covered by insurance. There can be no assurance
that the Company will not encounter such risks in the future, and such risks may
have a material adverse effect on the operations or financial condition of the
Company.

32
<PAGE>
EMPLOYEES

As of September 15, 1996, the Company employed approximately 11,600 persons.
Approximately 3,600 employees at 28 of the Company's facilities are covered by
collective bargaining agreements. The Company believes that it has had good
relationships with the unions that represent its employees, but it cannot
predict the effect of continued union representation or organizational
activities on its future operations.

The healthcare industry has at times experienced a shortage of qualified
healthcare personnel. While the Company has been able to retain the services of
an adequate number of qualified personnel to staff its facilities appropriately
and maintain its standards of quality care, there can be no assurance that
continued shortages will not in the future affect the ability of the Company to
attract and maintain an adequate staff of qualified healthcare personnel. A lack
of qualified personnel at a facility could result in significant increases in
labor costs at such facility or otherwise adversely affect operations at such
facility. Any of these developments could adversely affect the Company's
operating results or expansion plans. The Company competes with other healthcare
providers and with non-healthcare providers for both professional and
non-professional employees.

INSURANCE

The provision of healthcare services entails an inherent risk of liability.
The Company maintains liability insurance providing coverage which it believes
to be adequate. In addition, the Company maintains property, business
interruption, and workers' compensation insurance covering all facilities in
amounts deemed adequate by the Company. There can be no assurance that any
future claims will not exceed applicable insurance coverage or that the Company
will be able to continue its present insurance coverage on satisfactory terms,
if at all.

LEGAL PROCEEDINGS

The Company is a party to claims and legal actions arising in the ordinary
course of business. Management does not believe that any litigation to which the
Company is currently a party will have a material adverse effect on the Company.

33
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The directors and executive officers of the Company as of September 15,
1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Moshael J. Straus......................... 43 Chairman of the Board of Directors and
Co-Chief Executive Officer
Daniel E. Straus.......................... 39 President, Co-Chief Executive Officer and
Director
Stuart H. Altman.......................... 58 Director
Constance B. Girard-diCarlo............... 49 Director
Menachem Rosenberg........................ 45 Director
Alan D. Solomont.......................... 47 Director
George R. Zoffinger....................... 48 Director
Paul J. Klausner.......................... 39 Director
Stephen R. Baker.......................... 40 Executive Vice President, Chief Operating
Officer and Director
Bradford C. Burkett....................... 36 Senior Vice President, General Counsel and
Secretary
Thomas P. Foy............................. 45 Senior Vice President, Business
Development and Governmental Affairs
Joel Jaffe................................ 50 Senior Vice President, Treasurer
Robert S. Anderson........................ 34 Vice President, Finance
Kevin P. Breslin.......................... 30 Vice President, Acquisitions
Ronald G. Clarendon....................... 53 Vice President, Human Resources
Barbara A. Marte.......................... 56 Vice President, Product Development and
Enhancement
</TABLE>

Certain additional information concerning the above persons is set forth
below:

Moshael J. Straus, the brother of Daniel E. Straus, was a co-founder of the
Company in 1984 and since 1978, was involved in the business of the Company's
predecessors. Mr. Straus has been co-principal owner of the Company since its
establishment. He assumed the positions of Chairman of the Board of Directors
and Co-Chief Executive Officer of the Company in September 1992. Mr. Straus has
been a member of the Board of Directors since 1992.

Daniel E. Straus, the brother of Moshael J. Straus, was a co-founder of the
Company in 1984 and since 1978, was involved in the business of the Company's
predecessors. Mr. Straus has been co-principal owner of the Company since its
establishment. He assumed the positions of President and Co-Chief Executive
Officer of Multicare in September 1992. Mr. Straus has been a member of the
Board of Directors since 1992.

Stuart H. Altman has served as the Sol C. Chaikin Professor of National
Health Policy at The Heller School at Brandeis University since 1977. Mr. Altman
also served as Dean of The Heller School from September 1977 through June 1993,
and was Interim President of Brandeis University from 1990 through September
1991. Mr. Altman has also served as Chairman of the Board, Institute for Health
Policy, at The Heller School since 1977. In addition, Mr. Altman has served in
several government positions including serving as the Chairman of the
Prospective Payment Assessment Commission from 1984 through 1996 and as a senior
member of the Clinton/Gore Health Advisory Group. Mr. Altman also served as
Deputy Assistant Secretary for Planning and Evaluation/Health in the Department
of Health, Education and Welfare from July 1971 through August 1976. Mr. Altman
currently serves as a member of the Board of Directors of IDX Systems, Inc., a
healthcare information systems company and

34
<PAGE>
on several other charitable and educational boards and foundations. Mr. Altman
has been a member of the Board of Directors since March 1996.

Constance B. Girard-diCarlo has served as President of the Healthcare
Support Services Division of ARAMARK Corporation since 1990. ARAMARK is a $6
billion service management company headquartered in Philadelphia, Pennsylvania.
Mrs. Girard-diCarlo is responsible for the non-clinical support services ARAMARK
manages for more than 300 healthcare institutions nationwide. Mrs.
Girard-diCarlo previously served as the President of ARAMARK School Nutrition
Services, the Vice President, Midlantic Region, ARAMARK Campus Services and as
an Assistant General Counsel of ARAMARK. Mrs. Girard-diCarlo is a member of the
Board of Directors of EnergyNorth, Inc., a public utility holding company
headquartered in Manchester, New Hampshire, and serves on the Boards of Widener
University and the Free Library of Philadelphia Foundation. Mrs. Girard-diCarlo
has been a member of the Board of Directors since March 1996.

Menachem Rosenberg has been a partner of the public accounting firm of
Margolin, Winer & Evens in Garden City, New York for the past 14 years. Mr.
Rosenberg is a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants and the New York State Society of
Certified Public Accountants. Mr. Rosenberg is the author of numerous articles
on income tax, investments, finance, mergers and acquisitions and a lecturer on
similar topics to various professional and trade groups. Mr. Rosenberg has been
a member of the Board of Directors since 1994.

Alan D. Solomont is the founder and since 1985 has been the Chief Executive
Officer of A.D.S. Mr. Solomont has been a member of the Board of Directors since
1994. Following the acquisition of A.D.S, Mr. Solomont will become Vice Chairman
of the Company.

George R. Zoffinger has served as Chairman of CoreStates New Jersey National
Bank since April 1994. Mr. Zoffinger previously served as President and Chief
Executive Officer of Constellation Bancorp. and its principal subsidiary,
Constellation Bank, N.A., since December 1991. From March 1990 through December
1991, Mr. Zoffinger served as the Commissioner of the New Jersey State
Department of Commerce and Economic Development and the Chairman of the Board of
Directors of the New Jersey Economic Development Authority since March 1990. Mr.
Zoffinger has also served as Chairman of New Jersey's Host Committee for the
1994 World Cup Soccer Games. Mr. Zoffinger has been a member of the Board of
Directors since 1995.

Paul J. Klausner has served as a consultant to the Company since September
1996. Prior to September 1996 Mr. Klausner served as Executive Vice President,
Development since May 1995, as Executive Vice President, General Counsel since
August 1994, and as Senior Vice President, General Counsel since October 1993.
Prior to joining Multicare, Mr. Klausner was engaged in the private practice of
law in New York City since 1981 and had also been a principal of KMF Partners, a
New York based real estate investment and development firm, from 1986 to 1990.
Mr. Klausner has been a member of the Board of Directors since May 1994.

Stephen R. Baker has served as Executive Vice President responsible for
finance and operations of the Company since August 1994, and served as its
Senior Vice President and Chief Financial Officer since December 1992. Prior to
joining Multicare, he was a partner at the public accounting firm of KPMG Peat
Marwick LLP where he was employed for 16 years. Mr. Baker is a Certified Public
Accountant. Mr. Baker has been a member of the Board of Directors since May
1994.

Bradford C. Burkett was named a Senior Vice President in 1996, has served as
Vice President, General Counsel and Secretary of the Company since May 1995 and
joined the Company as its Vice President and Deputy General Counsel in June
1994. Mr. Burkett became Secretary of the Company in August 1994. Prior to June
1994, Mr. Burkett was engaged in the private practice of law with the New York
City firm of Kaye Scholer Fierman Hays & Handler since 1985.

35
<PAGE>
Thomas P. Foy joined the Company in July 1994 as its Senior Vice President,
Business Development and Governmental Affairs. Prior thereto, Mr. Foy served as
Senior Vice President at Hill International, a construction consulting company
commencing in January 1990. Mr. Foy served as a New Jersey State Senator from
1990 to 1992 and a New Jersey State Assemblyman from 1984 to 1990.

Joel Jaffe has served as Senior Vice President, Treasurer of the Company
since May 1995. Prior to joining Multicare, he was a partner at the public
accounting firm of KPMG Peat Marwick LLP where he was employed for 27 years. He
is a Certified Public Accountant.

Robert S. Anderson served as Vice President, Finance of the Company's
predecessor since October 1988 and assumed the same position with the Company in
September 1992. He joined the Company's predecessor in October 1986 as Corporate
Controller. He is a Certified Public Accountant.

Kevin P. Breslin has served as Vice President, Acquisitions of the Company
since May 1995 and joined the Company as its Director of Financial Accounting in
April 1993. Prior to joining the Company, he was employed at KPMG Peat Marwick
LLP for 4 years. He is a Certified Public Accountant.

Ronald G. Clarendon served as Vice President, Human Resources of the
Company's predecessor since August 1991 and assumed the same position with the
Company in September 1992. Prior to 1991, Mr. Clarendon specialized in all
facets of labor relations with Western Union Corporation.

Barbara A. Marte has served as Vice President, Product Development and
Enhancement of the Company since January 1995. Prior to such time, she served as
Director of Subacute Services of the Company since January 1994. Ms. Marte was
previously a Director of Subacute Development for Beverly Enterprises, Inc. from
1991 through 1993. Prior to 1991, for more than five years, Ms. Marte served in
various corporate and marketing positions with Genesis Health Ventures, Inc.

The Company's Board of Directors is divided into three classes--Class I,
Class II and Class III-- which must be as nearly equal in number as possible.
Each director serves for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. The terms of
office of Constance B. Girard-diCarlo, Moshael J. Straus and Daniel E. Straus
expire at the 1997 Annual Meeting of Stockholders. The terms of office of Stuart
H. Altman, Menachem Rosenberg and George R. Zoffinger expire at the 1998 Annual
Meeting of Stockholders. The terms of office of Stephen R. Baker, Paul J.
Klausner and Alan D. Solomont expire at the 1999 Annual Meeting of Stockholders.

36
<PAGE>
PRINCIPAL STOCKHOLDERS

STOCK OWNERSHIP

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock on September 15, 1996, and as adjusted to reflect
the Offering for (i) each person who is known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each person who is currently a director of the Company, (iii) all directors and
executive officers of the Company as a group and (iv) the Company's two Co-Chief
Executive Officers and its four other most highly compensated executive officers
during the year ended December 31, 1995. Except as otherwise noted, the address
of all persons is c/o the Company, 411 Hackensack Avenue, Hackensack, New Jersey
07601. To the best of the Company's knowledge, except as indicated, the holders
listed below have sole voting power and investment power over the Common Stock
they beneficially own.

<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING(4)
------------------------ ------------------------
NUMBER OF PERCENT NUMBER OF
NAME OF BENEFICIAL OWNER SHARES(1) OF CLASS SHARES(1) PERCENTAGE
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Moshael J. Straus**............................ 6,797,378(2) 25.3% 6,797,378(2) 22.8%
Daniel E. Straus**............................. 6,797,378(2) 25.3 6,797,378(2) 22.8
FMR Corp.(3)................................... 1,500,732 5.6 1,500,732 5.1
82 Devonshire Street
Boston, Massachusetts 02109
Stuart H. Altman............................... -- * -- *
Constance B. Girard-diCarlo.................... 4,800 * 4,800 *
Menachem Rosenberg............................. -- * -- *
Alan D. Solomont............................... 16,500 * 16,500 *
George R. Zoffinger............................ 10,500 * 10,500 *
Stephen R. Baker............................... 90,118 * 90,118 *
Paul J. Klausner............................... 86,391 * 86,391 *
All current directors and executive officers as
a group (16 persons)......................... 13,939,601 50.7 13,939,601 45.7
</TABLE>

- ------------

* Less than 1%.

** See "Management" for position with the Company.

(1) Includes for all directors and executive officers options to purchase an
aggregate of 947,347 shares of Common Stock which are currently exercisable
or will be exercisable within the next sixty days.

(2) Excludes shares owned by the other Co-Chief Executive Officer that the named
Co-Chief Executive Officer has the right to purchase upon the death of such
other Co-Chief Executive Officer.

(3) The following information was provided to the Company by FMR Corp. and is as
of February 14, 1996 (as adjusted to give effect to 50% stock dividend
effected on May 28, 1996): Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment
adviser registered under Section 203 of the Investment Advisers Act of 1940,
is the beneficial owner of 964,704 shares or 3.58% of the Common Stock
outstanding of the Company as a result of acting as investment adviser to
various investment companies registered under Section 8 of the Investment
Company Act of 1940 (the "Funds"). Edward C. Johnson 3d, FMR Corp., through
its control of Fidelity, and the Funds each has sole power to dispose of the
964,704 shares owned by the Funds. Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp. and a bank as defined in Section
3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of
536,028 shares or 1.99% of the Common Stock outstanding of the Company as a
result of its serving as investment manager of the institutional account(s).
Edward C. Johnson 3d, and FMR Corp., through its control of Fidelity
Management Trust Company, has sole voting and dispositive power over 536,028
shares of Common Stock owned by the institutional account(s) as reported
above. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp.,
has the sole power to vote or direct the voting of shares owned directly by
the Funds, which power resides with the Funds' Board of Trustees. Fidelity
carries out the voting of the shares under written guidelines established by
the Fund's Board of Trustees.

(4) Does not include 225,000 shares subject to over-allotment option for each of
Moshael J. Straus and Daniel E. Straus. If the over-allotment option were
fully exercised by the Underwriters, Moshael J. Straus and Daniel E. Straus
would each own 22.0% of the outstanding Common Stock after the offering.

37
<PAGE>
THE REORGANIZATION

Prior to November 18, 1992, the Company's operations had been conducted by
various operating corporations and partnerships owned by the Principal
Stockholders, and the related real property (except in the case of certain
leased facilities) had been owned, either directly or through separate
corporations or partnerships, by the Principal Stockholders. On November 18,
1992, pursuant to a Reorganization and Subscription Agreement among the Company
and the Principal Stockholders (the "Reorganization Agreement"), the Principal
Stockholders transferred to the Company equity interests owned by the Principal
Stockholders in corporations and partnerships engaged in the business of owning,
operating or managing long-term care facilities, as well as related real
property interests owned directly by the Principal Stockholders. Except as
described under "Certain Relationships and Related Transactions," in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, the
interests transferred to the Company by the Principal Stockholders pursuant to
the Reorganization Agreement constitute all of the equity interests and real
property interests relating to such business that were then owned directly or
indirectly by any of the Principal Stockholders. In consideration of such
transfers, The Multicare Companies, Inc. issued its Common Stock to the
Principal Stockholders in proportion to their equity ownership of the Company
prior to the Reorganization.

The Company acquired each of the entities and interests transferred by the
Principal Stockholders subject to related debt and other liabilities. The
Company guaranteed certain existing debt of the operating and real estate
subsidiaries and, pursuant to arrangements among the Company, the Principal
Stockholders and lenders to the operating and real estate subsidiaries, the
Principal Stockholders were released from most outstanding guaranties of the
Company's debt. The Company indemnified the Principal Stockholders against all
liabilities assumed by the Company pursuant to the Reorganization Agreement and
any guarantees of the Company's debt from which the Principal Stockholders were
not released.

38
<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company is authorized to issue 70,000,000 shares of Common Stock, par
value $.01 per share, and as of September 15, 1996, 26,566,086 shares of Common
Stock are issued and outstanding, of which 14,871,429 are held of record by the
Principal Stockholders. In addition (i) the Company has granted options to
purchase 2,795,456 shares of Common Stock, of which options to purchase
1,010,849 shares are currently exercisable or will be exercisable within the
next sixty days, (ii) 4,975,962 shares of Common Stock are reserved for issuance
upon conversion of the Company's Convertible Debentures and (iii) the Company
has agreed to issue 554,973 shares in connection with the pending A.D.S
acquisition.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in the
distribution of all assets remaining after payment of liabilities. Holders of
Common Stock have no preemptive rights to subscribe for additional shares of the
Company and have no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of the Offering will be, fully paid and
nonassessable.

The Company has been advised that the Principal Stockholders have entered
into an agreement among themselves that requires each Principal Stockholder to
first offer shares of Common Stock to the other Principal Stockholders prior to
making certain dispositions of Common Stock owned by such Principal Stockholder.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 7,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of preferred stock.

CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS

Certain provisions of the Restated Certificate of Incorporation and By-laws
of the Company summarized below may be deemed to have an anti-takeover effect
and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including an attempt that might
result in a premium over the market price for the shares held by stockholders.

The Company's Restated Certificate of Incorporation or By-laws provide (i)
that no director may be removed from office during his term except for cause,
(ii) that vacancies on the Board of Directors may be filled only by the
remaining directors and not by the stockholders, (iii) that any action required
or permitted to be taken by the stockholders of the Company may be effected only
at an annual or special meeting of stockholders and stockholder action by
written consent in lieu of a meeting is prohibited, (iv) that special meetings
of stockholders may be called only by a majority of the Board of Directors, or
by the Chairman of the Board of Directors or the President of the Company, (v)
that stockholders are not permitted to call a special meeting or require that
the Board of Directors call a

39
<PAGE>
special meeting of stockholders and (vi) for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise business at such meetings must be
received by the Company not less than 60 or more than 90 days prior to the
anniversary of the previous year's annual meeting and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal. In
addition, the Restated Certificate of Incorporation provides that the Board of
Directors is divided into three classes serving staggered three-year terms. See
"Management."

The foregoing summary is qualified in its entirety by the provisions of the
Company's Restated Certificate of Incorporation and By-laws, copies of which
have been filed with or incorporated by reference as exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information."

CERTAIN PROVISIONS OF DELAWARE LAW

Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder becomes an interested stockholder, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder becomes an interested stockholder, (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it became an
interested stockholder, or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These provisions
will not limit the liability of directors under Federal securities laws.

40
<PAGE>
UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company agreed to sell to such Underwriter, the number of shares of Common
Stock set forth opposite the name of such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc................................................
Cowen & Company.................................................
Dean Witter Reynolds Inc........................................
NatWest Securities Limited......................................
---------
Total......................................................... 3,000,000
---------
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Cowen & Company, Dean Witter
Reynolds Inc. and NatWest Securities Limited are acting as the Representatives,
propose to offer part of the shares of Common Stock directly to the public at
the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price which represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the Representatives.

Moshael J. Straus and Daniel E. Straus have granted to the Underwriters an
option, exercisable for thirty days from the date of this Prospectus, to
purchase, pro rata, up to 450,000 additional shares of Common Stock (225,000
shares each) at the price to public set forth on the cover page of this
Prospectus minus the underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering overallotments, if
any, in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock set
forth opposite each Underwriter's name in the preceding table bears to the total
number of shares listed in such table.

The Company, its officers and directors and the Principal Stockholders have
agreed that, for a period of 90 days from the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock of the
Company or any securities convertible into, or exercisable or exchangeable for,
Common Stock of the Company.

The Company (and if the over-allotment option is exercised, Moshael J.
Straus and Daniel E. Straus) and the Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.

NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any Common Stock within the United States,
its territories or possessions or to persons who are citizens thereof or
residents therein. The

41
<PAGE>
Underwriting Agreement does not limit the sale of the Common Stock offered
hereby outside of the United States.

NatWest Securities Limited has represented and agreed that (i) it has not
offered or sold and will not offer to sell any shares of Common Stock to persons
in the United Kingdom, except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
or the Financial Services Act 1986 (the "Act"), (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the shares of Common Stock in, from or otherwise involving
the United Kingdom and (iii) it has only issued or passed on, and will only
issue or pass on, in the United Kingdom, any document which consists of or any
part of listing particulars, supplementary listing particulars, or any other
document required or permitted to be published by listing rules under Part IV of
the Act, to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.

The Representatives have in the past provided certain investment banking
services to the Company for which they received customary compensation. In
addition, Smith Barney Inc. has served as financial advisor to A.D.S with
respect to the A.D.S acquisition.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York, certain members of which currently own 4,500 shares of Common
Stock. Certain legal matters will be passed upon for the Underwriters by Willkie
Farr & Gallagher, New York, New York.

EXPERTS

The consolidated financial statements and financial statement schedules of
the Company as of December 31, 1994 and 1995, and for each of the years in the
three-year period ended December 31, 1995, in the Company's annual report on
Form 10-K for the year ended December 31, 1995, have been incorporated by
reference herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Glenmark Associates, Inc. and its
subsidiaries as of December 31, 1993 and 1994, and for each of the years then
ended included in the Company's Current Report on Form 8-K/A, dated February 12,
1996, and incorporated by reference herein have been audited by Deloitte &
Touche LLP, independent certified public accountants, as stated in their report
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given their authority as experts in
accounting and auditing.

The consolidated financial statements of Concord Health Group, Inc. and its
subsidiaries as of June 30, 1994 and 1995, and for each of the three years in
the period ended June 30, 1995, included in the Company's Current Report on Form
8-K/A, dated May 6, 1996, have been incorporated by reference herein in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference from such Current Report on Form 8-K/A, and given on the
authority of that firm as experts in accounting and auditing.

42
<PAGE>
The combined financial statements of The A.D.S Group as of December 31,
1995, and for the year then ended have been included herein in reliance on the
report of Landa & Altsher, P.C., independent public accountants, and upon the
authority of said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-3 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and in the exhibits and schedules thereto. For further information with respect
to the Company and the Common Stock, reference is made to the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each such instance reference is made to the copy of
such contract or document filed or incorporated by reference as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. This Registration Statement may be inspected without charge
and copied at prescribed rates at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy and information statements, and other
information with the Commission. For further information with respect to the
Company, reference is hereby made to such reports and other information which
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1025, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies may also be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a Web site that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The site may
be accessed at http://www.sec.gov.

In addition, the Company is listed on the New York Stock Exchange and any
reports, proxy and information statements, and other information filed under the
Exchange Act may also be inspected and copied at the offices of the New York
Stock Exchange, 120 Broad Street, New York, New York 10005.

43
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE

The Company's Annual Reports on Form 10-K and 10-K/A dated June 29, 1996 for
the year ended December 31, 1995, its Current Reports on Form 8-K/A dated
February 12, May 6, and June 7, 1996 and its Current Reports on Form 8-K dated
January 16, February 16, and June 28, 1996, its Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1996 and June 30, 1996 and its Quarterly Report
on Form 10-Q/A dated July 2, 1996 are incorporated in this Prospectus by
reference. All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this Offering shall be deemed incorporated by
reference into this Prospectus from the date of filing of such documents
(provided, however, that the information referred to in item 402 (a) (8) of
Regulation S-K of the Commission shall not be deemed specifically incorporated
by reference herein). Any statement contained herein or in a document, all or a
portion of which is incorporated or deemed to be incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom this Prospectus is
delivered, upon the request of such person, a copy of the foregoing documents
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests shall be directed to The Multicare
Companies, Inc., 411 Hackensack Avenue, Hackensack, New Jersey 07601; Attn:
General Counsel (telephone: (201) 488-8818).

44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE A.D.S GROUP
Independent Auditors' Report........................................................ F-2
Combined Balance Sheets as of December 31, 1995 and
unaudited as of June 30, 1996..................................................... F-3
Combined Statements of Income for the year ended December 31,
1995 and unaudited for the six month periods ended
June 30, 1995 and 1996............................................................ F-4
Combined Statements of Cash Flows for the year ended
December 31, 1995 and unaudited for the
six month periods ended June 30, 1995 and 1996.................................... F-5
Notes to Combined Financial Statements.............................................. F-6
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
A.D.S Group
Newton, Massachusetts

We have audited the accompanying combined balance sheet of A.D.S Group as of
December 31, 1995, and the related statements of income, and cash flows for the
year then ended. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A.D.S Group as of December
31, 1995 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

LANDA & ALTSHER, P.C.

Randolph, Massachusetts
June 7, 1996

F-2
<PAGE>
A.D.S GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents.................................. $ 3,923 $ 4,956
Marketable securities...................................... 878 897
Accounts receivable--patients (net of allowance for
doubtful accounts of $950 in 1995 and $867 in 1996)...... 8,460 9,098
Notes receivable--related parties.......................... 1,500 1,500
Prepaid expenses and other current assets.................. 688 707
-------- --------------
Total current assets..................................... 15,449 17,158
-------- --------------
RESTRICTED CASH.............................................. 462 655
-------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Land, building and improvements............................ 31,385 31,402
Equipment and property held under capital leases........... 6,489 6,721
Motor vehicles............................................. 254 253
-------- --------------
Total.................................................... 38,128 38,376
Less: accumulated depreciation............................. 9,084 9,792
-------- --------------
Property, plant and equipment, net....................... 29,044 28,584
-------- --------------
DUE FROM RELATED PARTIES..................................... 1,126 1,537
-------- --------------
INVESTMENTS IN UNCOMBINED SUBSIDIARIES....................... 2,275 2,383
-------- --------------
OTHER ASSETS................................................. 1,318 2,304
-------- --------------
TOTAL ASSETS................................................. $49,674 $ 52,621
-------- --------------
-------- --------------
LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Demand notes payable....................................... $ 1,296 $ 1,231
Accounts payable........................................... 3,039 2,975
Due to third party payors.................................. 823 1,857
Accrued liabilities........................................ 2,577 2,546
Deferred revenue........................................... 131 62
Current portion of long-term debt.......................... 1,032 1,141
-------- --------------
Total current liabilities................................ 8,898 9,812
-------- --------------
LONG-TERM DEBT, net of current portion....................... 27,499 26,837
-------- --------------
OWNERS' EQUITY:
Common stock, 1,932 shares authorized at $0 and $1 par
value,
18 shares issued and outstanding......................... 324 324
Additional Paid-in-Capital................................. 2,358 2,358
Retained Earnings and Partners' Capital.................... 10,583 13,257
Unrealized Gain on Marketable Securities................... 12 33
-------- --------------
TOTAL OWNERS' EQUITY......................................... 13,277 15,972
-------- --------------
TOTAL LIABILITIES AND OWNERS' EQUITY......................... $49,674 $ 52,621
-------- --------------
-------- --------------
</TABLE>

See accompanying notes to combined financial statements.

F-3
<PAGE>
A.D.S GROUP
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, 1995 1995 1996
----------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Net patient service revenues.......................... $55,875 $27,402 $28,429
Other operating revenues.............................. 10,147 5,006 6,309
-------- ------- -------
Net revenues........................................ 66,022 32,408 34,738
-------- ------- -------
EXPENSES:
Facility operating expenses:
Salaries, wages and benefits........................ 36,101 18,339 18,848
Other operating expenses............................ 18,614 8,724 9,223
Corporate, general and administrative................. 3,521 1,308 1,723
Depreciation and amortization......................... 1,486 756 732
-------- ------- -------
Total expenses.................................... 59,722 29,127 30,526
-------- ------- -------

INCOME FROM OPERATIONS.................................. 6,300 3,281 4,212
-------- ------- -------
OTHER INCOME (EXPENSE):
Investment income..................................... 291 79 149
Interest expense...................................... (2,616) (1,285) (1,307)
Income from uncombined subsidiaries................... 190 176 308
-------- ------- -------
Total other income (expense)........................ (2,135) (1,030) (850)
-------- ------- -------
INCOME BEFORE INCOME TAXES.............................. 4,165 2,251 3,362
INCOME TAX EXPENSE...................................... 51 22 40
-------- ------- -------
NET INCOME.............................................. 4,114 2,229 3,322
RETAINED EARNINGS AND PARTNERS' CAPITAL-- BEGINNING OF
PERIOD.................................................. 10,339 10,339 10,583
DISTRIBUTIONS........................................... (3,870) (1,355) (648)
-------- ------- -------
RETAINED EARNINGS AND PARTNERS' CAPITAL--
END OF PERIOD......................................... $10,583 $11,213 $13,257
-------- ------- -------
-------- ------- -------
</TABLE>

See accompanying notes to combined financial statements.

F-4
<PAGE>
A.D.S GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, 1995 1995 1996
----------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 4,114 $ 2,229 $ 3,322
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 1,486 758 732
Gain on sales of marketable securities................... (66) -- --
Income from uncombined subsidiaries...................... (190) (176) (308)
Provision for bad debts.................................. 606 72 100
Loss on sale and abandonment of property................. 14 -- --
Changes in assets and liabilities:
Accounts receivable.................................... (420) 347 (738)
Prepaid expenses and other current assets.............. (258) (435) (1,049)
Accounts payable and accrued liabilities............... 1,020 366 (75)
Due to third party payors.............................. 285 1,705 1,034
Deferred revenue....................................... (50) (50) (69)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 6,541 4,816 2,949
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.................. (604) (254) (247)
Proceeds from disposal of property......................... 1 -- --
Purchase of marketable securities.......................... (730) -- --
Proceeds from sales of marketable securities............... 1,270 10 --
Deposits to reserve for replacement........................ (98) (352) (193)
Additions to construction in progress...................... (34) -- --
Advances on notes to related parties....................... (1,500) -- --
Repayment of related party notes........................... 100 -- --
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES....................... (1,595) (596) (440)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt......................................... 4,798 560 815
Repayment of debt and capitalized lease obligations........ (3,811) (726) (1,432)
Deferred charges........................................... (76) -- --
Deposits to pledge account................................. (238) -- --
Due from related parties................................... (919) (903) (411)
Distributions.............................................. (3,670) (1,205) (448)
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES....................... (3,916) (2,274) (1,476)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,030 1,946 1,033
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 2,893 2,893 3,923
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 3,923 $ 4,839 $ 4,956
------- ------- -------
------- ------- -------
</TABLE>

See accompanying notes to combined financial statements.

F-5
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

The A.D.S Group, with offices in Newton and Andover Massachusetts, is a
management, development, and consulting organization committed to building
networks of post acute eldercare services in local communities around New
England. The A.D.S Group owns, operates and manages skilled nursing facilities
which provide long-term care and specialty medical services in Massachusetts,
Ohio and Connecticut. In addition, the A.D.S Group manages assisted living
communities and manages hospital based subacute units located in hospitals
throughout Massachusetts, and provides home services through a network of
providers.

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

The A.D.S Group ("the Group") financial statements are the combined
financial statements of the following selected entities under common control and
ownership (the Corporation) and which are the object of an impending sale: A.D.S
Berkshire Management, Inc., A.D.S Consulting, Inc., A.D.S Management, Inc.,
A.D.S Senior Housing, Inc., Senior Source, Inc., A.D.S Palm Chelmsford, Inc.,
A.D.S Reservoir Waltham, Inc., ASL, Inc. and Arcadia Associates, Nursing and
Retirement Centers of the Andovers, Inc. and North Andover Associates, Prescott
Nursing Home, Inc. and Prescott Nursing Home Associates, Solomont Brookline
Limited Partnership, Westford Nursing and Retirement Center Limited Partnership,
and Willow Manor Nursing Home, Inc.

All significant intercompany transactions and accounts of the Group have
been eliminated in combination.

The financial information as of June 30, 1996 and for the six month periods
ended June 30, 1995 and 1996 are unaudited and have been prepared in conformity
with the accounting principles and practices as reflected in the Group's audited
annual combined financial statements. The unaudited combined financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position as of June 30,
1996 and the operating results and cash flows for the six month periods ended
June 30, 1995 and 1996. Results for interim periods are not necessarily
indicative of those to be expected for the year.

The combined financial statements also include selected entities accounted
for under the equity method. The stockholders/owners of the Group have a
financial interest in these entities ranging from 20% - 50%.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Cash and cash equivalents: The Group considers all short-term debt
securities purchased with an original maturity of three months or less to be
cash equivalents. The Group maintains cash and cash equivalent balances in
several federally insured regional financial institutions. Amounts in these
institutions exceeding federally insured limits totaled $5,273 at December 31,
1995. Cash and cash equivalent balances approximate their fair values.

F-6
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
b. Net Patient service revenues: Net patient service revenues are reported
at the estimated net realizable amounts. Third-party payor revenues included in
net patient service revenues are recorded as indicated in Note 3. The Group
extends unsecured credit to their private patients and patients covered under
third party payor arrangements.

c. Property, plant and equipment: Land, building, improvements, equipment
and motor vehicles are recorded at cost. Depreciation of building and
improvements is calculated using the straight-line and accelerated methods over
the estimated useful lives that range from five to forty years. Depreciation of
equipment and motor vehicles is calculated using the straight-line and
accelerated methods over the estimated useful lives that range from three to ten
years. Depreciation charged to operations amounted to $1,355.

d. Marketable securities: The Group determines the appropriate
classification of securities at the time of purchase. If the Group has the
ability at the time of purchase to hold securities until maturity or on a
long-term basis, they are classified as investments and carried at historical
cost. Securities to be held for indefinite periods of time and not intended to
be held to maturity or on a long-term basis are classified as available for sale
and carried at market value.

Realized gains and losses on disposition are based on the net proceeds and
the book value of the securities sold and are recognized in the statement of
income. Unrealized gains and losses on investment securities available for sale
are based on the differences between book value and market value of each
security. These unrealized gains and losses are charged to equity.

e. Income taxes: The corporations have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those provisions,
the Corporations do not pay federal tax on their taxable income. Consequently,
the stockholders are liable for income taxes on their respective share of the
Corporations' taxable income. An income tax provision of $51 has been recorded
in 1995, related to state income taxes.

The partnerships are not tax paying entities for purposes of federal and
state income taxes. Federal and state income taxes are computed on each
partner's total income from all sources.

NOTE 3--NET PATIENT SERVICE REVENUES FROM THIRD PARTY PAYORS

SUMMARY OF THE PAYMENT ARRANGEMENTS WITH THIRD PARTY PAYORS

Medicaid--Prospective Rate System--The Group receives reimbursement from the
Commonwealth of Massachusetts under the prospective rate of payment system for
the care and services rendered to publicly-aided patients in long-term care
facilities pursuant to regulations promulgated by the Massachusetts Rate Setting
Commission (MRSC). Under the regulations, the current year rates are calculated
utilizing base year costs adjusted for inflation. The base year costs are
subject to audit which could result in a retroactive rate adjustment for the
current year.

The MRSC regulations provide for a "lookback" provision for new facilities
whereby final rates will be calculated based on actual costs. The "lookback"
provision is applicable until the facility operates for a calendar year at full
licensure. The cost report for the first year of full license will be

F-7
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 3--NET PATIENT SERVICE REVENUES FROM THIRD PARTY PAYORS--(CONTINUED)
audited by the MRSC and, the results of which, will be the basis for the
reimbursement for future years subject to a cost adjustment factor.

The Group has received amended rates as a result of the audit of prior base
year costs. These amended rates resulted in a retroactive adjustment due from
the Commonwealth of Massachusetts of $416. Management also estimates that the
Group has underspent the OBRA component of the rate resulting in a retroactive
adjustment due the Commonwealth of Massachusetts of $587. A provision has been
made in the accompanying financial statements under the caption "Due to Third
Party Payors" on the combined balance sheet.

Medicare--The Group receives reimbursement for the care of certain patients
under the federally sponsored Medicare program through an insurance
intermediary. During the year, an interim rate is assigned based upon the cost
experience of a prior year modified by its current regulations, and the Group is
paid at this rate during the year. A cost report is filed with, and audited by,
the insurance intermediary. A final rate which may be subject to cost
limitations is then established and final settlement of the difference is called
for under the regulations.

NOTE 4--MARKETABLE SECURITIES

Marketable securities at December 31, 1995 are comprised of securities
available for sale, in conjunction with the adoption of Statement of Financial
Accounting Standards (SFAS) No.115 "Accounting for Certain Investments in Debt
and Equity Securities", resulting in investment securities being carried at
market value. Marketable securities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
MARKET UNREALIZED
COST VALUE GAIN
---- ------ ----------
<S> <C> <C> <C>
1) Short-term Government
Portfolio Mutual Funds....................... $609 $627 $ 18
2) Equity Portfolio
Mutual Funds................................. 188 194 6
3) Equity Portfolio............................... 56 57 1
---- ------ ---
$853 $878 $ 25
---- ------ ---
---- ------ ---
</TABLE>

Proceeds from the sales and maturities of investment securities available
for sale were $1,270. Gross gains and losses on those sales and maturities were
$85 and $19, respectively. Included in equity at December 31, 1995 is $12 of net
unrealized gains on investment securities available for sale.

NOTE 5--RELATED PARTY TRANSACTIONS

The Group has entered into the following transactions with related parties:

a) Related party loans which bear no interest and have no fixed repayment
terms amounted to $1,126 at December 31, 1995.

F-8
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 5--RELATED PARTY TRANSACTIONS--(CONTINUED)
b) Notes receivable--stockholders--at December 31, 1995 consists of four
$375 demand notes due from various stockholders of the Group. The notes are
secured by stockholders' capital stock with interest payable semi-annually
beginning April 30, 1996 at the Federal short-term rate.

(c) The Group provided services to affiliates of the owners of the Group
(included in Other Operating Revenues) during 1995 as follows:

<TABLE>
<CAPTION>
1995
------

<S> <C>
Management fees......................................... $1,052

Administrative and central office....................... 879

Development fees........................................ 609

Other fees.............................................. 63
------

Total............................................. $2,603
------
------
</TABLE>

NOTE 6--INVESTMENTS IN UNCOMBINED SUBSIDIARIES

The following selected entities have been accounted for using the equity
method:

<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
----------
<S> <C>
Courtyard Nursing Care Partnership...................... 33%
Charlton Nursing Care Center............................ 20%
The Recuperative Center Limited Partnership............. 48%
Hingham Healthcare Limited Partnership.................. 50%
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Current assets............................................ $15,980
Noncurrent assets......................................... 38,906
Current liabilities....................................... 5,448
Noncurrent liabilities.................................... 46,153
</TABLE>

Operating results include the proportionate share of income from affiliates
since the respective dates of investments. Summarized information for these
selected entities is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Revenue................................................... $30,298
Operating expenses........................................ 29,298
Net income................................................ 1,000
</TABLE>

F-9
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 7--LONG-TERM DEBT

Long-term debt of the Group at December 31, 1995 is as follows:

a) Lines of Credit: The Group has lines of credit with several regional
financial institutions with aggregate outstanding balances of $2,145, $1,296 of
which is payable on demand with the remaining notes maturing through August
1998. Security for the lines of credit range from the business assets of the
entity obligated under the notes to the personal guarantee of stockholders.
Interest rates on the obligations range from prime to prime plus 100 basis
points. The Group has unused credit lines available of approximately $2,000.

b) Chattel Notes: The Group is obligated on $44 of chattel notes, secured by
motor vehicles, payable in monthly installments of $2 in the aggregate with
interest ranging from 3.9% to 8.75% with various maturity dates through January
1999. The Group has also obtained financing for multiple equipment purchases
from one regional financial institution amounting to $189 payable in monthly
principal installments of $10 plus interest at a weighted average rate of 8.75%
through December 1998.

c) Mortgages: Mortgage notes payable at December 31, 1995 are summarized as
follows:

<TABLE>
<S> <C>
Bank note, prime plus 1%, due February 2005...................... $ 1,455
Bank note, prime plus 1%, due December 2002...................... 6,954
HUD insured note, 9%, due December 2018.......................... 2,379
Bank note, prime plus 1%, due January 1999....................... 8,064
HUD insured note, 9.375%, due November 2033...................... 6,720
Industrial Revenue Bonds, 78% of prime, due April 2005........... 292
Bank note, LIBOR plus 2.5%, due October 2000..................... 1,497
-------
$27,361
-------
-------
</TABLE>

The above bank and HUD insured notes call for monthly debt service payments
of approximately $313, in the aggregate. In addition to debt service payments
the HUD insured mortgages require aggregate monthly deposits to a reserve for
replacements of $8. The industrial revenue bonds call for quarterly redemptions
of $8 plus interest.

d) The Group has entered into capitalized lease obligations for various
equipment which expire through 1998, with a remaining obligation of $88 at
December 31, 1995.

Maturities of long-term debt for the five years succeeding December 31, 1995
are as follows:

1996 1997 1998 1999 2000
------ ---- ------ ------ ----
<S> <C> <C> <C> <C>
$1,032 $993 $1,159 $7,857 $517
------ ---- ------ ------ ----
------ ---- ------ ------ ----
</TABLE>

Certain mortgages require the maintenance of replacement reserves or a
pledged collateral account. These accounts, which are held by the respective
mortgagees in the amount of $462 are presented in the accompanying combined
balance sheet as "Restricted Cash".

F-10
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 8--COMMITMENTS AND CONTINGENCIES

The Group is committed under non-cancelable operating leases for its
corporate offices and two nursing facilities. Minimum rental commitments under
non-cancelable leases at December 31, 1995 are summarized as follows:

<TABLE>
<CAPTION>
OPERATING
---------
<S> <C>
1996............................................................. $ 1,367
1997............................................................. 1,393
1998............................................................. 1,455
1999............................................................. 1,457
2000............................................................. 1,497
Thereafter....................................................... 5,567
---------
$12,736
---------
---------
</TABLE>

Rent expenses relating to operations amounted to $1,299 for 1995.

The Group is contingently liable through either stand-by letters of credit
or security agreements on Group assets for approximately $12,500 at December 31,
1995.

Pursuant to the Commonwealth of Massachusetts Medical Assistance Program
regulations, the members of the Group are considered to be under common
ownership and consequently all members of the Group are contingently liable for
recoupment of liabilities of other members of the Group.

A significant portion of the Group's net revenues and accounts receivable
are derived from services reimbursable under the Medicaid and the Medicare
programs. There are numerous healthcare reform proposals being considered on the
federal and state levels. Although no reform legislation changes have been
implemented, the current proposals for the Medicare program include a shift to a
prospective payment system, a limit on interim payments for ancillary services,
a reduction of reimbursement for capital costs, a continued freeze on routine
cost limits, and salary equivalency limits for occupational and speech
therapies. In addition, current Medicaid proposals being considered include the
elimination of the Boren amendment and the establishment of state block grants.
The Company cannot predict at this time whether any of these proposals will be
adopted or, if adopted and implemented, what effect such proposals would have on
the Group.

The healthcare industry is labor intensive. Wages and other labor related
costs are especially sensitive to inflation. In addition, suppliers pass along
rising costs to the Group in the form of higher prices. When faced with
increases in operating costs, the Group has increased its charges for services.
The Group's operations could be adversely affected if it is unable to recover
future cost increases or experiences significant delays in increasing rates of
reimbursement of its labor and other costs from Medicaid and Medicare revenue
sources.

F-11
<PAGE>
A.D.S GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

NOTE 9--SUPPLEMENTAL CASH FLOW DISCLOSURE AND OTHER

<TABLE>
<S> <C>
Interest payments net of amounts capitalized...................... $2,518
------
------
</TABLE>

The following are noncash items excluded from the combined statement of cash
flows:

<TABLE>
<S> <C>
Additions to property, plant and equipment........................ $ (50)
Transfer of property, plant and equipment to an affiliate......... 9
Transfer of assets to an affiliate................................ 81
Disposal of property, plant and equipment......................... 8
Debt assumed...................................................... 45
Transfer of debt.................................................. (10)
Amount due related parties........................................ (84)
Cash infusion from stockholder.................................... 1,655
Capital contributions to uncombined subsidiaries.................. (1,655)
Distributions from uncombined subsidiaries........................ 200
Distributions to stockholders from uncombined subsidiaries........ (200)
</TABLE>

As noted above, additional paid-in-capital increased by $1,655 during 1995.
Distributions against retained earnings and partners' capital were $3,870 in
1995.

$1,840 of accruals for compensation are included in accrued liabilities at
December 31, 1995.

NOTE 10--NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", which becomes effective for fiscal years beginning after
December 15, 1995. The Group adopted this statement effective January 1, 1996.
The implementation of such statement did not have a material effect on the
Group's combined financial statements.

NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)

Effective June 17, 1996, management has announced the pending sale of the
Group to The Multicare Companies, Inc. It is anticipated that the transaction
will be concluded by the end of 1996.

F-12
<PAGE>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------

NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS 3,000,000 SHARES
PROSPECTUS IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE [MULTICARE THE MULTICARE
COMMON STOCK IN ANY JURISDICTION WHERE, COMPANIES, INC. LOGO]
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
COMMON STOCK

-------------------

TABLE OF CONTENTS

PAGE

Prospectus Summary................... 3

Risk Factors......................... 6

Recent Developments.................. 11 ----------

Use of Proceeds...................... 13 PROSPECTUS

Price Range of Common Stock.......... 13 , 1996

Dividend Policy...................... 13 ----------

Capitalization....................... 14

Selected Consolidated Financial Data. 15

Unaudited Pro Forma Condensed
Consolidated Financial Statements.... 17

Business............................. 23

Management........................... 34

Principal Stockholders............... 37

The Reorganization................... 38

Description of Capital Stock......... 39
SMITH BARNEY INC.
Underwriting......................... 41

Legal Matters........................ 42 COWEN & COMPANY

Experts.............................. 42
DEAN WITTER REYNOLDS INC.
Available Information................ 43

Incorporation of Documents by NATWEST SECURITIES LIMITED
Reference............................ 44

Index to Consolidated Financial
Statements...........................F-1

- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses of the issuance and distribution of
the securities being registered, all of which will be paid by the Registrant.

<TABLE>
<S> <C>
Registration fee................................................ $ 23,644
NASD filing fee................................................. 7,357
NYSE Listing Fee................................................ 36,900
Printing and engraving expenses................................. 75,000
Legal fees and expenses......................................... 75,000
Accounting fees and expenses.................................... 50,000
Blue sky fees and expenses...................................... 15,000
Miscellaneous................................................... 17,099
--------
TOTAL..................................................... 300,000
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") empowers a corporation, subject to certain limitations, to indemnify its
directors and officers against actual and reasonable expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with litigation against them in their
capacities as directors and officers. As permitted by such Section, the
Company's Certificate of Incorporation provides that the Company shall indemnify
any person who was or is made a party or is threatened to be made a party to any
action, suit or proceeding (whether civil or otherwise) by reason of the fact
that such person is or was a director or officer of the Company or by reason of
the fact that such director or officer, at the request of the Company, is or was
serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, in any capacity, to the fullest extent
authorized or permitted by the GCL.

The By-laws of the Company provide that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including, without limitation, an
action by or in the right of the Company by reason of the fact that such person
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent and in the manner set
forth and permitted by the GCL or any other applicable law, as from time to time
in effect.

The Restated Certificate of Incorporation and the By-laws provide that the
foregoing indemnification shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled under any statute, the
Restated Certificate of Incorporation, the By-laws, or any agreement, vote of
stockholders or disinterested directors or otherwise, both as to actions in such
person's official capacity and as to actions in any other capacity while holding
office, and shall continue as to a person who has ceased to be a director or
officer, and shall inure to the benefit of the executors, administrators,
legatees and distributees of such person.

Under the Restated Certificate of Incorporation and the By-laws, the Company
is authorized to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or

II-1
<PAGE>
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power to
indemnify such person against liability under the provisions of the Restated
Certificate of Incorporation, the By-Laws or any provision of law.

The form of underwriting agreement, filed as Exhibit 1 hereto, contains
provisions by which the Underwriters agree to indemnify the Company, the Selling
Stockholders, the Company's officers and directors and each person who controls
the Company within the meaning of the Securities Act of 1933 against certain
liabilities.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- ------------------------------------------------------------------------
<C> <S>
+1 --Form of Underwriting Agreement
*2 --Reorganization and Subscription Agreement, dated as of August 21,
1992, among The Multicare Companies, Inc., Daniel E. Straus, Moshael
J. Straus, Adina S. Rubin and Bethia S. Quintas
********2.1 --Agreement and Plan of Merger, dated as of January 15, 1996, among The
Multicare Companies, Inc., CHG Acquisition Corp., and Concord Health
Group, Inc.
+3.1 --Restated Certificate of Incorporation of The Multicare Companies, Inc.
**3.2 --By-laws of The Multicare Companies, Inc.
**4.1 --Specimen Common Stock Certificate
**4.2 --Agreement of the Company, dated July 2, 1993, to furnish certain debt
instruments to the Securities and Exchange Commission
*******4.6 --The Multicare Companies, Inc. Employee Stock Purchase Plan
*******4.7 --The Multicare Companies, Inc. Directors Retainer and Meeting Fee Plan
+5 --Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
*10.1 --Form of Employment Agreement between The Multicare Companies, Inc. and
Daniel E. Straus and Moshael J. Straus
*10.2 --Indenture of Lease, dated as of December 31, 1984, between Ridge Road
Associates, as landlord, and American Nursing Home Corporation as
tenant
*10.3 --Assignment and Assumption, dated December 31, 1984, between American
Nursing Home Corporation and Health Resources of Cedar Grove, Inc.
*10.4 --Lease, dated July 29, 1986, between Jackson Health Care Associates and
Health Resources of Jackson, Inc.
*10.5 --Indenture of Lease, dated as of December 31, 1984, between Twin Oaks
Associates, as landlord, and Twin Oaks Nursing Home, Inc., as tenant
*10.6 --Assignment and Assumption, dated as of December 30, 1984, between Twin
Oaks Nursing Home, Inc. and Health Resources of Morristown, Inc.
*10.7 --Lease dated April [no date], 1986 between LEA Manor Health Care
Center, Inc. and Health Resources of Norwalk, Inc.
*10.8 --Limited Partner Option Agreement, dated as of October 22, 1992, among
The Multicare Companies, Inc., Moshael J. Straus, and Daniel E. Straus
(Stafford facility)
*10.9 --General Partner Option Agreement, dated as of October 22, 1992,
between Health Resources of Stafford, Inc. and Stafford Convalescent
Center, Inc. (Stafford facility)
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- ------------------------------------------------------------------------
<C> <S>
*10.10 --Limited Partner Option Agreement, dated as of October 22, 1992, among
The Multicare Companies, Inc., Daniel E. Straus and Moshael J. Straus
(Emery facility)
*10.11 --General Partner Option Agreement, dated as of October 22, 1992,
between Old Bridge Care Center, Inc. and Health Resources of Emery,
Inc. (Emery facility)
*10.12 --Limited Partner Option Agreement, dated as of October 22, 1992,
between The Multicare Companies, Inc. and William Burris (Marcella
facility)
*10.13 --General Partner Option Agreement, dated as of October 22, 1992,
between Health Resources of Marcella, Inc. and Marcella Convalescent
Center, Inc. (Marcella facility)
**10.14 --Amended and Restated 1993 Stock Option Plan
**10.15 --Option Agreement, dated as of July 1, 1993, between The Multicare
Companies, Inc. and Adina S. Rubin (Summit Ridge facility)
**10.16 --Form of Option Agreement between The Multicare Companies, Inc. and
Adina S. Rubin (Fair Lawn facility)
**10.17 --Amended and Restated Amendment of Lease, dated as of November 18,
1992, between Straus Associates and Health Resources of Colchester,
Inc.
***10.18 --Line of Credit Agreement, dated December 17, 1993, between The
Multicare Companies, Inc., and United Jersey Bank
****10.19 --Credit Agreement, dated as of April 1, 1994, among The Multicare
Companies, Inc., the Subsidiary Guarantors and Chase Manhattan Bank,
N.A., as Agent
****10.20 --Revolving Credit Note, dated as of April 1, 1994, made by the
Multicare Companies, Inc. and the Subsidiary Guarantors in favor of
Chase Manhattan Bank, N.A., as Agent
****10.21 --Security Agreement, dated as of April 1, 1994, by the Multicare
Companies, Inc.
****10.22 --Pledge Agreement, dated as of April 1, 1994, by the Multicare
Companies, Inc. and the Subsidiary Guarantors and in favor of Chase
Manhattan Bank, N.A., as Agent
*****10.23 --Amendments dated March 15 and April 4, 1994 to the 1993 Amended and
Restated Stock Option Plan
*****10.24 --Non-Employee Directors' Stock Option Plan
*******10.25 --Amended and Restated Credit Agreement dated as of March 31, 1995 among
The Multicare Companies, Inc., Subsidiary Co-Borrowers, Subsidiary
Guarantors and The Chase Manhattan Bank, N.A.
******10.26 --First Amendment Agreement dated as of October 19, 1995 among The
Multicare Companies, Inc., Subsidiary Co-Borrowers, Subsidiary
Guarantors and The Chase Manhattan Bank, N.A.
*******10.27 --Loan Agreement dated October 13, 1992 between Meditrust Mortgage
Investments, Inc. and various Glenmark entities
*******10.28 --First Amendment to Loan Agreement dated as of November 30, 1995
*******10.29 --Intercreditor Agreement dated December 1, 1995 between The Chase
Manhattan Bank, N.A., Meditrust Mortgage Investments, Inc. and
Meditrust of West Virginia, Inc.
*******10.30 --Second Amendment to Loan Agreement entered in to effective as of
November 30, 1995
*******10.31 --Agreement and Plan of Merger Among HRWV, Inc., Glenmark Associates,
Inc., Glenmark Holding Company Limited Partnership, Mark R. Nesselroad
and Glenn T. Adrian
*******10.32 --Facility Lease Agreement dated as of November 30, 1995 between
Meditrust of West Virginia, Inc. and Glenmark Limited Liability
Company
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- ------------------------------------------------------------------------
<C> <S>
*******10.33 --Second Amendment Agreement dated as of February 22, 1996 among The
Multicare Companies, Inc. Subsidiary Co-Borrowers, Subsidiary
Guarantors, The Banks Signatory hereto, and The Chase Manhattan Bank,
N.A., as Agent
+10.34 --Second Amended and Restated Credit Agreement, dated as of May 22,
1996, among The Multicare Companies, Inc., the Subsidiary Co-
Borrowers, the Subsidiary Guarantors, the Banks Signatory thereto and
The Chase Manhattan Bank, N.A., a Agent
+10.35 --Acquisition Agreement, dated as of June 17, 1996, by and among
A.D.S/Multicare, Inc. and Alan D. Solomont, David Solomont, Ahron M.
Solomont, Jay H. Solomont, David Solomont, Susan S. Bailis and the
Seller Entities signatory thereto (the "A.D.S Acquisition Agreement")
+10.36 --Amendment No. 1, dated August 12, 1996, to the A.D.S Acquisition
Agreement
+21 --Subsidiaries of the Registrant
+23.1 --Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants
+23.2 --Consent of Deloitte & Touche LLP, Independent Certified Public
Accountants
+23.3 --Consent of Coopers & Lybrand L.L.P., Independent Accountants
+23.4 --Consent of Landa & Altsher P.C., Certified Public Accountants
+23.5 --Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in their
opinion filed as Exhibit 5)
</TABLE>

- ------------

+ Filed herewith.

* Incorporated by reference from Registration Statement No. 33-51176 on
Form S-1 effective November 18, 1992.

** Incorporated by reference from Registration Statement No. 33-65444
effective August 18, 1993.

*** Incorporated by reference from Current Report on Form 8-K, dated
December 20, 1993.

**** Incorporated by reference from Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1994.

***** Incorporated by reference from Registration Statement No. 33-79298
effective June 22, 1994.

****** Incorporated by reference from Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995.

******* Incorporated by reference from Annual Report on Form 10-K for the
year ended December 31, 1995.

******** Incorporated by reference from the Tender Offer Statement on
Schedule 14D-1 of CHG Acquisition Corp., and The Multicare
Companies, Inc., dated January 22, 1996.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of

II-4
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes for determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For purposes for determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hackensack,
State of New Jersey, on September 25, 1996.

THE MULTICARE COMPANIES, INC.

By: /s/ DANIEL E. STRAUS
..................................

Daniel E. Straus
President and Co-Chief Executive
Officer

We, the undersigned officers and directors of The Multicare Companies, Inc.,
hereby severally constitute Daniel E. Straus, Moshael J.Straus and Bradford C.
Burkett and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, any and all amendments, including post-effective
amendments, to this registration statement, and generally do all such things in
our name and on behalf in such capacities to enable The Multicare Companies,
Inc. to comply with the applicable provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities Exchange Commission, and we
hereby ratify and confirm our signatures as they may be signed by our said
attorneys, or either of them, to any and all such amendments.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>

/s/ MOSHAEL J. STRAUS Chairman of the Board, Co-Chief Executive
............................................. Officer and Director (Principal Executive
Moshael J. Straus Officer)

/s/ DANIEL E. STRAUS President, Co-Chief Executive Officer and
............................................. Director (Principal Executive Officer)
Daniel E. Straus

/s/ STEPHEN R. BAKER Executive Vice President, Chief Operating
............................................. Officer and Director (Principal Financial
Stephen R. Baker and Accounting Officer )

/s/ PAUL J. KLAUSNER Director
.............................................
Paul J. Klausner

............................................. Director
Stuart H. Altman

/s/ CONSTANCE B. GIRARD-DICARLO Director
.............................................
Constance B. Girard-diCarlo

/s/ MENACHEM ROSENBERG Director
.............................................
Menachem Rosenberg

/s/ ALAN D. SOLOMONT Director
.............................................
Alan D. Solomont

............................................. Director
George R. Zoffinger
</TABLE>

II-6
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------------- ----------------------------------------------------------------- ----
<C> <S> <C>
+1 --Form of Underwriting Agreement
*2 --Reorganization and Subscription Agreement, dated as of August
21, 1992, among The Multicare Companies, Inc., Daniel E.
Straus, Moshael J. Straus, Adina S. Rubin and Bethia S. Quintas
********2.1 --Agreement and Plan of Merger, dated as of January 15, 1996,
among The Multicare Companies, Inc., CHG Acquisition Corp., and
Concord Health Group, Inc.
+3.1 --Restated Certificate of Incorporation of The Multicare
Companies, Inc.
**3.2 --By-laws of The Multicare Companies, Inc.
**4.1 --Specimen Common Stock Certificate
**4.2 --Agreement of the Company, dated July 2, 1993, to furnish
certain debt instruments to the Securities and Exchange
Commission
*******4.6 --The Multicare Companies, Inc. Employee Stock Purchase Plan
*******4.7 --The Multicare Companies, Inc. Directors Retainer and Meeting
Fee Plan
+5 --Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
*10.1 --Form of Employment Agreement between The Multicare Companies,
Inc. and Daniel E. Straus and Moshael J. Straus
*10.2 --Indenture of Lease, dated as of December 31, 1984, between
Ridge Road Associates, as landlord, and American Nursing Home
Corporation as tenant
*10.3 --Assignment and Assumption, dated December 31, 1984, between
American Nursing Home Corporation and Health Resources of Cedar
Grove, Inc.
*10.4 --Lease, dated July 29, 1986, between Jackson Health Care
Associates and Health Resources of Jackson, Inc.
*10.5 --Indenture of Lease, dated as of December 31, 1984, between Twin
Oaks Associates, as landlord, and Twin Oaks Nursing Home, Inc.,
as tenant
*10.6 --Assignment and Assumption, dated as of December 30, 1984,
between Twin Oaks Nursing Home, Inc. and Health Resources of
Morristown, Inc.
*10.7 --Lease dated April [no date], 1986 between LEA Manor Health Care
Center, Inc. and Health Resources of Norwalk, Inc.
*10.8 --Limited Partner Option Agreement, dated as of October 22, 1992,
among The Multicare Companies, Inc., Moshael J. Straus, and
Daniel E. Straus (Stafford facility)
*10.9 --General Partner Option Agreement, dated as of October 22, 1992,
between Health Resources of Stafford, Inc. and Stafford
Convalescent Center, Inc. (Stafford facility)
*10.10 --Limited Partner Option Agreement, dated as of October 22, 1992,
among The Multicare Companies, Inc., Daniel E. Straus and
Moshael J. Straus (Emery facility)
*10.11 --General Partner Option Agreement, dated as of October 22, 1992,
between Old Bridge Care Center, Inc. and Health Resources of
Emery, Inc. (Emery facility)
*10.12 --Limited Partner Option Agreement, dated as of October 22, 1992,
between The Multicare Companies, Inc. and William Burris
(Marcella facility)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------------- ----------------------------------------------------------------- ----
<C> <S> <C>
*10.13 --General Partner Option Agreement, dated as of October 22, 1992,
between Health Resources of Marcella, Inc. and Marcella
Convalescent Center, Inc. (Marcella facility)
**10.14 --Amended and Restated 1993 Stock Option Plan
**10.15 --Option Agreement, dated as of July 1, 1993, between The
Multicare Companies, Inc. and Adina S. Rubin (Summit Ridge
facility)
**10.16 --Form of Option Agreement between The Multicare Companies, Inc.
and Adina S. Rubin (Fair Lawn facility)
**10.17 --Amended and Restated Amendment of Lease, dated as of November
18, 1992, between Straus Associates and Health Resources of
Colchester, Inc.
***10.18 --Line of Credit Agreement, dated December 17, 1993, between The
Multicare Companies, Inc., and United Jersey Bank
****10.19 --Credit Agreement, dated as of April 1, 1994, among The
Multicare Companies, Inc., the Subsidiary Guarantors and Chase
Manhattan Bank, N.A., as Agent
****10.20 --Revolving Credit Note, dated as of April 1, 1994, made by the
Multicare Companies, Inc. and the Subsidiary Guarantors in
favor of Chase Manhattan Bank, N.A., as Agent
****10.21 --Security Agreement, dated as of April 1, 1994, by the Multicare
Companies, Inc.
****10.22 --Pledge Agreement, dated as of April 1, 1994, by the Multicare
Companies, Inc. and the Subsidiary Guarantors and in favor of
Chase Manhattan Bank, N.A., as Agent
*****10.23 --Amendments dated March 15 and April 4, 1994 to the 1993 Amended
and Restated Stock Option Plan
*****10.24 --Non-Employee Directors' Stock Option Plan
*******10.25 --Amended and Restated Credit Agreement dated as of March 31,
1995 among The Multicare Companies, Inc., Subsidiary Co-
Borrowers, Subsidiary Guarantors and The Chase Manhattan Bank,
N.A.
******10.26 --First Amendment Agreement dated as of October 19, 1995 among
The Multicare Companies, Inc., Subsidiary Co-Borrowers,
Subsidiary Guarantors and The Chase Manhattan Bank, N.A.
*******10.27 --Loan Agreement dated October 13, 1992 between Meditrust
Mortgage Investments, Inc. and various Glenmark entities
*******10.28 --First Amendment to Loan Agreement dated as of November 30, 1995
*******10.29 --Intercreditor Agreement dated December 1, 1995 between The
Chase Manhattan Bank, N.A., Meditrust Mortgage Investments,
Inc. and Meditrust of West Virginia, Inc.
*******10.30 --Second Amendment to Loan Agreement entered in to effective as
of November 30, 1995
*******10.31 --Agreement and Plan of Merger Among HRWV, Inc., Glenmark
Associates, Inc., Glenmark Holding Company Limited Partnership,
Mark R. Nesselroad and Glenn T. Adrian
*******10.32 --Facility Lease Agreement dated as of November 30, 1995 between
Meditrust of West Virginia, Inc. and Glenmark Limited Liability
Company
*******10.33 --Second Amendment Agreement dated as of February 22, 1996 among
The Multicare Companies, Inc. Subsidiary Co-Borrowers,
Subsidiary Guarantors, The Banks Signatory hereto, and The
Chase Manhattan Bank, N.A., as Agent
+10.34 --Second Amended and Restated Credit Agreement, dated as of May
22, 1996, among The Multicare Companies, Inc., the Subsidiary
Co-Borrowers, the Subsidiary Guarantors, the Banks Signatory
thereto and The Chase Manhattan Bank, N.A., a Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------------- ----------------------------------------------------------------- ----
<C> <S> <C>
+10.35 --Acquisition Agreement, dated as of June 17, 1996, by and among
A.D.S/Multicare, Inc. and Alan D. Solomont, David Solomont,
Ahron M. Solomont, Jay H. Solomont, David Solomont, Susan S.
Bailis and the Seller Entities signatory thereto (the "A.D.S
Acquisition Agreement")
+10.36 --Amendment No. 1, dated August 12, 1996, to the A.D.S
Acquisition Agreement
+21 --Subsidiaries of the Registrant
+23.1 --Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants
+23.2 --Consent of Deloitte & Touche LLP, Independent Certified Public
Accountants
+23.3 --Consent of Coopers & Lybrand L.L.P., Independent Accountants
+23.4 --Consent of Landa & Altsher, P.C., Certified Public Accountants
+23.5 --Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included
in their opinion filed as Exhibit 5)
</TABLE>

- ------------

<TABLE>
<C> <S>
+ Filed herewith.
* Incorporated by reference from Registration Statement No. 33-51176 on Form S-1
effective November 18, 1992.
** Incorporated by reference from Registration Statement No. 33-65444 effective
August 18, 1993.
*** Incorporated by reference from Current Report on Form 8-K, dated December 20,
1993.
**** Incorporated by reference from Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1994.
***** Incorporated by reference from Registration Statement No. 33-79298 effective
June 22, 1994.
****** Incorporated by reference from Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995.
******* Incorporated by reference from Annual Report on Form 10-K, for the year ended
December 31, 1995.
******** Incorporated by reference from the Tender Offer Statement on Schedule 14D-1 of
CHG Acquisition Corp., and The Multicare Companies, Inc., dated January 22,
1996.
</TABLE>

EXHIBIT 1

3,000,000 Shares

THE MULTICARE COMPANIES, INC.

Common Stock

UNDERWRITING AGREEMENT
----------------------

September , 1996

SMITH BARNEY INC.
COWEN & COMPANY
DEAN WITTER REYNOLDS INC.
NATWEST SECURITIES LIMITED

As Representatives of the Several Underwriters

c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

Dear Sirs:

The Multicare Companies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 3,000,000 shares of its common stock,
$0.01 par value per share, to the several Underwriters named in Schedule I
hereto (the "Underwriters"). The Company's common stock, $0.01 par value, is
hereinafter referred to as the "Common Stock" and the 3,000,000 shares of Common
Stock to be issued and sold to the Underwriters by the Company are hereinafter
referred to as the "Firm Shares". The persons named in Part A of Schedule I
hereto (the "Selling Stockholders") also propose to sell to the Underwriters,
upon the terms and conditions set forth in Section 2 hereof, up to an additional
450,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholders are hereinafter sometimes referred to
as the "Sellers".

<PAGE>

The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.

1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended or supplemented, together with any Rule 462(b) Registration Statement.
The term "Rule 462(b) Registration Statement" means a registration statement
filed pursuant to Rule 462(b) under the Act relating to the offering covered by
the registration statement (No. 333- ______). The term "Prospectus" as used in
this Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in
this Agreement means the prospectus subject to completion in the form included
in the registration statement at the time of the initial filing of the
registration statement with the Commission, and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus. Any
reference in this Agreement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the

2
<PAGE>

Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date
of the registration statement, the Registration Statement, such Prepricing
Prospectus or the Prospectus, as the case may be, and any reference to any
amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Exchange Act") which, upon filing, are
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the registration statement,
the Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.

2. Agreements to Sell and Purchase. Subject to such adjustments as you
-------------------------------
may determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_______ per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares to
be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company.

The Selling Stockholders also agree, subject to all the terms and
conditions set forth herein, to sell to the Underwriters, and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the Selling
Stockholders, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 450,000 Additional Shares. Additional Shares may
be purchased only for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. The number of Additional Shares which the
Underwriters elect to purchase upon any exercise of the

3
<PAGE>

over-allotment option shall be provided by the Selling Stockholders in
proportion to the respective maximum numbers of Additional Shares which the
Selling Stockholders have agreed to sell. Upon any exercise of the
over-allotment option, each Underwriter, severally and not jointly, agrees to
purchase from the Selling Stockholders the number of Additional Shares (subject
to such adjustments as you may determine in order to avoid fractional shares)
which bears the same proportion to the number of Additional Shares to be sold by
the Selling Stockholders as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 12 hereof) bears to the aggregate number of
Firm Shares to be sold by the Company.

Certificates in transferable form for the Additional Shares which each
of the Selling Stockholders agrees to sell pursuant to this Agreement have been
placed in custody with _______________ (the "Custodian") for delivery under this
Agreement pursuant to a Custody Agreement and Power of Attorney (the "Custody
Agreement") executed by each of the Selling Stockholders appointing ____________
and ___________ as agents and attorneys-in-fact (the "Attorneys-in-Fact"). Each
Selling Stockholder agrees that (i) the Additional Shares represented by the
certificates held in custody pursuant to the Custody Agreement are subject to
the interests of the Underwriters, the Company and each other Selling
Stockholder, (ii) the arrangements made by the Selling Stockholders for such
custody are, except as specifically provided in the Custody Agreement,
irrevocable, and (iii) the obligations of the Selling Stockholders hereunder and
under the Custody Agreement shall not be terminated by any act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of any
Selling Stockholder or the occurrence of any other event. If any Selling
Stockholder shall die or be incapacitated or if any other event shall occur
before the delivery of the Additional Shares hereunder, certificates for the
Additional Shares of such Selling Stockholder shall be delivered to the
Underwriters by the Attorneys-in-Fact in accordance with the terms and
conditions of this Agreement and the Custody Agreement as if such death or
incapacity or other event had not occurred, regardless of whether or not the
Attorneys-in-Fact or any Underwriter shall have received notice of such death,
incapacity or other event. Each Attorney-in-Fact is authorized, on behalf of
each of the Selling Stockholders, to execute this Agreement and any other
documents necessary or desirable in connection with the sale of the Additional
Shares to be sold

4
<PAGE>

hereunder by such Selling Stockholder, to make delivery of the certificates for
such Additional Shares, to receive the proceeds of the sale of such Additional
Shares, to give receipts for such proceeds, to pay therefrom any expenses to be
borne by such Selling Stockholder in connection with the sale and public
offering of such Additional Shares, to distribute the balance thereof to such
Selling Stockholder, and to take such other action as may be necessary or
desirable in connection with the transactions contemplated by this Agreement.
Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement.

Each Selling Stockholder hereby agrees to waive during the period
between the date of this Agreement and the last Option Closing Date (as
hereinafter defined) all rights to acquire shares of Common Stock from the other
Selling Stockholders in the event of his death, as provided for under that
certain Option Agreement, dated as of ____________, between Moshael Straus and
Daniel Straus.

3. Terms of Public Offering; Certain Representations. (a) The Sellers
-------------------------------------------------
have been advised by you that the Underwriters propose to make a public offering
of their respective portions of the Shares as soon after the Registration
Statement and this Agreement have become effective as in your judgment is
advisable and initially to offer the Shares upon the terms set forth in the
Prospectus.

(b) NatWest Securities Limited represents and agrees that (i) it
has not offered or sold and will not offer or sell any Shares to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (whether as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
1995 or the Financial Services Act 1986 (the "UK Act"); (ii) it has complied and
will comply with all applicable provisions of the UK Act with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on, and will only
issue or pass on, in the United Kingdom any document which consists of or any
part of listing particulars, supplementary listing particulars, or any other
document required or permitted to be published by listing

5
<PAGE>

rules under Part IV of the UK Act, to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom the document may otherwise
lawfully be issued or passed on.

4. Delivery of the Shares and Payment Therefor. Delivery to the
-------------------------------------------
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on ___________, 1996 (the "Closing Date"). The place of closing
for the Firm Shares and the Closing Date may be varied by agreement between you
and the Company.

Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Attorneys-In-Fact of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Date for such Shares may be varied by agreement among you, the Company
and the Attorneys-In-Fact.

Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by certified or official bank check or checks payable in New York
Clearing House (next day) funds to the order of the Company, with respect to the
Firm Shares and the Attorneys-in-Fact, with respect to the Additional Shares.

6
<PAGE>

5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:

(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement to be declared effective before the
offering of the Shares may commence or be consummated, the Company will endeavor
to cause the Registration Statement to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement has become effective.

(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.

7
<PAGE>

statement as originally filed with the Commission and of each amendment thereto,
together with any Rule 462(b) Registration Statement, including financial
statements and all exhibits thereto, (ii) such number of conformed copies of the
registration statement as originally filed and of each amendment thereto,
together with any Rule 462(b) Registration Statement, but without exhibits, as
you may request, (iii) such number of copies of the Incorporated Documents,
without exhibits, as you may request, and (iv) four copies of the exhibits to
the Incorporated Documents.

(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus or, prior to the
end of the period of time referred to in the first sentence in subsection (f)
below, file any document which, upon filing becomes an Incorporated Document, of
which you shall not previously have been advised or to which, after you shall
have received a copy of the document proposed to be filed, you shall reasonably
object.

(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.

(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in

8
<PAGE>

order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) in order to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if requested
by you, will promptly issue a press release announcing or disclosing the matters
to be covered by the proposed amendment or supplement.

(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.

(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section ll(a) of the Act.

(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may request.

9
<PAGE>

(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company or the Selling Stockholders to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the Representatives for all out-of-pocket expenses (including fees and expenses
of counsel for the Underwriters) incurred by you in connection herewith.

(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.

(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.

(m) Except as provided in this Agreement, the Company will not
sell, contract to sell or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(other than Common Stock issued pursuant to employee benefit plans, stock
options plans or other employee compensation plans existing on the date hereof),
or grant any options or warrants to purchase Common Stock (other than the grant
of options pursuant to option plans existing on the date hereof, consistent with
past practice), for a period of 90 days after the date of the Prospectus,
without the prior written consent of Smith Barney Inc.

(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.

(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.

10
<PAGE>

(p) The Company will use its best efforts to have the Shares
listed, subject to notice of issuance, on the New York Stock Exchange on or
before the Closing Date.

6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders agrees with the several Underwriters as follows:

(a) Such Selling Stockholder will cooperate to the extent
necessary to cause the Registration Statement to become effective at the
earliest possible time.

(b) Such Selling Stockholder will pay all Federal and other
taxes, if any on the transfer or sale of the Additional Shares, if any, being
sold by the Selling Stockholder to the Underwriters.

(c) Such Selling Stockholder will do or perform all things
required to be done or performed by the Selling Stockholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all conditions
precedent to the delivery of the Additional Shares pursuant to this Agreement.

(d) Such Selling Stockholder has executed or will execute a
"lock-up" letter as provided in Section 5(n) above and will not sell, contract
to sell or otherwise dispose of any Common Stock, except for the sale of
Additional Shares to the Underwriters pursuant to this Agreement, prior to the
expiration of 90 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc.

(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.

(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations or of any change in information relating to such Selling Stockholder
or the Company or any new information relating to the Company or relating to any
matter stated in the

11
<PAGE>

Prospectus or any amendment or supplement thereto which comes to the attention
of such Selling Stockholder that suggests that any statement made in the
Registration Statement or the Prospectus (as then amended or supplemented, if
amended or supplemented) is or may be untrue in any material respect or that the
Registration Statement or Prospectus (as then amended or supplemented, if
amended or supplemented) omits or may omit to state a material fact or a fact
necessary to be stated therein in order to make the statements therein not
misleading in any material respect, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented, if amended or supplemented) in
order to comply with the Act or any other law.

7. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:

(a) The Registration Statement has (i) been prepared by the
Company in conformity with the requirements of the Act, (ii) been filed with the
Commission under the Act and (iii) become effective under the Act. Copies of
such Registration Statement have been delivered by the Company to you as the
Representatives of the Underwriters. The Commission has not issued any order
preventing or suspending the use of any Prospectus.

(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the Act
and do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the applicable
filing date (as to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information furnished
to the Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.

12
<PAGE>

Commission, as the case may be, conformed in all material respects to the
requirements of the Act or the Exchange Act, as applicable, and none of such
documents contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and any further documents so filed and incorporated by
reference in the Prospectus, when such documents become effective or are filed
with the Commission, as the case may be, will conform in all material respects
to the requirements of the Act or the Exchange Act, as applicable, and will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from any document incorporated by reference
in the Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.

(d) The Company and each of its Subsidiaries (such term having
the meaning set forth in Rule 405 under the Act) have been duly incorporated or
organized and are validly existing as corporations or partnerships in good
standing under the laws of their respective jurisdictions of incorporation or
organization, are duly qualified to do business and are in good standing as
foreign corporations or partnerships in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the condition, financial or
otherwise, or in the earnings or business affairs of the Company and its
Subsidiaries considered as one enterprise (a "Material Adverse Effect"); the
Company and each of its Subsidiaries have all power and authority necessary to
own or hold their respective properties and to conduct the businesses in which
they are engaged.

(e) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-

13
<PAGE>

assessable and conform to the description thereof contained in the Prospectus;
and all of the issued shares of capital stock or partnership interests of each
Subsidiary of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable and (except for directors' qualifying shares
or as disclosed in the Prospectus) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims, except
as disclosed in the Prospectus.

(f) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein will be duly
and validly issued, fully paid and non-assessable and the Shares will conform to
the description thereof contained in the Prospectus.

(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Subsidiaries is subject, nor will such actions result in
any violation of the provisions of the charter or by-laws or other
organizational documents of the Company or any of its Subsidiaries or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its Subsidiaries or any of
their properties or assets; and except for the registration of the Shares under
the Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of the Shares
by the Underwriters, no consent, approval, authorization or order of, or filing
or registration with, any such court or governmental agency or body (except such
as have been obtained, including without limitation, approval from the State of
Connecticut with respect to the "change of control" that is deemed to be
affected by the sale of Shares by the Company) is required for the execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby.

(h) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the Company
to file a registration statement under the Act with respect to any securities
of the

14
<PAGE>

Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or except as described in the Prospectus in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.

(i) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Act, other than shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee compensation plans
or pursuant to outstanding options, rights or warrants.

(j) Neither the Company nor any of its Subsidiaries has
sustained, since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, except for such losses or interferences that have not had, whether
individually or in the aggregate, a Material Adverse Effect; and, since such
date, there has not been any change in the capital stock or long-term debt of
the Company or any of its Subsidiaries or any Material Adverse Effect, or any
development involving a prospective Material Adverse Effect, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its Subsidiaries, otherwise than as set forth
or contemplated in the Prospectus.

(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus present fairly the financial
position of the entities purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved.

(l) KPMG Peat Marwick, LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or is
incorporated by reference therein and who have delivered the initial letter
referred to in Section 10(g) hereof, are independent public accountants as
required by the Act.

15
<PAGE>

(m) Deloitte & Touche, LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or is
incorporated by reference therein and who have delivered the initial letter
referred to in Section 10(g) hereof, are independent public accountants as
required by the Act.

(n) Coopers & Lybrand, LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or is
incorporated by reference therein and who have delivered the initial letter
referred to in Section 10(g) hereof, are independent public accountants as
required by the Act.

(o) Landa & Altsher, P.C., who have certified certain financial
statements of the ADS Group, whose report appears in the Prospectus or is
incorporated by reference therein and who have delivered the initial letter
referred to in Section 10(g) hereof, are independent public accountants as
required by the Act.

(p) Except as set forth in the Registration Statement, the
Company and each of its Subsidiaries have good and marketable title in fee
simple to all real property owned by them and described in the Registration
Statement, and good and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and defects, except for
such liens, encumbrances and defects that, individually or in the aggregate,
would not have a Material Adverse Effect and do not materially interfere with
the use made thereof by the Company and its Subsidiaries; and all real property
and buildings held under lease by the Company and its Subsidiaries are held by
them under valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made thereof by the Company and
its Subsidiaries.

(q) The Company and each of its Subsidiaries maintains reasonably
adequate insurance or has reserved reasonable amounts for non-insured risks.

(r) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its Subsidiaries
is a party or of which any property or assets of the Company or any of its
Subsidiaries is the subject which, if determined adversely to the Company or any
of its Subsidiaries, could, whether individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect; and to the

16
<PAGE>

best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.

(s) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.

(t) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the Registration
Statement by the Act which have not been described in the Prospectus or filed as
exhibits to the Registration Statement or incorporated therein by reference as
permitted by the Act.

(u) Neither the Company nor any Subsidiary has violated any
safety or similar law applicable to its business, nor any Federal or state law
relating to discrimination in the hiring, promotion or pay of employees, nor any
applicable Federal or state wages and hours law which in each case, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

(v) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required to be
described in the Prospectus which is not so described.

(w) No labor disturbance by the employees of the Company or any
of its Subsidiaries exists or, to the knowledge of the Company, is imminent
which is reasonably expected to have a Material Adverse Effect and the Company
is not aware of any existing or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors which is reasonably
expected to have a Material Adverse Effect.

(x) The Company has filed or caused to be filed all federal,
state and local income and franchise tax returns required to be filed through
the date hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its Subsidiaries which has
had (nor does the Company have any knowledge of any tax deficiency that has been
or could reasonably be asserted against the Company or any of its Subsidiaries
which, if determined adversely would, individually or in the aggregate, have) a
Material Adverse

17
<PAGE>

Effect; all material tax liabilities are adequately provided for on the books of
the Company and its Subsidiaries.

(y) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be disclosed in
the Prospectus, the Company has not declared or paid any dividend on its capital
stock.

(z) The Company maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any difference.

(aa) Neither the Company nor any of its Subsidiaries (i) is in
violation of its charter, by-laws or other organizational documents, (ii) is in
default in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject, except for such defaults that would not,
whether individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect, (iii) is in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject (including all laws, rules and regulations of the United
States and the States of Connecticut, Illinois, New Jersey, Ohio, Pennsylvania,
Rhode Island, Vermont, Virginia, West Virginia and Wisconsin governing
organizations that provide long-term care and specialized health care services),
except for such violations that would not have a Material Adverse Effect or (iv)
has failed to obtain any license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its property
or to the conduct of its business, except for such failures that would not,
whether individually or in the aggregate, have a Material Adverse Effect. Except
as set forth in the Prospectus, all of the facilities operated by the Company

18
<PAGE>

are eligible to participate in the Medicare and Medicaid programs.

(bb) Except as disclosed to you in environmental reports, copies
of which have been delivered to you, or as disclosed in the Prospectus (i) the
property, assets and operations of the Company and each of its Subsidiaries
comply in all material respects with all applicable Environmental Laws (as
hereinafter defined), except to the extent that failure to comply with such
Environmental Laws would not have, individually or in the aggregate (taking into
consideration any other potential liability pursuant to the other clauses of
this subsection (bb)), an Environmental Material Adverse Effect (as hereinafter
defined), (ii) to the knowledge of the Company after reasonable inquiry, none of
the property, assets or operations of the Company or any Subsidiary is the
subject of any Federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous Materials (as
hereinafter defined) into the environment or that is in contravention of any
Federal, state or local law, order or regulation that could reasonably be
expected to have, individually or in the aggregate (taking into consideration
any other potential liability pursuant to the other clauses of this subsection
(bb)), an Environmental Material Adverse Effect, (iii) none of the Company or
any of its Subsidiaries has received any notice or claim, nor are there pending,
threatened or reasonably anticipated lawsuits against them, with respect to
violations of an Environmental Law or in connection with any release of any
Hazardous Materials into the environment that could reasonably be expected to
have, individually or in the aggregate (taking into consideration any other
potential liability pursuant to the other clauses of this subsection (bb)), an
Environmental Material Adverse Effect and (iv) none of the Company or any of its
Subsidiaries has any contingent liability in connection with any release of any
Hazardous Materials into the environment that could reasonably be expected to
have, individually or in the aggregate (taking into consideration any other
potential liability pursuant to the other clauses of this subsection (bb)), an
Environmental Material Adverse Effect. As used herein, "Environmental Laws"
means any Federal, state, territorial, provincial or local law, common law
doctrine, rule, order, decree, judgment, injunction, license, permit or
regulation relating to environmental matters, "Environmental Material Adverse
Effect" means a liability or liabilities under this subsection (bb) involving in
the aggregate expenses greater

19
<PAGE>

than $2,500,000 to the Company and its Subsidiaries taken as a whole, and
"Hazardous Materials" means those substances that are regulated by or the
release of which forms the basis of liability under any Environmental Laws.

(cc) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.

(dd) The Company has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares, except for any actions that do not constitute a
violation of any law, rule, regulation or ordinance.

(ee) This Agreement has been duly and validly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with the terms
herein.

8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder represents and warrants to each Underwriter that:

(a) Such Selling Stockholder now has, and on the Closing Date and
any Option Closing Date will have, valid and marketable title to the Additional
Shares to be sold by such Selling Stockholder, free and clear of any lien,
claim, security interest or other encumbrance, including, without limitation,
any restriction on transfer.

(b) Such Selling Stockholder now has, and on the Closing Date and
any Option Closing Date will have, full legal right, power and authorization,
and any approval required by law, to sell, assign transfer and deliver such
Additional Shares in the manner provided in this Agreement, and upon delivery of
and payment for such Additional Shares hereunder, the several Underwriters will
acquire valid and marketable title to such Additional Shares free and clear of
any lien, claim, security interest, or other encumbrance.

20
<PAGE>

Selling Stockholder and are the valid and binding agreements of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with
their terms.

(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act and the Exchange Act or such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) or conflicts or will conflict with or constitutes or
will constitute a breach of, or default under, or violates or will violate, any
agreement, indenture or other instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is or may be bound or to which any of
such Selling Stockholder's property or assets is subject, or any statute, law,
rule, regulation, ruling, judgment, injunction, order or decree applicable to
such Selling Stockholder or to any property or assets of such Selling
Stockholder.

(e) The Registration Statement and the Prospectus, insofar as
they relate to such Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.

(f) Such Selling Stockholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

(g) The representations and warranties of such Selling
Stockholder in the Custody Agreement are, and on the Closing Date and any Option
Closing Date will be, true and correct.

(h) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of

21
<PAGE>

the Shares, except for the lock-up arrangements described in the Prospectus.

9. Indemnification and Contribution. (a) The Company and each Selling
--------------------------------
Stockholder (subject to the last sentence of this Section 9(a)), jointly and
severally, agree to indemnify and hold harmless each of you and each other
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Company or any Selling Stockholder may
otherwise have. Notwithstanding the foregoing, the Selling Stockholders shall
provide indemnity pursuant to this Section if and only if Additional Shares are
purchased pursuant to the over-allotment option.

22
<PAGE>

(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph,

23
<PAGE>

and any such controlling person from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.

(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, each Selling Stockholder, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholders to each Underwriter, but only with
respect to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, any Selling Stockholder, or
any such controlling person based on the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, the Selling Stockholders, and
any such controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which any Underwriter may otherwise have.

(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraph (a) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other hand
from the offering of the Shares, or (ii) if the allocation provided by

24
<PAGE>

clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company,
the Selling Stockholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the Selling Stockholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.

(e) The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (d) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set

25
<PAGE>

forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule II hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof) and not joint.

(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.

(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholders or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any

26
<PAGE>

person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.

10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:

(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement to be declared effective before the
offering of the Shares may commence or be consummated, the Registration
Statement shall have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
satisfaction.

(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company or any Selling
Stockholder which makes any statement made in the Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in your opinion, as Representatives of the several Underwriters,
materially adversely affect the market for the Shares.

27
<PAGE>

(c) You shall have received on the Closing Date, an opinion of
Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company and the
Selling Stockholders, dated the Closing Date and addressed to you, as
Representatives of the several Underwriters, in the form set forth on Exhibit A
attached hereto.

(d) You shall have received on the Closing Date, an opinion of
Bradford C. Burkett, General Counsel to the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, in the form
set forth on Exhibit B attached hereto.

(e) You shall have received on the Closing Date, the following
opinions dated the Closing Date and addressed to you, as Representatives of the
several Underwriters, in the form set forth on Exhibit C attached hereto:

(i) Murphy & Desmond, S.C.
(ii) Winston & Strawn
(iii) Wolff & Samson, P.C.
(iv) McNees, Wallace & Nurick
(v) Benesch, Friedlander, Coplan & Aronoff
(vi) Susman, Duffy & Segaloff, P.C.
(vii) Steptoe & Johnson
[Counsel for new jurisdictions]

(f) You shall have received on the Closing Date an opinion of
Willkie, Farr & Gallagher, counsel for the Underwriters, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters, in the
form set forth on Exhibit D attached hereto.

(g) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from each of KPMG Peat Marwick, LLP, Deloitte & Touche, LLP,
Coopers & Lybrand LLP, and Landa Altsher, P.C., independent certified public
accountants, substantially in the forms heretofore approved by you.

(h)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company

28
<PAGE>
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), except as may otherwise be stated
in the Registration Statement and Prospectus (or any amendment or supplement
thereto), any material adverse change in the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), that are material to the
Company and the Subsidiaries, taken as a whole, other than those reflected in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto); and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(h) and in Section 10(i) hereof.

(i) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date.

(j) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholders to the effect set forth
in this Section 10(j) and in Section 10(k) hereof.

(k) The Selling Stockholders shall not have failed at or prior to
the Closing Date to have performed or complied with any of their agreements
herein contained and required to be performed or complied with by them hereunder
at or prior to the Closing Date.

29
<PAGE>

(l) Prior to the Closing Date the Shares shall have been listed,
subject to notice of issuance, on the New York Stock Exchange.

(m) The Company and the Selling Stockholders shall have delivered
the "lock-up letters" described in Section 5(n) and Section 6(d).

(n) The Sellers shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have requested.

All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.

Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Stockholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company, the Selling Stockholders
or the particular Selling Stockholder, as the case may be, to each Underwriter
as to the statements made therein.

The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (j) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c) through
(f) shall be revised to reflect the sale of Additional Shares.

11. Expenses. Except as set forth in Section 6(b), the Company agrees to
pay the following costs and expenses and all other costs and expenses incident
to the performance by it and the Selling Stockholders of their obligations
hereunder: (i) the preparation, printing or reproduction, and filing with the
Commission of the Registration Statement (including financial statements and
exhibits thereto), each Prepricing Prospectus, the Prospectus, and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Prepricing
Prospectus, the Prospectus, the Incorporated Documents, and all

30
<PAGE>

amendments or supplements to any of them, as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on the New York Stock Exchange;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the transportation and other expenses incurred by or on behalf of
Company representatives in connection with presentations to prospective
purchasers of the Shares; and (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and the Selling Stockholders.

12. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement to be declared effective before the offering of the
Shares may commence, when notification of the effectiveness of the Registration
Statement has been released by the Commission. Until such time as this Agreement
shall have become effective, it may be terminated by the Company, by notifying
you, or by you, as Representatives of the several Underwriters, by notifying the
Company and the Selling Stockholders.

If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to

purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule II hereto who, with your approval
and the approval of the Company, purchases Shares which a defaulting Underwriter
is obligated, but fails or refuses, to purchase.

Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.

13. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York

31
<PAGE>

Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the
International Stock Exchange of the United Kingdom and the Republic of Ireland,
Limited shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York, New Jersey or the
United Kingdom shall have been declared by either federal, state or United
Kingdom authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of which on
the financial markets of the United States or United Kingdom is such as to make
it, in your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.

14. Information Furnished by the Underwriters. The statements set forth
-----------------------------------------
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first and third paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(c) and 9 hereof.

15. Severability. If any provision of this Agreement is or becomes
------------
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.

16. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
-------------
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 411 Hackensack Avenue, Hackensack, New Jersey 07601, Attention:
Bradford C. Burkett, Senior Vice President and General Counsel; or (ii) if to
the Selling Stockholders, at 411 Hackensack Avenue, Hackensack, New Jersey
07601, Attention: Moshael J. Straus and Daniel E. Straus, or (iii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.

32
<PAGE>

This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.

17. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.

This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.

Very truly yours,

THE MULTICARE COMPANIES, INC.

By_________________________________
Name:
Title:

Each of the Selling Stockholders
named in Schedule I hereto

By_________________________________
Attorney-in-Fact

Confirmed as of the date first above
mentioned on behalf of themselves and
the other several

33
<PAGE>

Underwriters named in Schedule I
hereto.

SMITH BARNEY INC.
COWEN & COMPANY
DEAN WITTER REYNOLDS INC.
NATWEST SECURITIES LIMITED

As Representatives of the Several Underwriters

By SMITH BARNEY INC.

By_________________________________________________
Name:
Title:

34
<PAGE>

SCHEDULE I

PART A: SELLING STOCKHOLDERS

Moshael J. Straus
Daniel E. Straus

I-1
<PAGE>

SCHEDULE I

THE MULTICARE COMPANIES, INC.
<TABLE>
<CAPTION>

Number of
Underwriter Firm Shares Underwriter Firm Shares
----------- ----------- -----------------------
<S> <C> <C>
Smith Barney Inc.....................
Cowen & Company......................
Dean Witter Reynolds Inc.............
Natwest Securities Limited

-----------
Total.......... 3,000,000
-----------
</TABLE>

II-2

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

THE MULTICARE COMPANIES, INC.

(restated to reflect all amendments through June 26, 1996)
___________________________________

Adopted in Accordance with the
Provisions of Section 245 and 242 of the
Delaware General Corporation Law
___________________________________

THE MULTICARE COMPANIES, INC., a corporation organized under the

General Corporation Law of the State of Delaware (the "GCL"), certifies as

follows:

ARTICLE I

NAME

The name of the corporation (hereinafter referred to as the
"Corporation") is:

THE MULTICARE COMPANIES, INC.

ARTICLE II

ADDRESS; REGISTERED AGENT

The address of the Corporation's registered office in the State
of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of
Kent. The name of its registered agent at such address is The Prentice-
Hall Corporation System, Inc.

ARTICLE III

PURPOSES

The nature of the business and purposes to be conducted or
promoted by the Corporation are to engage in, carry on and conduct any
lawful act or activity for which corporations may be organized under the
GCL.

<PAGE>

ARTICLE IV

CAPITALIZATION

The total number of shares which the Corporation shall have
authority to issue is Seventy-seven Million (77,000,000) shares, consisting
of Seven Million (7,000,000) shares of Preferred Stock, of the par value of
One Cent ($.01) per share (hereinafter called "Preferred Stock"), and
Seventy Million (70,000,000) shares of Common Stock, of the par value of
One Cent ($.01) per share (hereinafter called "Common Stock").

ARTICLE V

RIGHTS OF STOCKHOLDERS

The designation, relative rights, preferences and limitations of
the shares of each class are as follows:

1. The shares of Preferred Stock may be issued from time to
time in one or more series of any number of shares, provided that the
aggregate number of shares issued and not cancelled of any and all such
series shall not exceed the total number of shares of Preferred Stock
hereinabove authorized, and with distinctive serial designations, all as
shall hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such shares of Preferred Stock from time to time
adopted by the Board of Directors pursuant to authority so to do which is
hereby vested in the Board of Directors. Each series of shares of
Preferred Stock (a) may have such voting powers, full or limited, or may be
without voting powers; (b) may be subject to redemption at such time or
times and at such prices; (c) may be entitled to receive dividends (which
may be cumulative or non-cumulative) at such rate or rates, on such
conditions and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series
of stock; (d) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; (e) may be made convertible
into or exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of shares of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments; (f) may be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of such series in such
amount or amounts; (g) may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or any
subsidiary, upon the issue of any additional shares (including additional
shares of such series or of any other series) and

<PAGE>

upon the payment of dividends or the making of other distributions on, and
the purchase, redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding shares of the Corporation and (h) may have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof; all as shall be stated
in said resolution or resolutions providing for the issue of such shares of
Preferred Stock. Shares of Preferred Stock of any series that have been
redeemed (whether through the operation of a sinking fund or otherwise) or
that if convertible or exchangeable, have been converted into or exchanged
for shares of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock of the same series and
may be reissued as a part of the series of which they were originally a
part or may be reclassified and reissued as part of a new series of shares
of Preferred Stock to be created by resolution or resolutions of the Board
of Directors or as part of any other series of shares of Preferred Stock,
all subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of shares of Preferred Stock.

2. Subject to the provisions of any applicable law or of the
By-laws of the Corporation, as from time to time amended, with respect to
the closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote and except as otherwise
provided by law or by the resolution or resolutions providing for the issue
of any series of shares of Preferred Stock, the holders of outstanding
shares of Common Stock shall exclusively possess voting power for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common
Stock standing in his or her name on the books of the Corporation. Except
as otherwise provided by the resolution or resolutions providing for the
issue of any series of shares of preferred stock, the holders of shares of
Common Stock shall be entitled, to the exclusion of the holders of shares
of Preferred Stock of any and all series, to receive such dividends as from
time to time may be declared by the Board of Directors. In the event of
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment shall have been made to the holders
of shares of Preferred Stock of the full amount to which they shall be
entitled pursuant to the resolution or resolutions providing for the issue
of any series of shares of Preferred Stock, the holders of shares of Common
Stock shall be entitled, to the exclusion of the holders of shares of
Preferred Stock of any and all series, to share, ratably according to the
number of shares of

<PAGE>

Common Stock held by them, in all remaining assets of the Corporation
available for distribution to its stockholders.

3. Subject to the provisions of this Restated Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration and
for such corporate purposes as the Board of Directors may from time to time
determine.

ARTICLE VI

ACTION BY STOCKHOLDERS;
STOCKHOLDERS' MEETINGS

1. Any action required or permitted to be taken by the holders
of the issued and outstanding stock of the Corporation may be effected
solely at an annual or special meeting of stockholders duly called and held
in accordance with law and this Restated Certificate of Incorporation, and
the power of stockholders, or any of them, to consent in writing, without a
meeting, to the taking of any such action is hereby specifically denied.

2. In addition to any authorization provided by law or this
Restated Certificate of Incorporation, the Board of Directors is authorized
to adopt provisions in the By-laws of the Corporation that provide the
manner by which a stockholder of the Corporation may nominate directors or
may bring any other business before an annual or special meeting of
stockholders, including without limitation provisions requiring advance
notice by such stockholder and prescribing the content thereof.

3. The annual meeting of stockholders of the Corporation for
the election of directors and the transaction of such other business as may
be brought before such meeting in accordance with this Restated Certificate
of Incorporation shall be held at such hour and on such business day in
each year as may be determined by resolution adopted by the affirmative
vote of a majority of the entire Board of Directors. If the election of
directors shall not be held on the date designated therefor or at an
adjournment of a meeting convened on such date, the Board of Directors by
resolution or resolutions adopted by the affirmative vote of a majority of
the entire Board of Directors shall cause to be held a special meeting of
stockholders for such purpose as soon thereafter as is reasonably
practicable. Special meetings of stockholders other than as above provided
may be called at any other time only at the direction of the Board of
Directors by resolution adopted by the affirmative vote of a majority of
the entire Board of

<PAGE>

Directors, or by the Chairman of the Board of Directors or by the President
of the Corporation. Annual and special meetings of stockholders shall not
be called or held otherwise than as herein provided. Except as otherwise
provided by law or by this Restated Certificate of Incorporation, at any
meeting of stockholders of the Corporation the presence in person or by
proxy of the holders of a majority in voting power of the outstanding stock
of the Corporation entitled to vote shall constitute a quorum for the
transaction of business brought before the meeting in accordance with this
Restated Certificate of Incorporation and, a quorum being present, except
as otherwise required by law, the affirmative vote of the holders of a
majority in voting power present in person or represented by proxy and
entitled to vote shall be required to effect action by stockholders.
Election of directors need not be by written ballot except to the extent
provided in the By-laws of the Corporation. At every meeting of
stockholders, the Chairman of the Board of Directors or, in the absence of
such officer, the President, or in the absence of the Chairman of the Board
of Directors and the President, such officer or other person as shall be
designated in accordance with the By-laws of the Corporation, shall act as
Chairman of the meeting. The Chairman of the meeting shall have sole
authority to prescribe the agenda and rules of order for the conduct of
each meeting of stockholders and to determine all questions arising thereat
relating to the order of business and the conduct of the meeting, except as
otherwise required by law.

ARTICLE VII

BOARD OF DIRECTORS

1. Effective at the first annual meeting of stockholders at
which directors are elected, the Board of Directors shall be divided into
three classes -- Class I, Class II and Class III -- which shall be as
nearly equal in number as possible. Each director shall serve for a term
ending on the date of the third annual meeting following the annual meeting
at which such director was elected; provided, however, that each director
-------- -------
first elected to Class I shall hold office until the annual meeting of
stockholders in 1995; each director first elected to Class II shall hold
office until the annual meeting of stockholders in 1996; and each director
first elected to Class III shall hold office until the annual meeting of
stockholders in 1997.

2. The number of directors that shall constitute the whole
Board of Directors of the Corporation shall be the

<PAGE>

number from time to time fixed in the By-laws of the Corporation, and such
number of directors and their respective classifications so fixed in such
By-laws may be changed only by the affirmative vote of a majority of the
directors in office at the time of vote, provided that any such action does
not operate to remove a director other than in the manner prescribed in
this Restated Certificate of Incorporation or the By-laws of the
Corporation. When the number of directors is changed, any increase or
decrease in the number of directorships shall be apportioned among the
classes so as to make all classes as nearly equal in number as possible.
The directors of the Corporation need not be stockholders.

3. Each director shall serve until his successor is elected and
qualified or until his death, retirement, resignation or removal. No
director may be removed during his term except for cause. Should a vacancy
occur or be created, whether arising through death, retirement, resignation
or removal of a director, such vacancy shall be filled by a majority vote
of the remaining directors. A director so elected to fill a vacancy shall
serve for the remainder of the then present term of office of the class to
which he was elected.

4. Except as otherwise provided by law or by this Restated
Certificate of Incorporation, a majority of the directors in office at the
time of a duly assembled meeting shall be necessary to constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at such meeting shall be the act of the Board of Directors.

5. In furtherance of and not in limitation of the powers
conferred by statute, the Board of Directors of the Corporation, from time
to time, may make, amend or repeal By-laws of the Corporation; provided,
that By-laws made or amended by the Board of Directors may be amended or
repealed, and that any By-laws may be made, by the stockholders of the
Corporation.

6. The By-laws may confer upon the Board of Directors powers in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon them by law, but only to the extent permitted by
law and by the provisions of this Restated Certificate of Incorporation.

<PAGE>

ARTICLE VIII

LIMITATION OF LIABILITY

1. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of
the director's duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under Section 174 of the GCL
or (d) for any transaction from which the director derived any improper
personal benefits.

2. Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.

ARTICLE IX

INDEMNIFICATION

1. To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative,
is or was a director or officer of the Corporation, or is or was serving in
any capacity at the request of the Corporation for any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise (an "Other Entity"), against judgments, fines, penalties, excise
taxes, amounts paid in settlement and costs, charges and expenses
(including attorneys' fees and disbursements). Persons who are not
directors or officers of the Corporation may be similarly indemnified in
respect of service to the Corporation or to an Other Entity at the request
of the Corporation to the extent the Board of Directors at any time
specifies that such persons are entitled to the benefits of this
Article IX.

2. The Corporation shall, from time to time, reimburse or
advance to any director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses,
including attorneys' fees

<PAGE>

and disbursements, incurred in connection with any Proceeding, in advance
of the final disposition of such Proceeding; provided, however, that, if
-------- -------
required by the GCL, such expenses incurred by or on behalf of any director
or officer or other person may be paid in advance of the final disposition
of a Proceeding only upon receipt by the Corporation of an undertaking, by
or on behalf of such director or officer (or other person indemnified
hereunder), to repay any such amount so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
of appeal that such director, officer or other person is not entitled to be
indemnified for such expenses.

3. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this
Article IX shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses
may have or hereafter be entitled under any statute, this Restated
Certificate of Incorporation, the By-laws of the Corporation, any agree-
ment, any vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in
another capacity while holding such office.

4. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this
Article IX shall continue as to a person who has ceased to be a director or
officer (or other person indemnified hereunder) and shall inure to the
benefit of the executors, administrators, legatees and distributees of such
person.

5. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of an Other
Entity, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article IX, the
By-laws or under Section 145 of the GCL or any other provision of law.

6. The provisions of this Article IX shall be a contract
between the Corporation, on the one hand, and each director and officer who
serves in such capacity at any time while this Article IX is in effect and
any other person indemnified hereunder, on the other hand, pursuant to
which the Corporation and each such director, officer, or other

<PAGE>

person intend to be legally bound. No repeal or modification of this
Article IX shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.

7. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this
Article IX shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board
of Directors, its independent legal counsel and its stockholders) to have
made a determination prior to the commencement of such action that such
indemnification or reimbursement or advancement of expenses is proper in
the circumstances nor an actual determination by the Corporation (including
its Board of Directors, its independent legal counsel and its stockholders)
that such person is not entitled to such indemnification or reimbursement
or advancement of expenses shall constitute a defense to the action or
create a presumption that such person is not so entitled. Such a person
shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.

8. Any director or officer of the Corporation serving in any
capacity for (a) another corporation of which a majority of the shares
entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation or (b) any employee benefit plan of the
Corporation or any corporation referred to in clause (a) shall be deemed to
be doing so at the request of the Corporation.

9. Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Article IX
may elect to have the right to indemnification or reimbursement or
advancement of expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to
the applicable Proceeding, to the extent permitted by law, or on the basis
of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be
made, by a notice in writing to the Corporation, at the time
indemnification or reimbursement or advancement of expenses is sought;
provided, however, that if no such notice is given, the right to
- -------- -------
indemnification or reimbursement or

<PAGE>

advancement of expenses shall be determined by the law in effect at the
time indemnification or reimbursement or advancement of expenses is sought.

IN WITNESS WHEREOF, this Restated Certificate of Incorporation having
been duly adopted in accordance with Sections 245 and 242 of the
GCL, has been signed as of July 14, 1993.

/s/ Daniel E. Straus
---------------------------------------------
Daniel E. Straus
President

Attest:

/s/ Moshael J. Straus
______________________
Moshael J. Straus
Secretary

EXHIBIT 5

[LETTERHEAD OF PAUL, WEISS, RIFKIND, WHARTON & GARRISON]

September 27, 1996

The Multicare Companies, Inc.
411 Hackensack Avenue
Hackensack, New Jersey 07601

The Multicare Companies, Inc.
Registration Statement on Form S-3
----------------------------------

Ladies and Gentlemen:

In connection with the above-captioned Registration Statement, dated

September 27, 1996 (the "Registration Statement"), filed with the Securities and

Exchange Commission pursuant to the Securities Act of 1933, as amended (the

"Act"), and the Rules and Regulations promulgated thereunder (the "Rules"), we

have been requested by The Multicare Companies, Inc., a Delaware corporation

(the "Company"), to furnish our opinion as to the legality of 3,450,000 shares

(including 3,000,000 shares (the "Company Shares") offered by the Company and up

to 450,000 shares (the "Over-Allotment Shares") offered by certain stockholders

of the Company upon exercise of the Underwriters' over-allotment option) of the

Company's Common

<PAGE>

Stock, par value $.01 per share (the "Common Stock"), registered for sale

thereunder.

In connection with the furnishing of this opinion, we have reviewed

the Registration Statement, the form of the Underwriting Agreement included as

Exhibit 1 to the Registration Statement (the "Underwriting Agreement"),

originals, or copies certified or otherwise identified to our satisfaction,

of the Company's Restated Certificate of Incorporation, as amended, and By-laws,

each as in effect on the date hereof, and records of certain of the Company's

corporate proceedings. We have also examined and relied upon representations

as to factual matters contained in certificates of officers of the Company, and

have made such other investigations of fact and law and have examined and

relied upon the originals, or copies certified or otherwise identified to our

satisfaction, of such documents, records, certificates or other instruments, and

upon such factual information otherwise supplied to us, as in our judgment are

necessary or appropriate to render the opinion expressed below. In addition,

we have assumed, without independent investigation, the genuineness of all

signatures, the authenticity of all documents submitted to us as originals and

the conformity of original documents to all documents submitted to us as

certified, photostatic, reproduced or conformed copies, the authenticity of all

such latter documents and the legal capacity of all individuals who have

executed any of the documents.

<PAGE>

Based upon the foregoing, we are of the opinion that:

1. The Company Shares, when issued, delivered and paid for as

contemplated in the Registration Statement and the Underwriting Agreement will

be duly authorized, validly issued, fully paid and nonassessable.

2. The Over-Allotment Shares have been duly authorized and validly

issued and are fully paid and nonassessable.

Our opinion expressed above is limited to the General Corporation Law

of the State of Delaware. Please be advised that no member of this firm is

admitted to practice in the State of Delaware. Our opinion is rendered only

with respect to laws and the rules, regulations and orders thereunder, which are

currently in effect.

We hereby consent to use of this opinion as an Exhibit to the

Registration Statement and to the use of our name under the heading "Legal

Matters" contained in the Prospectus included in the Registration Statement. In

giving

<PAGE>

this consent, we do not thereby admit that we come within the category of

persons whose consent is required by the Act or the Rules.

Very truly yours,

/s/ Paul, Weiss, Rifkind, Wharton & Garrison

PAUL, WEISS, RIFKIND, WHARTON & GARRISON

Exhibit 10.34

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

dated as of May 22, 1996

among

THE MULTICARE COMPANIES, INC.

SUBSIDIARY CO-BORROWERS

SUBSIDIARY GUARANTORS

THE BANKS SIGNATORY HERETO

and

THE CHASE MANHATTAN BANK, N.A.

as Agent

<PAGE>

Table of Contents

ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. . . . . . . . . . . . . . . 2
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . 2
-----------
Section 1.02. Accounting Terms . . . . . . . . . . . . . . . . . 18
----------------

ARTICLE 2. THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.01. Loans . . . . . . . . . . . . . . . . . . . . . . . 18
-----
Section 2.02. The Notes . . . . . . . . . . . . . . . . . . . . . 19
---------
Section 2.03. Purpose . . . . . . . . . . . . . . . . . . . . . . 19
-------
Section 2.04. Borrowing Procedures . . . . . . . . . . . . . . . 19
--------------------
Section 2.05. Prepayments and Conversions . . . . . . . . . . . . 20
---------------------------
Section 2.06. Interest Periods; Renewals . . . . . . . . . . . . 20
--------------------------
Section 2.07. Changes of Commitments . . . . . . . . . . . . . . 20
----------------------
Section 2.08. Certain Notices . . . . . . . . . . . . . . . . . . 20
---------------
Section 2.09. Minimum Amounts . . . . . . . . . . . . . . . . . . 21
---------------
Section 2.10. Interest . . . . . . . . . . . . . . . . . . . . . 21
--------
Section 2.11. Fees . . . . . . . . . . . . . . . . . . . . . . . 22
----
Section 2.12. Payments Generally . . . . . . . . . . . . . . . . 22
------------------
Section 2.13. Restatement . . . . . . . . . . . . . . . . . . . . 23
-----------

ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC. . . . . . . . . . . . . 23
Section 3.01. Additional Costs . . . . . . . . . . . . . . . . . 23
----------------
Section 3.02. Limitation on Types of Loans . . . . . . . . . . . 25
----------------------------
Section 3.03. Illegality . . . . . . . . . . . . . . . . . . . . 25
----------
Section 3.04. Certain Conversions pursuant to Sections 3.01 and
-------------------------------------------------
3.03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----
Section 3.05. Certain Compensation . . . . . . . . . . . . . . . 26
--------------------

ARTICLE 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . 27
Section 4.01. Documentary Conditions Precedent . . . . . . . . . 27
--------------------------------
Section 4.02. Additional Conditions Precedent . . . . . . . . . . 29
-------------------------------
Section 4.03. Deemed Representations . . . . . . . . . . . . . . 29
----------------------

ARTICLE 5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 30
Section 5.01. Organization, Good Standing and Due Qualification . 30
-------------------------------------------------
Section 5.02. Power and Authority; No Conflicts . . . . . . . . . 30
---------------------------------
Section 5.03. Legally Enforceable Agreements . . . . . . . . . . 30
------------------------------
Section 5.04. Litigation . . . . . . . . . . . . . . . . . . . . 30
----------
Section 5.05. Financial Statements . . . . . . . . . . . . . . . 31
--------------------
Section 5.06. Ownership and Liens . . . . . . . . . . . . . . . . 31
-------------------
Section 5.07. Taxes . . . . . . . . . . . . . . . . . . . . . . . 31
-----
Section 5.08. ERISA . . . . . . . . . . . . . . . . . . . . . . . 32
-----
Section 5.09. Subsidiaries and Ownership of Stock . . . . . . . . 32
-----------------------------------
Section 5.10. Credit Arrangements . . . . . . . . . . . . . . . . 32
-------------------
Section 5.11. Operation of Business . . . . . . . . . . . . . . . 33
---------------------

<PAGE>

Section 5.12. Operating Agreements and Leases . . . . . . . . . . 33
-------------------------------
Section 5.13. Health Care Facilities . . . . . . . . . . . . . . 33
----------------------
Section 5.14. Hazardous Materials . . . . . . . . . . . . . . . . 33
-------------------
Section 5.15. No Default on Outstanding Judgments or Orders . . . 34
---------------------------------------------
Section 5.16. No Defaults on Other Agreements . . . . . . . . . . 34
-------------------------------
Section 5.17. Labor Disputes and Acts of God . . . . . . . . . . 34
------------------------------
Section 5.18. Governmental Regulation . . . . . . . . . . . . . . 34
-----------------------
Section 5.19. No Forfeiture . . . . . . . . . . . . . . . . . . . 35
-------------
Section 5.20. Solvency . . . . . . . . . . . . . . . . . . . . . 35
--------
Section 5.21. Senior Indebtedness . . . . . . . . . . . . . . . . 35
-------------------

ARTICLE 6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 36
Section 6.01. Maintenance of Existence . . . . . . . . . . . . . 36
------------------------
Section 6.02. Conduct of Business . . . . . . . . . . . . . . . . 36
-------------------
Section 6.03. Maintenance of Properties . . . . . . . . . . . . . 36
-------------------------
Section 6.04. Maintenance of Records . . . . . . . . . . . . . . 36
----------------------
Section 6.05. Maintenance of Insurance . . . . . . . . . . . . . 36
------------------------
Section 6.06. Compliance with Laws . . . . . . . . . . . . . . . 37
--------------------
Section 6.07. Right of Inspection . . . . . . . . . . . . . . . . 37
-------------------
Section 6.08. Reporting Requirements . . . . . . . . . . . . . . 37
----------------------
Section 6.09. Additional Subsidiary Guarantors . . . . . . . . . 40
--------------------------------

ARTICLE 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 41
Section 7.01. Debt . . . . . . . . . . . . . . . . . . . . . . . 41
----
Section 7.02. Guaranties, Etc . . . . . . . . . . . . . . . . . . 42
---------------
Section 7.03. Liens . . . . . . . . . . . . . . . . . . . . . . . 42
-----
Section 7.04. Leases . . . . . . . . . . . . . . . . . . . . . . 44
------
Section 7.05. Investments . . . . . . . . . . . . . . . . . . . . 44
-----------
Section 7.06. Dividends . . . . . . . . . . . . . . . . . . . . . 45
---------
Section 7.07. Sale of Assets . . . . . . . . . . . . . . . . . . 46
--------------
Section 7.08. Stock of Subsidiaries, Etc . . . . . . . . . . . . 46
--------------------------
Section 7.09. Transactions with Affiliates . . . . . . . . . . . 46
----------------------------
Section 7.10. Mergers, Etc . . . . . . . . . . . . . . . . . . . 47
------------
Section 7.11. Acquisitions . . . . . . . . . . . . . . . . . . . 47
------------
Section 7.12. No Activities Leading to Forfeiture . . . . . . . . 47
-----------------------------------
Section 7.13. Capital Expenditures . . . . . . . . . . . . . . . 47
--------------------
Section 7.14. Amendments or Waivers of Certain Documents . . . . 47
------------------------------------------
Section 7.15. Rights under Other Agreements . . . . . . . . . . . 48
-----------------------------
Section 7.16. Restrictions . . . . . . . . . . . . . . . . . . . 48
------------

ARTICLE 8. FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . 49
Section 8.01. Interest Coverage Ratio . . . . . . . . . . . . . . 49
-----------------------
Section 8.02. Senior Interest Coverage Ratio . . . . . . . . . . 49
------------------------------
Section 8.03. Minimum Net Worth . . . . . . . . . . . . . . . . . 49
-----------------
Section 8.04. Leverage Ratio . . . . . . . . . . . . . . . . . . 49
--------------
Section 8.05. Current Ratio . . . . . . . . . . . . . . . . . . . 49
-------------

<PAGE>

Section 8.06. Tangible Free Assets . . . . . . . . . . . . . . . 49
--------------------
Section 8.07. Modified Leverage Ratio . . . . . . . . . . . . . . 49
-----------------------

ARTICLE 9. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 49
Section 9.01. Events of Default . . . . . . . . . . . . . . . . . 49
-----------------

ARTICLE 10. UNCONDITIONAL GUARANTY. . . . . . . . . . . . . . . . . . 52
Section 10.01. Guarantied Obligations . . . . . . . . . . . . . . 52
----------------------
Section 10.02. Performance Under This Agreement . . . . . . . . . 53
--------------------------------
SECTION 10.03. LIMITATION ON GUARANTY . . . . . . . . . . . . . . 53
----------------------
Section 10.04. Waivers . . . . . . . . . . . . . . . . . . . . . 53
-------
Section 10.05. Releases . . . . . . . . . . . . . . . . . . . . . 55
--------
Section 10.06. Marshaling . . . . . . . . . . . . . . . . . . . . 55
----------
Section 10.07. Liability . . . . . . . . . . . . . . . . . . . . 55
---------
Section 10.08. Unconditional Obligation . . . . . . . . . . . . . 56
------------------------
Section 10.09. Election to Perform Obligations . . . . . . . . . 56
-------------------------------
Section 10.10. No Election . . . . . . . . . . . . . . . . . . . 56
-----------
Section 10.11. Severability . . . . . . . . . . . . . . . . . . . 56
------------
Section 10.12. Other Enforcement Rights . . . . . . . . . . . . . 57
------------------------
Section 10.13. Delay or Omission; No Waiver . . . . . . . . . . . 57
----------------------------
Section 10.14. Restoration of Rights and Remedies . . . . . . . . 57
----------------------------------
Section 10.15. Cumulative Remedies . . . . . . . . . . . . . . . 57
-------------------
Section 10.16. Survival . . . . . . . . . . . . . . . . . . . . . 57
--------

ARTICLE 11. THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.01. Appointment, Powers and Immunities of Agent . . . 58
-------------------------------------------
Section 11.02. Reliance by Agent . . . . . . . . . . . . . . . . 58
-----------------
Section 11.03. Defaults . . . . . . . . . . . . . . . . . . . . . 58
--------
Section 11.04. Rights of Agent as a Bank . . . . . . . . . . . . 59
-------------------------
Section 11.05. Indemnification of Agent . . . . . . . . . . . . . 59
------------------------
Section 11.06. Documents . . . . . . . . . . . . . . . . . . . . 60
---------
Section 11.07. Non-Reliance on Agent and Other Banks . . . . . . 60
-------------------------------------
Section 11.08. Failure of Agent to Act . . . . . . . . . . . . . 60
-----------------------
Section 11.09. Resignation or Removal of Agent . . . . . . . . . 60
-------------------------------
Section 11.10. Amendments Concerning Agency Function . . . . . . 61
-------------------------------------
Section 11.11. Liability of Agent . . . . . . . . . . . . . . . . 61
------------------
Section 11.12. Transfer of Agency Function . . . . . . . . . . . 61
---------------------------
Section 11.13. Non-Receipt of Funds by the Agent . . . . . . . . 61
---------------------------------
Section 11.14. Withholding Taxes . . . . . . . . . . . . . . . . 62
-----------------
Section 11.15. Several Obligations and Rights of Banks . . . . . 62
---------------------------------------
Section 11.16. Pro Rata Treatment of Loans, Etc . . . . . . . . . 62
--------------------------------
Section 11.17. Sharing of Payments Among Banks . . . . . . . . . 63
-------------------------------

ARTICLE 12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.01. Amendments and Waivers . . . . . . . . . . . . . . 63
----------------------
Section 12.02. Usury . . . . . . . . . . . . . . . . . . . . . . 64
-----

iii

<PAGE>

Section 12.03. Expenses . . . . . . . . . . . . . . . . . . . . . 64
--------
Section 12.04. Survival . . . . . . . . . . . . . . . . . . . . . 64
--------
Section 12.05. Assignment; Participations . . . . . . . . . . . . 64
--------------------------
Section 12.06. Notices . . . . . . . . . . . . . . . . . . . . . 65
-------
Section 12.07. Setoff . . . . . . . . . . . . . . . . . . . . . . 65
------
SECTION 12.08. JURISDICTION; IMMUNITIES . . . . . . . . . . . . . 66
Section 12.09. Table of Contents; Headings . . . . . . . . . . . 66
---------------------------
Section 12.10. Severability . . . . . . . . . . . . . . . . . . . 67
------------
Section 12.11. Counterparts . . . . . . . . . . . . . . . . . . . 67
------------
Section 12.12. Integration . . . . . . . . . . . . . . . . . . . 67
-----------
SECTION 12.13. GOVERNING LAW . . . . . . . . . . . . . . . . . . 67
Section 12.14. Confidentiality . . . . . . . . . . . . . . . . . 67
---------------
Section 12.15. Treatment of Certain Information . . . . . . . . . 67
--------------------------------
Section 12.16. Release of Certain Claims and Liens . . . . . . . 67
-----------------------------------
Section 12.17. Intercompany Debt . . . . . . . . . . . . . . . . 69
-----------------
Section 12.18. Intercompany Leases . . . . . . . . . . . . . . . 69
-------------------
Section 12.19. Reaffirmation . . . . . . . . . . . . . . . . . . 70
-------------
Section 12.20. Certain Waivers . . . . . . . . . . . . . . . . . 70
---------------
Section 12.21. Certain Subsidiary Co-Borrower Waivers and
------------------------------------------
Releases . . . . . . . . . . . . . . . . . . . . . . . . . . 70
--------

<PAGE>

EXHIBITS

Exhibit A Revolving Credit Note
Exhibit B Term Note
Exhibit C Compliance Certificate
Exhibit D Opinion of Outside Counsel to the
Consolidated Entities
Exhibit E Opinion of Local Counsel to the
Consolidated Entities
Exhibit F Third Mortgage Modification Agreement

SCHEDULES

Schedule I Commitments
Schedule II Litigation
Schedule III Subsidiaries and Affiliates
Schedule IV Credit Arrangements
Schedule V Licenses
Schedule VI Operating Agreements and Leases
Schedule VII Facilities
Schedule VIII Affiliate Transactions

<PAGE>

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 22, 1996
among THE MULTICARE COMPANIES, INC., a corporation organized under the laws
of Delaware (the "Borrower"); BREYUT CONVALESCENT CENTER, INC., a
corporation organized under the laws of New Jersey, ENCARE OF MENDHAM,
INC., a corporation organized under the laws of New Jersey, HEALTH
RESOURCES OF CEDAR GROVE, INC., a corporation organized under the laws of
New Jersey, HEALTH RESOURCES OF CINNAMINSON, INC., a corporation organized
under the laws of New Jersey, HEALTH RESOURCES OF EMERY, INC., a
corporation organized under the laws of Delaware, HEALTH RESOURCES OF
EWING, INC., a corporation organized under the laws of New Jersey, HEALTH
RESOURCES OF FAIR LAWN, INC., a corporation organized under the laws of
Delaware, HEALTH RESOURCES OF MORRISTOWN, INC., a corporation organized
under the laws of New Jersey, HEALTH RESOURCES OF RIDGEWOOD, INC., a
corporation organized under the laws of New Jersey, HEALTH RESOURCES OF
WEST ORANGE, INC., a corporation organized under the laws of Delaware,
HOLLY MANOR ASSOCIATES OF NEW JERSEY, L.P., a limited partnership organized
under the laws of Delaware, MERCERVILLE ASSOCIATES OF NEW JERSEY, L.P., a
limited partnership organized under the laws of Delaware, POMPTON
ASSOCIATES L.P., a limited partnership organized under the laws of New
Jersey, POMPTON CARE, INC., a corporation organized under the laws of New
Jersey, ROEPHEL CONVALESCENT CENTER, INC., a corporation organized under
the laws of New Jersey, THE STRAUS GROUP-OLD BRIDGE, L.P., a limited
partnership organized under the laws of New Jersey, and THE STRAUS GROUP-
RIDGEWOOD, L.P., a limited partnership organized under the laws of New
Jersey (individually a "Subsidiary Co-Borrower" and collectively the
"Subsidiary Co-Borrowers"); each of the other Subsidiaries of the Borrower
which is a signatory hereto or which shall become a party hereto from time
to time (individually a "Subsidiary Guarantor" and collectively the
"Subsidiary Guarantors" and, together with the Borrower and the Subsidiary
Co-Borrowers, the "Obligors"); each of the banks which is a signatory
hereto or which shall become a party hereto from time to time (individually
a "Bank" and collectively the "Banks"); and THE CHASE MANHATTAN BANK, N.A.,
a national banking association organized under the laws of the United
States of America, as agent for the Banks (in such capacity, together with
its successors in such capacity, the "Agent").

WHEREAS, the Borrower, the Subsidiary Co-Borrowers, the Subsidiary
Guarantors, the Banks and the Agent have entered into that certain Amended
and Restated Credit Agreement dated as of March 31, 1995 (as amended by the
First Amendment Agreement dated as of October 19, 1995 (the "First
Amendment Agreement") and as further amended by the Second Amendment
Agreement dated as of February 22, 1996 (the "Second Amendment Agreement"),
the "Existing Credit Agreement") pursuant to which the Banks have extended
credit to the Obligors evidenced by certain Promissory Notes (the "Existing
Notes") issued by the Borrower and the respective Subsidiary Co-Borrowers
and guarantied by the Subsidiary Guarantors and the other Subsidiary Co-
Borrowers;

<PAGE>

WHEREAS, the Obligors, the Banks and the Agent have entered into this
Agreement to provide for, among other things, an increase in the aggregate
Commitments to $350,000,000 and modifications of certain covenants and
definitions contained in the Existing Credit Agreement; and

WHEREAS, the Obligors have requested that the Banks make loans to the
Borrower and the respective Subsidiary Co-Borrowers, the repayment of which
will be guarantied by the Subsidiary Guarantors and the other Subsidiary
Co-Borrowers; each Obligor will receive direct economic and financial
benefits from the Debt incurred under this Agreement and the incurrence of
such Debt is in the best interests of such Obligor; and each Obligor
acknowledges that the Banks would not provide the financing hereunder but
for the joint and several obligations of such Obligor hereunder with
respect hereto.

NOW THEREFORE, the parties hereto agree as follows:

ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.

Section 1.01. Definitions. As used in this Agreement the following
-----------
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa):
---- -----

"Acceptable Acquisition" means any Acquisition which meets all of the
following conditions: (a) the aggregate consideration paid for such
Acquisition does not exceed $30,000,000 (excluding consideration consisting
of (i) capital stock of the Borrower and (ii) contingent payments based on
future operating performances so long as the aggregate of all such
contingent payments does not exceed $2,500,000); (b) such Acquisition has
been approved in good faith by the Board of Directors of the Person making
the Acquisition on an individual basis or in accordance with a master
Acquisition plan; (c) no Default or Event of Default exists or would exist
after giving effect to such Acquisition; and (d) after reviewing historical
financial statements of the business being acquired and considering the pro
forma position of the Consolidated Entities subsequent to such Acquisition,
the Borrower believes in good faith that the Consolidated Entities will
continue to be in compliance with the financial covenants contained in
Article 8 on a pro forma basis.

"Acquisition" means any transaction (excluding any transaction in
which any Consolidated Entity acquires an interest in undeveloped realty or
a project under construction, and in related regulatory approvals, so long
as such transaction is reflected in Consolidated Capital Expenditures)
pursuant to which any Consolidated Entity (a) acquires equity securities
(or warrants, options or other rights to acquire such securities) of any
Person or debt securities or instruments of any Person where such
Consolidated Entity believes that it is likely to acquire a controlling
interest in such Person or such Health Care Facility provided that in each
such case all such securities and instruments are pledged and delivered to
the Agent as collateral for the Loans and the other obligations under the
Facility Documents, (b) causes or permits

<PAGE>

any Person to be merged into any Consolidated Entity, in any case pursuant
to a merger, purchase of assets or any reorganization providing for the
delivery or issuance to the holders of such Person's then outstanding
securities, in exchange for such securities, of cash or securities of any
Consolidated Entity, or a combination thereof, or (c) purchases all or
substantially all of the business or assets of any Person or any Health
Care Facility.

"Adjusted Net Worth" means, with respect to any Guarantor, at any date
of determination thereof, the excess of (a) the amount of the "present fair
saleable value" of the assets of such Guarantor, over (b) the amount of all
"liabilities of such Guarantor, contingent or otherwise" as of the date of
such determination, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors. For the purposes of the determination of the
Adjusted Net Worth of any Guarantor in the calculation of the Maximum
Guarantied Amount for such Guarantor in respect of any Extension of Credit,
the liabilities of such Guarantor to be used in such determination pursuant
to clause (b) shall in any event include the liabilities of such Guarantor
hereunder and under the other Facility Documents in respect of all
Extensions of Credit other than the Extension of Credit in respect of which
such calculation is being made.

"Affiliate" means any Person (other than an Obligor): (a) which
directly or indirectly controls, or is controlled by, or is under common
control with, any Consolidated Entity; (b) which directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock of any
Consolidated Entity; (c) 10% or more of the voting stock of which is
directly or indirectly beneficially owned or held by any Consolidated
Entity; or (d) which is a partnership in which any Consolidated Entity is a
general partner. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.

"Agreement" means this Second Amended and Restated Credit Agreement,
as amended or supplemented from time to time. References to Articles,
Sections, Exhibits, Schedules and the like refer to the Articles, Sections,
Exhibits, Schedules and the like of this Agreement unless otherwise
indicated.

"Assumption Agreements" means the Assumption Agreements in the form of
EXHIBIT I to the Existing Credit Agreement delivered under Section 6.09.

"Availability Ratio" means, at any date of determination thereof, the
ratio of (a) Consolidated Senior Debt to (b) Consolidated EBITDA for the
four (4) most recent fiscal quarters of the Consolidated Entities ending on
or before such date. For the purposes of determining Consolidated Senior
Debt in the Availability Ratio, there shall be excluded from Debt all
obligations of any Consolidated Entity as lessee under Capital Leases. For
the purposes of determining Consolidated EBITDA in the Availability Ratio,
(a) there shall be included in Consolidated Net Income From Continuing
Operations Before Extraordinary Items net income of any Person accrued

<PAGE>

from the beginning of the period in which Consolidated Net Income From
Continuing Operations Before Extraordinary Items is being measured to the
date it became a Consolidated Entity, or to the date it merged into or
consolidated with any Consolidated Entity, or to the date substantially all
of its assets were acquired by any Consolidated Entity, (b) there shall be
excluded from Consolidated Net Income From Continuing Operations Before
Extraordinary Items net income of any Consolidated Entity, accrued from the
beginning of such period to the date it ceases to be a Consolidated Entity,
or to the date it merged into or consolidated with any other Person other
than another Consolidated Entity, or to the date substantially all of its
assets were sold to any Person other than another Consolidated Entity and
(c) there shall be included in Consolidated EBITDA all rental, depreciation
and imputed interest expense attributable to Capital Leases under which any
Consolidated Entity is lessee for such period.

"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York, New York and whenever such day
relates to a Fixed Rate Loan or notice with respect to any Fixed Rate Loan,
a day on which dealings in Dollar deposits are also carried out in the
London interbank market.

"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.

"Cash Equivalents" means: (a) direct obligations of, or obligations
fully guarantied or insured by, the United States of America or any agency
or instrumentality thereof with maturities of one year or less from the
date of acquisition; (b) commercial paper of a domestic issuer rated at
least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors
Service, Inc.; (c) time deposits or certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial
bank operating within the United States of America having capital and
surplus in excess of $500,000,000; and (d) money market or mutual funds
whose sole investments are comprised of investments permitted under the
foregoing clauses (a) through (c).

"Closing Date" means the date upon which the initial borrowing
hereunder occurs.

"Code" means the Internal Revenue Code of 1986, as amended from time
to time.

"Commitment" means any Revolving Credit Commitment or Term Loan
Commitment.

"Compliance Certificate" means the compliance certificate in the form
of EXHIBIT C to be delivered by the Borrower under the terms of this
Agreement.

<PAGE>

"Consolidated Capital Expenditures" means, with respect to any fiscal
period, the aggregate amount of expenditures made by the Consolidated
Entities to acquire or construct fixed assets, plant and equipment
(including renewals, improvements, replacements and incurrence of
obligations under Capital Leases, but excluding repairs and Acquisitions)
for such period.

"Consolidated Current Assets" means, at any date of determination
thereof, all assets of the Consolidated Entities treated as current assets,
as determined on a consolidated basis in accordance with GAAP.

"Consolidated Current Liabilities" means, at any date of determination
thereof, all liabilities of the Consolidated Entities treated as current
liabilities, as determined on a consolidated basis in accordance with GAAP.

"Consolidated Debt" means, at any date of determination thereof, the
aggregate amount of Debt of the Consolidated Entities, as determined on a
consolidated basis in accordance with GAAP.

"Consolidated EBIT" means, with respect to any fiscal period, the sum
of (a) Consolidated Net Income From Continuing Operations Before
Extraordinary Items for such period, plus (b) the aggregate amount of (i)
income taxes and (ii) Consolidated Interest Expense, to the extent that
such aggregate amount was deducted in the computation of Consolidated Net
Income From Continuing Operations Before Extraordinary Items for such
period.

"Consolidated EBITDA" means, with respect to any fiscal period, the
sum of (a) Consolidated EBIT for such period, plus (b) the aggregate amount
of depreciation, amortization and other non-cash charges, to the extent
that such amount was deducted in the computation of Consolidated EBIT for
such period.

"Consolidated Entity" means the Borrower or any Subsidiary of the
Borrower whose accounts are or are required to be consolidated or included
with the accounts of the Borrower in accordance with GAAP.

"Consolidated Funded Debt" means, at any date of determination
thereof, the aggregate amount of Funded Debt of the Consolidated Entities,
as determined on a consolidated basis in accordance with GAAP.

"Consolidated Intangible Assets" means, at any date of determination
thereof, all assets of the Consolidated Entities which would be classified
as intangibles under GAAP but in any event including, without limitation,
unamortized debt discount and expense, unamortized acquisition,
organization and reorganization expense, patents, copyrights, trademarks,
trade names, franchises, goodwill and other similar intangible assets.

<PAGE>

"Consolidated Interest Expense" means, with respect to any fiscal
period, the amount of interest accrued on, and with respect to,
Consolidated Debt (including, without limitation, amortization of debt
discount and imputed interest on Capital Leases) during such period, as
determined on a consolidated basis in accordance with GAAP.

"Consolidated Liabilities" means, at any date of determination
thereof, all liabilities of the Consolidated Entities, as determined on a
consolidated basis in accordance with GAAP.

"Consolidated Net Income" means, with respect to any fiscal period,
net income for the Consolidated Entities for such fiscal period, as
determined on a consolidated basis in accordance with GAAP.

"Consolidated Net Income From Continuing Operations Before
Extraordinary Items" means, with respect to any fiscal period, net income
from continuing operations before extraordinary items for the Consolidated
Entities for such fiscal period, as determined on a consolidated basis in
accordance with GAAP.

"Consolidated Net Worth" means, at any date of determination thereof,
all amounts which would be included under stockholders' equity on a
consolidated balance sheet of the Consolidated Entities, as determined on a
consolidated basis in accordance with GAAP.

"Consolidated Rental Expense" means, with respect to any fiscal
period, the aggregate amount of rental expense of the Consolidated Entities
incurred during such period, as determined on a consolidated basis in
accordance with GAAP.

"Consolidated Senior Debt" means, at any date of determination
thereof, the result of (a) Consolidated Debt minus (b) Consolidated
Subordinated Debt.

"Consolidated Senior Interest Expense" means, with respect to any
fiscal period, the result of (a) Consolidated Interest Expense minus (b)
the amount of interest accrued on, and with respect to, Consolidated
Subordinated Debt during such period.

"Consolidated Subordinated Debt" means, at any date of determination
thereof, the Multicare Subordinated Notes, the Multicare Subordinated
Debentures and any other Debt of the Borrower which is subordinated to all
obligations owed to the Banks on terms and conditions respecting
subordination and events of default substantially similar to the Multicare
Subordinated Debentures.

"Consolidated Tangible Free Assets" means, at any date of
determination thereof, all assets of the Consolidated Entities except (a)
cash and Cash Equivalents, (b) Consolidated Intangible Assets and (c)
assets of any Consolidated Entity if such assets are subject to any Lien
other than the Liens created by the Security Documents or Liens permitted
under clauses (b) through (h) of Section 7.03, inclusive.

<PAGE>

"Current Ratio" means, at any date of determination thereof, the ratio
of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities.

"Debt" means, with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price
of Property or services (except trade payables and accrued expenses in the
ordinary course of business); (c) the face amount of any outstanding
letters of credit issued for the account of such Person; (d) obligations
arising under acceptance facilities; (e) Guaranties of such Person; (f)
obligations secured by any Lien on Property of such Person other than
obligations secured by Liens permitted under clauses (b) through (h) of
Section 7.03, inclusive; and (g) obligations of such Person as lessee under
Capital Leases.

"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.

"Default Rate" means, with respect to the principal of any Loan and,
to the extent permitted by law, any other amount payable by any Obligor
under this Agreement or any other Facility Document, or any Note that is
not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period from and including the due
date, to, but excluding the date on which such amount is paid in full equal
to one percent (1%) above the Variable Rate as in effect from time to time
plus the Margin (if any); provided that, if the amount so in default is
principal of a Fixed Rate Loan and the due date thereof is a day other than
the last day of the Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to
but excluding the last day of the Interest Period therefor, two percent
(2%) above the interest rate for such Loan as provided in Section 2.10
hereof and, thereafter, the rate provided for above in this definition.

"Dollars" and the sign "$" mean lawful money of the United States of
America.

"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, licenses, agreements with Governmental Authorities or
other governmental restrictions relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or industrial, toxic or hazardous
substances or wastes.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.

<PAGE>

"ERISA Affiliate" means any corporation or trade or business which is
a member of any group of organizations (i) described in Section 414(b) or
(c) of the Code of which any Consolidated Entity is a member, or (ii)
solely for purposes of potential liability under Section 302(c)(11) of
ERISA and Section 412(c)(11) of the Code and the lien created under Section
302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m)
or (o) of the Code of which any Consolidated Entity is a member.

"Event of Default" has the meaning given such term in Section 9.01.

"Extension of Credit" means (a) all Loans or advances made to the
Borrower or any Subsidiary Co-Borrower under any Facility Document, (b) all
other extensions of credit to or for the benefit of the Borrower or any
Subsidiary Co-Borrower under any Facility Document and (c) to the extent
not otherwise included in the foregoing, all Senior Obligations.

"Facility Documents" means this Agreement, the Notes, the Assumption
Agreements, the Interest Rate Protection Agreements and the Security
Documents, as each may be amended from time to time.

"Federal Funds Rate" means, for any day, the rate per annum (expressed
on a 360 day basis of calculation, if the rate on Variable Rate Loans is so
calculated) equal to the weighted average of the rates on overnight federal
funds transactions as published by the Federal Reserve Bank of New York for
such day (or for any day that is not a Banking Day, for the immediately
preceding Banking Day).

"Fee Owners" means any Consolidated Entity which holds legal title to
any Health Care Facility which is operated and managed by another
Consolidated Entity.

"Fiscal Quarter Net Worth Increase Amounts" means, with respect to
each fiscal quarter of the Consolidated Entities, the sum of (a) the
greater of (i) Zero Dollars ($0) and (ii) 75% of Consolidated Net Income
for such fiscal quarter plus (b) 100% of the cash and noncash proceeds (net
of underwriting commissions and discounts and reasonable fees and expenses)
from the issuance of capital stock of the Borrower (including, without
limitation, capital stock issued upon the conversion of Consolidated
Subordinated Debt and in connection with Acceptable Acquisitions).

"Fixed Base Rate" means with respect to any Interest Period for a
Fixed Rate Loan: the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent (1%)) quoted at approximately 11:00 a.m. London
time by the principal London branch of the Reference Bank two Banking Days
prior to the first day of such Interest Period for the offering to leading
banks in the London interbank market of Dollar deposits in immediately
available funds, for a period, and in an amount, comparable to the Interest
Period and principal amount of the Fixed Rate Loan which shall be made.

<PAGE>

"Fixed Rate" means, for any Fixed Rate Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of one percent (1%)) determined by the Agent to be equal to the
quotient of (i) the Fixed Base Rate for such Loan for such Interest Period,
divided by (ii) one minus the Reserve Requirement for such Loan for such
Interest Period.

"Fixed Rate Loan" means any Loan when and to the extent the interest
rate therefor is determined on the basis of the definition "Fixed Base
Rate."

"Forfeiture Proceeding" means any action, proceeding or investigation
affecting any Consolidated Entity or any of its Affiliates before any
court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such
party that any of them is a suspect in or a target of any governmental
inquiry or investigation, which may result in an indictment of any of them
or the seizure or forfeiture of any of their respective properties.

"Funded Debt" means, with respect to any Person, at any date of
determination thereof, (a) indebtedness of such Person for borrowed money,
other than indebtedness payable on demand or within one year from such date
unless the repayment of such indebtedness shall have been accelerated other
than at the option of such Person; provided that, in any event, Funded Debt
shall include all principal outstanding under the Notes, (b) indebtedness
for the deferred purchase price of Property or services (except trade
payables and accrued expenses in the ordinary course of business), other
than indebtedness payable on demand or within one year from such date, (c)
liabilities under Guaranties of Funded Debt of any other Person, (d)
obligations secured by any Lien on the Property of such Person, other than
obligations payable on demand or within one year from such date and other
than obligations secured by Liens permitted under clauses (b) through (h)
of Section 7.03, inclusive, (e) obligations of such Person as lessee under
Capital Leases, other than obligations payable on demand or within one year
from such date and (f) any other obligations that are required by GAAP to
be shown as long term liabilities on its balance sheet.

"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 5.05 (except for immaterial changes determined
preferable by the Consolidated Entities' independent public accountants).

"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.

"Guaranty" means, with respect to any Person, guaranties, endorsements
(other than for collection in the ordinary course of business) and other
contingent obligations

<PAGE>

of such Person with respect to the obligations of any other Person
(including, but not limited to, an agreement to purchase any obligation,
stock, assets, goods or services or to supply or advance any funds, assets,
goods or services, or an agreement to maintain or cause such Person to
maintain a minimum working capital or net worth or otherwise to assure the
creditors of any such other Person against loss).

"Hazardous Materials" means any and all pollutants, contaminants,
toxic or hazardous wastes or any other substances, the removal of which is
required or the generation, manufacture, refining, production, processing,
treatment, storage, handling, transportation, transfer, use, disposal,
release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable Environmental Law.

"Health Care Facility" means a long term or specialized health care
facility owned or leased by any Consolidated Entity or any Managed Company.

"Initial Closing Date" means April 1, 1994.

"Initial Revolving Credit Commitment" means, with respect to each
Bank, the obligation of such Bank as of the date hereof to make its
Revolving Credit Loans to the Borrower under this Agreement in the
aggregate principal amount set forth in SCHEDULE I.

"Intercompany Lease" shall mean any written agreement giving any
Consolidated Entity the right to use, occupy or operate a Health Care
Facility owned by another Consolidated Entity, whether now existing or
hereinafter entered into.

"Interest Coverage Ratio" means, at any date of determination thereof,
the ratio of (a) Consolidated EBIT for the most recently ended four (4)
fiscal quarters to (b) Consolidated Interest Expense for such most recently
ended four (4) fiscal quarters.

"Interest Period" means, with respect to any Fixed Rate Loan, the
period commencing on the date such Loan is made, converted from another
type of Loan or renewed, as the case may be, and ending, as the Borrower
may select pursuant to Section 2.06: on the numerically corresponding day
in the first, second, third, or sixth calendar month thereafter, provided
that each such Interest Period which commences on the last Banking Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end
on the last Banking Day of the appropriate calendar month.

"Interest Rate Protection Agreement" means, with respect to any
Person, an interest rate swap, cap or collar agreement or similar
arrangement between one or more Banks and a Consolidated Entity providing
for the transfer or mitigation of interest risks either generally or under
specific contingencies.

<PAGE>

"Lending Office" means, for each Bank and for each type of Loan, the
lending office of such Bank (or of an affiliate of such Bank) designated as
such for such type of Loan on its signature page hereof or such other
office of such Bank (or of an affiliate of such Bank) as such Bank may from
time to time specify to the Agent and the Borrower as the office by which
its Loans of such type are to be made and maintained.

"Leverage Ratio" means, at any date of determination thereof, the
ratio of (a) the result of (i) Consolidated Liabilities minus (ii)
Consolidated Subordinated Debt to (b) the sum of (i) Consolidated Net Worth
plus (ii) Consolidated Subordinated Debt.

"Licenses" means any and all licenses, certificate of need, operating
permits, franchises, and other licenses, authorizations, certifications,
permits, or approvals issued by, or on behalf of, any Governmental
Authority, now existing or at any time hereafter issued, with respect to
the acquisition, construction, renovation, expansion, leasing, ownership or
operation of any Health Care Facility or related facilities or the
participation or eligibility for participation in any third party payment
or reimbursement programs, including, without limitation, any and all
operating licenses issued by any state Governmental Authority, any and all
pharmaceutical licenses and other licenses related to the purchase,
dispensing, storage, prescription or use of drugs, medications, and other
"controlled substances", any and all licenses relating to the operation of
food or beverage facilities or amenities, if any, and any and all
certifications and eligibility for participation in Medicare, Medicaid,
CHAMPUS, Blue Cross or Blue Shield, or any of the Managed Care Plans, as
the same may from time to time be amended, renewed, restated, reissued,
restricted, supplemented or otherwise modified.

"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other similar encumbrance or right
of others, or any agreement to give any of the foregoing.

"Loan" means any loan made by a Bank pursuant to Section 2.01.

"Managed Care Plans" means any health maintenance organization,
preferred provider organization, individual practice association,
competitive medical plan, or similar arrangement, entity, organization, or
Person.

"Managed Company" means Normandy II, Inc. and Old Bridge Care Center,
Inc. and any other Person not a Consolidated Entity receiving management
services under Operating Agreements from time to time.

"Management Fees" means, with respect to any fiscal period, all fees
and other amounts payable to the Consolidated Entities under Operating
Agreements with Managed Companies during such period.

<PAGE>

"Margin" means, with respect to each type of Loan, the percentage for
such type of Loan set forth below opposite the range of the Modified
Interest Coverage Ratio in the schedule below as determined as of the last
day of each fiscal quarter of the Borrower, with adjustments to become
effective on the date of receipt by the Agent of the most recent financial
statements of the Borrower and its Subsidiaries required to be furnished to
the Banks under Section 6.08:

MARGIN
------

MODIFIED INTEREST VARIABLE RATE FIXED RATE
COVERAGE RATIO LOANS LOANS

(a) less than 2.50 to 1.00 0% 1.50%

(b) equal to or greater 0% 1.25%
than 2.50 to 1.00 and
less than 3.25 to 1.00

(d) equal to or greater 0% 0.75%
than 4.00 to 1.00

"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Consolidated Entities,
taken as a whole, (b) the ability of the Borrower to perform its
obligations under each of the Facility Documents to which it is a party or
(c) the ability of the Agent or the Banks to collect the aggregate amount
of the Loans and other obligations due under the Facility Documents.

"Maximum Guarantied Amount" means, with respect to any Guarantor, at
any date of determination thereof, the sum of (a) with respect to each
Extension of Credit (or portion thereof) other than a Term Loan the
proceeds of which are used to make a Valuable Transfer to such Guarantor,
the amount of such Extension of Credit (or such portion thereof) plus (b)
with respect to each Extension of Credit (or portion thereof) the proceeds
of which are not used to make a Valuable Transfer to such Guarantor, the
lesser of (i) the outstanding amount of such Extension of Credit (or such
portion thereof) as of such date of determination and (ii) the greater of
(1) ninety-five percent (95%) of the Adjusted Net Worth of such Guarantor
at the date of such Extension of Credit and (2) ninety-five percent (95%)
of the Adjusted Net Worth of such Guarantor at the earliest of (x) such
date of determination, (y) the date of the commencement of a case under
Title 11 of the United States Code in which such Guarantor is a debtor and
(z) the date enforcement hereunder is sought.

<PAGE>

"Modified Interest Coverage Ratio" means, at any date of determination
thereof, the ratio of (a) Consolidated EBITDA for the most recently ended
four (4) fiscal quarters to (b) Consolidated Interest Expense for such most
recently ended four (4) fiscal quarters.

"Modified Leverage Ratio" means, at any date of determination thereof,
the ratio of (a) the sum of (i) Consolidated Funded Debt at such date, plus
(ii) the product of (A) Consolidated Rental Expense for the most recently
ended four (4) fiscal quarters times (B) eight (8), to (b) the sum of (i)
Consolidated EBITDA for such most recently ended four (4) fiscal quarters,
plus (ii) Consolidated Rental Expense for such most recently ended four (4)
fiscal quarters, to the extent that such amount was deducted in the
computation of Consolidated EBITDA for such period. For the purposes of
determining Consolidated EBITDA in the Modified Leverage Ratio, (a) there
shall be included in Consolidated Net Income From Continuing Operations
Before Extraordinary Items net income of any Person accrued from the
beginning of the period in which Consolidated Net Income From Continuing
Operations Before Extraordinary Items is being measured to the date it
became a Consolidated Entity, or to the date it merged into or consolidated
with any Consolidated Entity, or to the date substantially all of its
assets were acquired by any Consolidated Entity and (b) there shall be
excluded from Consolidated Net Income From Continuing Operations Before
Extraordinary Items net income of any Consolidated Entity, accrued from the
beginning of such period to the date it ceases to be a Consolidated Entity,
or to the date it merged into or consolidated with any other Person other
than another Consolidated Entity, or to the date substantially all of its
assets were sold to any Person other than another Consolidated
Entity. For the purposes of determining Consolidated Rental Expense, (a)
there shall be included in Consolidated Rental Expense rental expense of
any Person accrued from the beginning of the period in which Consolidated
Rental Expense is being measured to the date it became a Consolidated
Entity, or to the date it merged into or consolidated with any Consolidated
Entity, or to the date substantially all of its assets were acquired by any
Consolidated Entity and (b) there shall be excluded from Consolidated
Rental Expense rental expense of any Consolidated Entity, accrued from the
beginning of such period to the date it ceases to be a Consolidated Entity,
or to the date it merged into or consolidated with any other Person other
than another Consolidated Entity, or to the date substantially all of its
assets were sold to any Person other than another Consolidated Entity.

"Mortgages" means the Amended and Restated Open-End Mortgages dated as
of March 31, 1995 delivered by PHC Operating Corp. and Providence Health
Care, Inc., as amended by those certain First Mortgage Modification
Agreements dated as of October 19, 1995, as further amended by those
certain Second Mortgage Modification Agreements dated as of February 22,
1996, as further amended by the Third Mortgage Modification Agreements and
as further amended or supplemented from time to time.

<PAGE>

"Multicare Fiscal Agency Agreement" means the Fiscal Agency Agreement
dated as of March 16, 1995 between the Borrower and The Chase Manhattan
Bank, N.A., as Fiscal Agent, as in effect on the Closing Date.

"Multicare Indenture" means the Indenture dated as of November 18,
1992 between the Borrower and United Jersey Bank, as Trustee, as in effect
on the Closing Date.

"Multicare Subordinated Debentures" means the $86,250,000 7%
Convertible Subordinated Debentures due 2003 issued pursuant to the
Multicare Fiscal Agency Agreement.

"Multicare Subordinated Notes" means the $100,000,000 12.5% Senior
Subordinated Notes due 2002 issued pursuant to the Multicare Indenture.

"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Consolidated Entities or
any ERISA Affiliate and which is covered by Title IV of ERISA.

"Notes" means the Revolving Credit Notes and the Term Notes.

"Participation Agreements" means any and all third party payor
participation or reimbursement agreements now or at any time hereafter
existing for the benefit of any Consolidated Entity relating to rights to
payments or reimbursement from, and claims against, private insurers,
Managed Care Plans, employee assistance programs, Blue Cross or Blue
Shield, federal, state and local Governmental Authorities, or other public
or quasi-public insurers and third party payors, as the same may from time
to time be amended, restated, extended, supplemented or modified.

"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

"Permitted Acquisition Debt" means Debt of any Person, and any
renewals, extensions or refinancings thereof, secured by Purchase Money
Liens permitted under Section 7.01(f) (other than Debt secured by Purchase
Money Liens incurred in connection with any conditional sale or other title
retention agreement or a Capital Lease) that is secured by all or
substantially all of the Property of such Person.

"Permitted Adjustment Amount" means, with respect to each Bank, the
sum of the principal amounts of each Term Loan made by such Bank to the
Borrower and the respective Subsidiary Co-Borrower that has been prepaid in
full in connection with the sale of the Health Care Facility owned by such
Subsidiary Co-Borrower to a Person other than an Affiliate.

"Permitted Mortgage Debt" means Debt of any Person (other than Debt
secured by Purchase Money Liens), and any renewals, extensions or
refinancings thereof,

<PAGE>

permitted under Section 7.01(e) (a) the net proceeds of which are used to
prepay the Notes, (b) that is secured by all or substantially all of the
Property of such Person, (c) that has a scheduled final maturity that is at
least six months subsequent to the maturity of the Notes and (d) that
requires no more than 20% of the principal of such Debt to be paid prior to
the maturity of the Notes.

"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.

"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Consolidated
Entities or any ERISA Affiliate and which is covered by Title IV of ERISA,
other than a Multiemployer Plan.

"Pledge Agreement" means the Amended and Restated Pledge Agreement in
the form of EXHIBIT G to be delivered by each of the Obligors under the
terms of this Agreement, as amended or supplemented from time to time.

"Prime Rate" means that rate of interest from time to time announced
by the Reference Bank at its principal office as its prime commercial
lending rate.

"Principal Office" means the principal office of the Agent, presently
located at 1 Chase Manhattan Plaza, New York, New York 10081.

"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.

"Purchase Money Lien" means a Lien on any Property acquired by any
Consolidated Entity or placed on any Property in order to finance the
acquisition or construction of such Property or the construction of
improvements located on such Property, or the assumption of any Lien on
Property existing at the time of the acquisition of such Property or of the
Person holding such Property or a Lien incurred in connection with any
conditional sale or other title retention agreement or a Capital Lease.

"Reference Bank" means The Chase Manhattan Bank, N.A. (or if The Chase
Manhattan Bank, N.A. no longer quotes on the London interbank market, such
successor leading bank in the London interbank market which shall be
reasonably appointed by the Agent).

"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time
to time.

"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time
to time.

<PAGE>

"Regulatory Change" means any change after the date of this Agreement
in United States federal, state, municipal or foreign laws or regulations
(including without limitation Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a
class of banks of which such bank is a member, of or under any United
States, federal, state, municipal or foreign laws or regulations (whether
or not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.

"Required Banks" means, at any time while no Loans are outstanding,
Banks having at least 51% of the aggregate amount of the Commitments and,
at any time while Loans are outstanding, Banks holding at least 51% of the
aggregate principal amount of the Loans.

"Reserve Requirement" means, for any Interest Period for any Fixed
Rate Loan for any Interest Period therefor, the average maximum rate at
which reserves (including any marginal, supplemental or emergency reserves)
are required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding $1,000,000,000 against in the case of Fixed Rate Loans,
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect
any other reserves required to be maintained by such member banks by reason
of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Fixed Base Rate for Fixed Rate
Loans is to be determined as provided in the definition of "Fixed Base
Rate" in this Section 1.01 or (ii) any category of extensions of credit or
other assets which include Fixed Rate Loans.

"Revolving Credit Commitment" means, with respect to each Bank, the
obligation of such Bank to make its Revolving Credit Loans to the Borrower
under this Agreement in the aggregate principal amount equal to the sum of
(a) the amount of the Initial Revolving Credit Commitment of such Bank plus
(b) the Permitted Adjustment Amount of such Bank, as such amount may be
reduced or otherwise modified from time to time.

"Revolving Credit Notes" means the promissory notes of the Borrower in
the form of EXHIBIT A hereto evidencing the Revolving Credit Loans made by
a Bank hereunder and all promissory notes delivered in substitution or
exchange therefor, as amended or supplemented from time to time.

"Revolving Credit Termination Date" means February 28, 2000.

"Securities Act" means the Securities Act of 1933, as amended.

"Security Agreement" means the Amended and Restated Security
Agreement, as amended by the First Amendment Agreement, as further amended
by the Second Amendment Agreement and as further amended or supplemented
from time to time.

<PAGE>

"Security Documents" means the Security Agreement, the Pledge
Agreement, the Mortgages and each other security document that may from
time to time be delivered to the Agent in connection herewith or therewith.

"Senior Interest Coverage Ratio" means, at any date of determination
thereof, the ratio of (a) Consolidated EBIT for the most recently ended
four (4) fiscal quarters to (b) Consolidated Senior Interest Expense for
such most recently ended four (4) fiscal quarters.

"Senior Obligations" means the unpaid principal of and interest on
(including interest accruing on or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Notes and all other obligations
and liabilities of any Obligor to the Agent or any Bank, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
this Agreement, the Notes, any other Facility Document and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, Guaranties, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to the Agent or any Bank)
or otherwise.

"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the securities or other
ownership interest having ordinary voting power for the election of
directors or other persons performing similar functions are at the time
owned directly or indirectly by such Person.

"Term Loan Commitments" means, with respect to each Bank, the
obligation of such Bank to make its Term Loans under this Agreement to the
Borrower and the respective Subsidiary Co-Borrowers set forth on SCHEDULE I
in the aggregate principal amount set forth in SCHEDULE I, as such amount
may be reduced or otherwise modified from time to time.

"Term Loan Termination Date" means February 28, 2000.

"Term Notes" means the promissory notes of the Borrower and the
respective Subsidiary Co-Borrower in the form of EXHIBIT B hereto
evidencing the Term Loans made by a Bank hereunder and all promissory notes
delivered in substitution or exchange therefor, as amended or supplemented
from time to time.

"Termination Date" means, with respect to any Revolving Credit Loan,
the Revolving Credit Termination Date and, with respect to any Term Loan,
the Term Loan Termination Date.

<PAGE>

"Third Mortgage Modification Agreements" means the Third Mortgage
Modification Agreements dated as of the date hereof between PHC Operating
Corp. or Providence Health Care, Inc. and the Agent in the form of EXHIBIT
F hereto.

"Unfunded Benefit Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all benefit liabilities
(within the meaning of Section 4001(a)(16) of ERISA) under the Plan exceeds
the fair market value of all Plan assets allocable to such benefit
liabilities, as determined on the most recent valuation date of the Plan
and in accordance with the provisions of ERISA for calculating the
potential liability of any Consolidated Entity or any ERISA Affiliate under
Title IV of ERISA.

"Valuable Transfer" means, with respect to any Guarantor, (a) all
loans, advances or capital contributions made to such Guarantor with
proceeds of Extensions of Credit, (b) all debt securities or other
obligations of such Guarantor acquired from such Guarantor or retired by
such Guarantor with proceeds of Extensions of Credit, (c) the fair market
value of all Property acquired with proceeds of Extensions of Credit and
transferred, absolutely and not as collateral, to such Guarantor, (d) all
equity securities of such Guarantor acquired from such Guarantor with
proceeds of Extensions of Credit and (e) the value of any quantifiable
economic benefits not included in clauses (a) through (d) above, but
included in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, accruing to such Guarantor as
a result of the Extensions of Credit.

"Variable Rate" means, for any day, the higher of (a) the Federal
Funds Rate for such day plus 1/4 of one percent and (b) the Prime Rate for
such day.

"Variable Rate Loan" means any Loan when and to the extent the
interest rate for such Loan is determined in relation to the Variable Rate.

Section 1.02. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with GAAP, and
all financial data required to be delivered hereunder shall be prepared in
accordance with GAAP.

ARTICLE 2. THE CREDIT.

Section 2.01. Loans. (a) Subject to the terms and conditions of
-----
this Agreement, each of the Banks severally agrees to make revolving credit
loans (the "Revolving Credit Loans") to the Borrower from time to time from
and including the date hereof to and including the Revolving Credit
Termination Date, up to but not exceeding in the aggregate principal amount
at any one time outstanding, the amount of its Revolving Credit Commitment.
On the last day of each February, May, August and November commencing on
May 31, 1998, the aggregate Initial Revolving Credit Commitments shall be
reduced by $12,500,000, such reduction to be apportioned ratably among the
Banks in accordance with each Bank's Initial Revolving Credit Commitment;
provided that such reduction shall not take place on any such date if on

<PAGE>

such date the sum of (a) Consolidated Net Worth plus (b) the aggregate
principal amount of the Multicare Subordinated Debentures then outstanding
equals or exceeds $280,000,000. If the aggregate amount of Revolving
Credit Loans shall exceed the aggregate amount of the Revolving Credit
Commitments at any time, the Borrower shall repay the Banks forthwith such
amounts as may be necessary to eliminate such excess. The Revolving Credit
Loans shall be due and payable on the Revolving Credit Termination Date.

(b) Subject to the terms and conditions of this Agreement,
each of the Banks severally agrees to make term loans (the "Term Loans") to
the Borrower and the respective Subsidiary Co-Borrower on the Closing Date,
up to but not exceeding in the aggregate principal amount, the amount of
its respective Term Loan Commitments. The Term Loans shall be due and
payable on the Term Loan Termination Date.

(c) The Loans may be outstanding as Variable Rate Loans or
Fixed Rate Loans (each a "type" of Loans) and as Revolving Credit Loans or
Term Loans (each a "class" of Loans). Each type of Loans of each Bank
shall be made and maintained at such Bank's Lending Office for such type of
Loans.

Section 2.02. The Notes. The Revolving Credit Loans of each Bank
---------
shall be evidenced by a single promissory note in favor of such Bank in the
form of EXHIBIT A, dated the Closing Date, duly completed and executed by
the Borrower. The Term Loans of each Bank shall each be evidenced by a
promissory note in favor of such Bank in the form of EXHIBIT B, dated the
Closing Date, duly completed and executed by the Borrower and the
respective Subsidiary Co-Borrower.

Section 2.03. Purpose. The Borrower and the Subsidiary Co-Borrowers
-------
shall use the proceeds of the Loans for general corporate purposes
(including, without limitation, working capital and to finance Acceptable
Acquisitions). Such proceeds shall not be used for the purpose, whether
immediate, incidental or ultimate, of buying or carrying "margin stock" in
violation of Regulation U.

Section 2.04. Borrowing Procedures. The Borrower shall give the
--------------------
Agent notice of each borrowing to be made hereunder as provided in Section
2.08, not later than 12:00 noon New York, New York time on the date of such
borrowing in the case of a borrowing of a Variable Rate Loan or 12:00 noon
New York, New York time on the Banking Day three Banking Days prior to the
date of such borrowing in case of a Fixed Rate Loan. Each Bank shall,
through its Lending Office and subject to the conditions of this Agreement,
make the amount of the Loan to be made by it on such day available to the
Agent at the Principal Office and in immediately available funds for the
account of the Agent. The amount so received by the Agent shall, subject
to the conditions of this Agreement, be made available to the Borrower, in
immediately available funds, by the Agent crediting an account of the
Borrower designated by the Borrower and maintained with the Agent at the
Principal Office.

<PAGE>

Section 2.05. Prepayments and Conversions. The Borrower shall have
---------------------------
the right to make prepayments of principal, or to convert one type of Loans
into another type of Loans, at any time or from time to time; provided
that: (a) the Borrower shall give the Agent notice of each such prepayment
or conversion as provided in Section 2.08; and (b) Fixed Rate Loans may be
prepaid or converted only on the last day of an Interest Period for such
Loans unless the Borrower agrees to provide to the Agent for the account of
each Bank compensation in accordance with Section 3.05.

Section 2.06. Interest Periods; Renewals. (a) In the case of each
--------------------------
Fixed Rate Loan, the Borrower shall select an Interest Period of any
duration in accordance with the definition of Interest Period in Section
1.01, subject to the following limitations: (i) no Interest Period may
extend beyond the respective Termination Dates for such class of Loans;
(ii) notwithstanding clause (i) above, no Interest Period shall have a
duration less than one month, and if any such proposed Interest Period
would otherwise be for a shorter period, such Interest Period shall not be
available; (iii) if an Interest Period would end on a day which is not a
Banking Day, such Interest Period shall be extended to the next Banking
Day, unless such Banking Day would fall in the next calendar month in which
event such Interest Period shall end on the immediately preceding Banking
Day; and (iv) no more than fifteen Interest Periods may be outstanding at
any one time.

(b) Upon notice to the Agent as provided in Section 2.08, the
Borrower may renew any Fixed Rate Loan on the last day of the Interest
Period therefor as the same type of Loans with an Interest Period of the
same or different duration in accordance with the limitations provided
above. If the Borrower shall fail to give notice to the Agent of such a
renewal, such Fixed Rate Loan shall automatically become a Variable Rate
Loan on the last day of the current Interest Period; provided that the
foregoing shall not prevent the conversion of any type of Fixed Rate Loan
into another type of Loan in accordance with Section 2.05.

Section 2.07. Changes of Commitments. (a) The Borrower shall have
----------------------
the right to reduce or terminate the amount of unused Revolving Credit
Commitments at any time or from time to time, provided that: (i) the
Borrower shall give notice of each such reduction or termination to the
Agent as provided in Section 2.08; and (ii) each partial reduction shall be
in an aggregate amount at least equal to $1,000,000. The Revolving Credit
Commitments once reduced or terminated may not be reinstated.

(b) The Term Loan Commitments shall be terminated on the
Closing Date and shall not be reinstated.

Section 2.08. Certain Notices. Notices by the Borrower to the Agent
---------------
of each borrowing pursuant to Section 2.04, and each prepayment or
conversion pursuant to Section 2.05 and each renewal pursuant to Section
2.06(b), and each reduction or termination of the Revolving Credit
Commitments pursuant to Section 2.07(a) shall be irrevocable and shall be
effective only if received by the Agent not later than 12:00 noon New York,
New York time, and (a) in the case of borrowings and prepayments

<PAGE>

of, conversions into and (in the case of Fixed Rate Loans) renewals of (i)
Variable Rate Loans, given the same Banking Day; and (ii) Fixed Rate Loans,
given three Banking Days prior thereto; and (b) in the case of reductions
or termination of the Revolving Credit Commitments, given the same Banking
Day. Each such notice shall specify the Loans to be borrowed, prepaid,
converted or renewed and the amount (subject to Section 2.09) and type and
class of the Loans to be borrowed, or converted, or prepaid or renewed
(and, in the case of a conversion, the type of Loans to result from such
conversion and, in the case of a Fixed Rate Loan, the Interest Period
therefor) and the date of the borrowing or prepayment, or conversion or
renewal (which shall be a Banking Day). Each such notice of reduction or
termination shall specify the amount of the Revolving Credit Commitments to
be reduced or terminated. The Agent shall promptly notify the Banks of the
contents of each such notice.

Section 2.09. Minimum Amounts. Except for borrowings which exhaust
---------------
the full remaining amount of the Commitments, prepayments or conversions
which result in the prepayment or conversion of all Loans of a particular
type or conversions made pursuant to Section 3.04, each borrowing,
prepayment, conversion and renewal of principal of Loans of a particular
type shall be in an amount not less than (i) $100,000 in the aggregate for
all Banks in the case of Variable Rate Loans and (ii) $1,000,000 in the
aggregate and in increments of $100,000 in the case of Fixed Rate Loans
unless such minimum amount is waived by the Required Banks (borrowings,
prepayments, conversions or renewals of or into Loans of different types
or, in the case of Fixed Rate Loans, having different Interest Periods at
the same time hereunder to be deemed separate borrowings, prepayments,
conversions and renewals for the purposes of the foregoing, one for each
type of Interest Period). Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of Fixed Rate Loans of each
type having concurrent Interest Periods shall be at least equal to
$1,000,000.

Section 2.10. Interest. (a) Interest shall accrue on the
--------
outstanding and unpaid principal amount of each Loan for the period from
and including the date of such Loan to but excluding the date such Loan is
due at the following rates per annum: (i) for a Variable Rate Loan, at a
variable rate per annum equal to the Variable Rate plus the Margin and (ii)
for a Fixed Rate Loan, at a fixed rate equal to the Fixed Rate plus the
Margin. If the principal amount of any Loan and any other amount payable
by any Obligor hereunder, under the Notes or under the other Facility
Documents shall not be paid when due (at stated maturity, by acceleration
or otherwise), interest shall accrue on such amount to the fullest extent
permitted by law from and including such due date to but excluding the date
such amount is paid in full at the Default Rate.

(b) The interest rate on each Variable Rate Loan shall change
when the Variable Rate changes and interest on each such Loan shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Interest on each Fixed Rate Loan shall be calculated on the basis
of a year of 360 days for the actual number of days elapsed. Promptly
after the determination of any interest rate

<PAGE>

provided for herein or any change therein, the Agent shall notify the
Borrower and the Banks.

(c) Accrued interest shall be due and payable in arrears upon
any full payment of principal or conversion and (i) for each Variable Rate
Loan, on the 1st day of each month commencing the first such date after the
making of such Loan; and (ii) for each Fixed Rate Loan, on the 1st day of
each month commencing the first such date after the making of such Loan and
on the last day of the Interest Period with respect thereto; provided that
interest accruing at the Default Rate shall be due and payable from time to
time on demand of the Agent.

Section 2.11. Fees. (a) The Borrower shall pay to the Agent for the
----
account of each Bank a commitment fee on the daily average unused Revolving
Credit Commitments of such Bank for the period from and including the date
hereof to the earlier of the date the Revolving Credit Commitments are
terminated or the Revolving Credit Termination Date at a rate per annum (i)
if the Modified Interest Coverage Ratio is less than 2.50 to 1.00, equal to
3/8 of one percent or (ii) if the Modified Interest Coverage Ratio is equal
to or greater than 2.50 to 1.00, equal to 1/4 of one percent, calculated in
each case on the basis of a year of 360 days for the actual number of days
elapsed. The accrued commitment fee shall be due and payable in arrears
upon any reduction or termination of the Revolving Credit Commitments and
on the 1st day of each July, October, January and April, commencing on the
first such date after the Closing Date.

(b) The Borrower shall pay to the Agent for its own account
the fees set forth in the fee letter dated of even date herewith between
the Borrower and the Agent.

Section 2.12. Payments Generally. All payments under this Agreement
------------------
or the Notes shall be made in Dollars in immediately available funds not
later than 12:00 noon New York, New York time on the relevant dates
specified above (each such payment made after such time on such due date to
be deemed to have been made on the next succeeding Banking Day) to the
Agent's account number 900-9-000002 maintained at the Principal Office for
the account of the applicable Lending Office of each Bank. The Agent, or
any Bank for whose account any such payment is to be made, may (but shall
not be obligated to) debit the amount of any such payment which is not made
by such time to any ordinary deposit account of the Borrower with the Agent
or such Bank, as the case may be, and any Bank so doing shall promptly
notify the Agent. The Borrower shall, at the time of making each payment
under this Agreement or the Notes, specify to the Agent the principal or
other amount payable by the Borrower under this Agreement or the Notes to
which such payment is to be applied (and in the event that it fails to so
specify, or if a Default or Event of Default has occurred and is
continuing, the Agent may apply such payment as it may elect in its sole
discretion (subject to Section 11.16)). If the due date of any payment
under this Agreement or the Notes would otherwise fall on a day which is
not a Banking Day, such date shall be extended to the next succeeding
Banking Day (unless such

<PAGE>

succeeding Banking Day falls in a subsequent calendar month, in which case
such payment shall be due on the preceding Banking Day) and interest shall
be payable for any principal so extended for the period of such extension.
Each payment received by the Agent hereunder or under any Note for the
account of a Bank shall be paid promptly to such Bank, in immediately
available funds, for the account of such Bank's Lending Office.

Section 2.13. Restatement. The terms and conditions of, and the
-----------
agreements, representations and warranties set forth in the Existing Credit
Agreement are hereby replaced and superseded in their entirety by the
terms, conditions, agreements, representations and warranties set forth in
this Agreement and the other Facility Documents and the Existing Credit
Agreement shall be of no further force and effect. Nothing contained
herein or in any of the other Facility Documents shall impair, limit or
affect the continuation of the liability of each Obligor for the Senior
Obligations heretofore incurred and the security interests, Liens and other
collateral interests heretofore granted, pledged and assigned to the Agent
by such Obligor. All loans, advances and other financial accommodations
under the Existing Credit Agreement and all other Senior Obligations of the
Obligors to the Banks outstanding and unpaid as of the date hereof pursuant
to the Existing Credit Agreement shall be deemed to be Senior Obligations
pursuant to the terms hereof and shall constitute and be deemed a Loan by
the Banks to the Borrower and the Subsidiary Co-Borrowers and shall be
repayable in accordance with the terms of this Agreement.

ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.

Section 3.01. Additional Costs. (a) The Borrower and each
----------------
respective Subsidiary Co-Borrower (as applicable) shall pay directly to
each Bank from time to time on demand such amounts as such Bank may
determine to be necessary to compensate it for any costs which such Bank
determines are attributable to its making or maintaining any Fixed Rate
Loans to the Borrower and/or such Subsidiary Co-Borrower under this
Agreement or its Notes of the Borrower and/or such Subsidiary Co-Borrower
or its obligation to make any such Loans hereunder, or any reduction in any
amount receivable by such Bank hereunder in respect of any such Loans or
such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in respect of any of
such Loans (other than taxes imposed on the overall net income or profits
of such Bank or of its Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Lending
Office, or any branch or franchise tax applicable thereto); or (ii) imposes
or modifies any reserve, special deposit, deposit insurance or assessment,
minimum capital, capital ratio or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including any of such Loans or any deposits
referred to in the definition of "Fixed Base Rate" in Section 1.01); or
(iii) imposes any other condition affecting this Agreement or its Notes (or
any of such extensions of credit or liabilities). Each Bank will notify
the Borrower of any event

<PAGE>

occurring after the date of this Agreement which will entitle such Bank to
compensation pursuant to this Section 3.01(a) as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation. If any Bank requests compensation from the Borrower or any
Subsidiary Co-Borrower under this Section 3.01(a), or under Section
3.01(c), the Borrower may, by notice to such Bank (with a copy to the
Agent), require that such Bank's Loans of the type with respect to which
such compensation is requested be converted in accordance with Section
3.04.

(b) Without limiting the effect of the foregoing provisions of
this Section 3.01, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or
other liabilities of such Bank which includes deposits by reference to
which the interest rate on Fixed Rate Loans is determined as provided in
this Agreement or a category of extensions of credit or other assets of
such Bank which includes Fixed Rate Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities or assets
which it may hold, then, if such Bank so elects by notice to the Borrower
(with a copy to the Agent), the obligation of such Bank to make or renew,
and to convert Loans of any other type into, Loans of such type hereunder
shall be suspended until the date such Regulatory Change ceases to be in
effect (and all Loans of such type held by such Bank then outstanding shall
be converted in accordance with Section 3.04).

(c) Without limiting the effect of the foregoing provisions of
this Section 3.01 (but without duplication), the Borrower and each
respective Subsidiary Co-Borrower (as applicable) shall pay directly to
each Bank from time to time on request such amounts as such Bank may
determine to be necessary to compensate such Bank for any costs which it
determines are attributable to the maintenance by it or any of its
affiliates pursuant to any law or regulation of any jurisdiction or any
interpretation, directive or request (whether or not having the force of
law and whether in effect on the date of this Agreement or thereafter) of
any court or governmental or monetary authority of capital in respect of
its Loans to the Borrower and/or such Subsidiary Co-Borrower hereunder or
its obligation to make Loans hereunder (such compensation to include,
without limitation, an amount equal to any reduction in return on assets or
equity of such Bank to a level below that which it could have achieved but
for such law, regulation, interpretation, directive or request). Each Bank
will notify the Borrower if it is entitled to compensation pursuant to this
Section 3.01(c) as promptly as practicable after it determines to request
such compensation.

(d) Determinations and allocations by a Bank for purposes of
this Section 3.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant to
subsection (c), on its costs of making or maintaining Loans or its
obligation to make Loans, or on amounts receivable by, or the rate of
return to, it in respect of Loans or such obligation, and of the additional
amounts required to compensate such Bank under this Section 3.01, shall

<PAGE>

be conclusive absent manifest error, provided that such determinations and
allocations are made on a reasonable basis.

Section 3.02. Limitation on Types of Loans. Anything herein to the
----------------------------
contrary notwithstanding, if:

(a) the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Fixed Base Rate" in Section 1.01 are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for any type of Fixed Rate
Loans as provided in this Agreement; or

(b) the Required Banks determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest
referred to in the definition of "Fixed Base Rate" in Section 1.01 upon the
basis of which the rate of interest for any type of Fixed Rate Loans is to
be determined do not adequately cover the cost to the Banks of making or
maintaining such Loans;

then the Agent shall give the Borrower and each Bank prompt notice thereof,
and so long as such condition remains in effect, the Banks shall be under
no obligation to make or renew Loans of such type or to convert Loans of
any other type into Loans of such type and the Borrower and each respective
Subsidiary Co-Borrower (as applicable) shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Loans of the affected
type, either prepay such Loans or convert such Loans into another type of
Loans in accordance with Section 2.05.

Section 3.03. Illegality. Notwithstanding any other provision in
----------
this Agreement, in the event that it becomes unlawful for any Bank or its
Lending Office to (a) honor its obligation to make or renew Fixed Rate
Loans hereunder or convert Loans of any type into Loans of such type, or
(b) maintain Fixed Rate Loans hereunder, then such Bank shall promptly
notify the Borrower thereof (with a copy to the Agent) and such Bank's
obligation to make or renew Fixed Rate Loans and to convert other types of
Loans into Loans of such type hereunder shall be suspended until such time
as such Bank may again make, renew, or convert and maintain such affected
Loans and such Bank's outstanding Fixed Rate Loans, as the case may be,
shall be converted in accordance with Section 3.04.

Section 3.04. Certain Conversions pursuant to Sections 3.01 and 3.03.
------------------------------------------------------
If the Loans of any Bank of a particular type (Loans of such type being
herein called "Affected Loans" and such type being herein called the
"Affected Type") are to be converted pursuant to Section 3.01 or 3.03, such
Bank's Affected Loans shall be automatically converted into Variable Rate
Loans on the last day(s) of the then current Interest Period(s) for the
Affected Loans (or, in the case of a conversion required by Section 3.01(b)
or 3.03, on such earlier date as such Bank may specify to the Borrower with
a copy to the Agent) and, unless and until such Bank gives notice as

<PAGE>

provided below that the circumstances specified in Section 3.01 or 3.03
which gave rise to such conversion no longer exist:

(a) to the extent that such Bank's Affected Loans have been so
converted, all payments and prepayments of principal which would otherwise
be applied to such Bank's Affected Loans shall be applied instead to its
Variable Rate Loans;

(b) all Loans which would otherwise be made or renewed by such
Bank as Loans of the Affected Type shall be made instead as Variable Rate
Loans and all Loans of such Bank which would otherwise be converted into
Loans of the Affected Type shall be converted instead into (or shall remain
as) Variable Rate Loans; and

(c) if Loans of other Banks of the Affected Type are
subsequently converted into Loans of another type (other than Variable Rate
Loans), such Bank's Variable Rate Loans shall be automatically converted on
the conversion date into Loans of such other type to the extent necessary
so that, after giving effect thereto, all Loans held by such Bank and the
Banks whose Loans are so converted are held pro rata (as to principal
amounts, types and Interest Periods) in accordance with their respective
Commitments.

If such Bank gives notice to the Borrower (with a copy to the Agent)
that the circumstances specified in Section 3.01 or 3.03 which gave rise to
the conversion of such Bank's Affected Loans pursuant to this Section 3.04
no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Loans of the Affected Type
are outstanding, such Bank's Variable Rate Loans shall be automatically
converted, on the first day(s) of the next succeeding Interest Period(s)
for such outstanding Loans of the Affected Type to the extent necessary so
that, after giving effect thereto, all Loans held by the Banks holding
Loans of the Affected Type and by such Bank are held pro rata (as to
principal amounts, types and Interest Periods) in accordance with their
respective Commitments.

Section 3.05. Certain Compensation. The Borrower and each respective
--------------------
Subsidiary Co-Borrower (as applicable) shall pay to the Agent for the
account of each Bank, upon the request of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense which such Bank
determines is attributable to:

(a) any payment, prepayment, conversion or renewal of a Fixed
Rate Loan to the Borrower and/or such Subsidiary Co-Borrower made by such
Bank on a date other than the last day of an Interest Period for such Loan
(whether by reason of acceleration or otherwise); or

(b) any failure by the Borrower and/or such Subsidiary Co-
Borrower to borrow, convert into, prepay or renew a Fixed Rate Loan to be
made, converted

<PAGE>

into, prepaid or renewed by such Bank on the date specified therefor in the
relevant notice under Sections 2.04, 2.05 or 2.06, as the case may be.

Without limiting the foregoing, such compensation shall include an
amount equal to the excess, if any, of: (i) the amount of interest which
otherwise would have accrued on the principal amount so paid, prepaid,
converted or renewed or not borrowed, converted, prepaid or renewed for the
period from and including the date of such payment, prepayment or
conversion or failure to borrow, convert, prepay or renew to but excluding
the last day of the then current Interest Period for such Loan (or, in the
case of a failure to borrow, convert, prepay or renew, to but excluding the
last day of the Interest Period for such Loan which would have commenced on
the date specified therefor in the relevant notice) at the applicable rate
of interest for such Loan provided for herein; over (ii) the amount of
interest (as reasonably determined by such Bank) such Bank would have bid
in the London interbank market (if such Loan is a Fixed Rate Loan) for
Dollar deposits for amounts comparable to such principal amount and
maturities comparable to such period. A determination of any Bank as to
the amounts payable pursuant to this Section 3.05 shall be conclusive
absent manifest error; provided that such determination is made on a
reasonable basis.

ARTICLE 4. CONDITIONS PRECEDENT.

Section 4.01. Documentary Conditions Precedent. The obligations of
--------------------------------
the Banks to make the Loans constituting the initial borrowing are subject
to the condition precedent that the Agent shall have received on or before
the Closing Date each of the following, in form and substance satisfactory
to the Agent and its counsel:

(a) counterparts of this Agreement duly executed by each of
the Borrower, the Subsidiary Co-Borrowers, the Subsidiary Guarantors, the
Banks and the Agent;

(b) the Revolving Credit Notes duly executed by the Borrower;

(d) the Third Mortgage Modification Agreements duly executed
by PHC Operating Corp. or Providence Health Care, Inc., respectively, and
the Agent;

(e) Assumption Agreements executed by each of the Subsidiaries
of the Borrower not a signatory to the Existing Credit Agreement;

(f) commitments to issue endorsements to each policy of
mortgagee title insurance with respect to each of the Health Care
Facilities owned by PHC Operating Corp. or Providence Health Care, Inc.
insuring the fully perfected and first priority Lien of the Agent in such
Health Care Facility;

<PAGE>

(g) evidence that all actions necessary or appropriate (or, in
any event, as may be requested by the Agent) to create, perfect or protect
the Liens created or purported to be created by the Security Agreement and
the Pledge Agreement have been taken;

(h) certificates or other evidence of casualty insurance
policies with appropriate loss payable endorsements indicating assignment
of proceeds thereunder to the Agent for the ratable benefit of the Banks
and certificates or other evidence of liability insurance with appropriate
endorsements indicating the coverage of the Agent for the ratable benefit
of the Banks as an additional insured;

(i) certificates of the Secretary or Assistant Secretary of
each of the Consolidated Entities, dated the Closing Date, (i) attesting to
all corporate, partnership or limited liability company action taken by
such Consolidated Entity, including resolutions of its Board of Directors,
the Board of Directors of its general partner or its Board of Managers
authorizing the execution, delivery and performance of each of the Facility
Documents to which it is a party and each other document to be delivered
pursuant to this Agreement, (ii) certifying the names and true signatures
of the officers of such Consolidated Entity authorized to sign the Facility
Documents to which it is a party and the other documents to be delivered by
such Consolidated Entity under this Agreement and (iii) verifying that the
charter and by-laws or partnership or operating agreement of such
Consolidated Entity attached thereto are true, correct and complete as of
the date thereof;

(j) a certificate of a duly authorized officer of each of the
Obligors, dated the Closing Date, stating that the representations and
warranties in Article 5 are true and correct in all material respects on
such date as though made on and as of such date and that no event has
occurred and is continuing which constitutes a Default or Event of Default;

(k) good standing certificates with respect to each
Consolidated Entity issued by the Secretary of State of its jurisdiction of
incorporation or organization and evidence that each of the Consolidated
Entities is qualified as a foreign corporation, partnership or limited
liability company in every other jurisdiction in which it does business;

(l) a favorable opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, outside counsel to each of the Consolidated Entities, dated the
Closing Date, in substantially the form of EXHIBIT D and as to such other
matters as the Agent or any Bank may reasonably request;

(m) favorable opinions of (i) Benesh, Friedlander, Coplan &
Aronoff, (ii) Duane, Morris & Heckscher, (iii) Katten, Muchin & Zavis, (iv)
Miller, Eggleston & Rosenberg, Ltd., (v) Murphy & Desmond, S.C., (vi)
Steptoe & Johnson, (vii) Susman, Duffy & Segaloff and (viii) Wolff &
Samson, local counsel to each of the Consolidated

<PAGE>

Entities, dated the Closing Date, in substantially in the form of EXHIBIT E
and as to such other matters as the Agent may request;

(n) certified complete and correct copies of each of the
financial statements referred to in Section 5.05; and

(o) a borrowing notice of the Borrower relating to the Loans
to be made on the Closing Date together with a letter from the Borrower
containing wire transfer instructions and account information relating to
the funds to be made available by the Banks to the Borrower on the Closing
Date.

On the Closing Date, the Banks party to the Existing Credit Agreement
shall surrender to the Borrower the Existing Notes held by them under the
Existing Credit Agreement, in each case marked "Replaced".

Section 4.02. Additional Conditions Precedent. The obligations of
-------------------------------
the Banks to make any Loans pursuant to a borrowing which increases the
amount outstanding hereunder (including the initial borrowing) shall be
subject to the further conditions precedent that on the date of such Loans,
the following statements shall be true: (i) in the case of the initial
borrowing, the representations and warranties contained in Article 5, in
Article 3 of the Security Agreement and in Article 3 of the Pledge
Agreement, are true and correct as of the Closing Date, (ii) in the case of
subsequent borrowings, such representations and warranties are true and
correct as of the date of such Loans as though made on and as of such date
unless the failure of such representations and warranties to be true and
correct could not reasonably be expected to have a Material Adverse Effect;
provided that if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date; (iii) no
Default or Event of Default has occurred and is continuing, or would result
from such Loans; and (iv) after giving effect to such Loans, the
Availability Ratio would be less than (A) if the date of such borrowing is
before March 31, 1997, 3.50 to 1.00 or (B) if the date of such borrowing is
on or after March 31, 1997, 3.25 to 1.00.

Section 4.03. Deemed Representations. Each notice of borrowing
----------------------
hereunder and acceptance by the Borrower of the proceeds of such borrowing
shall constitute a representation and warranty that the statements
contained in Section 4.02 are true and correct both on the date of such
notice and, unless the Borrower otherwise notifies the Agent prior to such
borrowing (in which case the Banks shall be under no obligation to make
available the proceeds of the borrowing), as of the date of such borrowing.

<PAGE>

ARTICLE 5. REPRESENTATIONS AND WARRANTIES.

Each of the Obligors hereby represents and warrants that:

Section 5.01. Organization, Good Standing and Due Qualification.
-------------------------------------------------
Each of the Consolidated Entities is duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, has the corporate, partnership or
limited liability company power and authority to own its assets and to
transact the business in which it is now engaged or proposed to be engaged,
and is duly qualified as a foreign corporation, partnership or limited
liability company and in good standing under the laws of each other
jurisdiction in which such qualification is required and where such failure
to qualify could reasonably be expected to have a Material Adverse Effect.

Section 5.02. Power and Authority; No Conflicts. The execution,
---------------------------------
delivery and performance by each of the Obligors of the Facility Documents
to which it is a party have been duly authorized by all necessary
corporate, partnership or limited liability company action and do not and
will not: (a) require any consent or approval of its stockholders, partners
or members; (b) contravene its charter or by-laws or partnership or
operating agreement; (c) violate any provision of, or require any filing
(other than the filing of the financing statements contemplated by the
Security Agreement or the filing of the Mortgages and any modifications
thereto), registration, consent or approval under, any law, rule,
regulation (including, without limitation, Regulation U), order, writ,
judgment, injunction, decree, determination or award presently in effect
having applicability to any Consolidated Entity; (d) result in a breach of
or constitute a default or require any consent under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which
any Consolidated Entity is a party or by which it or its properties may be
bound or affected if such breach, default or failure to obtain consent
could reasonably be expected to have a Material Adverse Effect; (e) result
in, or require, the creation or imposition of any Lien (other than as
created under the Security Documents), upon or with respect to any of the
properties now owned or hereafter acquired by any Consolidated Entity; or
(f) cause any Consolidated Entity to be in default under any such law,
rule, regulation, order, writ, judgment, injunction, decree, determination
or award or, if such default could reasonably be expected to have a
Material Adverse Effect, any such indenture, agreement, lease or
instrument.

Section 5.03. Legally Enforceable Agreements. Each Facility Document
------------------------------
to which any Obligor is a party is, or when delivered under this Agreement
will be, a legal, valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms, except to the extent
that such enforcement may be limited by applicable bankruptcy, insolvency
and other similar laws affecting creditors' rights generally.

Section 5.04. Litigation. Except as set forth on SCHEDULE II hereto,
----------
there are no actions, suits or proceedings pending or, to the knowledge of
any Obligor,

<PAGE>

threatened, against or affecting any Consolidated Entity before any court,
Governmental Authority or arbitrator which could reasonably be expected to
have a Material Adverse Effect.

Section 5.05. Financial Statements. The consolidated balance sheets
--------------------
of the Consolidated Entities as at December 31, 1995, 1994, 1993, 1992 and
1991 and the consolidating balance sheets of each of the Subsidiary Co-
Borrowers as at December 31, 1995, and the related consolidated income
statements and statements of cash flows and changes in stockholders' equity
of the Consolidated Entities and consolidating income statements of each of
the Subsidiary Co-Borrowers, for the fiscal years then ended, and the
accompanying footnotes, together with the opinion on the consolidated
statements of KPMG Peat Marwick, independent certified public accountants,
and the interim consolidated balance sheet of the Consolidated Entities as
at March 31, 1996, and the related consolidated income statement and
statements of cash flows and changes in stockholders' equity of the
Consolidated Entities, for the three month period then ended, copies of
which have been furnished to each of the Banks, are complete and correct
and fairly present the financial condition of the Consolidated Entities at
such dates and the results of the operations of the Consolidated Entities
for the periods covered by such statements, all in accordance with GAAP
consistently applied. Except as set forth on the consolidated balance
sheet of the Consolidated Entities as at March 31, 1996, there are no
liabilities of any Consolidated Entity, fixed or contingent, which are
material but are not reflected in the financial statements or in the notes
thereto and which would be required to be recorded in such financial
statements or notes in accordance with GAAP. No written information,
exhibit or report furnished by any Consolidated Entity to the Banks in
connection with the negotiation of this Agreement (after giving effect to
information so furnished that corrects, supplements or supersedes
information previously furnished) contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statements contained therein not materially misleading in each case as
determined as of the date of the provision of such information, exhibit or
report. Since March 31, 1996, there has been no change which could
reasonably be expected to have a Material Adverse Effect.

Section 5.06. Ownership and Liens. Each of the Consolidated Entities
-------------------
has title to, or valid leasehold interests in, all of its Property,
including the Property reflected in the financial statements referred to in
Section 5.05 (other than any Property disposed of in the ordinary course of
business), and none of the Property owned by any Consolidated Entity and
none of its leasehold interests is subject to any Lien, except as may be
permitted hereunder and except for the Liens created by the Security
Documents; provided that no Obligor is making any representation or
warranty with respect to Liens affecting the fee interest in real Property
leased to any Consolidated Entity and not owned by another Consolidated
Entity.

Section 5.07. Taxes. Each of the Consolidated Entities has filed (or
-----
obtained extensions for) all tax returns (federal, state and local)
required to be filed and has

<PAGE>

paid all taxes, assessments and governmental charges and levies shown
thereon to be due, including interest and penalties.

Section 5.08. ERISA. Each Plan and, to the best knowledge of each
-----
Obligor, Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other applicable
Federal or state law, and no event or condition is occurring or exists
concerning which any Consolidated Entity would be under an obligation to
furnish a report to the Bank in accordance with Section 6.08(h) hereof. As
of the most recent valuation date for each Plan, each Plan other than The
Breyut Convalescent Center, Inc. Pension Fund was "fully funded", which for
purposes of this Section 5.08 shall mean that the fair market value of the
assets of the Plan is not less than the present value of the accrued
benefits of all participants in the Plan, computed on a Plan termination
basis. To the best knowledge of each Obligor, no such Plan has ceased
being fully funded as of the date these representations are made with
respect to any Loan under this Agreement. With respect to The Breyut
Convalescent Center, Inc. Pension Fund, benefit accruals were frozen as of
December 31, 1990 and the Unfunded Benefit Liabilities as projected by such
Plan's enrolled actuary as of August 1, 1993 were $1,139,854.

Section 5.09. Subsidiaries and Ownership of Stock. As of the date
-----------------------------------
hereof and as of the Closing Date, SCHEDULE III sets forth the name of (a)
each Subsidiary of the Borrower and (b) each Affiliate that is owned by a
Consolidated Entity, that has an ownership interest in a Consolidated
Entity or that has entered into a transaction with any Consolidated Entity,
in each case showing the jurisdiction of its incorporation or organization
and showing the percentage of each Person's ownership of the outstanding
stock or partnership interests of such Subsidiary or Affiliate. All of the
outstanding shares of capital stock and all of the partnership and limited
liability company interests of each Subsidiary owned by the Borrower,
either directly or indirectly, are validly issued, fully paid and
nonassessable, and all such shares or interests are owned free and clear of
all Liens (other than as created under the Security Documents). As of the
date hereof and as of the Closing Date, except as set forth in SCHEDULE
III, no Consolidated Entity owns or holds the right to acquire any shares
of stock or any other security or interest in any other Person.

Section 5.10. Credit Arrangements. As of the date hereof and as of
-------------------
the Closing Date, SCHEDULE IV is a complete and correct list of all credit
agreements, indentures, note purchase agreements, guaranties, Capital
Leases and other investments, agreements and arrangements constituting Debt
(the "Credit Arrangements") providing for or relating to extensions of
credit (including agreements and arrangements for the issuance of letters
of credit or for acceptance financing) in respect of which any Consolidated
Entity is in any manner directly or contingently obligated; and the maximum
principal or face amounts of the credit in question, outstanding and which
can be outstanding, are correctly stated, and all Liens of any nature given
or agreed to be given as security therefor are correctly described or
indicated in such Schedule.

<PAGE>

Section 5.11. Operation of Business.
---------------------

(a) Each of the Consolidated Entities possesses all
certificates of need and licenses necessary to operate the Health Care
Facilities as long term or specialized health care facilities and all
Medicare and Medicaid provider agreements relating to the operation of such
Health Care Facilities and all other Licenses, permits, franchises,
patents, copyrights, trademarks and trade names, or rights thereto, to
conduct its business substantially as now conducted and as presently
proposed to be conducted and where the failure to possess such other
Licenses, permits, franchises, patents, copyrights, trademarks and trade
names could have a Material Adverse Effect, and no Consolidated Entity is
in material violation of any valid rights of others with respect to any of
the foregoing where such violation could have a Material Adverse Effect.
As of date hereof and as of the Closing Date, SCHEDULE V is a complete and
correct list of all certificates of need and licenses necessary to operate
the Health Care Facilities as long term or specialized health care
facilities and all Medicare and Medicaid provider agreements relating to
the operation of such Health Care Facilities.

(b) There is no threatened or pending revocation, suspension,
termination, probation, restriction, limitation, or non-renewal of any
material License, Participation Agreement (including, Medicare, Medicaid,
CHAMPUS, Blue Cross and Blue Shield, and all current private commercial
insurance and employee assistance programs in which any Consolidated Entity
presently participates) or accreditation or certification by any
accreditation or approval organization or Governmental Authority for health
care providers, including, without limitation, of any provisional License
or other License with a term of less than twelve (12) months with respect
to any Consolidated Entity.

(c) Each of the Consolidated Entities has caused there to be
prepared and filed (or obtained extensions for) all applicable cost reports
to Medicare, Medicaid, CHAMPUS, Blue Cross, Blue Shield and such other
third party payors that are material to conduct its business substantially
as now conducted.

Section 5.12. Operating Agreements and Leases. As of the date hereof
-------------------------------
and as of the Closing Date, SCHEDULE VI is a complete and correct list of
all management agreements and leases (collectively, the "Operating
Agreements") relating to the operation and management of each Health Care
Facility and to the operation or management of each Health Care Facility
owned by a Person other than a Consolidated Entity.

Section 5.13. Health Care Facilities. As of the date hereof and as
----------------------
of the Closing Date, SCHEDULE VII is a complete and correct list of all
Health Care Facilities and the locations thereof.

Section 5.14. Hazardous Materials. Each of the Consolidated Entities
-------------------
is in compliance in all material respects with all Environmental Laws in
effect in each

<PAGE>

jurisdiction where it is presently doing business. No Consolidated Entity
is subject to any material liability under any Environmental Law.

In addition, no Consolidated Entity has received any (i) notice from
any governmental authority by which any of its present or previously-owned
or leased real properties has been designated, listed, or identified in any
manner by any governmental authority charged with administering or
enforcing any Environmental Law as a Hazardous Material disposal or removal
site, "Super Fund" clean-up site, or candidate for removal of Hazardous
Materials or closure of a Hazardous Material disposal site pursuant to any
Environmental Law, (ii) notice of any Lien arising under or in connection
with any Environmental Law that has attached to any revenues of, or to, any
of its owned or leased real properties, or (iii) summons, citation, notice,
directive, letter, or other written communication from any Governmental
Authority concerning any intentional or unintentional action or omission by
such Consolidated Entity in connection with its ownership or leasing of any
real Property resulting in the releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping, or otherwise disposing of any
Hazardous Material into the environment resulting in any violation of any
Environmental Law.

Section 5.15. No Default on Outstanding Judgments or Orders. Each of
---------------------------------------------
the Consolidated Entities has satisfied all judgments and no Consolidated
Entity is in default with respect to any final judgment (except such as
have been appropriately stayed), writ, injunction or decree of any court,
arbitrator or federal, state, municipal or other governmental authority,
commission, board, bureau, agency or instrumentality, domestic or foreign.

Section 5.16. No Defaults on Other Agreements. No Consolidated
-------------------------------
Entity is a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument or subject to any charter or corporate
restriction which could have a Material Adverse Effect. No Consolidated
Entity is in default in any material respect in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained
in any agreement or instrument material to its business to which it is a
party.

Section 5.17. Labor Disputes and Acts of God. Neither the business
------------------------------
nor the properties of any Consolidated Entity are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or
other casualty (whether or not covered by insurance), which could have a
Material Adverse Effect.

Section 5.18. Governmental Regulation. No Consolidated Entity is
-----------------------
subject to regulation under the Public Utility Holding Company Act of 1935,
the Investment Company Act of 1940, the Interstate Commerce Act, the
Federal Power Act or any statute or regulation limiting its ability to
incur indebtedness for money borrowed as contemplated hereby.

<PAGE>

Section 5.19. No Forfeiture. Neither any Consolidated Entity nor any
-------------
of its Affiliates is engaged in or proposes to be engaged in the conduct of
any business or activity which could result in a Forfeiture Proceeding
which could reasonably be expected to have a Material Adverse Effect and no
Forfeiture Proceeding against any of them is pending or threatened.

Section 5.20. Solvency.
--------

(a) The present fair saleable value of the assets of each
Obligor after giving effect to all the transactions contemplated by the
Facility Documents and the funding of the Commitments hereunder exceeds the
amount that will be required to be paid on or in respect of the existing
debts and other liabilities (including contingent liabilities) of such
Obligor as they mature.

(b) The Property of each Obligor does not constitute
unreasonably small capital for such Obligor to carry out its business as
now conducted and as proposed to be conducted including the capital needs
of such Obligor.

(c) Each Obligor does not intend to, nor does such Obligor
believe that it will, incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be
received by such Obligor, and of amounts to be payable on or in respect of
Debt of such Obligor). The cash available to such Obligor after taking
into account all other anticipated uses of the cash of such Obligor, is
anticipated to be sufficient to pay all such amounts on or in respect of
debt of such Obligor when such amounts are required to be paid.

(d) Each Obligor does not believe that final judgments against
it in actions for money damages will be rendered at a time when, or in an
amount such that, such Obligor will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash
available to such Obligor after taking into account all other anticipated
uses of the cash of such Obligor (including the payments on or in respect
of debt referred to in paragraph (c) of this Section 5.20), is anticipated
to be sufficient to pay all such judgments promptly in accordance with
their terms.

Section 5.21. Senior Indebtedness. The obligations of the Borrower
-------------------
hereunder and under the other Facility Documents constitute "Senior
Indebtedness" under and as defined in (a) the Multicare Indenture with
respect to the Multicare Subordinated Notes and (b) the Multicare Fiscal
Agency Agreement with respect to the Multicare Subordinated Debentures.

<PAGE>

ARTICLE 6. AFFIRMATIVE COVENANTS.

So long as any Note shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Borrower shall:

Section 6.01. Maintenance of Existence. Preserve and maintain, and
------------------------
cause each of its Subsidiaries to preserve and maintain, its corporate,
partnership or limited liability company existence and good standing in the
jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation or partnership in each jurisdiction in which such
qualification is required except with respect to sales or other
dispositions by the Borrower or such Subsidiary permitted under Section
7.07.

Section 6.02. Conduct of Business. Continue, and cause each of its
-------------------
Subsidiaries to continue, to engage in the business of the same general
type as conducted by it on the date of this Agreement; except where such
failure to so participate could not reasonably be expected to have a
Material Adverse Effect, continue, and cause each of its Subsidiaries to
continue, its participation in any and all plans and programs for third
party payment and reimbursement from, and claims against, private insurers
and employee assistance programs, and plans or programs for payment and
reimbursement from federal, state or local governmental agencies, or
private or quasi-public insurers, including, without limitation, Managed
Care Plans, Medicaid, Medicare, CHAMPUS, Blue Cross and Blue Shield; except
where such failure to so comply could not reasonably be expected to have a
Material Adverse Effect, comply, and cause each of its Subsidiaries to
comply, with any and all rules, regulations, standards, procedures and
decrees necessary to maintain its or any of its participation in any such
third party payment or reimbursement programs or plans; and prepare and
file, and cause each of its Subsidiaries to prepare and file, all
applicable cost reports to all third party payors to the extent required by
third party payors.

Section 6.03. Maintenance of Properties. Maintain, keep and
-------------------------
preserve, and cause each of its Subsidiaries to maintain, keep and
preserve, all of its Property (including, without limitation, all Licenses,
accreditations, rights, privileges and franchises) necessary or useful in
the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted and except for sales, leases, assignments,
transfers or other dispositions of Property permitted under Section 7.07.

Section 6.04. Maintenance of Records. Keep, and cause each of its
----------------------
Subsidiaries to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP, reflecting all
financial transactions of the Consolidated Entities.

Section 6.05. Maintenance of Insurance. Maintain, and cause each of
------------------------
its Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof;

<PAGE>

provided that the Borrower or such Subsidiary may maintain a system of
self-insurance with respect to health insurance for its employees so long
as such system is in accord with sound financial practices of similar
businesses maintaining similar systems and so long as the Borrower or such
Subsidiary shall maintain adequate insurance reserves in accordance with
GAAP and in accordance with sound actuarial and insurance principles.

Section 6.06. Compliance with Laws. Comply, and cause each of its
--------------------
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including, without limitation, any
Environmental Law), such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its Property; provided that items of the
foregoing description need not be paid while being contested in good faith
and by appropriate proceedings diligently pursued as long as adequate book
reserves have been established with respect thereto.

Section 6.07. Right of Inspection. At any reasonable time and from
-------------------
time to time, and upon reasonable advance notice but no advance notice
shall be required if a Default or an Event of Default then exists, permit
the Agent or any Bank or any agent or representative thereof, to examine
and make copies and abstracts from the records and books of account of, and
visit the properties of, any Consolidated Entity, and to discuss the
affairs, finances and accounts of such Consolidated Entity with any of
their respective officers and directors and independent accountants.

Section 6.08. Reporting Requirements. Furnish directly to each of
----------------------
the Banks:

(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Consolidated Entities, a consolidated
balance sheet of the Consolidated Entities and consolidating balance sheets
of each of the Subsidiary Co-Borrowers as of the end of such fiscal year
and a consolidated income statement and statement of cash flows and changes
in stockholders' equity of the Consolidated Entities and consolidating
income statements of each of the Subsidiary Co-Borrowers for such fiscal
year, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period in
the prior fiscal year and all prepared in accordance with GAAP and as to
the consolidated statements accompanied by an opinion thereon acceptable to
the Agent and each of the Banks by KPMG Peat Marwick or other independent
accountants of national standing selected by the Consolidated Entities;
provided that delivery within the period specified above of copies of the
Annual Report on Form 10-K of the Borrower filed with the Securities and
Exchange Commission, together with the adjustments to such consolidated
statements necessary to provide consolidating information for each of the
Subsidiary Co-Borrowers, shall be deemed to satisfy the requirements of
this Section 6.08(a) so long as such Form 10-K as so adjusted shall contain
the information referred to in this Section 6.08(a);

<PAGE>

(b) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Consolidated Entities, a consolidated balance sheet of the Consolidated
Entities as of the end of such quarter and a consolidated income statement
and statement of cash flows and changes in stockholders' equity of the
Consolidated Entities for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, all in reasonable
detail and stating in comparative form the respective consolidated figures
for the corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP and certified by the chief financial
officer of the Consolidated Entities (subject to year-end adjustments);
provided that delivery within the period specified above of copies of the
Quarterly Report on Form 10-Q of the Borrower filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
Section 6.08(b) so long as such Form 10-Q shall contain the information
referred to in this Section 6.08(b);

(c) simultaneously with the delivery of the financial
statements referred to above, a Compliance Certificate of the chief
financial officer of the Borrower (i) certifying that to the best of his
knowledge no Default or Event of Default has occurred and is continuing or,
if a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action which is proposed to be
taken with respect thereto, and (ii) with computations demonstrating
compliance with the covenants contained in Article 8;

(d) simultaneously with the delivery of the annual financial
statements referred to in Section 6.08(a), a certificate of the independent
public accountants who audited such statements to the effect that, in
making the examination necessary for the audit of such statements, they
have obtained no knowledge of any condition or event which constitutes a
Default or Event of Default, or if such accountants shall have obtained
knowledge of any such condition or event, specifying in such certificate
each such condition or event of which they have knowledge and the nature
and status thereof;

(e) promptly after the commencement thereof, notice of all
actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, affecting any Consolidated Entity which, if determined
adversely to such Consolidated Entity, could have a Material Adverse
Effect;

(f) as soon as possible and in any event within 10 days after
becoming aware of or having reason to become aware of the occurrence of
each Default or Event of Default a written notice setting forth the details
of such Default or Event of Default and the action which is proposed to be
taken by the Consolidated Entities with respect thereto;

(g) as soon as possible, and in any event within ten days
after any Consolidated Entity knows or has reason to know that any of the
events or conditions

<PAGE>

specified below with respect to any Plan or Multiemployer Plan have
occurred or exist, a statement signed by a senior financial officer of such
Consolidated Entity setting forth details respecting such event or
condition and the action, if any, which such Consolidated Entity or an
ERISA Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by such
Consolidated Entity or an ERISA Affiliate with respect to such event or
condition): (i) any reportable event, as defined in Section 4043(b) of
ERISA, with respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code or Section 302
of ERISA including, without limitation, the failure to make on or before
its due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the Code) and
any request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of intent to
terminate any Plan or any action taken by such Consolidated Entity or an
ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of
proceedings under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt by such
Consolidated Entity or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by PBGC with respect to such
Multiemployer Plan; (iv) the complete or partial withdrawal from a
Multiemployer Plan by such Consolidated Entity or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a purchaser
default) or the receipt of such Consolidated Entity or any ERISA Affiliate
of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA; (v) the
institution of a proceeding by a fiduciary or any Multiemployer Plan
against such Consolidated Entity or any ERISA Affiliate to enforce Section
515 of ERISA, which proceeding is not dismissed within 30 days; (vi) the
adoption of an amendment to any Plan that pursuant to Section 401(a)(29) of
the Code or Section 307 of ERISA would result in the loss of tax-exempt
status of the trust of which such Plan is a part if such Consolidated
Entity or an ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections; (vii) any event or
circumstance exists which may reasonably be expected to constitute grounds
for such Consolidated Entity or any ERISA Affiliate to incur liability
under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Code
with respect to any Plan; and (viii) the Unfunded Benefit Liabilities of
one or more Plans increase after the date of this Agreement in an amount
which is material in relation to the financial condition of the
Consolidated Entities; provided, however, that such increase shall not be
deemed to be material so long as it does not exceed during any consecutive
3 year period $500,000;

(h) promptly after the request of any Bank, copies of each
annual report filed pursuant to Section 104 of ERISA with respect to each
Plan (including, to the extent required by Section 104 of ERISA, the
related financial and actuarial

<PAGE>

statements and opinions and other supporting statements, certifications,
schedules and information referred to in Section 103) and each annual
report filed with respect to each Plan under Section 4065 of ERISA;
provided, however, that in the case of a Multiemployer Plan, such annual
reports shall be furnished only if they are available to such Consolidated
Entity or an ERISA Affiliate;

(i) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports which any
Consolidated Entity sends to its stockholders, and copies of all regular,
periodic and special reports, and all registration statements which such
Consolidated Entity files with the Securities and Exchange Commission or
any Governmental Authority which may be substituted therefor, or with any
national securities exchange;

(j) promptly after becoming aware of the existence of any
violation or alleged violation in any material respect of any law, rule,
regulation or order (including, without limitation, any Environmental Law)
by any Consolidated Entity and with respect to any Health Care Facility,
prompt written notice of and a description of the nature of such violation
or alleged violation, what action such Consolidated Entity is taking or
proposes to take with respect thereto and, when known, any action taken, or
proposed to be taken, by any Governmental Authority with respect thereto;

(k) promptly after the commencement thereof or promptly after
any Consolidated Entity knows of the commencement or threat thereof, notice
of any Forfeiture Proceeding; and

(l) such other information respecting the condition or
operations, financial or otherwise, of any Consolidated Entity as the Agent
or any Bank may from time to time reasonably request.

Section 6.09. Additional Subsidiary Guarantors. Cause each of its
--------------------------------
Subsidiaries acquired or formed after the date hereof to become a
"Subsidiary Guarantor" and thereby an "Obligor" hereunder pursuant to an
Assumption Agreement, and shall deliver such proof of corporate action,
incumbency of officers, opinions of counsel and other documents as is
consistent with those delivered by the Obligors pursuant to Article 4
hereof upon the Closing Date or as the Agent shall have reasonably
requested; provided that (a) each of Berkeley Haven Limited Partnership,
Canterbury of Sheperdstown Limited Partnership, Care Haven Associates
Limited Partnership, Glenmark Properties I, Limited Partnership and
Marlinton Associates Limited Partnership (collectively, the "Glenmark
Partnerships") shall not be required to become a "Subsidiary Guarantor"
hereunder until such time as such Glenmark Partnership shall become a
wholly-owned Subsidiary of any Obligor and (b) any Subsidiary acquired or
formed after the date hereof shall not be required to become a "Subsidiary
Guarantor" and an "Obligor" hereunder if such Subsidiary shall be liable
with respect to Permitted Acquisition Debt provided that (i) the original
principal amount of such Permitted Acquisition Debt shall not be less than
66 2/3% of the value of all Property held by such Subsidiary (such value to
be reasonably determined by the Agent and, unless

<PAGE>

such valuation shall be unreasonable, such value shall be deemed to be the
acquisition price), (ii) the aggregate value of all Property held by such
Subsidiary and all other Consolidated Entities who are liable for Permitted
Acquisition Debt (such value to be reasonably determined by the Agent and,
unless such valuation shall be unreasonable, such value shall be deemed to
be the respective acquisition prices) shall not exceed the result of (A)
$30,000,000 minus (B) the product of (x) 1.50 times (y) the value of all
Property subject to any conditional sale or other title retention agreement
or a Capital Lease entered into after the Initial Closing Date (such value
to be reasonably determined by the Agent and, unless such valuation shall
be unreasonable, such valuation shall be deemed to be the acquisition
price), (iii) no Default or Event of Default exists or would exist after
giving effect to such Acquisition and (iv) if such Subsidiary shall cease
to be liable for such Permitted Acquisition Debt, it shall then become a
"Subsidiary Guarantor" and an "Obligor" hereunder.

ARTICLE 7. NEGATIVE COVENANTS.

So long as any Note shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Borrower shall not:

Section 7.01. Debt. Create, incur, assume or suffer to exist, or
----
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt, except:

(a) Debt of the Obligors under this Agreement, the Notes and
the other Facility Documents;

(b) Debt described in SCHEDULE IV and, to the extent indicated
on SCHEDULE IV, any renewals, extensions or refinancings thereof, provided
that the principal amount thereof does not increase;

(c) Debt of any Obligor to any other Obligor so long as (i) if
such Debt is secured, such Debt is evidenced by a promissory note and such
note together with such security is pledged as collateral for the Loans and
the other obligations under the Facility Documents and (ii) if such Debt is
evidenced by a promissory note or other instrument, such note or other
instrument is pledged to the Agent as collateral for the Loans and the
other obligations under the Facility Documents;

(d) accounts payable to trade creditors for goods or services
and current operating liabilities (other than for borrowed money), in each
case incurred in the ordinary course of business and paid within prescribed
time limits that are in the ordinary course of business, unless contested
in good faith and by appropriate proceedings;

(e) Permitted Mortgage Debt of any Consolidated Entity other
than a Subsidiary Co-Borrower incurred pursuant to this Section 7.01(e)
provided that the aggregate principal amount of such Debt for all
Consolidated Entities does not exceed at any time $26,000,000;

<PAGE>

(f) Debt of any Consolidated Entity other than a Subsidiary
Co-Borrower incurred pursuant to this Section 7.01(f) secured by Purchase
Money Liens permitted by Section 7.03(k) provided that the aggregate
principal amount of such Debt for all Consolidated Entities does not exceed
at any time $20,000,000;

(g) Debt of the Borrower under documentary and standby letters
of credit so long as the aggregate reimbursement obligations under such
letters of credit does not exceed at any time $10,000,000;

(h) Consolidated Subordinated Debt; and

(i) Debt of each of the Glenmark Partnerships in favor of the
Borrower so long as (i) the aggregate amount of such Debt of each such
Glenmark Partnership does not exceed $2,500,000 and (ii) such Debt is
evidenced by a promissory note on terms reasonably acceptable to the Agent
which shall be secured by a first priority Lien on all of the personal
Property of such Glenmark Partnership and pledged to the Agent as
collateral for the Senior Obligations.

Section 7.02. Guaranties, Etc. Create, incur, assume or suffer to
---------------
exist, or permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any Guaranty, except (a) Guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business, (b) Guaranties by the Borrower of Debt
permitted under Section 7.01 and leases permitted under Section 7.04 and
(c) Guaranties constituting Debt so long as such Debt is permitted under
Section 7.01.

Section 7.03. Liens. Create, incur, assume or suffer to exist, or
-----
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any Lien upon or with respect to any of its Property, now owned or
hereafter acquired, except:

(a) Liens in favor of the Agent on behalf of the Banks
securing the Loans hereunder;

(b) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or if due and payable if they are
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;

(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than 90 days, or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have
been established;

(d) Liens under workmen's compensation, unemployment
insurance, social security or similar legislation (other than ERISA);

<PAGE>

(e) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money),
leases (permitted under the terms of this Agreement), public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of
business;

(f) judgment and other similar Liens arising in connection
with court proceedings; provided that the execution or other enforcement of
such Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;

(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by any Consolidated Entity of the Property
encumbered thereby in the normal course of its business or materially
impair the value of the Property subject thereto;

(h) Liens securing obligations of any Obligor to any other
Obligor;

(i) Liens described on SCHEDULE IV and, to the extent such
Lien secures Debt permitted under Section 7.01(b), Liens that secure any
renewals, extensions or refinancings of such Debt, but not the extension of
such Lien to other Property; and

(j) Liens securing Permitted Mortgage Debt; provided that the
obligations secured by each such Lien are permitted by the provisions of
Section 7.01(e);

(k) Purchase Money Liens; provided that: (i) the Person owning
any Property subject to such Lien is acquired or any Property subject to
such Lien is acquired or constructed by any Consolidated Entity and the
Lien on any such Property is created within 180 days of such acquisition or
construction; (ii) the obligation secured by any Lien so created, assumed
or existing shall not exceed 100% of the lesser of cost or fair market
value as of the time of acquisition or construction of the Property covered
thereby to such Consolidated Entity acquiring or constructing the same;
(iii) each such Lien shall attach, in the case of an acquisition, only to
the Property so acquired, personal Property associated with such Property
and fixed improvements thereon and, in the case of construction, only to
the Property so constructed, personal Property associated with such
Property, the land thereunder and the fixed improvements attached thereto;
and (iv) the obligations secured by such Lien are permitted by the
provisions of Section 7.01(f) and the related expenditure is permitted
under Section 7.13; and

(l) Liens in any Health Care Facility, including, without
limitation, in all real Property or personal Property used or to be used in
connection with such Health Care Facility (other than any "accounts" as
such term is defined in the Uniform

<PAGE>

Commercial Code as in effect in the jurisdiction in which such security
interest is to be perfected), all equipment and fixtures therein and
thereon and all general intangibles, including, without limitation, all
Operating Agreements and Licenses related thereto, granted in connection
with the sale and simultaneous leaseback of such Health Care Facility
otherwise permitted hereunder by any Subsidiary of the Borrower to any
Person other than an Affiliate, which Liens secure the obligations of such
Subsidiary under such lease.

Section 7.04. Leases. Create, incur, assume or suffer to exist, or
------
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any obligation as lessee for the rental or hire of any Property, except:

(a) leases (other than Capital Leases) which do not in the
aggregate require the Consolidated Entities on a consolidated basis to make
payments (excluding taxes, insurance, maintenance and similar expense which
any Consolidated Entity is required to pay under the terms of any lease) in
any fiscal year of the Consolidated Entities in excess of $25,000,000;

(b) leases between any Obligor and any other Obligor so long
as such lease is subordinated to the Liens of the Agent under the Security
Documents; and

Section 7.05. Investments. Make, or permit any of its Subsidiaries
-----------
to make, any loan or advance to any Person or purchase or otherwise
acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any capital stock, assets, obligations or other securities of,
make any capital contribution to, or otherwise invest in, or acquire any
interest in, any Person, except:

(a) cash or Cash Equivalents;

(b) Property to be used or useful in the ordinary course of
business of the Consolidated Entities;

(c) for stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to
any Consolidated Entity and stock, obligations or securities received in
connection with sales and leases of Property to the extent permitted under
Section 7.07(d);

(d) to or in any Obligor or in any corporation that
concurrently with such investment becomes an Obligor;

(e) in connection with an Acceptable Acquisition;

<PAGE>

(f) Guaranties permitted by Section 7.02;

(g) Capital Expenditures permitted by Section 7.13; and

(h) for other investments not listed in clauses (a) through
(g), inclusive, provided that the aggregate amount of such investments for
all Consolidated Entities does not exceed at any time $5,000,000.

Section 7.06. Dividends. Declare or pay any dividends, purchase,
---------
redeem, retire or otherwise acquire for value any of its capital stock now
or hereafter outstanding, or make any distribution of assets to its
stockholders as such whether in cash, assets or in obligations of the
Borrower, or allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption or retirement
of any shares of its capital stock, or make any other distribution by
reduction of capital or otherwise in respect of any shares of its capital
stock, or make, or permit any of its Subsidiaries to make, payments of
interest on, or payments or prepayments of principal of, or payments (or
setting apart of money for a sinking or other analogous fund) for the
purchase, redemption, retirement or other acquisition of principal or
interest, on Consolidated Subordinated Debt, except that so long as no
Default or Event of Default exists or would exist after giving effect to
such payment:

(a) the Borrower may declare and deliver dividends and make
distributions payable solely in its common stock;

(b) the Borrower may purchase or otherwise acquire shares of
its capital stock by exchange for or out of the proceeds received from a
substantially concurrent issue of new shares of its capital stock;

(c) the Borrower may prepay, redeem, retire or otherwise
acquire Multicare Subordinated Notes and Multicare Subordinated Debentures
by exchange for or out of the proceeds received from a substantially
concurrent issue of new shares of its capital stock or from a substantially
concurrent incurrence of new Consolidated Subordinated Debt;

(d) the Borrower may prepay, redeem, retire or otherwise
acquire Multicare Subordinated Notes so long as for each fiscal year of the
Consolidated Entities, the aggregate face amount of Multicare Subordinated
Notes subject to acquisition for such fiscal year does not exceed (i) with
respect to the fiscal year ending on December 31, 1996, $7,500,000 and (ii)
with respect to each fiscal year ending thereafter, 25% of Consolidated Net
Income for the immediately preceding fiscal year;

(e) the Borrower may make payments of interest on the
Multicare Subordinated Notes in accordance with the terms of the Multicare
Indenture; and

<PAGE>

(f) the Borrower may make payments of interest on the
Multicare Subordinated Debentures in accordance with the terms of the
Multicare Fiscal Agency Agreement.

Section 7.07. Sale of Assets. Sell, lease, assign, transfer or
--------------
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,
assign, transfer or otherwise dispose of, any of its now owned or hereafter
acquired Property (including, without limitation, shares of stock and
indebtedness, receivables and leasehold interests); except:

(a) for inventory disposed of in the ordinary course of
business;

(b) the sale or other disposition of Property no longer used
or useful in the conduct of its business;

(c) any Obligor other than a Subsidiary Co-Borrower may sell,
lease, assign, or otherwise transfer its Property to any other Obligor;

(d) any Consolidated Entity (including, without limitation,
any Subsidiary Co-Borrower so long as the Term Note to which it is a party
is paid off in connection with any such sale or lease) may sell or lease
any Property to a Person other than an Affiliate for consideration
consisting of not less then 80% cash provided that (i) the fair market
value of such Property together with the fair market value of all other
Property sold or leased during the same fiscal year of the Consolidated
Entities does not exceed $40,000,000, (ii) such sale or lease has been
approved in good faith by the Board of Directors of such Consolidated
Entity, (iii) no Default or Event of Default exists or would exist after
giving effect to such disposition and (iv) the Borrower believes in good
faith that the Consolidated Entities will continue to be in compliance with
the financial covenants contained in Article 8 on a pro forma basis; and

(e) leases of portions of the Health Care Facilities to
tenants which use such leased premises for specialty use or uses incidental
to the operation of a Health Care Facility (including, without limitation,
a pharmacy, gift shop, or physical or occupational therapy and
rehabilitation).

Section 7.08. Stock of Subsidiaries, Etc. Except as permitted by
--------------------------
Section 7.07 or Section 7.10, sell or otherwise dispose of any shares of
capital stock of any of its Subsidiaries, or permit any such Subsidiary to
issue any additional shares of its capital stock, except directors'
qualifying shares.

Section 7.09. Transactions with Affiliates. Enter, or permit any
----------------------------
Subsidiary to enter, into any transaction, including, without limitation,
the purchase, sale or exchange of Property or the rendering of any service,
with any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary than would obtain in a comparable arm's length

<PAGE>

transaction with a Person not an Affiliate. Without limiting the
generality of the foregoing, this Section 7.09 shall not prohibit any
transaction described on Schedule VIII.

Section 7.10. Mergers, Etc. Except as permitted under Section 7.07,
------------
merge or consolidate with, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired)
to, any Person, or acquire all or substantially all of the assets or the
business of any Person (or enter into any agreement to do any of the
foregoing), or permit any of its Subsidiaries to do so, except that:

(a) any Obligor other than a Subsidiary Co-Borrower may merge
into or consolidate with or transfer assets to any other Obligor; and

(b) any Consolidated Entity may effect any Acquisition not
prohibited by Section 7.11.

Section 7.11. Acquisitions. Make, or permit any of its Subsidiaries
------------
to make, any Acquisition other than an Acceptable Acquisition.

Section 7.12. No Activities Leading to Forfeiture. Engage in or
-----------------------------------
propose to be engaged in, or permit any of its Subsidiaries to engage in or
propose to be engaged in, the conduct of any business or activity which
could result in a Forfeiture Proceeding which could have a Material Adverse
Effect.

Section 7.13. Capital Expenditures. Make or commit to make, or
--------------------
permit any of its Subsidiaries to make or commit to make, (other than by
way of Acquisition) any expenditures in respect of the purchase or other
acquisition of fixed or capital assets, except for Consolidated Capital
Expenditures in the ordinary course of business not exceeding in any fiscal
year of the Consolidated Entities 100% of Consolidated EBITDA (a) projected
for such fiscal year as determined in accordance with projections based on
the future operating performance of the Consolidated Entities prepared by
the chief financial officer of the Borrower in good faith and based on
reasonable estimates or (b) determined for such fiscal year as of the end
of such fiscal year.

Section 7.14. Amendments or Waivers of Certain Documents. (a)
------------------------------------------
Defease or make, or permit any of its Subsidiaries to defease or make, any
payments the effect of which is to defease, or make any voluntary or
optional payment or prepayment on, or redemption of, any Permitted Mortgage
Debt (except in connection with dispositions of any Health Care Facility
permitted under Section 7.07 or refinancings of Permitted Mortgage Debt
permitted hereunder) or Consolidated Subordinated Debt (except as permitted
under Section 7.06) in whole or in part or (b) amend, supplement or
otherwise change (or agree to any amendment or other change of), or permit
any of its Subsidiaries to amend, supplement or otherwise change (or agree
to any amendment or other change of), the terms of any Permitted Mortgage
Debt or Consolidated Subordinated Debt, if the effect of such amendment,
supplement or

<PAGE>

change is to increase the interest rate on such Consolidated Subordinated
Debt, advance the dates upon which payments of principal or interest are
due on such Permitted Mortgage Debt or such Consolidated Subordinated Debt
(including any change that adds or modifies mandatory prepayments), change,
in a manner materially adverse to the Consolidated Entities or which
confers additional rights on the holders thereof, any event of default or
covenant (or any definition relating thereto) with respect to such
Consolidated Subordinated Debt, change the redemption or repurchase
provisions with respect to such Permitted Mortgage Debt or Consolidated
Subordinated Debt in a manner materially adverse to the Consolidated
Entities or which confers additional rights on the holders thereof, change
the subordination provisions of such Consolidated Subordinated Debt or
otherwise increase the obligations of the obligor or confer additional
rights on the holders of any Permitted Mortgage Debt or Consolidated
Subordinated Debt without, in each case, obtaining the prior written
consent of the Required Banks to such amendment or change.

Section 7.15. Rights under Other Agreements. Amend, waive or
-----------------------------
otherwise relinquish, or permit any of its Subsidiaries to amend, waive or
otherwise relinquish, any of its rights or causes of action under or
arising out of, any material provisions, if such amendment, waiver or
relinquishment could reasonably be expected to have a Material Adverse
Effect, on any Operating Agreement.

Section 7.16. Restrictions. Enter into, or suffer to exist, or
------------
permit any of its Subsidiaries to enter into, or suffer to exist, any
agreement with any Person other than the Banks that (a) prohibits, requires
the consent of such Person for or limits the ability of (i) any Obligor to
pay dividends or make other distributions or pay Debt owed to any other
Obligor, make loans or advances to any other Obligor or transfer any of its
Property which constitute "Collateral" under the Security Documents to any
other Obligor, (ii) any Obligor to create, incur, assume or suffer to exist
any Lien upon any of its Property or revenues which constitute "Collateral"
under the Security Documents, whether now owned or hereafter acquired, or
(iii) any Obligor to enter into any modification or supplement of the
Facility Documents; or (b) contains financial covenants which, taken as a
whole, are more restrictive on the Consolidated Entities than the financial
covenants contained in Article 8. Notwithstanding Section 7.16(a)(ii) and
(a)(iii), the Subsidiaries of the Borrower may enter into or suffer to
exist (w) encumbrances permitted under Section 7.03 or restrictions binding
upon any Person at the time such Person becomes a Subsidiary so long as
such encumbrances or restrictions were not incurred or assumed in
contemplation of such Person becoming a Subsidiary, (x) restrictions
contained in security agreements or mortgages permitted under this
Agreement, (y) customary anti-assignment and encumbrance clauses in
contracts or leases prohibiting the assignment of such leases or contracts
or (z) encumbrances or restrictions in effect on the date of this Agreement
and renewals thereof.

<PAGE>

ARTICLE 8. FINANCIAL COVENANTS.

So long as any Note shall remain unpaid or any Bank shall have any
Commitment under this Agreement and as determined as of the end of each
fiscal quarter of the Consolidated Entities:

Section 8.01. Interest Coverage Ratio. The Borrower shall maintain
-----------------------
at all times an Interest Coverage Ratio of not less than 2.00 to 1.00.

Section 8.02. Senior Interest Coverage Ratio. The Borrower shall
------------------------------
maintain at all times a Senior Interest Coverage Ratio of not less than
3.50 to 1.00.

Section 8.03. Minimum Net Worth. The Borrower shall maintain at all
-----------------
times Consolidated Net Worth of not less than the sum of (a) $110,000,000
plus (b) the aggregate sum of the Fiscal Quarter Net Worth Increase Amounts
calculated for each fiscal quarter of the Consolidated Entities ending
after March 31, 1996.

Section 8.04. Leverage Ratio. The Borrower shall maintain at all
--------------
times a Leverage Ratio of not greater than (a) if such time is before March
31, 1997, 2.00 to 1.00 or (b) if such time is on or after March 31, 1997,
1.75 to 1.00.

Section 8.05. Current Ratio. The Borrower shall maintain at all
-------------
times a Current Ratio of not less than 1.00 to 1.00.

Section 8.06. Tangible Free Assets. The Borrower shall maintain at
--------------------
all times Consolidated Tangible Free Assets of not less than $300,000,000.

Section 8.07. Modified Leverage Ratio. The Borrower shall maintain
-----------------------
at all times a Modified Leverage Ratio of not greater than (a) if such time
is before March 31, 1997, 5.50 to 1.00 or (b) if such time is on or after
March 31, 1997, 5.00 to 1.00.

ARTICLE 9. EVENTS OF DEFAULT.

Section 9.01. Events of Default. Any of the following events shall
-----------------
be an "Event of Default":

(a) the Borrower shall: (i) fail to pay the principal of any
Note on or before the date when due and payable; or (ii) fail to pay
interest on any Note or any fee or other amount due hereunder on or before
five (5) days after the date when due and payable;

(b) any representation or warranty made or deemed made by any
Consolidated Entity in this Agreement or in any other Facility Document or
which is contained in any certificate, document, opinion, financial or
other statement furnished

<PAGE>

at any time under or in connection with any Facility Document shall prove
to have been incorrect in any material respect on or as of the date made;

(c) (i) the Borrower shall fail to perform or observe any
term, covenant or agreement contained in Section 2.03 or Articles 7 or 8;
or (ii) any Obligor shall fail to perform or observe any term, covenant or
agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section 9.01) in any
Facility Document to which it is a party and such failure shall continue
for 30 consecutive days;

(d) any Consolidated Entity shall: (i) fail to pay any Debt
and/or obligations under any lease aggregating in excess of 5% of
Consolidated Net Worth (other than the payment obligations described in (a)
above), or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or (ii)
fail to perform or observe any term, covenant or condition on its part to
be performed or observed under any agreement or instrument relating to any
such Debt or any such lease, when required to be performed or observed, if
the effect of such failure to perform or observe is to accelerate, or to
permit the acceleration of, after the giving of notice or passage of time,
or both, the maturity of such Debt or of the obligations under such lease;
or any such Debt or any such obligations shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;

(e) any Consolidated Entity: (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (ii) shall make an assignment for the benefit of
creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets;
or (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or
any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or
which petition, application or proceeding remains undismissed for a period
of 30 days or more; or shall be the subject of any proceeding under which
its assets may be subject to seizure, forfeiture or divestiture (other than
a proceeding in respect of a Lien permitted under Section 7.03(b)); or (v)
by any act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or order for
relief or the appointment of a custodian, receiver or trustee for all or
any substantial part of its Property; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of 30 days or more;

(f) one or more judgments, decrees or orders for the payment
of money in excess of 5% of Consolidated Net Worth in the aggregate shall
be rendered against any Consolidated Entity and such judgments, decrees or
orders shall continue

<PAGE>

unsatisfied and in effect for a period of 60 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal;

(g) any event or condition shall occur or exist with respect
to any Plan or Multiemployer Plan concerning which any Consolidated Entity
is under an obligation to furnish a report to the Bank in accordance with
Section 6.08(h) hereof and as a result of such event or condition, together
with all other such events or conditions, such Consolidated Entity or any
ERISA Affiliate has incurred or in the opinion of the Banks is reasonably
likely to incur a liability to a Plan, a Multiemployer Plan, the PBGC, or a
Section 4042 Trustee (or any combination of the foregoing) which is
material in relation to the financial position of the Consolidated
Entities; provided, however, that any such amount shall not be deemed to be
material so long as all such amounts do not exceed $500,000 in the
aggregate during the term of this Agreement;

(h) the Unfunded Benefit Liabilities of one or more Plans have
increased after the date of this Agreement in an amount which is material
(as specified in Section 6.08(g)(viii) hereof);

(i) (i) any Person (other than Daniel Straus or Moshael
Straus) or two or more Persons acting in concert shall have acquired
beneficial ownership (within the meaning of Rules 13d-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934) of 25%
or more of the outstanding shares of voting stock of the Borrower; (ii)
Daniel Straus or Moshael Straus shall have ceased to continue to serve as
an executive officer and director of the Borrower and shall have ceased to
continue in the operational and managerial capacities in which he now
serves or in enhanced operational or managerial capacities with the
Borrower; provided the Borrower shall have 180 days to replace Daniel
Straus or Moshael Straus with an appropriate executive officer and director
who shall be satisfactory in all respects to the Required Banks or
otherwise satisfy the Required Banks with respect to the continuity of
management; or (iii) during any period of 12 consecutive months, commencing
before or after the date of this Agreement, individuals who at the
beginning of such 12-month period were directors (or persons nominated by
such individuals) of the Borrower cease for any reason to constitute a
majority of the board of directors of the Borrower;

(j) any Forfeiture Proceeding shall have been commenced or any
Consolidated Entity shall have given any Bank written notice of the
commencement of any Forfeiture Proceeding as provided in Section 6.08(k)
which, in either case, could reasonably be expected to have a Material
Adverse Effect;

(k) (i) any of the Security Documents shall at any time after
its execution and delivery and for any reason cease to create a valid and
perfected first priority security interest in and to the Property purported
to be subject to such Agreement; or (ii) any Facility Document shall cease
to be in full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be

<PAGE>

contested by any Obligor or any Obligor shall deny it has any further
liability or obligation under the Security Documents or any Obligor shall
fail to perform any of its obligations thereunder;

(l) any of the Fee Owners shall at any time (i) own any asset
except for a Health Care Facility; (ii) create, incur, assume or have
outstanding any Debt or other liabilities or obligations except for (A)
Debt permitted by Section 7.01, (B) liabilities as lessor arising under
leases of such Health Care Facility to another Obligor plus related
liabilities that arise solely from the interest of such Fee Owner in real
Property and (C) Permitted Mortgage Debt; (iii) enter into any transaction
of merger, consolidation or amalgamation other than with or into another
Obligor, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) except as otherwise permitted under this
Agreement; or (iv) engage in any other business other than the holding of
title to the Health Care Facilities; or

(m) Management Fees during any fiscal year of the Consolidated
Entities shall exceed 40% of Consolidated EBITDA for such year.

Section 9.02. Remedies. If any Event of Default shall occur and be
--------
continuing, the Agent shall, upon request of the Required Banks, by notice
to the Borrower (a) declare the Commitments to be terminated, whereupon the
same shall forthwith terminate, and (b) declare the outstanding principal
of the Notes, all interest thereon and all other amounts payable under this
Agreement and the Notes to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived by the Borrower and the
Subsidiary Co-Borrowers; provided that, in the case of an Event of Default
referred to in Section 9.01(e) or Section 9.01(i)(i) above, the Commitments
shall be immediately terminated, and the Notes, all interest thereon and
all other amounts payable under this Agreement shall be immediately due and
payable without notice, presentment, demand, protest or other formalities
of any kind, all of which are hereby expressly waived by the Borrower and
the Subsidiary Co-Borrowers. If an Event of Default shall occur and be
continuing, the Agent and each Bank may exercise all of the rights and
remedies conferred in this Agreement and in each of the other Facility
Documents; it being expressly understood that no such remedy is intended to
be exclusive of any other remedy or remedies; but each and every remedy
shall be cumulative and shall be in addition to every other remedy given in
this Agreement or the other Facility Documents or now or hereafter existing
at law or in equity or by statute, and may be exercised from time to time
as often as may be deemed expedient by the Agent and such Bank.

ARTICLE 10. UNCONDITIONAL GUARANTY.

Section 10.01. Guarantied Obligations. Each of (x) the Subsidiary
----------------------
Co-Borrowers other than, with respect to each Term Loan, the respective
Subsidiary Co-Borrower thereunder and (y) the Subsidiary Guarantors (each
of the foregoing entities

<PAGE>

individually a "Guarantor" and collectively the "Guarantors"), jointly and
severally, in consideration of the execution and delivery of this Agreement
by the Banks and the Agent, hereby irrevocably and unconditionally
guarantees to the Agent, for the benefit of the Banks, as and for such
Guarantor's own debt, until final payment has been made:

(a) the due and punctual payment in cash of the Senior
Obligations, in each case when and as the same shall become due and
payable, whether at maturity, pursuant to mandatory or optional prepayment,
by acceleration or otherwise, all in accordance with the terms and
provisions hereof and thereof, it being the intent of the Guarantors that
the guaranty set forth in this Section 10.01 (the "Unconditional Guaranty")
shall be a guaranty of payment and not a guaranty of collection; and

(b) the punctual and faithful performance, keeping,
observance, and fulfillment by each of the Obligors of all duties,
agreements, covenants and obligations of such Obligor contained in each of
the Facility Documents to which it is a party.

Section 10.02. Performance Under This Agreement. In the event any
--------------------------------
Obligor fails to make, on or before the due date thereof, any payment of
the principal of, or interest on, the Notes or of any other amounts
payable, or any other indebtedness owing, under any of the Facility
Documents or if any Obligor shall fail to perform, keep, observe, or
fulfill any other obligation referred to in clause (a) or clause (b) of
Section 10.01 hereof in the manner provided in the Notes or in any of the
other Facility Documents, the Guarantors shall cause forthwith to be paid
the moneys, or to be performed, kept, observed, or fulfilled each of such
obligations, in respect of which such failure has occurred.

SECTION 10.03. LIMITATION ON GUARANTY. THE MAXIMUM LIABILITY OF EACH
----------------------
GUARANTOR UNDER THIS ARTICLE 10 SHALL IN NO EVENT EXCEED THE MAXIMUM
GUARANTIED AMOUNT. NOTHING IN THIS SECTION 10.03 SHALL BE CONSTRUED TO
LIMIT THE LIABILITY OF ANY SUBSIDIARY CO-BORROWER UNDER THE TERM NOTE TO
WHICH IT IS A PARTY.

Section 10.04. Waivers. To the fullest extent permitted by law, each
-------
Guarantor does hereby waive:

(a) notice of acceptance of the Unconditional Guaranty;

(b) notice of any borrowings under this Agreement, or the
creation, existence or acquisition of any of the Senior Obligations,
subject to such Guarantor's right to make inquiry of the Agent to ascertain
the amount of the Senior Obligations at any reasonable time;

(c) notice of the amount of the Senior Obligations, subject to
such Guarantor's right to make inquiry of the Agent to ascertain the amount
of the Senior Obligations at any reasonable time;

<PAGE>

(d) notice of adverse change in the financial condition of the
Borrower, any Subsidiary Co-Borrower, any other Guarantor or any other fact
that might increase such Guarantor's risk hereunder;

(e) notice of presentment for payment, demand, protest, and
notice thereof as to the Notes or any other instrument;

(f) notice of any Default or Event of Default;

(g) all other notices and demands to which such Guarantor
might otherwise be entitled (except if such notice or demand is
specifically otherwise required to be given to such Guarantor hereunder or
under the other Facility Documents);

(h) the right by statute or otherwise to require any or each
Bank or the Agent to institute suit against the Borrower or any Subsidiary
Co-Borrower or to exhaust the rights and remedies of any or each Bank or
the Agent against the Borrower or such Subsidiary Co-Borrower, such
Guarantor being bound to the payment of each and all Senior Obligations,
whether now existing or hereafter accruing, as fully as if such Senior
Obligations were directly owing to each Bank by such Guarantor;

(i) any defense arising by reason of any disability or other
defense (other than the defense that the Senior Obligations shall have been
fully and finally performed and indefeasibly paid) of the Borrower or any
Subsidiary Co-Borrower or by reason of the cessation from any cause
whatsoever of the liability of the Borrower or such Subsidiary Co-Borrower
in respect thereof; and

(j) any stay (except in connection with a pending appeal),
valuation, appraisal, redemption or extension law now or at any time
hereafter in force which, but for this waiver, might be applicable to any
sale of Property of such Guarantor made under any judgment, order or decree
based on this Agreement, and such Guarantor covenants that it will not at
any time insist upon or plead, or in any manner claim or take the benefit
or advantage of such law.

Until all of the Senior Obligations shall have been paid in full, none of
the Guarantors shall have any right of subrogation, reimbursement, or
indemnity whatsoever in respect thereof and no right of recourse to or with
respect to any assets or Property of the Borrower, any Subsidiary Co-
Borrower or any other Guarantor. Nothing shall discharge or satisfy the
obligations of the Guarantor hereunder except the full and final
performance and indefeasible payment of the Senior Obligations by the
Guarantors, upon which each Bank agrees to transfer and assign its interest
in the Notes to the Guarantors without recourse, representation or warranty
of any kind (other than that such Bank owns such Notes and that such Notes
are free of Liens created by such Bank). All of the Senior Obligations
shall in the manner and subject

<PAGE>

to the limitations provided herein for the acceleration of the Notes,
forthwith become due and payable without notice.

Section 10.05. Releases. Each of the Guarantors consents and agrees
--------
that, without notice to or by such Guarantor and without affecting or
impairing the obligations of such Guarantor hereunder, each Bank or the
Agent, in the manner provided herein, by action or inaction, may:

(a) compromise or settle, extend the period of duration or the
time for the payment, or discharge the performance of, or may refuse to, or
otherwise not, enforce, or may, by action or inaction, release all or any
one or more parties to, any one or more of the Notes or the other Facility
Documents;

(b) grant other indulgences to the Borrower or any Subsidiary
Co-Borrower in respect thereof;

(c) amend or modify in any manner and at any time (or from
time to time) any one or more of the Notes and the other Facility Documents
in accordance with Section 12.01 or otherwise;

(d) release or substitute any one or more of the endorsers or
guarantors of the Senior Obligations whether parties hereto or not; and

(e) exchange, enforce, waive, or release, by action or
inaction, any security for the Senior Obligations (including, without
limitation, any of the collateral therefor) or any other guaranty of any of
the Notes.

Section 10.06. Marshaling. Each of the Guarantors consents and
----------
agrees that:

(a) the Agent shall be under no obligation to marshal any
assets in favor of such Guarantor or against or in payment of any or all of
the Senior Obligations; and

(b) to the extent the Borrower, any Subsidiary Co-Borrower or
any other Guarantor makes a payment or payments to any Bank, which payment
or payments or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside, or required, for any of the
foregoing reasons or for any other reason, to be repaid or paid over to a
custodian, trustee, receiver, or any other party under any bankruptcy law,
common law, or equitable cause, then to the extent of such payment or
repayment, the obligation or part thereof intended to be satisfied thereby
shall be revived and continued in full force and effect as if said payment
or payments had not been made and such Guarantor shall be primarily liable
for such obligation.

Section 10.07. Liability. Each of the Guarantors agrees that the
---------
liability of such Guarantor in respect of this Article 10 shall not be
contingent upon the exercise

<PAGE>

or enforcement by any Bank or the Agent of whatever remedies such Bank or
the Agent may have against the Borrower, any Subsidiary Co-Borrower or any
other Guarantor or the enforcement of any Lien or realization upon any
security such Bank or the Agent may at any time possess.

Section 10.08. Unconditional Obligation. The Unconditional Guaranty
------------------------
set forth in this Article 10 is an absolute, unconditional, continuing and
irrevocable guaranty of payment and performance and shall remain in full
force and effect until the full and final payment of the Senior Obligations
without respect to future changes in conditions, including change of law or
any invalidity or irregularity with respect to the issuance or assumption
of any obligations (including, without limitation, the Notes) of or by the
Borrower, any Subsidiary Co-Borrower or any other Guarantor, or with
respect to the execution and delivery of any agreement (including, without
limitation, the Notes and the other Facility Documents) of the Borrower,
any Subsidiary Co-Borrower or any other Guarantor.

Section 10.09. Election to Perform Obligations. Any election by any
-------------------------------
of the Guarantors to pay or otherwise perform any of the obligations of the
Borrower or any Subsidiary Co-Borrower under the Notes or under any of the
other Facility Documents, whether pursuant to this Article 10 or otherwise,
shall not release the Borrower or such Subsidiary Co-Borrower from such
obligations or any of its other obligations under the Notes or under any of
the other Facility Documents.

Section 10.10. No Election. The Agent shall have the right to seek
-----------
recourse against any one or more of the Guarantors to the fullest extent
provided for herein for such Guarantor's obligations under this Agreement
(including, without limitation, this Article 10) in respect of the Notes.
No election to proceed in one form of action or proceeding, or against any
party, or on any obligation, shall constitute a waiver of the Agent's right
to proceed in any other form of action or proceeding or against other
parties unless such holder has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no
action or proceeding by any Bank or the Agent against the Borrower or any
Subsidiary Co-Borrower under any document or instrument evidencing
obligations of the Borrower or any Subsidiary Co-Borrower to such Bank or
the Agent shall serve to diminish the liability of any of the Guarantors
under this Agreement (including, without limitation, this Article 10)
except to the extent that such Bank finally and unconditionally shall have
realized payment by such action or proceeding, notwithstanding the effect
of any such action or proceeding upon any Guarantor's right of subrogation
against the Borrower or such Subsidiary Co-Borrower.

Section 10.11. Severability. Subject to Article 9 hereof and
------------
applicable law, each of the rights and remedies granted under this Article
10 to the Agent may be exercised by the Agent without notice by the Agent
to, or the consent of or any other action by, the Agent, provided that each
of the Guarantors will give each Bank immediate notice of any exercise of
rights and remedies by the Agent under this Article 10.

<PAGE>

Section 10.12. Other Enforcement Rights. The Agent may proceed, as
------------------------
provided in Article 10 hereof, to protect and enforce the Unconditional
Guaranty by suit or suits or proceedings in equity, at law or in
bankruptcy, and whether for the specific performance of any covenant or
agreement contained herein (including, without limitation, in this Article
10) or in execution or aid of any power herein granted; or for the recovery
of judgment for the obligations hereby guarantied or for the enforcement of
any other proper, legal or equitable remedy available under applicable law.
Each Bank shall have, to the fullest extent permitted by law and this
Agreement, a right of set-off against, any and all credits and any and all
other Property of any Guarantor, now or at any time whatsoever with, or in
the possession of, such holder, or anyone acting for such holder, as
security for any and all obligations of the Guarantors hereunder and such
Lien shall be deemed permitted for all purposes under Article 7 hereof.

Section 10.13. Delay or Omission; No Waiver. No course of dealing on
----------------------------
the part of any Bank or the Agent and no delay or failure on the part of
any such Person to exercise any right hereunder (including, without
limitation, this Article 10) shall impair such right or operate as a waiver
of such right or otherwise prejudice such Person's rights, powers and
remedies hereunder. Every right and remedy given by the Unconditional
Guaranty or by law to any Bank or the Agent may be exercised from time to
time as often as may be deemed expedient by such Person.

Section 10.14. Restoration of Rights and Remedies. If any Bank or
----------------------------------
the Agent shall have instituted any proceeding to enforce any right or
remedy under the Unconditional Guaranty, under any Note held by such Bank,
or under any Security Document, and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to such Bank or the Agent, then and in every such case each such
Bank, the Agent, the Borrower, each Subsidiary Co-Borrower and each
Guarantor shall, except as may be limited or affected by any determination
in such proceeding, be restored severally and respectively to its
respective former positions hereunder and thereunder, and thereafter,
subject as aforesaid, the rights and remedies of such Bank or the Agent
shall continue as though no such proceeding had been instituted.

Section 10.15. Cumulative Remedies. No remedy under this Agreement
-------------------
(including, without limitation, this Article 10), the Notes or any of the
other Facility Documents is intended to be exclusive of any other remedy,
but each and every remedy shall be cumulative and in addition to any and
every other remedy given hereunder this Agreement (including, without
limitation, this Article 10), under the Notes or under any of the other
Facility Documents.

Section 10.16. Survival. So long as the Senior Obligations shall not
--------
have been fully and finally performed and indefeasibly paid, the
obligations of the Guarantors under this Article 10 shall survive the
transfer and payment of any Note and the payment in full of all the Notes
and the expiration and termination of the Commitments.

<PAGE>

ARTICLE 11. THE AGENT.

Section 11.01. Appointment, Powers and Immunities of Agent. Each
-------------------------------------------
Bank hereby irrevocably (but subject to removal by the Required Banks
pursuant to Section 11.09) appoints and authorizes the Agent to act as its
agent hereunder and under any other Facility Document with such powers as
are specifically delegated to the Agent by the terms of this Agreement and
any other Facility Document, together with such other powers as are
reasonably incidental thereto. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Facility Document, and shall not by reason of this Agreement be a
trustee for any Bank. The Agent shall not be responsible to the Banks for
any recitals, statements, representations or warranties made by any
Consolidated Entity or any officer or official of such Consolidated Entity
or any other Person contained in this Agreement or any other Facility
Document, or in any certificate or other document or instrument referred to
or provided for in, or received by any of them under, this Agreement or any
other Facility Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
or any other Facility Document or any other document or instrument referred
to or provided for herein or therein, for the perfection or priority of any
collateral security for the Loans or for any failure by any Obligor to
perform any of its obligations hereunder or thereunder. The Agent may
employ agents and attorneys-in-fact and shall not be responsible, except as
to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected
by it with reasonable care. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or under any other
Facility Document or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct.

Section 11.02. Reliance by Agent. The Agent shall be entitled to
-----------------
rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. The Agent
may deem and treat each Bank as the holder of the Loans made by it for all
purposes hereof unless and until a notice of the assignment or transfer
thereof satisfactory to the Agent signed by such Bank shall have been
furnished to the Agent but the Agent shall not be required to deal with any
Person who has acquired a participation in any Loan from a Bank. As to any
matters not expressly provided for by this Agreement or any other Facility
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by
the Required Banks, and such instructions of the Required Banks and any
action taken or failure to act pursuant thereto shall be binding on all of
the Banks and any other holder of all or any portion of any Loan.

Section 11.03. Defaults. The Agent shall not be deemed to have
--------
knowledge of the occurrence of a Default or Event of Default (other than
the non-payment of

<PAGE>

principal of or interest on the Loans to the extent the same is required to
be paid to the Agent for the account of the Banks) unless the Agent has
received notice from a Bank or any Obligor specifying such Default or Event
of Default and stating that such notice is a "Notice of Default." In the
event that the Agent receives such a notice of the occurrence of a Default
or Event of Default, the Agent shall give prompt notice thereof to the
Banks (and shall give each Bank prompt notice of each such non-payment).
The Agent shall (subject to Section 11.08) take such action with respect to
such Default or Event of Default which is continuing as shall be directed
by the Required Banks; provided that, unless and until the Agent shall have
received such directions, the Agent may take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interest of the Banks; and provided
further that the Agent shall not be required to take any such action which
it determines to be contrary to law.

Section 11.04. Rights of Agent as a Bank. With respect to its
-------------------------
Commitment and the Loans made by it, the Agent in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include the Agent in its capacity as a Bank. The Agent and its affiliates
may (without having to account therefor to any Bank) accept deposits from,
lend money to (on a secured or unsecured basis), and generally engage in
any kind of banking, trust or other business with, any Consolidated Entity
(and any of its affiliates) as if it were not acting as the Agent, and the
Agent may accept fees and other consideration from any Consolidated Entity
for services in connection with this Agreement or otherwise without having
to account for the same to the Banks. Although the Agent and its
affiliates may in the course of such relationships and relationships with
other Persons acquire information about any Consolidated Entity, its
Affiliates and such other Persons, the Agent shall have no duty to disclose
such information to the Banks.

Section 11.05. Indemnification of Agent. The Banks agree to
------------------------
indemnify the Agent (to the extent not reimbursed under Section 12.03 or
under the applicable provisions of any other Facility Document, but without
limiting the obligations of the Obligors under Section 12.03 or such
provisions), ratably in accordance with the aggregate unpaid amount of the
Senior Obligations held by the Banks (without giving effect to any
participations, in all or any portion of such Senior Obligations, sold by
them to any other Person) (or, if no Senior Obligations are at the time
outstanding, ratably in accordance with their respective Commitments), for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any other
Facility Document or any other documents contemplated by or referred to
herein or the transactions contemplated hereby or thereby (including,
without limitation, the costs and expenses which the Obligors are obligated
to pay under Section 12.03 or under the applicable provisions of any other
Facility Document but excluding, unless a Default or Event of Default has
occurred, normal administrative

<PAGE>

costs and expenses incident to the performance of its agency duties
hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents or instruments; provided that no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.

Section 11.06. Documents. The Agent will forward to each Bank,
---------
promptly after the Agent's receipt thereof, a copy of each report, notice
or other document required by this Agreement or any other Facility Document
to be delivered to the Agent for such Bank.

Section 11.07. Non-Reliance on Agent and Other Banks. Each Bank
-------------------------------------
agrees that it has, independently and without reliance on the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Consolidated Entities and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any other Facility Document. The Agent
shall not be required to keep itself informed as to the performance or
observance by the Consolidated Entities of this Agreement or any other
Facility Document or any other document referred to or provided for herein
or therein or to inspect the properties or books of any Consolidated
Entity. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with
any credit or other information concerning the affairs, financial condition
or business of any Consolidated Entity (or any of their Affiliates) which
may come into the possession of the Agent or any of its affiliates. The
Agent shall not be required to file this Agreement, any other Facility
Document or any document or instrument referred to herein or therein, for
record or give notice of this Agreement, any other Facility Document or any
document or instrument referred to herein or therein, to anyone.

Section 11.08. Failure of Agent to Act. Except for action expressly
-----------------------
required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall have
received further assurances (which may include cash collateral) of the
indemnification obligations of the Banks under Section 11.05 in respect of
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.

Section 11.09. Resignation or Removal of Agent. Subject to the
-------------------------------
appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving written notice thereof to the Banks
and the Borrower, and the Agent may be removed at any time with or without
cause by the Required Banks; provided that the Borrower and the other Banks
shall be promptly notified thereof. Upon any such resignation or removal,
the Required Banks shall have the right to appoint a

<PAGE>

successor Agent. If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a bank which
has an office in the State of New Jersey or the State of New York. The
Required Banks or the retiring Agent, as the case may be, shall upon the
appointment of a successor Agent promptly so notify the Borrower and the
other Banks. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article 11 shall
continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.

Section 11.10. Amendments Concerning Agency Function. The Agent
-------------------------------------
shall not be bound by any waiver, amendment, supplement or modification of
this Agreement or any other Facility Document which affects its duties
hereunder or thereunder unless it shall have given its prior consent
thereto.

Section 11.11. Liability of Agent. The Agent shall not have any
------------------
liabilities or responsibilities to any Obligor on account of the failure of
any Bank to perform its obligations hereunder or to any Bank on account of
the failure of any Obligor to perform its obligations hereunder or under
any other Facility Document.

Section 11.12. Transfer of Agency Function. Without the consent of
---------------------------
the Obligors or any Bank, the Agent may at any time or from time to time
transfer its functions as Agent hereunder to any of its offices in the
United States wherever located, provided that the Agent shall promptly
notify the Borrower and the Banks thereof.

Section 11.13. Non-Receipt of Funds by the Agent. Unless the Agent
---------------------------------
shall have been notified by a Bank, the Borrower or any Subsidiary Co-
Borrower (any as appropriate being the "Payor") prior to (or, if the Payor
is a Bank making a Variable Rate Loan, on) the date on which such Bank is
to make payment hereunder to the Agent of the proceeds of a Loan or the
Borrower or any Subsidiary Borrower is to make payment to the Agent, as the
case may be (either such payment being a "Required Payment"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall
not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment (and, if such recipient
is the Borrower or any Subsidiary Co-Borrower and the Payor Bank fails to
pay the amount thereof to the Agent forthwith upon demand, the Borrower or
such Subsidiary Co-Borrower) shall, on demand, repay to the Agent the
amount made available to it together with interest

<PAGE>

thereon for the period from the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to the average daily Federal Funds Rate for such period.

Section 11.14. Withholding Taxes. Each Bank represents that as of
-----------------
the Closing Date it is entitled to receive any payments to be made to it
hereunder without the withholding of any tax and will furnish to the Agent
such forms, certifications, statements and other documents as the Agent may
request from time to time to evidence such Bank's exemption from the
withholding of any tax imposed by any jurisdiction or to enable the Agent
to comply with any applicable laws or regulations relating thereto.
Without limiting the effect of the foregoing, if any Bank is not created or
organized under the laws of the United States of America or any state
thereof, in the event that the payment of interest by the Borrower is
treated for U.S. income tax purposes as derived in whole or in part from
sources from within the U.S., such Bank will furnish to the Agent Form 4224
or Form 1001 of the Internal Revenue Service, or such other forms,
certifications, statements or documents, duly executed and completed by
such Bank as evidence of such Bank's exemption from the withholding of U.S.
tax with respect thereto. The Agent shall not be obligated to make any
payments hereunder to such Bank in respect of any Loan or such Bank's
Commitment until such Bank shall have furnished to the Agent the requested
form, certification, statement or document. Each Obligor agrees to pay to
any such Bank such additional amounts as are necessary in order that the
net payment of any amount due to such Bank in respect of any U.S. tax
imposed with respect to such payment will not be less than the amount
stated herein to be then due and payable.

Section 11.15. Several Obligations and Rights of Banks. The failure
---------------------------------------
of any Bank to make any Loan to be made by it on the date specified
therefor shall not relieve any other Bank of its obligation to make its
Loan on such date, but no Bank shall be responsible for the failure of any
other Bank to make a Loan to be made by such other Bank. The amounts
payable at any time hereunder to each Bank shall be a separate and
independent debt, and each Bank shall be entitled to protect and enforce
its rights arising out of this Agreement, and it shall not be necessary for
any other Bank to be joined as an additional party in any proceeding for
such purpose.

Section 11.16. Pro Rata Treatment of Loans, Etc. Except to the
--------------------------------
extent otherwise provided: (a) each borrowing under Section 2.04 shall be
made from the Banks, each reduction or termination of the amount of the
Commitments under Section 2.07 shall be applied to the Commitments of the
Banks, and each payment of commitment fee accruing under Section 2.11 shall
be made for the account of the Banks, pro rata according to the amounts of
their respective unused Commitments; (b) each conversion under Section 2.05
of Loans of a particular type (but not conversions provided for by Section
3.04), shall be made pro rata among the Banks holding Loans of such type
according to the respective principal amounts of such Loans by such Banks;
and (c) each prepayment and payment of principal of or interest on Loans of
a particular type, particular class and a particular Interest Period shall
be made to the Agent for the account of the Banks holding Loans of such
type and

<PAGE>

Interest Period pro rata in accordance with the respective unpaid principal
amounts of such Loans of such Interest Period held by such Banks.

Section 11.17. Sharing of Payments Among Banks. If a Bank shall
-------------------------------
obtain payment of any principal of or interest on any Senior Obligation
made by it through the exercise of any right of setoff, banker's lien,
counterclaim, or by any other means, it shall promptly purchase from the
other Banks participations in (or, if and to the extent specified by such
Bank, direct interests in) the Senior Obligations made by the other Banks
in such amounts, and make such other adjustments from time to time as shall
be equitable to the end that all the Banks shall share the benefit of such
payment (net of any expenses which may be incurred by such Bank in
obtaining or preserving such benefit) pro rata in accordance with the
unpaid amount of the Senior Obligations held by each of them. To such end
the Banks shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or
must otherwise be restored. The Obligors agree that any Bank so purchasing
a participation (or direct interest) in the Senior Obligations held by
other Banks may exercise all rights of setoff, banker's lien, counterclaim
or similar rights with respect to such participation (or direct interest).
Nothing contained herein shall require any Bank to exercise any such right
or shall affect the right of any Bank to exercise, and retain the benefits
of exercising, any such right with respect to any other indebtedness of any
Obligor.

ARTICLE 12. MISCELLANEOUS.

Section 12.01. Amendments and Waivers. Except as otherwise expressly
----------------------
provided in this Agreement, any provision of this Agreement may be amended
or modified only by an instrument in writing signed by the Borrower (and if
such amendment or waiver affects the Term Note to which it is a party, the
affected Subsidiary Co-Borrowers), the Agent and the Required Banks, or by
the Borrower (and if such amendment or waiver affects the Term Note to
which it is a party, the affected Subsidiary Co-Borrowers) and the Agent
acting with the consent of the Required Banks and any provision of this
Agreement may be waived by the Required Banks or by the Agent acting with
the consent of the Required Banks; provided that no amendment, modification
--------
or waiver shall, unless by an instrument signed by all of the Banks or by
the Agent acting with the consent of all of the Banks: (a) increase or
extend the term, or extend the time or waive any requirement for the
reduction or termination, of the Commitments, (b) extend the date fixed for
the payment of principal of or interest on any Loan or any fee payable
hereunder, (c) reduce the amount of any payment of principal thereof or the
rate at which interest is payable thereon or any fee payable hereunder, (d)
alter the terms of this Section 12.01, (e) amend the definition of the term
"Required Banks", (f) waive any of the conditions precedent set forth in
Section 4.01 or, only with respect to Defaults or Events of Default arising
under Section 9.01(a) or Section 9.01(e), Section 4.02, (g) discharge any
Guarantor from its Unconditional Guaranty under Article 10 hereof or
release any Obligor from its obligations hereunder (except for releases
otherwise required hereunder), (h) consent to the assignment or transfer by
any Obligor of its rights or

<PAGE>

obligations hereunder or under any Facility Document or (i) release all or
any part of the "Collateral" under and as defined in each of the Security
Documents (except for releases otherwise required hereunder) and provided,
--------
further, that any amendment of Article 11 hereof or any amendment which
- -------
increases the obligations of the Agent hereunder shall require the consent
of the Agent. No failure on the part of the Agent or any Bank to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof or preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

Section 12.02. Usury. Anything herein to the contrary
-----
notwithstanding, the obligations of the Borrower and the Subsidiary Co-
Borrowers under this Agreement and the Notes shall be subject to the
limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to a
Bank limiting rates of interest which may be charged or collected by such
Bank.

Section 12.03. Expenses. The Borrower (and, insofar it is
--------
responsible for such expenses, each Obligor) shall reimburse the Agent and
the Banks on demand for all reasonable costs, expenses, and charges
(including, without limitation, fees and charges of external legal counsel)
incurred by the Agent in connection with the preparation and the
performance, or by the Agent or any Bank in connection with the enforcement
of this Agreement or the other Facility Documents. The Borrower (and,
insofar it is responsible for such expense, each Obligor) agrees to
indemnify the Agent and each Bank and their respective directors, officers,
employees, affiliates and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to or arising out of this
Agreement or the other Facility Documents or to any actual or proposed use
by the Borrower and the Subsidiary Co-Borrowers of the proceeds of the
Loans, including without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation
or other proceedings (but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of the gross negligence or wilful
misconduct of the Person to be indemnified).

Section 12.04. Survival. The obligations of the Obligors under
--------
Sections 3.01, 3.05 and 12.03 shall survive the repayment of the Loans and
the termination of the Commitments.

Section 12.05. Assignment; Participations.
--------------------------

(a) This Agreement shall be binding upon, and shall inure to
the benefit of, the Obligors, the Agent, the Banks and their respective
successors and assigns, except that the Obligors may not assign or transfer
their rights or obligations hereunder. So long as the percentage of each
Term Loan and each Term Loan

<PAGE>

Commitment assigned by such Bank shall equal the percentage of the
Revolving Credit Loans and Revolving Credit Commitments and each other Term
Loan and each other Term Loan Commitment assigned by such Bank, each Bank
may assign, or sell participations in, all or any part of any Loan to
another bank or other entity, in which event (i) in the case of an
assignment, upon notice thereof by the Bank to the Borrower with a copy to
the Agent, the assignee shall have, to the extent of such assignment
(unless otherwise provided therein), the same rights, benefits and
obligations as it would have if it were a Bank hereunder; and (ii) in the
case of a participation, the participant shall have no rights under the
Facility Documents and all amounts payable by the Borrower and the
Subsidiary Co-Borrowers under Article 3 shall be determined as if such Bank
had not sold such participation. The agreement executed by such Bank in
favor of the participant shall not give the participant the right to
require such Bank to take or omit to take any action hereunder except
action directly relating to (i) the extension of a payment date with
respect to any portion of the principal of or interest on any amount
outstanding hereunder allocated to such participant, (ii) the reduction of
the principal amount outstanding hereunder or (iii) the reduction of the
rate of interest payable on such amount or any amount of fees payable
hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with such Bank.
Such Bank may furnish any information concerning the Consolidated Entities
in the possession of such Bank from time to time to assignees and
participants (including prospective assignees and participants); provided
that such Bank shall require any such prospective assignee or such
participant (prospective or otherwise) to agree in writing to maintain the
confidentiality of such information. In connection with any assignment
pursuant to this paragraph (a), the assigning Bank shall pay the Agent an
administrative fee for processing such assignment in the amount of $5,000.

(b) In addition to the assignments and participations
permitted under paragraph (a) above, any Bank may assign and pledge all or
any portion of its Loans and Notes to (i) any affiliate of such Bank or
(ii) any Federal Reserve Bank as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Bank from its obligations hereunder.

Section 12.06. Notices. Unless the party to be notified otherwise
-------
notifies the other party in writing as provided in this Section, and except
as otherwise provided in this Agreement, notices shall be given to the
Agent by telephone, confirmed by telex, telecopy or other writing, and to
the Banks and to the Obligors by ordinary mail or telecopier addressed to
such party at its address on the signature page of this Agreement. Notices
shall be effective: (a) if given by mail, 72 hours after deposit in the
mails with first class postage prepaid, addressed as aforesaid; and (b) if
given by telecopier, when the telecopy is transmitted to the telecopier
number as aforesaid; provided that notices to the Agent and the Banks shall
be effective upon receipt.

Section 12.07. Setoff. Each Obligor agrees that, in addition to (and
------
without limitation of) any right of setoff, banker's lien or counterclaim a
Bank may otherwise

<PAGE>

have, each Bank shall be entitled, at its option, to offset balances
(general or special, time or demand, provisional or final) held by it for
the account of such Obligor at any of such Bank's offices, in Dollars or in
any other currency, against any amount payable by such Obligor to such Bank
under this Agreement or such Bank's Note which is not paid when due
(regardless of whether such balances are then due to such Obligor), in
which case it shall promptly notify such Obligor and the Agent thereof;
provided that such Bank's failure to give such notice shall not affect the
validity thereof. Payments by the Obligors hereunder shall be made without
setoff or counterclaim.

SECTION 12.08. JURISDICTION; IMMUNITIES. (a) EACH OF THE OBLIGORS
--------------------------------------------------------------------
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR
- -----------------------------------------------------------------------
UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR
- -------------------------------------------------------------------------
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES, AND
- -------------------------------------------------------------------------
EACH OF THE OBLIGORS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
- -------------------------------------------------------------------------
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK
- -------------------------------------------------------------------------
STATE OR FEDERAL COURT. EACH OF THE OBLIGORS IRREVOCABLY CONSENTS TO THE
- -------------------------------------------------------------------------
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
- ----------------------------------------------------------------------
MAILING OF COPIES OF SUCH PROCESS TO SUCH OBLIGOR AT ITS ADDRESS SPECIFIED
- --------------------------------------------------------------------------
IN SECTION 12.06. EACH OF THE OBLIGORS AGREES THAT A FINAL JUDGMENT IN ANY
- ---------------------------------------------------------------------------
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
- --------------------------------------------------------------------------
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
- ------------------------------------------------------------------------
LAW. EACH OF THE OBLIGORS FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH
- ------------------------------------------------------------------------
STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE
- -----------------------------------------------------------------------
BASIS OF FORUM NON CONVENIENS. EACH OF THE OBLIGORS, THE AGENT AND THE
- -----------------------------------------------------------------------
BANKS WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL.
- -------------------------------------------------

(b) Nothing in this Section 12.08 shall affect the right of
the Agent or any Bank to serve legal process in any other manner permitted
by law or affect the right of the Agent or any Bank to bring any action or
proceeding against any Obligor or its Property in the courts of any other
jurisdictions.

(c) To the extent that any Obligor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal
process (whether from service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to
itself or its Property, such Obligor hereby irrevocably waives such
immunity in respect of its obligations under this Agreement, the Notes and
the other Facility Documents.

Section 12.09. Table of Contents; Headings. Any table of contents
---------------------------
and the headings and captions hereunder are for convenience only and shall
not affect the interpretation or construction of this Agreement.

<PAGE>

Section 12.10. Severability. The provisions of this Agreement are
------------
intended to be severable. If for any reason any provision of this
Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction
or the remaining provisions hereof in any jurisdiction.

Section 12.11. Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one
and the same instrument, and any party hereto may execute this Agreement by
signing any such counterpart.

Section 12.12. Integration. The Facility Documents set forth the
-----------
entire agreement among the parties hereto relating to the transactions
contemplated thereby and supersede any prior oral or written statements or
agreements with respect to such transactions.

SECTION 12.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
--------------------------------------------------------------------
AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
- -------------------------------------------------------------------------
NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS.
- ---------------------------------------------

Section 12.14. Confidentiality. Each Bank and the Agent agrees (on
---------------
behalf of itself and each of its affiliates, directors, officers, employees
and representatives) to use reasonable precautions to keep confidential, in
accordance with safe and sound banking practices, any non-public
information supplied to it by the Consolidated Entities pursuant to this
Agreement which is identified by the Consolidated Entities as being
confidential at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel for any of the Banks or the Agent, (iii)
to bank examiners, auditors or accountants, (iv) in connection with any
litigation to which any one or more of the Banks is a party or (v) to any
assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant)
agrees to use reasonable precautions to keep such information confidential;
and provided finally that in no event shall any Bank or the Agent be
obligated or required to return any materials furnished by the Consolidated
Entities.

Section 12.15. Treatment of Certain Information. The Obligors
--------------------------------
(a) acknowledge that services may be offered or provided to it (in
connection with this Agreement or otherwise) by each Bank or by one or more
of their respective subsidiaries or affiliates and (b) acknowledge that
information delivered to each Bank by the Consolidated Entities may be
provided to each such subsidiary and affiliate.

Section 12.16. Release of Certain Claims and Liens. (a) If any
-----------------------------------
Obligor shall wish to incur Permitted Mortgage Debt, the Agent shall, upon
request of such Obligor, forthwith execute proper instruments releasing
such Obligor as a "Subsidiary

<PAGE>

Guarantor" and "Obligor" hereunder and under the other Facility Documents
and releasing the Lien of the Agent in the Property held by such Obligor
contemporaneously with such incurrence provided that (i) the amount of such
Permitted Mortgage Debt shall not be less than 66 2/3% of the value of all
Property held by such Obligor (such value to be reasonably determined by
the Agent), (ii) the aggregate value of all Property held by such Obligor
and all other Consolidated Entities who have incurred Permitted Mortgage
Debt shall not exceed $30,000,000 (such value to be reasonably determined
by the Agent, and unless such valuation shall be unreasonable, such value
shall be deemed to the fair market value of such Property at the time of
incurrence), (iii) the Agent shall be entitled to record sufficient
mortgages and leasehold mortgages securing Property of the Obligors having
a value equivalent to the Property on which the Agent has released its Lien
(such equivalent value to be reasonably determined by the Agent) if such
release pertains to any Property in which the Agent shall have a perfected
Lien and (iv) no Default or Event of Default exists or would exist after
giving effect to such incurrence.

(b) If any Obligor shall wish to incur Permitted Acquisition
Debt, the Agent shall, upon request of such Obligor, forthwith execute
proper instruments releasing such Obligor as a "Subsidiary Guarantor" and
"Obligor" hereunder and under the other Facility Documents and releasing
the Lien of the Agent in all Property held by such Obligor
contemporaneously with such incurrence provided that (a) the original
principal amount of such Permitted Acquisition Debt shall not be less than
66 2/3% of the value of all Property held by such Subsidiary (such value to
be reasonably determined by the Agent and, unless such valuation shall be
unreasonable, such value shall be deemed to be the acquisition price), (b)
the aggregate value of all Property held by such Subsidiary and all other
Consolidated Entities who are liable for Permitted Acquisition Debt (such
value to be reasonably determined by the Agent and, unless such valuation
shall be unreasonable, such value shall be deemed to be the respective
acquisition prices) shall not exceed the result of (i) $30,000,000 minus
(ii) the product of (A) 1.50 times (B) the value of all Property subject to
any conditional sale or other title retention agreement or a Capital Lease
entered into after the Initial Closing Date (such value to be reasonably
determined by the Agent and, unless such valuation shall be unreasonable,
such valuation shall be deemed to be the acquisition price), (c) no Default
or Event of Default exists or would exist after giving effect to such
incurrence and (d) if such Subsidiary shall cease to be liable for such
Permitted Acquisition Debt, it shall then again become a "Subsidiary
Guarantor" and an "Obligor" hereunder.

(c) If any Obligor shall sell any Property in accordance with
Section 7.07, the Agent shall, upon request of such Obligor, forthwith
execute proper instruments releasing the Lien of the Agent in such Property
contemporaneously with such sale provided that the Agent shall be entitled
to record sufficient mortgages and leasehold mortgages securing Property
having a value equivalent to the Property released (such equivalent value
to be reasonably determined by the Agent) if such release pertains to any
Property in which the Agent shall have a perfected Lien.

<PAGE>

Section 12.17. Intercompany Debt. Except if such Debt is evidenced
-----------------
by a promissory note or other instrument pledged to the Agent as collateral
for the Loans and the other obligations under the Facility Documents, the
obligations of each Consolidated Entity to make payments under any Debt or
other intercompany receivable or advance owing to any other Consolidated
Entity shall be subordinated and subject in right of payment to the prior
payment in full in cash or Cash Equivalents of all Senior Obligations;
provided that so long as no Default or Event of Default has occurred and is
continuing, such other Consolidated Entity shall be entitled to receive and
retain such payments from such Consolidated Entity. Each Obligor, by its
acceptance of this Agreement, agrees to and shall be bound by all the
provisions of this Section 12.17.

Section 12.18. Intercompany Leases. (a) Each Obligor agrees that
-------------------
each Intercompany Lease of a Health Care Facility subject to the Lien of
the Agent under a Mortgage, and all of the right, title and interest of
such Obligor as tenant thereunder, if any, are and shall be subject and
subordinate in all respects to such Mortgage Agreement, the Lien and
security interests created thereby, all of the terms, conditions and
provisions thereof, all renewals, extensions, spreaders, supplements,
increases, amendments, modifications, consolidations and replacements
thereof, all substitutions therefor and all advances thereunder. The
provisions of this Section 12.18(a) shall be self-operative and no further
instruments of subordination shall be required. Each Obligor, at its
expense, agrees to execute such further instruments as may be necessary or
appropriate (and, in any event, as may be requested by the Agent) to
effectuate the intention of this Section 12.18(a).

(b) Each Obligor that is a tenant under an Intercompany Lease
agrees that if the interest of the Fee Owner in such Health Care Facility
shall be transferred to and owned by the Agent by reason of foreclosure or
other proceedings brought by it, or by any other manner, such Obligor shall
be bound to the Agent under all of the terms, covenants and conditions of
the Intercompany Lease for the balance of the term thereof remaining and
any extensions or renewals thereof which may be effected in accordance with
any option contained in such Intercompany Lease, with the same force and
effect as if the Agent were the landlord under such Intercompany Lease, and
such Obligor does hereby attorn to the Agent as its landlord. The
provisions of this Section 12.18(b) shall be self-operative and no further
instruments of attornment shall be required. Each Obligor agrees to
execute such further instruments as may be necessary or appropriate (and,
in any event, as may be requested by the Agent) to effectuate the intention
of this Section 12.18(b).

(c) The obligations of each Obligor to make payments under
each Intercompany Lease to any other Obligor shall be subordinated and
subject in right of payment to the prior payment in full in cash of all
Senior Obligations. Each Obligor, by its acceptance of this Agreement,
agrees to and shall be bound by all the provisions of this Section
12.18(c).

<PAGE>

Section 12.19. Reaffirmation. Each of the Obligors acknowledges that
-------------
the Liens granted to the Agent under the Security Documents in and to the
"Collateral" defined thereunder secures all obligations of each of the
Obligors under this Agreement, the Notes and the other Facility Documents,
including, without limitation, all liabilities and obligations under the
Loans as herein modified and increased. All references to "Note" or
"Notes" in any Facility Document shall be deemed to be to the Notes issued
hereunder. All references to "Secured Obligations" in any Facility
Document shall be deemed to include all liabilities and obligations under
the Loans as herein modified and increased. Each of the Obligors further
acknowledges and reaffirms all of its other respective obligations and
duties under the Facility Documents to which it is a party.

Section 12.20. Certain Waivers. Each of the Agent and the Banks
---------------
party to the Existing Credit Agreement hereby waives as of May 13, 1996 any
Default or Event of Default arising from the noncompliance by the Borrower
with Sections 8.03 and 8.04 of the Existing Credit Agreement for the fiscal
quarter of the Consolidated Entities ending on March 31, 1996.

Section 12.21. Certain Subsidiary Co-Borrower Waivers and Releases.
---------------------------------------------------
To the fullest extent permitted by law, each Subsidiary Co-Borrower does
hereby waive: notice of any borrowings under this Agreement; notice of
adverse change in the financial condition of the Borrower, any other
Subsidiary Co-Borrower, any Subsidiary Guarantor or any other fact that
might increase such Subsidiary Co-Borrower's risk hereunder; notice of
presentment for payment, demand, protest, and notice thereof as to the
Notes or any other instrument; notice of any Default or Event of Default;
all other notices and demands to which such Subsidiary Co-Borrower might
otherwise be entitled (except if such notice or demand is specifically
otherwise required to be given to such Subsidiary Co-Borrower hereunder or
under the other Facility Documents); the right by statute or otherwise to
require any or each Bank or the Agent to institute suit against the
Borrower or to exhaust the rights and remedies of any or each Bank or the
Agent against the Borrower; any defense arising by reason of any disability
or other defense (other than the defense that the Senior Obligations shall
have been fully and finally performed and indefeasibly paid) of the
Borrower or by reason of the cessation from any cause whatsoever of the
liability of the Borrower in respect thereof; and any stay (except in
connection with a pending appeal), valuation, appraisal, redemption or
extension law now or at any time hereafter in force which, but for this
waiver, might be applicable to any sale of Property of such Subsidiary Co-
Borrower made under any judgment, order or decree based on this Agreement,
and such Subsidiary Co-Borrower covenants that it will not at any time
insist upon or plead, or in any manner claim or take the benefit or
advantage of such law. Until all of the Senior Obligations shall have
been paid in full, none of the Subsidiary Co-Borrowers shall have any right
of subrogation, reimbursement, or indemnity whatsoever in respect thereof
and no right of recourse to or with respect to any assets or Property of
the Borrower, any other Subsidiary Co-Borrower or any Subsidiary Guarantor.
Each Subsidiary Co-Borrower consents and agrees that, without notice to or
by such Subsidiary Co-Borrower and without affecting or

<PAGE>

impairing the obligations of such Subsidiary Co-Borrower hereunder, each
Bank or the Agent, in the manner provided herein, by action or inaction,
may: compromise or settle, extend the period of duration or the time for
the payment, or discharge the performance of, or may refuse to, or
otherwise not, enforce, or may, by action or inaction, release all or any
one or more parties to, any one or more of the Notes or the other Facility
Documents; grant other indulgences to the Borrower in respect thereof;
amend or modify in any manner and at any time (or from time to time) any
one or more of the Notes and the other Facility Documents in accordance
with Section 12.01 or otherwise; release or substitute any one or more of
the endorsers or guarantors of the Senior Obligations whether parties
hereto or not; and exchange, enforce, waive, or release, by action or
inaction, any security for the Senior Obligations (including, without
limitation, any of the collateral therefor) or any other guaranty of any of
the Notes.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

BORROWER:

THE MULTICARE COMPANIES, INC.,
A DELAWARE CORPORATION

By:
----------------------------------------
Name:
Title:

SUBSIDIARY CO-BORROWERS:

BREYUT CONVALESCENT CENTER, INC.,
A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

ENCARE OF MENDHAM, INC., A NEW
JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF CEDAR GROVE,
INC., A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

HEALTH RESOURCES OF CINNAMINSON,
INC., A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF EMERY, INC., A
DELAWARE CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF EWING, INC., A
NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF FAIR LAWN,
INC., A DELAWARE CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF MORRISTOWN,
INC., A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

HEALTH RESOURCES OF RIDGEWOOD,
INC., A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

HEALTH RESOURCES OF WEST ORANGE, INC., A
DELAWARE CORPORATION

By:
----------------------------------------
Name:
Title:

HOLLY MANOR ASSOCIATES OF NEW
JERSEY, L.P., A DELAWARE LIMITED
PARTNERSHIP
By Encare of Mendham, Inc., its
General Partner

By:
----------------------------------------
Name:
Title:

MERCERVILLE ASSOCIATES OF NEW
JERSEY, L.P., A DELAWARE LIMITED
PARTNERSHIP
By Breyut Convalescent Center,
Inc., its General Partner

By:
----------------------------------------
Name:
Title:

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

POMPTON ASSOCIATES L.P., A NEW
JERSEY LIMITED PARTNERSHIP
By Pompton Care, Inc.,
its General Partner

By:
----------------------------------------
Name:
Title:

POMPTON CARE, INC., A NEW JERSEY
CORPORATION

By:
----------------------------------------
Name:
Title:

ROEPHEL CONVALESCENT CENTER, INC.,
A NEW JERSEY CORPORATION

By:
----------------------------------------
Name:
Title:

THE STRAUS GROUP-OLD BRIDGE,
L.P., A NEW JERSEY LIMITED
PARTNERSHIP
By Health Resources of Emery, Inc.,
its General Partner

By:
----------------------------------------
Name:
Title:

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

THE STRAUS GROUP-RIDGEWOOD L.P.,
A NEW JERSEY LIMITED PARTNERSHIP
By Health Resources of Ridgewood, Inc.,
its General Partner

By:
----------------------------------------
Name:
Title:

SUBSIDIARY GUARANTORS:

*ANR, INC., A DELAWARE CORPORATION

*APPLEWOOD HEALTH RESOURCES, INC.,
A DELAWARE CORPORATION

*AUTOMATED PROFESSIONAL ACCOUNTS,
INC., A WEST VIRGINIA CORPORATION

*BERKS NURSING HOMES, INC., A
PENNSYLVANIA CORPORATION

*BETHEL HEALTH RESOURCES, INC., A
DELAWARE CORPORATION

*BRIGHTWOOD PROPERTY, INC., A
WEST VIRGINIA CORPORATION

*CARE4, L.P., A DELAWARE LIMITED
PARTNERSHIP
By Institutional Health Care Services
Inc., its General Partner

*CENTURY CARE MANAGEMENT, INC., A
DELAWARE CORPORATION

*CHATEAU VILLAGE HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*CHG INVESTMENT CORP., INC., A
DELAWARE CORPORATION

*CHNR-I, INC., A DELAWARE CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*COLONIAL HALL HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*COLONIAL HOUSE HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*COMPASS HEALTH SERVICES, INC.,
A WEST VIRGINIA CORPORATION

*CONCORD HEALTH GROUP, INC., A
DELAWARE CORPORATION

*CONCORD HEALTHCARE SERVICES, INC.,
A PENNSYLVANIA CORPORATION

*CONCORD HOME HEALTH, INC., A
PENNSYLVANIA CORPORATION

*CONCORD PHARMACY SERVICES, INC.,
A PENNSYLVANIA CORPORATION

*CONCORD REHAB, INC., A PENNSYLVANIA
CORPORATION

*CONCORD SERVICE CORPORATION, A
PENNSYLVANIA CORPORATION

*CUMBERLAND ASSOCIATES OF
RHODE ISLAND, L.P., A DELAWARE
LIMITED PARTNERSHIP
By Health Resources of Cumberland,
Inc., its General Partner

*CVNR, INC., A DELAWARE CORPORATION

*DAWN VIEW MANOR, INC., A WEST VIRGINIA
CORPORATION

*DELM NURSING, INC., A PENNSYLVANIA
CORPORATION

*ELMWOOD HEALTH RESOURCES, INC., A
DELAWARE CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*ENCARE OF PENNYPACK, INC.,
A PENNSYLVANIA CORPORATION

*ENCARE OF QUAKERTOWN, INC., A
PENNSYLVANIA CORPORATION

*ENCARE OF WYNCOTE, INC., A
PENNSYLVANIA CORPORATION

*ENR, INC., A DELAWARE CORPORATION

*GLENMARK ASSOCIATES, INC., A WEST
VIRGINIA CORPORATION

*GLENMARK ASSOCIATES - DAWNVIEW
MANOR, INC., A WEST VIRGINIA
CORPORATION

*GLENMARK LIMITED LIABILITY COMPANY
I, A WEST VIRGINIA LIMITED LIABILITY COMPANY
By Glenmark Associates, Inc., its
Member

*GLENMARK PROPERTIES, INC., A WEST
VIRGINIA CORPORATION

*GMA-BRIGHTWOOD, INC., A WEST
VIRGINIA CORPORATION

*GMA CONSTRUCTION, INC., A WEST
VIRGINIA CORPORATION

*GMA-MADISON, INC., A WEST VIRGINIA
CORPORATION

*GMA PARTNERSHIP HOLDING COMPANY,
INC., A WEST VIRGINIA CORPORATION

*GMA - UNIONTOWN, INC., A PENNSYLVANIA
CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*GROTON ASSOCIATES OF
CONNECTICUT, L.P., A DELAWARE
LIMITED PARTNERSHIP
By Health Resources of Groton,
Inc., its General Partner

*HEALTH RESOURCES OF BOARDMAN,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF BRIDGETON,
INC., A NEW JERSEY CORPORATION

*HEALTH RESOURCES OF COLCHESTER,
INC., A CONNECTICUT CORPORATION

*HEALTH RESOURCES OF COLUMBUS,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF CRANBURY,
INC., A NEW JERSEY CORPORATION

*HEALTH RESOURCES OF CUMBERLAND,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF ENGLEWOOD,
INC., A NEW JERSEY CORPORATION

*HEALTH RESOURCES OF FARMINGTON,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF GLASTONBURY,
INC., A CONNECTICUT CORPORATION

*HEALTH RESOURCES OF GROTON, INC.,
A DELAWARE CORPORATION

*HEALTH RESOURCES OF JACKSON, INC.,
A NEW JERSEY CORPORATION

*HEALTH RESOURCES OF LAKEVIEW, INC.,
A NEW JERSEY CORPORATION

*HEALTH RESOURCES OF LEMONT, INC.,
A DELAWARE CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*HEALTH RESOURCES OF KARMENTA AND
MADISON, INC.,
A DELAWARE CORPORATION

*HEALTH RESOURCES OF MARCELLA,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF MIDDLETOWN
(RI), INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF MONTCLAIR,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF NORFOLK, INC.,
A DELAWARE CORPORATION

*HEALTH RESOURCES OF NORWALK, INC.,
A CONNECTICUT CORPORATION

*HEALTH RESOURCES OF ROCKVILLE,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF SOUTH
BRUNSWICK, INC., A NEW JERSEY
CORPORATION

*HEALTH RESOURCES OF WALLINGFORD,
INC., A DELAWARE CORPORATION

*HEALTH RESOURCES OF WARWICK,
INC., A DELAWARE CORPORATION

*HNCA, INC., A PENNSYLVANIA CORPORATION

*HORIZON ASSOCIATES, INC., A WEST
VIRGINIA CORPORATION

*HORIZON MEDICAL EQUIPMENT AND
SUPPLY, INC., A WEST VIRGINIA CORPORATION

*HORIZON MOBILE, INC., A WEST VIRGINIA
CORPORATION

*HORIZON REHABILITATION, INC., A WEST
VIRGINIA CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*INSTITUTIONAL HEALTH CARE SERVICES,
INC., A NEW JERSEY CORPORATION

*LAKEWOOD HEALTH RESOURCES, INC.,
A DELAWARE CORPORATION

*LAUREL HEALTH RESOURCES, INC., A
DELAWARE CORPORATION

*LEHIGH NURSING HOMES, INC., A
PENNSYLVANIA CORPORATION

*LWNR, INC., A DELAWARE CORPORATION

*MABRI CONVALESCENT CENTER, INC., A
CONNECTICUT CORPORATION

*MARSHFIELD HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*MIDDLETOWN (RI) ASSOCIATES OF
RHODE ISLAND, L.P., A DELAWARE LIMITED
PARTNERSHIP
By Health Resources of Middletown (RI),
Inc., its General Partner

*MONTGOMERY NURSING HOMES, INC.,
A PENNSYLVANIA CORPORATION

*NATIONAL PHARMACY SERVICE, INC., A
PENNSYLVANIA CORPORATION

*PHC OPERATING CORP., A DELAWARE
CORPORATION

*POCAHONTAS CONTINUOUS CARE
CENTER, INC., A WEST VIRGINIA CORPORATION

*POINT PLEASANT HAVEN LIMITED
PARTNERSHIP, A WEST VIRGINIA LIMITED
PARTNERSHIP
By Glenmark Associates, Inc., its
General Partner

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*PROGRESSIVE REHABILITATION CENTERS,
INC, A DELAWARE CORPORATION

*PROVIDENCE HEALTH CARE, INC., A
DELAWARE CORPORATION

*RALEIGH MANOR LIMITED PARTNERSHIP,
A WEST VIRGINIA LIMITED PARTNERSHIP
By Glenmark Associates, Inc., its
General Partner

*REST HAVEN NURSING HOME, INC., A
WEST VIRGINIA CORPORATION

*RIDGELAND HEALTH RESOURCES, INC.,
A DELAWARE CORPORATION

*RIVER PINES HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*RIVERSHORES HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*RLNR, INC., A DELAWARE CORPORATION

*ROMNEY HEALTH CARE CENTER, LIMITED
PARTNERSHIP, A WEST VIRGINIA LIMITED
PARTNERSHIP
By Glenmark Associates, Inc., its
General Partner

*ROSE HEALTHCARE, INC., A NEW JERSEY
CORPORATION

*ROSE VIEW MANOR, INC., A PENNSYLVANIA
CORPORATION

*RSNR, INC., A DELAWARE CORPORATION

*RVNR, INC., A DELAWARE CORPORATION

*SCHUYLKILL NURSING HOMES, INC., A
PENNSYLVANIA CORPORATION

*SCHUYLKILL PARTNERSHIP ACQUISITION
CORP., A PENNSYLVANIA CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*SENIOR LIVING VENTURES, INC., A
PENNSYLVANIA CORPORATION

*SISTERVILLE HAVEN LIMITED
PARTNERSHIP, A WEST VIRGINIA LIMITED
PARTNERSHIP
By Glenmark Associates, Inc., its
General Partner

*SNOW VALLEY HEALTH RESOURCES,
INC., A DELAWARE CORPORATION

*STAFFORD CONVALESCENT CENTER,
INC., A DELAWARE CORPORATION

*S.T.B. INVESTORS, LTD., A NEW YORK
CORPORATION

*SVNR, INC., A DELAWARE CORPORATION

*TEAYS VALLEY HAVEN LIMITED
PARTNERSHIP, A WEST VIRGINIA CORPORATION
By Glenmark Associates, Inc., its
General Partner

*THE HOUSE OF CAMPBELL, INC., A WEST
VIRGINIA CORPORATION

*THE STRAUS GROUP-HOPKINS HOUSE,
L.P., A NEW JERSEY LIMITED
PARTNERSHIP
By Encare of Wyncote, Inc.,
its General Partner

*THE STRAUS GROUP-QUAKERTOWN
MANOR, L.P., A NEW JERSEY LIMITED
PARTNERSHIP
By Encare of Quakertown, Inc.,
its General Partner

*TOTAL REHABILITATION CENTER, INC.,
a Delaware corporation

*TRI-STATE MOBILE MEDICAL SERVICES,
INC., A WEST VIRGINIA CORPORATION

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

*WALLINGFORD ASSOCIATES OF
CONNECTICUT, L.P., A DELAWARE
LIMITED PARTNERSHIP
By Health Resources of Wallingford, Inc.,
its General Partner

*WARWICK ASSOCIATES OF
RHODE ISLAND, L.P., A DELAWARE
LIMITED PARTNERSHIP
By Health Resources of Warwick, Inc.,
its General Partner

*By:
----------------------------------------
Name:
Title:

Address for Notices:

c/o The Multicare Companies, Inc.
411 Hackensack Avenue
Hackensack, NJ 07601
Attention: Chief Financial Officer
Telecopier No.: (201) 488-8818

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

AGENT:
THE CHASE MANHATTAN BANK, N.A.

By_____________________________________
Name:
Title:

Address for Notices:

New York Agency
4 Chase Metrotech Center
Brooklyn, New York 11245

with a copy to:
999 Broad Street
Bridgeport, CT 06604
Attention: Karim T. Assef
Telecopier No.: (203) 382-6573

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
THE CHASE MANHATTAN BANK, N.A.

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

999 Broad Street
Bridgeport, CT 06604
Attention: Karim T. Assef
Telecopier No.: (203) 382-6573

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
UNITED JERSEY BANK

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

214 Main Street, 2nd Floor
Hackensack, NJ 07602
Attn: James Andersen
Telecopier No.: (201) 646-9497

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
FLEET BANK, N.A.

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

175 Water Street, 27th Floor
New York, NY 10038
Attn: W. Wakefield Smith
Telecopier No.: (212) 602-1321

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
THE BANK OF MONTREAL

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

115 S. Lasalle Street
12 West
Chicago, IL 60603
Attention: Daniel Brown
Telecopier No.: (312) 750-3783

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
CREDIT LYONNAIS NEW YORK BRANCH

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

Credit Lyonnais Building
1301 Avenue of the Americas
New York, NY 10019-6022
Attention: Evan Wasser
Telecopier No.: (212) 261-3440

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
MELLON BANK, N.A.

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

610 West Germantown Pike
Room 19E-0246, Suite 200
Plymouth Meeting, PA 19462
Attention: Colleen Cunniffe
Telecopier No.: (610) 941-4136

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
SOCIETY NATIONAL BANK

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

127 Public Square
Cleveland, OH 44114
Attention: Angela Mago
Telecopier No.: (216) 689-5970

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
THE FIRST NATIONAL BANK OF
CHICAGO

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

Public Banking Department
One First National Plaza
Mail Suite 0091
Chicago, IL 60670-0091
Attention: Patricia Schneeberger
Telecopier No.: (312) 732-2016

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
THE BANK OF NOVA SCOTIA

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

Suite 2700
600 Peachtree Street, N.E.
Atlanta, GA 30308
Attention: Carolyn Lopez
Telecopier No.: (404) 888-8998

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
CORESTATES BANK, N.A.

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

1339 Chestnut Street
P.O. Box 7618, FC 1-8-3-22
Philadelphia, PA 19107-7618
Attention: Geoffrey Smith
Telecopier No.: (215) 786-8448

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

Capital Markets Group
1 First Union Center, TW-19
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Alan Gardner
Telecopier No.: (704) 383-9144

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
TORONTO DOMINION (NEW YORK), INC.

By_____________________________________
Name:
Title:

Lending Office:

The Toronto Dominion Bank
Houston Agency
909 Fannin Street, 17th Floor
Houston, Texas 77010
Attention: Debbie Greene
Telecopier: (713) 951-9921

Address for Notices:

Health Care Finance, U.S.A. Division
31 West 52nd Street
New York, NY 10019-6101
Attention: David Perlman
Telecopier No.: (212) 974-0396

with a copy to:

The Toronto Dominion Bank
Houston Agency
909 Fannin Street, 17th Floor
Houston, Texas 77010
Attention: Debbie Greene
Telecopier: (713) 951-9921

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
MIDLANTIC BANK, N.A.

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

MS: J2-JTTC-16-1
PNC Bank, N.A.
2 Tower Center
East Brunswick, NJ 08816
Attention: Karen Voight
Telecopier No.: (908) 220-3270

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

31 West 52nd Street
New York, NY 10019
Attention: Colin T. Taylor
Telecopier No.: (212) 474-8212

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
LTCB TRUST COMPANY

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

165 Broadway
New York, NY 10006
Attention: Yoshihide Nakagawa
Telecopier No.: (212) 608-2371

[SIGNATURE PAGE TO CREDIT AGREEMENT]

<PAGE>

BANKS:
THE SANWA BANK, LIMITED
(NEW YORK BRANCH)

By_____________________________________
Name:
Title:

Lending Office and Address for Notices:

Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
Attention: Paul Judicke
Telecopier No.: (212) 754-1304

[SIGNATURE PAGE TO CREDIT AGREEMENT]

Exhibit 10.35

================================================================================

ACQUISITION AGREEMENT

by and among

ADS/MULTICARE, INC.

and

ALAN D. SOLOMONT, DAVID SOLOMONT,
AHRON M. SOLOMONT, JAY H. SOLOMONT,
DAVID SOLOMONT, SUSAN S. BAILIS AND
THE SELLER ENTITIES SIGNATORY HERETO

dated as of June 17, 1996

================================================================================

<PAGE>

TABLE OF CONTENTS
-----------------

Page

1. SALE AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Transfer of Business . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . 2
2.3 Net Asset Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 3

3. THE CLOSING; CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . 4
3.1 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Deliveries at the Closing . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Modification of Transactions . . . . . . . . . . . . . . . . . . . . . 7

4. CONDITIONS TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . 7
4.1 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 8
4.3 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Title Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Tax Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.10 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 9
4.11 Compliance Evidence . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.12 Stockholder/Partner Approval . . . . . . . . . . . . . . . . . . . . . 9
4.13 Bank Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.14 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

5. CONDITIONS TO OBLIGATIONS OF THE SELLER ENTITIES AND THE OWNER PARTIES 10
5.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 10
5.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Compliance Evidence . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 10
5.6 Necessary Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.7 Release of Guaranties, Etc . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

<PAGE>

Page
----

6. REPRESENTATIONS AND WARRANTIES OF THE SELLER ENTITIES AND THE OWNER
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Organization and Authority; No Conflict . . . . . . . . . . . . . . . 11
6.2 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Capitalization; Validity of Shares . . . . . . . . . . . . . . . . . . 12
6.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 Compliance with Laws and Licensure . . . . . . . . . . . . . . . . . . 14
6.7 Surveys; Cost Reports . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 Facilities; Licensed Bed and Current Rate Schedule . . . . . . . . . . 15
6.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 16
6.10 Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.12 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 19
6.13 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.14 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.16 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . 21
6.17 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.18 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.20 Capital Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.21 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . 26
6.22 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.23 Entire Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.24 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.25 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.26 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . 27
6.27 Accuracy of Representations and Warranties . . . . . . . . . . . . . . 27

7. BUYER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 27
7.1 Due Organization and Authority . . . . . . . . . . . . . . . . . . . . 27
7.2 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 SEC Documents; Financial Statements . . . . . . . . . . . . . . . . . 28
7.4 Title to Parent Shares . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Capitalization; Validity of Shares . . . . . . . . . . . . . . . . . . 29

8. SELLERS' COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Rates; Private Pay . . . . . . . . . . . . . . . . . . . . . . . . . . 31

<PAGE>

Page
----

8.3 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 31
8.4 Sales or Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . 32
8.5 Buyer's Relations with Counterparties . . . . . . . . . . . . . . . . 32
8.6 Cost Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.7 No Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.8 Change and Use of Name . . . . . . . . . . . . . . . . . . . . . . . . 32
8.9 Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . 33
8.10 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.11 Sellers' Representative . . . . . . . . . . . . . . . . . . . . . . . 33
8.12 Waiver of Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . 34
8.13 Section 338(h)(10) . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Notice of Breach; Disclosure . . . . . . . . . . . . . . . . . . . . . 34
8.15 Management Agreements . . . . . . . . . . . . . . . . . . . . . . . . 34
8.16 1995 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 35
8.17 Related Party Settlement. . . . . . . . . . . . . . . . . . . . . . 35

9. BUYER'S COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 35

10. MUTUAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Title and Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Licensure Requirements . . . . . . . . . . . . . . . . . . . . . . . . 36
10.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.6 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . 38
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.9 Non-Compete/Non Solicitation . . . . . . . . . . . . . . . . . . . . . 38
10.10 Bulk Sales Laws . . . . . . . . . . . . . . . . . . . . . . . . . 41

11. RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.1 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.2 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Material Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

12. INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . . . . . . . 42
12.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.2 Indemnification by Owner Parties . . . . . . . . . . . . . . . . . . . 42
12.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . 43
12.4 Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . 43
12.5 Procedure for Indemnification -- Third Party Claims . . . . . . . . . .44

iii

<PAGE>

Page
----

12.6 Indemnity Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.7 Special Provision Relating to Academy . . . . . . . . . . . . . . . . 45

13. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . 47

14. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.3 Miscellaneous Definitions . . . . . . . . . . . . . . . . . . . . . . 52

15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.1 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.5 Governing Law; Consent to Jurisdiction . . . . . . . . . . . . . . . . 53
15.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.10 Exhibits, Schedules and Due Diligence . . . . . . . . . . . . . . 55
15.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.12 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . 56

Exhibit A -- Transactions; Allocations
Exhibit 4.10A -- ADS Employment Agreement
Exhibit 4.10B -- SSB Employment Agreement
Schedule A -- List of Sellers

<PAGE>

ACQUISITION AGREEMENT
---------------------

THIS ACQUISITION AGREEMENT, dated as of June 17, 1996, is by and
among ADS/MULTICARE, INC., a Delaware corporation ("Buyer"), the selling
-----
entities listed on Schedule A (each a "Seller Entity" and collectively, the
-------------
"Seller Entities"), ALAN D. SOLOMONT, DAVID SOLOMONT, AHRON M. SOLOMONT,
---------------
JAY H. SOLOMONT, DAVID SOLOMONT and SUSAN S. BAILIS (each an "Owner Party"
-----------
and collectively the "Owner Parties"). The Seller Entities, the Owner
-------------
Parties and the selling stockholders and partners listed on Schedule A who
are not Owner Parties are collectively referred to as the "Owners". The
------
term "Sellers" includes the Seller Entities and the Owners. Certain terms
used herein have the meanings specified in Section 14 of this Agreement.

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, the Seller Entities, inter alia, (i) provide management,
----- ----
development and consulting services to long-term health care facilities,
assisted living facilities and transitional care units (collectively, the
"Managed Facilities"), (ii) own, operate or lease long-term health care
------------------
facilities located in the Commonwealth of Massachusetts (the "Operated
--------
Facilities"), and (iii) own certain interests in joint ventures that own,
- ----------
operate, manage or develop such facilities (the "Joint Venture
-------------
Facilities," and, together with the Managed Facilities and the Operated
- ----------
Facilities, the "Facilities"); the business conducted by the Seller
----------
Entities is referred to herein as the "Business";
--------

WHEREAS, the Owners own or control, directly or indirectly, all of
the issued and outstanding shares of capital stock and/or the partnership
interests of each of the Seller Entities, as more specifically set forth in
Schedule A;

WHEREAS, Sellers desire to sell, transfer and convey or cause to be
sold, transferred and conveyed to Buyer, and Buyer desires to purchase from
Sellers, all of the Business, pursuant to a number of transactions (each a
"transaction") to be structured as any of the following: (a) a merger of
certain of the Seller Entities which are corporations with one or more
wholly-owned subsidiaries of Buyer (each a "Merged Seller Entity" and
--------------------
collectively, the "Merged Seller Entities") and/or (ii) the transfer by the
----------------------
Owners to one or more wholly-owned subsidiaries of Buyer of all of the
issued and outstanding shares of capital stock and any partnership
interests held by the Owners in certain of the Seller Entities (each an
"Equity Seller Entity" and collectively, the "Equity Seller Entities"),
-------------------- ----------------------
each transaction as more specifically set forth in Exhibit A;

<PAGE>

WHEREAS, simultaneously herewith, The Multicare Companies, Inc.
("Parent"), the parent of Buyer, is executing and delivering a guaranty
------
(the "Guaranty") pursuant to which Parent is guaranteeing to Sellers
--------
Buyer's obligations hereunder.

NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereby agree as follows:

1. SALE AND PURCHASE.
------------------

1.1 Transfer of Business. Subject to the terms and conditions
--------------------
of this Agreement, at the Closing, and in the manner more specifically set
forth in Exhibit A, Sellers shall sell, convey, assign, transfer and
deliver to Buyer, and Buyer shall purchase and accept from Sellers, the
Business.

2. PURCHASE PRICE.
--------------

2.1 Purchase Price. In consideration for the sale, transfer,
--------------
assignment, conveyance and delivery of the Business to Buyer, Buyer hereby
agrees to pay Sellers the purchase price of $69,751,000, subject to
adjustment as provided in Sections 2.3 (Net Asset Adjustment), 8.3
(Environmental Matters) and 11.1 (Casualty) and 10.11 minus the
Indemnification Holdback Amount (the "Purchase Price"). At Closing, Buyer
--------------
shall deliver by wire transfer or certified check in then current Boston
clearinghouse funds to the Sellers' Representative (who shall be solely
responsible for the disbursement of the Purchase Price to Sellers in
accordance with the amounts set forth in Exhibit A) the sum of $59,187,300
(the "Cash Payment") and deliver certificates, free and clear of all Liens
------------
and legends (other than legends referred to in Section 8.10), representing
531,507 shares of common stock, par value $.01 per share of Parent (the
"Parent Shares"), in such amounts and to such Sellers as is set forth in
-------------
Exhibit A (the "Stock Payment Amount"). In addition, at the Closing, Buyer
--------------------
shall deliver to the Escrow Agent $1,000,000 (the "Indemnification Holdback
------------------------
Amount") by wire transfer or certified check to the Escrow Agent, which
- ------
amount shall be held and disbursed in accordance with the Escrow Agreement.
The Sellers' Representative shall retain as much of the Purchase Price in
cash and/or Parent Shares as the Sellers' Representative and Buyer shall
mutually agree, no later than 30 days prior to the Closing Date, is
necessary to meet reasonably anticipated payments under Section 2.3, such
amount and/or Parent Shares to be placed in an escrow determined and
arranged by the Sellers' Representative at the Owners' expense. Any funds
not required to make the adjustment under Section 2.3 shall be released to
the Owners upon final settlement of the adjustments referred to in
Section 2.3.

2.2 Allocation of Purchase Price. The Purchase Price shall be
----------------------------
allocated in the manner set forth in Exhibit A. The Seller Entities and
the Owner Parties and Buyer agree to prepare and file all federal, state,
local and foreign income tax returns and all other filings reflecting the
transactions contemplated hereunder on a basis consistent with such
allocation, and to cooperate with each other in good faith in

<PAGE>

preparing any and all statements required to be included in the tax
returns, reflecting such allocation.

2.3 Net Asset Adjustment.
--------------------

2.3.1 Preparation of Adjusted Closing Balance Sheet;
----------------------------------------------
Arbitration. Within 60 days following the Closing Date, KPMG Peat Marwick
- -----------
LLP shall deliver or cause to be delivered to Buyer and the Sellers'
Representative an audited combining balance sheet of the Seller Entities as
at the Closing Date, prepared in accordance with generally accepted
accounting principles consistent with the combining balance sheet included
in the Audited 1995 Financials (as defined in Section 8.16) (the "Closing
Balance Sheet"), except that (a) the "A.D.S." trade name shall be carried
on the books of The A.D.S. Group, Inc. at zero; (b) the effect of the
payment of up to $2,500,000 in cash bonuses by ADS Management, Inc. shall
be eliminated; and (c) all expenses of the Seller Entities in connection
with the preparation, execution and performance of this Agreement and the
transactions contemplated hereby that have not been expensed since
December 31, 1995, shall be deducted from Shareholders Equity.

The Closing Balance Sheet shall become final and binding upon the
parties unless the Sellers' Representative gives written notice of his
disagreement (a "Notice of Disagreement") to Buyer within 20 days following
receipt thereof. Any such Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted. During a
period of 10 days (as the same may be extended by mutual written agreement
of Buyer and the Sellers' Representative, (the "Discussion Period"))
following the aforesaid 20-day period, the Buyer and the Sellers'
Representative shall attempt to resolve in writing any differences which
they may have with respect to any matter specified in any Notice of
Disagreement. If at the end of the Discussion Period Buyer and the
Sellers' Representative have failed to reach written agreement with respect
to all of such disagreements, than all such unresolved disagreements (the
"Disputed Matters") shall be submitted to and reviewed by an arbitrator
(the "Arbitrator"), which shall be an office outside of Massachusetts or
New Jersey of any one of the so-called "Big Six" accounting firms (other
then KPMG Peat Marwick LLP) selected by Buyer, with the consent of the
Sellers' Representative not to be unreasonably withheld or delayed. If
within ten days following the expiration of the Discussion Period the Buyer
and the Sellers' Representative have failed to agree upon and engage the
Arbitrator, the Arbitrator shall thereupon be selected by the American
Arbitration Association (the "AAA"), with preference being given by the AAA
in making such selection to an office outside of Massachusetts or New
Jersey of any one of the "Big Six" accounting firms (other than KPMG Peat
Marwick LLP) which may be agreeable to perform such services. The
Arbitrator shall consider only the Disputed Matters. The Arbitrator shall
act promptly (and in any event within 30 days of being engaged) to resolve
all Disputed Matters and its decision with respect to all Disputed Matters
shall be final and binding upon the Sellers and the Buyer. Upon resolution
by the Arbitrator of all Disputed Matters, the Arbitrator shall cause to be
prepared and shall deliver to the Buyer and the Sellers' Representative the
Closing Balance Sheet which shall be final and binding upon the Buyer and
the Sellers. As used in this Agreement, the term "Closing Balance Sheet"
means the combining adjusted balance sheet of the Seller Entities as at the
Closing Date

<PAGE>

delivered by the Sellers' Representative to the Buyer pursuant to and in
accordance with this Agreement, as adjusted in the manner set forth in this
Section 2.3.1 and as further adjusted to reflect any written agreement
between the Sellers' Representative and the Buyer with respect thereto and
any determination of the Arbitrator with respect thereto.

2.3.2 Determination of Post-Closing Adjustments.
-----------------------------------------

(a) If the amount of the combined shareholders
equity reflected on the Closing Balance Sheet ("Closing Equity") is less
than $12,702,000 ("December 31 Equity"), then the aggregate Purchase Price
shall be reduced by an amount equal to the amount by which Closing Equity
is less than December 31 Equity. If the amount of Closing Equity is
greater than December 31 Equity, then the Purchase Price shall be increased
by such excess.

(b) If the amount of Net Liabilities (as defined
below) on the Closing Balance Sheet is greater than $31,269,000, then the
aggregate Purchase Price shall be reduced by the amount of such excess.
Net Liabilities means (i) accounts payable plus accrued expenses plus short
term debt plus long term debt (including current maturities of long term
debt) less (ii) cash and cash equivalents.

2.3.3 Payment and Allocation of Post Closing
--------------------------------------
Adjustment. The Buyer shall pay to the Sellers' Representative for
- ----------
payment to the relevant Owners, or the Sellers' Representative shall pay or
cause to be paid to the Buyer the amount of the adjustment required under
Section 2.3.2. Such adjustment shall be made not later than on the third
business day following final determination of the Closing Balance Sheet.
All adjustments shall be appropriately allocated on an entity-by-entity
basis and, if applicable, paid to the relevant Owners by the Sellers'
Representative and such payment shall be made in cash or in Parent Shares
(valued at a price of $19.875 per share) (or in the case of any Seller
Entity set forth in Exhibit A where the Purchase Price is payable partially
in cash and partially in Parent Shares, then in the same proportion as set
forth on Exhibit A), all in a manner consistent with Exhibit A.

2.3.4 Expenses of Post-Closing Adjustments. The fees
------------------------------------
and expenses of the Arbitrator incurred in connection with its review and
determination of any Disputed Matter shall be borne one-half by the Buyer
an one-half by the Owners.

2.3.5 Academy. Not later than July 10, 1996, the
-------
parties hereto shall enter into an agreement regarding the Purchase Price
adjustment for Academy(as defined below) and the Seller Entities that own
or operate such Facility.

3. THE CLOSING; CLOSING DELIVERIES.
-------------------------------

3.1 The Closing. The closing of the transactions contemplated
-----------
hereby (the "Closing") shall occur at the offices of Paul, Weiss, Rifkind,
-------
Wharton &

<PAGE>

Garrison, 1285 Avenue of the Americas, New York, NY 10019, on the first
business day of the month following the date on which all of the conditions
set forth in Articles 4 and 5 shall have been satisfied or waived, or on
such other date as the parties hereto may agree in writing (the "Closing
-------
Date").
- ----

3.2 Effective Time. The Closing shall be deemed effective
--------------
(the "Effective Time") for all purposes as of 12:01 a.m. on the Closing
--------------
Date. The parties shall thereupon execute a form of confirmation of
closing in form suitable for filing with the Rate Setting Commission of the
Commonwealth of Massachusetts.

3.3 Deliveries at the Closing.
-------------------------

3.3.1 At the Closing, the Seller Entities and the
Owner Parties shall deliver or cause to be delivered to Buyer the
following:

(a) a certificate of the Clerk of each Corporation
certifying copies of (i) the articles of organization of such
Corporation; (ii) the bylaws of such Corporation; (iii) all requisite
corporate resolutions or actions of such Corporation approving the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and (iv) the identification and
signature of each officer of such Corporation executing a document in
connection herewith;

(b) a certificate of a General Partner of each
Partnership certifying copies of (i) the Certificate of Limited
Partnership of each such Partnership that is a limited partnership; (ii)
the partnership agreement of each Partnership; (iii) all requisite
resolutions or actions of such Partnership approving the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby; and (iv) the identification and signature of each
partner of such Partnership executing a document in connection herewith;

(c) the certificate required by Section 4.11
(Compliance Evidence), duly executed by the chief executive officer,
chief operating officer or chief financial officer of each Corporation
and the general partner of each Partnership;

(d) a survey affidavit in the usual form attesting
to the lack of any changes from the surveys provided to Buyer and
satisfactory in form and substance to Buyer and the title company, and in
a form sufficient to remove the "survey exception" from the title
commitment, duly executed by the relevant Seller Entities that own, lease
or operate Operated Facilities (each an "Operator Seller Entity" and
----------------------
collectively, the "Operator Seller Entities") (it being agreed that if
------------------------
Buyer's title insurer shall not accept such affidavit but instead require
updated surveys, Buyer may, at Buyer's expense, obtain updated land
surveys or certifications for such

<PAGE>

purpose) and an affidavit, duly executed by the relevant Operator Seller
Entities, or other items as Buyer's title insurer shall require to issue
a "non-imputation" endorsement in connection with the title endorsements
referred to in Section 4.8;

(e) an assignment of all amounts held by any Seller
Entity in trust for the benefit of others in form reasonably satisfactory
to Buyer (the "Patients' Trust Funds Assignment"), including patients
--------------------------------
occupying the nursing home beds at the relevant Facility, and a
certificate of the respective Seller Entity itemizing all such amounts
and for whom they are held and certifying that: (i) such amounts
represent all amounts so held by such Seller Entity; and (ii) to the
knowledge of such Seller Entity, no person has or may have any claim
against such Seller Entity with respect to its custody, management or
application of any such amounts;

(f) a nonforeign affidavit certifying that no Seller
Entity is a "foreign person" under the Code and such other information as
may be required under the applicable provisions of the Code, duly
executed by the relevant Seller Entity;

(g) the Employment Agreements, duly executed by ADS
and SSB, as applicable;

(h) an opinion of counsel to the Seller Entities and
the Owner Parties dated as of the Closing Date in form reasonably
acceptable to Buyer;

(i) good standing certificates dated the Closing
Date (or as reasonably close prior thereto as reasonably practicable) for
each Corporation, or the equivalent for each Partnership (to the extent
such certificates are available);

(j) the Escrow Agreement, duly executed by Buyer,
the Seller Entities and Owner Parties and the Escrow Agent;

(k) such resignations as Buyer shall request of the
officers and directors (other than ADS and SSB) of the Corporations;

(l) the stock certificates or partnership interest
certificates (if any) representing all of the partnership interests and
shares of the Seller Entities being transferred pursuant to this
Agreement as set forth on Exhibit A, duly endorsed in blank or
accompanied by stock powers duly executed in blank, in proper form for
transfer; and

(m) such other documents, instruments and agreements
as may be reasonably requested by Buyer or as reasonably required to
consummate the transactions which are contemplated hereby in a manner
consistent with Exhibit A.

<PAGE>

3.3.2 At the Closing, Buyer shall deliver or cause to
be delivered the following:

(a) the Purchase Price to Sellers' Representative
for disbursement in accordance with Exhibit A;

(b) the Parent Shares, representing the Stock
Payment Amount to such Persons as is contemplated by Exhibit A;

(d) an opinion of counsel to Buyer to the Sellers
dated as of the Closing Date in form reasonably acceptable to the
Sellers' Representative;

(e) a good standing certificate of Parent, Buyer and
any subsidiary of Buyer (a "Buyer Subsidiary") which is executing a
----------------
document in connection with this transaction to the Sellers;

(f) the Employment Agreements, duly executed by
Parent;

(g) a certificate of the Secretary of Buyer and
Parent certifying copies of (i) the certificate of incorporation and
bylaws of Buyer and of Parent; (ii) the requisite corporate resolutions
or actions of Buyer approving the execution and delivery of this
Agreement and the transactions contemplated hereby; and of the Parent
approving the execution and delivery of the Guaranty and the transactions
contemplated thereby; and (iii) the identification and signature of each
officer of Buyer and Parent who is executing a document in connection
with this transaction; and

(h) the Indemnification Holdback Amount, to the
Escrow Agent.

3.4 Modification of Transactions. Prior to the Closing, Buyer
----------------------------
may modify or amend the structure of the transactions set forth on
Exhibit A in order to effect the sale, transfer and conveyance of the
Business to Buyer so long as such modification or amendment will not in the
reasonable opinion of the Sellers' Representative adversely affect any of
the Sellers.

4. CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
---------------------------------
consummate the transactions contemplated hereby is conditioned upon the
satisfaction, or waiver by Buyer, on or before the Closing Date, of the
following conditions:

<PAGE>

4.1 Due Diligence. Buyer shall have completed its due
-------------
diligence review of the Business and shall be satisfied with the results
thereof; provided, however, that if Buyer is not so satisfied, Buyer shall
-------- -------
so notify Seller within 45 business days of the date hereof, whereupon this
Agreement, and the rights and obligations of the parties hereunder and
otherwise with respect to the transactions contemplated hereby, shall
immediately terminate without recourse and be of no further force and
effect except as set forth in Section 13.2.

4.2 Representations and Warranties. The representations and
------------------------------
warranties of the Seller Entities and the Owner Parties contained in this
Agreement, the Schedules or Exhibits hereto or in any certificate delivered
by the Seller Entities and the Owner Parties to Buyer in connection with
the transactions contemplated hereby shall be true on and as of the Closing
Date with the same effect as though such representations and warranties
were made on such date.

4.3 Performance of Covenants. Sellers shall have performed
------------------------
and complied in all material respects with all of the agreements, covenants
and conditions required by this Agreement to be performed or complied with
prior to or on the Closing Date.

4.4 Litigation. No investigation, suit, action or other
----------
proceeding, or injunction or final judgment relating thereto, shall be
threatened or pending on the Closing Date before any court or Governmental
Authority in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby or which has or may
have, in the reasonable opinion of Buyer, a material adverse effect on the
assets, properties, business or condition (financial or otherwise) of the
Business.

4.5 Consents and Approvals. Buyer shall have received the
----------------------
consent or approval of all Governmental Authorities and of the parties to
any Contract and all Licenses, necessary or appropriate to consummate the
transactions contemplated hereby and to own and operate the Business,
including, without limitation, all necessary or appropriate certificates
from Governmental Authorities to enable Buyer to act as a provider of
health care services eligible for reimbursement under Medicare, Medicaid
and similar programs. Buyer understands that under applicable law, the
Department of Public Health of Massachusetts will not issue new licenses to
the Joint Venture Facilities on the Closing Date; instead the filing of
applications for original licensure with respect to the Operated Facilities
and the Joint Venture Facilities will have "the effect of a license" until
new licenses are so issued. Furthermore, the Division of Medicaid
Assistance of the Commonwealth of Massachusetts will not issue a so-called
Medicaid provider agreement to the Joint Venture Facilities on the Closing
Date; instead, applications for Medicaid provider agreements are to be
filed on or about the Closing Date and the Medicaid provider agreements
would be expected to be issued in ordinary course.

<PAGE>

4.6 [Intentionally Omitted].
---------------------

4.7 Adverse Changes. There shall not have been any material
---------------
adverse change in the assets, properties, condition (financial or
otherwise), prospects or results of operations of the Business from
December 31, 1995 to the Closing Date, nor shall there exist any condition
which could reasonably be expected to result in such an adverse change.

4.8 Title Commitment. Buyer shall have received endorsements
----------------
updating existing title insurance policies held by the Seller Entities or
the Owner Parties acceptable to Buyer and in such amounts as Buyer shall
require, at its expense and dated the Closing Date, insuring that upon the
Closing the relevant Seller Entities will own good and marketable fee
simple title to the Owned Real Property, free and clear of all Liens other
than Permitted Encumbrances.

4.9 Tax Clearance. The Seller Entities shall have obtained
-------------
and delivered to Buyer evidence of all applicable Massachusetts tax
clearances.

4.10 Employment Agreements. Each of ADS and SSB shall have
---------------------
executed and delivered to Buyer an employment agreement substantially in
the form of Exhibit 4.10A and Exhibit 4.10B, respectively (each, an
"Employment Agreement" and collectively, the "Employment Agreements").
-------------------- ---------------------

4.11 Compliance Evidence. Buyer shall have received such
-------------------
certificates, opinions, documents and information as it may reasonably
request in order to establish satisfaction of the conditions set forth in
this Article 4, including, without limitation, all documents required to be
delivered to Buyer under Section 3.3.1 and a certificate certifying the
matters set forth in Sections 4.2, 4.3, 4.4, 4.5, 4.6 and 4.7, signed by an
officer of or the general partner of the respective Corporation or
Partnership. All certificates, opinions, documents and other papers to be
delivered by Sellers and all other matters to be accomplished prior to or
at the Closing shall be reasonably satisfactory to Buyer and its counsel.

4.12 Stockholder/Partner Approval. This Agreement and the
----------------------------
transactions contemplated hereby and as set forth in Exhibit A shall have
been approved and adopted by the requisite vote of stockholders of each
Corporation and the requisite consent or approval of the general and/or
limited partners of each Partnership.

4.13 Bank Consent. Parent shall have obtained on terms
------------
satisfactory to Parent the consent of the banks who are party to Parent's
Second Amended and Restated Credit Agreement (as the same may hereafter be
amended or refinanced in a manner not adverse to the transactions
contemplated hereby) to the consummation of the transactions contemplated
hereby.

<PAGE>

4.14 Escrow Agreement. The Sellers' Representative and the
----------------
Escrow Agent shall have executed and delivered to Buyer the Escrow
Agreement.

5. CONDITIONS TO OBLIGATIONS OF THE SELLER ENTITIES AND THE OWNER
--------------------------------------------------------------
PARTIES. The obligation of the Seller Entities and the Owner Parties to
- -------
consummate the transactions contemplated hereby is conditioned upon the
satisfaction, or waiver by the Sellers' Representative, on or before the
Closing Date, of the following conditions:

5.1 Purchase Price. The Sellers' Representative shall have
--------------
received the Cash Payment and the Parent Shares representing the Stock
Payment Amount and Buyer shall have deposited with the Escrow Agent the
Indemnification Holdback Amount.

5.2 Representations and Warranties. The representations and
------------------------------
warranties of Buyer contained in this Agreement, the Schedules or Exhibits
hereto or in any certificate or document delivered by Buyer to Sellers in
connection with the transactions contemplated hereby shall be true on and
as of the Closing Date with the same effect as though such representations
and warranties were made on such date.

5.3 Litigation. No investigation, suit, action or other
----------
proceeding, or injunction or final judgment relating thereto, shall be
threatened or pending on the Closing Date before any court or Governmental
Authority in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby or which has, or may
have, in the reasonable opinion of the Seller's Representative a material
adverse effect on the assets, properties or condition (financial or
otherwise) of Parent.

5.4 Compliance Evidence. Sellers shall have received such
-------------------
certificates, opinions, documents and information as the Sellers'
Representative may reasonably request in order to establish satisfaction of
the conditions set forth in this Article 5, including, without limitation,
all documents required to be delivered to Sellers under Section 3.3.2 and a
certificate certifying the matters set forth in Sections 5.2, 5.3 and 5.9,
signed by the President or any Vice President of Buyer. All certificates,
documents and other papers to be delivered by Buyer and all other matters
to be accomplished prior to or at the Closing shall be reasonably
satisfactory to the Sellers' Representative.

5.5 Employment Agreements. Parent shall have executed and
---------------------
delivered to ADS and SSB, respectively, the Employment Agreements.

5.6 Necessary Consents. The obligations of the Seller
------------------
Entities and the Owner Parties to complete certain of the transactions
contemplated hereby are subject to the obtaining of certain necessary
consents, all as set forth on Schedule 5.6 and in Section 10.7.

<PAGE>

5.7 Release of Guaranties, Etc. With respect to any
--------------------------
indebtedness of the Seller Entities not repaid by or on behalf of Buyer at
Closing and any indebtedness of any Joint Venture Facility for which any
Owner is liable, the relevant Owners shall have obtained releases of any
guaranty made by such Owner in connection with, or other liability of such
Owner under, any indebtedness of any Seller Entity (or any Joint Venture
Facility) and of any collateral not relating to the Business or, despite
the reasonable best efforts of Buyer any such release cannot be so
obtained, such Owner shall have received indemnification from Buyer,
reasonably satisfactory to the Sellers' Representative for such guaranty,
liability or collateral.

5.8 Escrow Agreement. Buyer and the Escrow Agent shall have
----------------
executed and delivered to the Sellers' Representative the Escrow Agreement.

6. REPRESENTATIONS AND WARRANTIES OF THE SELLER ENTITIES AND THE
-------------------------------------------------------------
OWNER PARTIES. Each Owner Party and Seller Entity represents and warrants
- -------------
to Buyer, with respect to each Seller Entity as follows: (it being
understood that (i) each Owner Party is making the representations and
warranties set forth in Sections 6.1 (Organization and Authority; No
Conflict), 6.2 (Title), 6.3 (Capitalization) and 6.25 (Securities Laws) as
to the Owner Parties only with respect to such Owner Party; (ii) each Owner
Party is making representations and warranties respecting the Seller
Entities of which it is, directly or indirectly, an Owner; but the
liabilities of all the Owner Parties that directly or indirectly own a
Seller Entity are joint and several with respect to such Seller Entity and
(iii) the liability of the Owner Parties other than SSB, ADS and his
brothers David Solomont and Ahron Solomont shall be limited in the manner
set forth in Section 12.6)

6.1 Organization and Authority; No Conflict.
---------------------------------------

6.1.1 Each Seller Entity is a partnership or
corporation duly organized and validly existing and each such Corporation
is in good standing under the laws of its state of organization. Each
Seller Entity is qualified or licensed to do business in the Commonwealth
of Massachusetts and in each other jurisdiction where the character of its
assets or the nature of that portion of the Business currently conducted by
it makes such qualification or licensing necessary. Each Seller Entity has
all requisite power to own, operate and manage that portion of the Business
currently conducted by it or lease its assets and to carry on that portion
of the Business.

6.1.2 The Seller Entities and the Owner Parties have
full power and authority to enter into this Agreement and to perform their
respective obligations hereunder. This Agreement, and each other agreement
or document to be delivered by Sellers in connection herewith, has been (or
at the Closing, will be) duly authorized and approved by all necessary
action of the respective Seller, have been (or at the Closing, will be)
duly executed and delivered by the respective Seller and are (or at the
Closing, will be) valid and legally binding obligations of the respective
Seller, enforceable against each of them in accordance with their terms.

<PAGE>

6.1.3 Except as set forth in Schedule 6.1.3, and only
to the knowledge of any of the Seller Entities or the Owner Parties with
respect to Sellers who are not Seller Entities or Owner Parties, the
execution, delivery, and performance of this Agreement, and each other
agreement and document to be delivered by Sellers in connection herewith,
and the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the transfer of the Business to Buyer),
does not and will not (i) violate any provision of the relevant agreement
of partnership, the articles of organization or bylaws or any other
agreement, document or instrument to which the relevant Seller or any of
its general or limited partners is a party; (ii) require the relevant
Seller to obtain any consent, approval, or action of, or make any filing
with or give any notice to, any Governmental Authority or any other Person;
(iii) violate, conflict with, or result in the breach of any of the terms
of, result in a material modification of, or otherwise cause the
termination of or give any other contracting party the right to terminate
or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any Lien upon any
property or assets of the Business under, or constitute (or with notice or
lapse of time or both constitute) a default under, any agreement, lease,
commitment or other binding arrangement to which the relevant Seller is a
party or by or to which the relevant Seller or any Facility is bound or
subject; (iv) violate any order or decree of any Governmental Authority
against or binding upon the relevant Seller or any Facility; (v) violate
any statute or law or regulation of any Governmental Authority; or
(vi) violate or result in the revocation or suspension of any License.

6.2 Title. Except as set forth in Schedule 6.2, each Seller
-----
Entity has good and marketable title to its assets, free and clear of all
Liens, except for Permitted Encumbrances. At the Closing, the Seller
Entities and the Owner Parties will cause Sellers to transfer to Buyer good
and marketable title to the Business, free and clear of all Liens, except
for Permitted Encumbrances. Except as set forth in Schedule 6.2, no Person
has any option or any right capable of becoming an option for the purchase
of the Operated Facilities, the Business, the Joint Venture Facilities (or
Sellers' interest therein) or, to the knowledge of the Seller Entities and
the Owner Parties, any Managed Facilities or any other person's interest in
any Joint Venture Facility.

6.3 Capitalization; Validity of Shares. The authorized and
----------------------------------
issued shares of capital stock and other ownership interests of each Seller
Entity are as set forth on Schedule A and the shares of each Seller Entity
outstanding are as set forth on Schedule A. Except as set forth on
Schedule 6.3, all issued and outstanding capital stock or other ownership
interests of each Seller Entity as set forth on Schedule A is owned by the
Owner Parties, (or to the knowledge of any of the Seller Entities or the
Owner Parties, the Owners other than the Owner Parties), free and clear of
any Liens. All of the outstanding shares of capital stock and the
partnership interests of the Seller Entities are duly authorized and
validly issued, fully paid and nonassessable. Except as set forth on
Schedule 6.3, no other class of capital stock or other ownership interests
of any Seller Entity is authorized or outstanding. Except as set forth on
Schedule 6.3, there are no existing options, rights, subscriptions,
warrants, unsatisfied preemptive rights, calls or commitments to which any

<PAGE>

Seller Entity or Owner Party (or to the knowledge of any of the Seller
Entities or the Owner Parties, the Owners other than the Owner Parties) is
a party or is bound of any character relating to the authorized and
unissued capital stock or partnership interests of any Seller Entity or to
any securities or obligations convertible into or exchangeable for, or
giving (except for this Agreement) any Person any right to subscribe for or
acquire from any Seller any shares of capital stock of or interest in any
Seller Entity and no such convertible or exchangeable securities or
obligations are outstanding.

6.4 Financial Statements. The Seller Entities and the Owner
--------------------
Parties have delivered or caused to be delivered to Buyer the combined
financial statements of the Seller Entities listed on Schedule 6.4 for the
fiscal years ended December 31, 1995, 1994 and 1993 and for the three-month
period ended March 31, 1996. Not later than the Closing, the Seller
Entities and the Owner Parties shall have delivered or caused to be
delivered to Buyer monthly financial statements of each such Seller Entity
for each month that has ended after such three-month period but prior to
the Closing Date, in each case not later than 30 days following month-end.
All of the foregoing financial statements (collectively, the "Financial
---------
Statements") fairly present, and will fairly present, the financial
- ----------
condition and results of operations of the Business on the dates and for
the financial periods then ended, in accordance with generally accepted
accounting principles which have been, and will be, applied on a basis
consistent with prior periods, except in the case of monthly statements for
the absence of footnotes and subject to normally recurring year-end
adjustments. The balance sheet as of December 31, 1995 included in the
Financial Statements includes an estimated net liability (net of estimated
receivables and estimated payables) of approximately $860,000 for potential
overpayment and claims due to government and other third party payors at
December 31, 1995.

6.5 Litigation. Except as set forth in Schedule 6.5, there
----------
are no actions, suits or legal, administrative, arbitration or other
proceedings pending or, to the knowledge of any of the Seller Entities or
the Owner Parties, threatened against any Seller or any Facility before or
by any Governmental Authority, nor, to the knowledge of any of the Seller
Entities or the Owner Parties are there any governmental investigations
pending or threatened, which if adversely determined would materially and
adversely affect the assets, properties, condition (financial or
otherwise), prospects or results of operations of the Business (a "Material
--------
Adverse Effect") or which challenge the validity of, or seeks damages
- --------------
arising out of the execution, delivery or performance of, this Agreement,
and to the knowledge of any of the Seller Entities or the Owner Parties no
basis exists for any such action. No Seller Entity or Owner Party (or to
the knowledge of any of the Seller Entities or the Owner Parties, any Owner
other than the Owner Parties) is a party to or subject to any judgment,
order, writ, injunction, decree or award of any Governmental Authority.

<PAGE>

6.6 Compliance with Laws and Licensure.
----------------------------------

6.6.1 Each Facility is (i) operating and functioning as a
nursing or long-term care facility, (ii) fully licensed by the Commonwealth
of Massachusetts Department of Health or has a current determination of
need in force, for the number and licensed categories of beds set forth in
Schedule 6.6.1 and no such license is less than a standard license or is a
provisional license, and (iii) certified as eligible for participation
under the Medicaid and Medicare programs. No Facility is subject to any
"fast track" or other license or certification actions or to any ban on
admission and no such actions are pending or, to the knowledge of any of
the Seller Entities or the Owner Parties, threatened against any Seller
Entity or any Facility.

6.6.2 No Seller Entity or Owner Party is, in connection
with the ownership or operation of any Facility or the Business, in
violation of any law, regulation, order or decree of any Governmental
Authority, except for such violations that individually or in the aggregate
do not have a Material Adverse Effect, and none of the Seller Entities and
the Owner Parties is aware of any notice of violation or alleged violation
of any such law, regulation, order or decree, or any pending proceeding,
action or investigation with respect thereto. Each Facility and the
Business are in compliance with all applicable legal requirements other
than those waived in writing, including, without limitation, all life
safety codes, except for such violations that individually or in the
aggregate would not have a Material Adverse Effect. Attached hereto as
Schedule 6.6.2 are copies of any certifications or waivers issued by the
United States Department of Health and Human Services with respect to each
Facility and copies of the latest surveys upon which such certifications or
waivers were issued. Except as set forth in Schedule 6.6.2, there are no
facts or conditions which will have an adverse effect upon the licensure or
certification of any Facility.

6.6.3 Each Seller Entity has obtained all material
Licenses that are necessary or appropriate for the operation of the
Facilities. All such Licenses are listed in Schedule 6.6.3 and are in full
force and effect, and no violation has been recorded or, to the knowledge
of any of the Seller Entities or the Owner Parties, alleged in respect of
any such License which has not been cured or corrected. Except as set
forth on Schedule 6.6.3, the transfer of the Facilities and the Business to
Buyer and the operation of the Facilities by Buyer after the Closing in the
manner in which they are currently operated will not require the transfer
of any License that may not be transferred to Buyer without the consent or
approval of any Governmental Authority or other Person.

6.6.4 Any and all patient trust funds held, maintained
or administered by or on behalf of the Seller Entities or any Facility have
been (as to Managed Facilities, limited to the period of a Seller Entities'
management and excluding Facilities covered by management agreements under
which the Seller Entities as managers do not have responsibility for
administering or maintaining such funds), and presently are, held,
maintained or administered in full compliance with all applicable laws,
rules and regulations. The books and records of any such Facility relating
to patient trust fund accounts are true

<PAGE>

and correct. At the Closing, the relevant Seller Entities shall execute
and deliver the Patients' Trust Funds Assignment and transfer the trust
funds and the records pertaining thereto to Buyer; it being understood that
Buyer shall take no responsibility nor assume any obligation for any
patient trust fund with a negative balance. It is understood by the
parties that the funds in the trust accounts are not the property of the
Seller Entities, and are not included in the Purchase Price. A list of the
account balances for each patient's trust fund to be updated at the Closing
is attached hereto as Schedule 6.6.4.

6.7 Surveys; Cost Reports.
---------------------

6.7.1 The Seller Entities and the Owner Parties have
delivered, or caused to be delivered, to Buyer complete and accurate copies
of all of the survey or inspection reports made with respect to the
Facilities during the calendar years 1994 and 1995 and will deliver
complete and accurate copies of such reports made with respect to the
Facilities through the Closing Date by any Governmental Authority or
otherwise. All exceptions, deficiencies, violations or other indications
of lack of compliance in such reports have been fully corrected and there
are no bans on admission or licensure curtailments outstanding or, to the
knowledge of any of the Seller Entities or the Owner Parties, threatened as
a result of any such inspections.

6.7.2 The Seller Entities and the Owner Parties have
timely filed, or caused to be timely filed, all required cost reports with
respect to Medicaid and Medicare. The Seller Entities and the Owner
Parties have delivered, or caused to be delivered, to Buyer all such cost
reports for Medicaid and Medicare and all other rate compensation and
reimbursement reports, audits and schedules prepared or issued by, or filed
with, any Governmental Authority or private payor with respect to the
operations of the Operated Facilities and Joint Venture Facilities for the
last three years and each such report relating to an Operated Facility or
Joint Venture Facility is complete and accurate in all material respects.
Schedule 6.7.2 hereto sets forth the status of any open cost reporting
periods, pending reimbursement appeals, and reimbursement payment rates for
the last three years with respect to any Governmental Authority or other
third party payor. No Seller Entity is responsible for the preparation or
submission of cost reports at any Managed Facility.

6.8 Facilities; Licensed Bed and Current Rate Schedule.
--------------------------------------------------
Schedule 6.8 sets forth (i) a list of the Facilities (specifying the
respective Seller Entity's percentage interest in each Facility and whether
each Facility is owned, leased, operated or managed and by which Seller
Entity) and the number of licensed long-term care beds and certified
assisted living beds and units at each Facility, (ii) the current rates
charged by each Facility to its residents, (iii) the number of beds or
units presently occupied in, and the occupancy percentage at, each
Facility, including the current rates charged by each Facility for each
such occupied bed or unit and (iv) the most recent week census and year to
date census for Medicare, Medicaid and private pay patients. As used
herein, the term "private pay" shall mean a resident for whom payment is
not made by Medicare or Medicaid (and not including any "pending" patient).

<PAGE>

6.9 Environmental Matters.
---------------------

6.9.1 Except as to matters that will not have a
Material Adverse Effect, the Seller Entities' ownership and operation of
the Business is and has been in compliance with all Environmental Laws and
the Seller Entities or the Facilities, as applicable, have obtained all
Licenses necessary or required under all applicable Environmental Laws for
the ownership and operation of the Business and the conduct of Business at
each Facility, all such approvals are in effect, no action to revoke or
modify any of such approvals is pending, and the ownership and operation of
the Facilities and the Business is and has been in compliance with all
terms and conditions thereof; provided, however, with respect to any
-------- -------
Managed Facility, the representation set forth in the immediately preceding
sentence is made to the knowledge of the officers of the Seller Entity
managing such Facility and of the administrators of such Managed Facility.
To the knowledge of any of the Seller Entities or the Owner Parties, there
is not now pending or threatened any claim or investigation by any
Governmental Authority or any other Person concerning the Seller Entities'
or the Facilities' potential liability under Environmental Laws in
connection with its ownership or operation of the Business. Except as set
forth on Schedule 6.9.1, there has not been at any time a reportable
release or threatened release of any Hazardous Substance at, upon, in, or
under any Operated Facility or Joint Venture Facility or, to the knowledge
of the officers of the Seller Entity managing such Managed Facility or the
administrator thereof, any Managed Facility. No part of the Real Property
has been or is used as a treatment, storage or disposal facility for
Hazardous Substances, and no Hazardous Substances are present on the Real
Property (except for Hazardous Substances (i) used, stored or disposed of
in compliance with applicable Environmental Laws in the permitted day-to-
day operations of the Business; (ii) with respect to which there is not and
will not be an obligation pursuant to Environmental Laws to provide notice
to any Person or entity or to conduct investigation or remediation; and
(iii) the presence of which does not result in a limitation on the use of
the Real Property).

6.9.2 Sellers have (i) provided to Buyer all material
information, data, test results, records, notices, disclosures, reports and
history in Sellers' possession or control with respect to the Real
Property, including all material correspondence with any Governmental
Authority, concerning any and all past and/or present health, safety and/or
environmental issues or concerns, and (ii) made all material disclosures,
including notice of a release or threatened release of a Hazardous
Substance into the environment, required under any Environmental Law;
provided, however, with respect to any Managed Facility, the representation
- -------- -------
set forth in clause (ii) is made to the knowledge of the officers of the
Seller Entity managing such Managed Facility and of the administrators of
such Managed Facility.

6.9.3 Except as to matters that will not have a Material
Adverse Effect, no circumstances or conditions exist that have a reasonable
likelihood of resulting in any Damages arising under any Environmental Law;
provided, however, with respect to any Managed Facility, the representation
- -------- -------
set forth in this sentence is made to the knowledge

<PAGE>

of the officers of the Seller Entity managing such Managed Facility and of
the administrators of such Managed Facility.

6.10 Tangible Property.
-----------------

6.10.1 Schedule 6.10.1 contains each Seller Entity's
depreciation ledger of all machinery, equipment, fixtures, motor vehicles
and other tangible personal property owned by the Seller Entity
(collectively, "Owned Tangible Property"). Except as set forth on
-----------------------
Schedule 6.10.1, each Seller Entity has good title to all Owned Tangible
Property free and clear of all Liens, except for Permitted Encumbrances.

6.10.2 Schedule 6.10.2 contains a list as of the date
indicated in such schedule of (i) all machinery, equipment, fixtures and
other tangible personal property owned by another Person subject to any
capital lease or rental agreement to which any Seller Entity is a party and
which requires annual payments by any Seller Entity in excess of $10,000
per year (collectively, "Leased Tangible Property") and (ii) a list of the
------------------------
leases of the Leased Tangible Property (the "Tangible Property Leases").
------------------------
Each of the Tangible Property Leases is in full force and effect and
constitutes a valid and binding obligation of such Seller Entity and, to
the best of such Seller Entity's knowledge, the other party thereto. No
Seller Entity is in, or alleged to be in, breach or default under, any of
the Tangible Property Leases and, to the best of the Seller Entity's
knowledge, no other party to any of the Tangible Property Leases is in
breach or default thereunder, and no event has occurred and no condition or
state of facts exists (other than the transactions contemplated hereby to
the extent set forth on Schedule 6.1.3) which, with the passage of time or
the giving of notice or both, would constitute such a default or breach by
such Seller Entity or, to the best of such Seller Entity's knowledge, by
any such other party.

6.10.3 All Owned Tangible Property and all Leased
Tangible Property (collectively, the "Tangible Property") is in
-----------------
satisfactory operating condition, and is suitable for the purposes for
which it is used. No Tangible Property has been removed (and not replaced
in substantial respects) from use in the Business since December 31, 1995,
except for inventory and supplies consumed in the ordinary course of
business. A sufficient amount of supplies are on hand at the Facilities to
meet all requirements of any Governmental Authority and since December 31,
1995, there has been no continuing reduction in the levels of supplies
stocked at the Facilities.

6.11 Real Property.
-------------

6.11.1 Schedule 6.11.1 describes all real property owned
by the Seller Entities (the "Owned Real Property") and the Seller Entities
-------------------
will at the Closing convey to Buyer good and marketable title to all of the
Owned Real Property, free and clear of all Liens other than (i) municipal
and zoning ordinances; (ii) recorded easements for public utilities and
other services serving the Real Property which do not detract from the
value or materially interfere with the current use of the properties
affected thereby; (iii) Liens for

<PAGE>

Taxes not yet due and payable, none of which interfere with the use or
occupancy of any of the Owned Real Property; (iv) statutory liens incurred
in the ordinary course of business consistent with past practice that are
not yet delinquent; and (v) recorded easements, rights of way and other
non-monetary Liens that do not detract from the value or materially
interfere with the current use of the properties affected thereby
(collectively, the "Permitted Encumbrances"). All of the Real Property is
----------------------
occupied by a Seller Entity and not by any tenants or other occupants
(other than Facility residents or activities established for the benefit of
Facility residents). Except as set forth on Schedule 6.11.1, no Owned Real
Property is subject to any lease or sublease.

6.11.2 Schedule 6.11.2 contains a list of all leases,
licenses or other agreements (collectively, the "Leases") pursuant to which
------
any Seller Entity uses or occupies or has the right to use or occupy now or
in the future or to which any Seller Entity leases any real property (other
than Managed Facilities) from a third party (the "Leased Real Property"
--------------------
and, together with the Owned Real Property, the "Real Property") true and
-------------
correct copies of which have been delivered to Buyer. All of the Leases
are valid, binding and enforceable in accordance with their terms, and are
in full force and effect; there are no existing defaults (or events which,
with notice or lapse of time or both, would constitute a default) by such
Seller Entity or any other party thereunder; and not later than the Closing
Date, all lessors under the Leases shall have consented to the consummation
of the transactions contemplated hereby, to the extent that the applicable
lease requires such consent, without requiring modification in the rights
or obligations of the tenant under such Leases. The relevant Seller Entity
enjoys peaceful possession of the Leased Real Property and except as set
forth on Schedule 6.11.2 no sublease by such Seller Entity of any Leased
Real Property is currently in effect. Such Seller Entity's leasehold
interests are subject to no Lien, other than Permitted Encumbrances created
by such Seller Entity. No Owned Real Property, and to the knowledge of any
of the Seller Entities or the Owner Parties, no Leased Real Property, is in
a special flood zone area as designated by any Governmental Authority.

6.11.3 The continued existence, use, occupancy and
operation of the Real Property and the respective Seller Entity's right and
ability to repair and/or rebuild the same following damage or destruction
by fire or other casualty, is not dependent on the granting of any special
permit, exception, approval or variance (except in instances where
applicable zoning laws prohibit any such repairs and rebuildings). To the
knowledge of the Seller Entities and the Owner Parties, there are no
planned or commenced public improvements, including, without limitation,
any roadwork or road change, which may result in special assessments or
otherwise affect any of the Real Property. No condemnation proceeding
affecting any of the Real Property or any portion thereof and no sale or
other disposition of any of the Real Property or any portion thereof in
lieu of condemnation is pending, or, to the knowledge of any of the Seller
Entities or the Owner Parties, threatened or contemplated. Each Facility
has direct (or other lawful) access to a public street adjoining the parcel
of land on which such Facility is situated over the driveways and
accessways currently being used in connection with the use and operation of
such Facility. No Facility

<PAGE>

nor any portion thereof is dependent for its access, operation or utility
on any land, building or other improvement not included in the Real
Property.

6.11.4 There is no order or violation notice from any
Governmental Authority requiring repair, alteration or correction of any
existing condition or any of the Real Property. To the knowledge of the
Seller Entities and the Owner Parties, there is no structural or mechanical
defect adversely affecting any of the Real Property, including, without
limitation, inadequacy for normal use of electrical or mechanical systems,
sanitary disposal systems and wells or unsafe drinking water according to
standards established by any Governmental Authority. To the knowledge of
the Seller Entities and the Owner Parties, all such electrical or
mechanical systems, sanitary disposal systems and wells are in good working
order.

6.11.5 Attached hereto as Schedule 6.11.5 are true and
correct copies of the most recent real estate Tax bills for each Owned or
Joint Venture Facility. The assessed value of each such Facility is set
forth in Schedule 6.11.5 and reflects the current state of completion and
condition of such Facility except for renovations made in the ordinary
course of business. Except as set forth in Schedule 6.11.5, no certiorari
or other proceedings have been instituted contesting the assessed value of
any such Facility. The Seller Entities have no knowledge of any pending or
contemplated reassessment of any Facility or any portion thereof.

6.12 Intellectual Property. Schedule 6.12 sets forth a list of
---------------------
all Intellectual Property including Trade Names used by the Seller Entities
and the Owner Parties in connection with the Business. No Seller Entity is
infringing upon any intellectual property rights of any other Person, nor
to the knowledge of the Seller Entities or the Owner Parties, is any other
Person infringing on any Seller Entity's rights in respect of such
Intellectual Property.

6.13 Material Contracts. Schedule 6.13 lists all contracts,
------------------
agreements, leases and instruments, whether oral or written, including all
modifications, amendments and waivers thereto, to which any Seller Entity
is a party or by which the Business is bound except those, other than
management or consulting agreements, that require annual payments by any
Person of less than $10,000 and are otherwise not material to such Seller
Entity (collectively, the "Contracts"), complete copies of which have been
---------
delivered or will be delivered within 10 days after execution of this
Agreement to Buyer. Except as set forth in Schedule 6.13, (a) all
Contracts are in full force and effect and are valid and enforceable in
accordance with their respective written terms; (b) no Seller Entity is,
nor to the knowledge of any of the Seller Entities or the Owner Parties is
any other party thereto, in default under any such Contracts and no event,
occurrence, condition or act now exists or, upon the consummation of the
transactions contemplated hereby will exist which, with the giving of
notice or the lapse of time or both, would give rise to a default
thereunder on the part of any Seller Entity or any other party thereto or
would give rise to the right of any party or parties thereto to cancel or
terminate thereunder; (c) there are no anticipated cancellations or

<PAGE>

terminations of any such Contracts and there are no material outstanding
disputes thereunder; (d) except as set forth in Schedule 6.13, no consent
or approval of any party or parties thereto is required for the
consummation of the transactions contemplated hereby; and (e) no officer,
director, stockholder, subsidiary or Affiliate of any Seller Entity (other
than another Seller Entity) has any financial interest, whether direct or
indirect, in any such Contracts. Schedule 6.13 sets forth each management
agreement and each development agreement to which any Seller Entity is a
party or is bound. Except as set forth on Schedule 6.13 or in the ordinary
course of business consistent with past practice, no Seller Entity has or
is bound by any agreements with any patients or prospective patients which
obligate or would obligate such Seller Entity to provide skilled nursing
services at rates below such Seller Entity's current and standard rates for
similar services or which are for terms longer than one month.

6.14 Books and Records. The books and records of the Seller
-----------------
Entities made available to Buyer set forth in all respects all transactions
affecting the Business, and such books and records have been properly kept
and maintained in a manner consistent with sound business practice and are
complete and correct in all material respects. For purposes of the
foregoing, Buyer acknowledges that the representations concerning the
Financial Statements are set forth in Section 6.4 and not in this
Section 6.14.

6.15 Taxes.
-----

(a) All Taxes required to be paid by or with respect
to all of the Seller Entities on or before the date hereof have been timely
paid, and any Taxes required to be paid by or with respect to all of the
Seller Entities after the date hereof and on or before the Closing Date
shall be paid before delinquent.

(b) All Tax Returns and other tax reports required
to be filed by or with respect to the Seller Entities on or before the date
hereof have been timely filed. All Tax Returns required to be filed by or
with respect to the Seller Entities after the date hereof and on or before
the Closing Date shall be prepared and timely filed, in a manner consistent
with prior years and applicable laws and regulations.

(c) No penalties or other charges are or will become
due with respect to the late filing of any Tax Return of any Seller Entity
or payment of any Tax of any Seller Entity required to be filed or paid on
or before the Closing Date.

(d) With respect to all Tax Returns of the Seller
Entities, (i) the statute of limitations for the assessment of Taxes has
expired with respect to all periods ending on or before December 31, 1991;
(ii) except as set forth on Schedule 6.15(d), no audit is in progress and
no extension of time is in force with respect to any date on which any Tax
Return was or is to be filed and no waiver or agreement is in force for the

<PAGE>

extension of time for the assessment or payment of any Tax; and (iii) there
is no unassessed deficiency proposed or threatened against any Seller
Entity.

(e) No audits are in progress with respect to the
Tax Returns of the Seller Entities for each fiscal year for which the
statute of limitations has not expired.

(f) No state, county, local and foreign Tax audits
are in progress with respect to the Tax Returns of the Seller Entities for
each fiscal year for which the statute of limitations has not expired,
including the amounts of any deficiencies or additions to Tax, interest and
penalties that have been made or proposed, and the amounts of any payments
made by any Seller Entity with respect thereto. Each state, county, local
and foreign Tax Return filed by or with respect to any Seller Entity for
which the state, county, local or foreign Tax audit has not been completed
accurately reflects the amount of its liability for Taxes thereunder and
makes all disclosures required by applicable provisions of law.

(g) None of the Seller Entities knows of any
material adverse change in the rates or basis of assessment of any Tax
(other than Federal income tax) effective for the fiscal years ending
December 31, 1995 or December 31, 1994, of the Seller Entities.

(h) Reserves and provisions for Taxes accrued but
not yet due on or before the Closing Date reflected in the Financial
Statements will be adequate as of the Closing Date, in accordance with
generally accepted accounting principles.

(i) None of the Seller Entities will have any
liability on or after the Closing Date under any tax sharing agreement to
which any of them have been a party, and all such tax sharing agreements in
effect before the Closing Date shall terminate and be of no further force
and effect as of the Closing Date.

(j) There are no Liens for Taxes on the assets of
the Seller Entities except for Liens for current Taxes not yet due.

(k) None of the Seller Entities has at any time
consented under Section 341(f)(1) of the Code to have the provisions of
Section 341(f)(2) of the Code apply to any sale of its stock.

6.16 Absence of Certain Changes or Events. Except as set forth
------------------------------------
on Schedule 6.16, since December 31, 1995 and except as contemplated by
this Agreement, no Seller Entity has:

<PAGE>

(a) sold or committed to sell or assigned,
transferred or leased any assets of the Business, except in the ordinary
course of business consistent with prior practice;

(b) made or suffered any amendment or termination of
any Contract, commitment or lease to which it is a party or by which it is
bound and which relates to the operations of the Business, whether any such
amendment resulted from written agreement, course of dealing, or operation
of law other than (i) any such Contract, commitment or lease entered into
in the ordinary course of business consistent with prior practice involving
expenditures of not more than $25,000 or (ii) Contract, commitment or lease
that, pursuant to their terms are cancelable by a Seller Entity without
penalty on 30 days (or fewer) notice;

(c) suffered any damage, destruction or loss, not
fully covered by insurance, which materially and adversely affects the
business, operations, assets or properties of the Business;

(d) received notice or otherwise had knowledge of
any actual or potential labor trouble, strike or other occurrence, event or
condition of any similar character which has had or might have an adverse
effect on the operations of the Business;

(e) made or granted (other than in the ordinary
course consistent with past practice) any increase with respect to any
wages, salaries or other compensation, or entered into any employment
contract or agreement with any administrator, supervisor or employee in
connection with the operations of the Business, except for employment
arrangements which, by their terms, will not continue past the Closing Date
or are terminable by either party, without penalty or payment of any amount
by any Seller Entity or Facility for periods beyond the date of employment
termination, upon no more than 30 days' prior notice;

(f) entered into any transaction (other than the
transactions contemplated hereby) other than in the ordinary course of
business consistent with past practice;

(g) experienced any change that would have a
Material Adverse Effect; or

(h) borrowed any funds or incurred or assumed or
became subject to, whether directly or by way of guaranty or otherwise, any
indebtedness for borrowed money.

<PAGE>

6.17 Employee Benefits. For purposes of this Agreement:
-----------------
(i) "Benefit Plan" shall mean each employee benefit plan, contract and
arrangement, whether reduced to writing or not, including, without
limitation, each employment, consulting or deferred compensation agreement,
executive compensation or bonus plan, stock ownership or stock option plan,
or employee benefit plan within the meaning of Section 3(3) of ERISA,
vacation pay, sick pay, severance pay, supplemental benefits and similar
plans, programs and agreements as to which any Seller Entity has any direct
or indirect, actual or contingent liability; and (ii) "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated thereunder.

(a) Schedule 6.17 lists all Benefit Plans. The
Seller Entities have, with respect to each such plan, delivered to Buyer
true and complete copies of: (i) all plan texts and agreements and related
trust agreements or annuity contracts; (ii) all summary plan descriptions
and material employee communications; (iii) the most recent annual report
(including all schedules thereto); (iv) the most recent actuarial
valuation; (v) the most recent annual audited financial statement and
opinion; (vi) the most recent annual and periodic accounting of plan
assets; (vii) if the plan is intended to qualify under Code section 401(a)
or 403(a), the most recent determination letter received from the IRS; and
(viii) all material communications with any governmental entity or agency.

(b) With respect to each Benefit Plan, no event has
occurred, and there exists no condition or set of circumstances in
connection with which any Seller Entity could, directly, or indirectly
(through a Commonly Controlled Entity or otherwise), be subject to any
liability under ERISA, the Code or any other applicable law, except
liability for benefits claims and funding obligations payable in the
ordinary course.

(d) Each Seller Entity and each Commonly Controlled
Entity has made all payments due from it to date with respect to each
Benefit Plan.

(e) Except as set forth in Schedule 6.17(e), with
respect to each Benefit Plan, there are no funded benefit obligations for
which contributions have not been made or properly accrued and there are no
unfunded benefit obligations that have not been accounted for by reserves,
or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the Financial Statements.

(f) With respect to each Benefit Plan subject to
Code section 412 or ERISA section 302: (i) such plan uses a funding method
permissible under ERISA and the actuarial assumptions used in connection
therewith are reasonable individually and in the aggregate; (ii) no such
plan has incurred an accumulated funding deficiency, whether or not waived;
and (iii) except as disclosed on Schedule 6.17(f), as of the Closing Date,
the fair market value of the assets of such plan will exceed or equal the

<PAGE>

"projected benefit obligation" (as defined in Statement of Financial
Accounting Standard No. 87), and the "amount of unfunded benefit
liabilities" as defined in ERISA section 4001(a)(18) is zero.

(g) With respect to each Benefit Plan that is or was
subject to Title IV of ERISA, no such Benefit Plan has been terminated, no
filing of a notice of intent to terminate such a Benefit Plan has been
made, and no proceeding has been initiated to terminate any such Benefit
Plan. No event has occurred and there exists no condition or set of
circumstances which presents a material risk that any Benefit Plan has or
is likely to experience a partial termination within the meaning of Code
section 411(d)(3).

(h) No Benefit Plan is a multiemployer plan as
defined in Code section 414(f) or ERISA sections 3(37) or 4001(a)(31). No
Benefit Plan is a multiple employer plan within the meaning of Code section
413(c) or ERISA sections 4063, 4064 or 4066.

(i) No reportable event within the meaning of ERISA
section 4043 has occurred or may be reasonably expected to occur with
respect to any Benefit Plan.

(j) There are no actions, Liens, suits or claims
pending or threatened (other than routine claims for benefits) with respect
to any Benefit Plan or against the assets of any Benefit Plan. No assets
of any Seller Entity are subject to any Lien under ERISA section 302(f) or
Code section 412(n).

(k) Each Benefit Plan which is intended to qualify
under Code section 401(a) or 403(a) so qualifies and its related trust is
exempt from taxation under Code section 501(a).

(l) Each Benefit Plan that is a "group health plan"
(as defined in ERISA section 607(1) or Code section 5001(b)(1)) has been
operated at all times in compliance with the provisions of COBRA and any
applicable, similar state law.

(m) Except as specified on Schedule 6.17(m), there
are no reserves, assets, surpluses or prepaid premiums with respect to any
Benefit Plan.

(n) No assets of any Seller Entity are allocated to
or held in a "rabbi trust" or similar funding vehicle.

(o) Except as disclosed in Schedule 6.17(o), the
consummation of the transactions contemplated hereby will not: (i) entitle
any current or former employee to severance pay, unemployment compensation
or any similar payment; (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due to, or in respect of, any
current or former employee; (iii) result in or satisfy a condition

<PAGE>

to the payment of compensation that would, in combination with any other
payment, result in an "excess parachute payment" within the meaning of Code
section 280G(b); or (iv) constitute or involve a prohibited transaction (as
defined in ERISA section 406 or Code section 4975), constitute or involve a
breach of fiduciary responsibility within the meaning of ERISA section
502(l) or otherwise violate Part 4 of Subtitle B of Title I of ERISA.

(p) As of the Closing, none of the Seller Entities
Commonly Controlled Entity has not incurred any liability or obligation
under the Worker Adjustment and Retraining Notification Act, as it may be
amended from time to time or any similar state law (collectively, "WARN")
----
and within the six-month period immediately following the Closing, will not
incur any such liability or obligation if, during such six-month period,
only terminations of employment in the normal course of operations occur.

6.18 Labor Relations. Except as set forth in Schedule 6.18,
---------------
(i) there is no pending or, to the knowledge of any of the Seller Entities
or the Owner Parties, threatened strike, picketing, work stoppage or work
slowdown affecting the Business, (ii) no union is certified by the National
Labor Relations Board as collective bargaining agent for any employees of
the Business, and (iii) no written demand is pending for recognition, no
election for certification is scheduled, and, to the knowledge of any of
the Seller Entities or the Owner Parties, no such demand is threatened.
The Seller Entities have not incurred any liability or obligation, either
directly or indirectly, under WARN and, within the six-month period
immediately following the Closing Date, Buyer will not incur any such
liability or obligation if, during such six-month period, only terminations
of employment in the normal course of operations occur.

6.19 Insurance. Each Seller Entity maintains the policies or
---------
binders of insurance covering such risks and events, including personal
injury, property damage and general liability, as are set forth in Schedule
6.19. All of such policies and binders are in full force and effect, and
there is no default with respect to any provision contained in any such
policy or binder, nor has there been any failure to give any notice or
present any claim under any liability policy or binder in a timely fashion
or in the manner or detail required by such liability policy or binder.
There are no outstanding unpaid premiums or claims, and there are no
provisions for retroactive or retrospective premium adjustments with
respect to any of such policies or binders (other than policies and binders
relating to workman's compensation), and no notice of cancellation or
nonrenewal with respect to, or disallowance of any claim under, any policy
or binder has been received by any of the Seller Entities.

6.20 Capital Projects. Schedule 6.20 contains a description of
----------------
all capital projects committed for or authorized by any Seller Entity
involving the expenditure of $100,000 or more. The budgeted aggregate cost
of completing all ongoing or authorized capital projects does not exceed
$5,000,000 and none of such projects will require obtaining a determination
of need under applicable law.

<PAGE>

6.21 Conflicts of Interest. Except as set forth on Exhibit A
---------------------
or on Schedule 6.21, to the knowledge of the Seller Entities and the Owner
Parties, no partner or employee of any Seller Entity (except another Seller
Entity), no Owner nor any relative of any partner or employee of any Seller
Entity or of any Owner, nor any Affiliate (except another Seller Entity) of
any of the foregoing:

(a) owns, directly or indirectly, any interest in,
or is an employee or agent of, any entity which is a competitor, lessor,
lessee, customer or supplier of any Seller Entity or any Facility;

(b) owns, directly or indirectly, any interest in
any tangible or intangible property, asset or right which any Seller Entity
or any Facility uses in its business;

(c) has any cause of action or claim against, owes
any amount to, or is owed any amount by any Seller Entity or any Facility
other than (i) employment compensation payable in the ordinary course
consistent with past practice and (ii) distributions of the Purchase Price
to be made in connection with this Agreement or other distributions that do
not violate Section 8.1;

(d) is a party to any contract with any Seller
Entity or any Facility; or

(e) other than as reflected in the Financial
Statements, received a loan, gift or advance now outstanding from any
Seller Entity or any Facility in the 3-year period preceding the Closing
Date.

6.22 Brokers and Finders. Except for Smith Barney,
-------------------
Incorporated, the terms of whose engagement have heretofore been disclosed
to Buyer, no broker, finder, agent or similar intermediary has acted on any
Seller's behalf in connection with this Agreement or the transactions con-
templated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with Sellers or any action taken,
permitted or suffered by any Seller.

6.23 Entire Business. Except as may otherwise occur by reason
---------------
of Sections 3.4 (Modification of Transactions), 10.2 (Title and Survey),
10.7 (Consents and Approvals), 11.1 (Casualty) or 11.2 (Condemnation), upon
the transfer of the Business to Buyer or its designees at the Closing,
Buyer or such designees will own or have a leasehold interest in all of the
properties, rights, interests and business utilized in or necessary or
useful to the operation of the Facilities in the manner in which the
Facilities have been operated up to and including the date hereof and as
the Facilities will be operated until the Closing Date. Except for certain
ownership interests in certain assisted and/or

<PAGE>

independent living facilities or residences all of which are currently
managed by a Seller Entity and the assisted and/or independent living
facilities or residences under development and identified on Schedule 6.23
(so long as ADS has used his best efforts to provide that Buyer or a
subsidiary of Buyer is acting as manager thereof), ADS is not engaged in
the business of providing management, development and consulting services
to long-term healthcare facilities, assisted living facilities or
transitional care units, and does not own, operate, lease, manage or
develop any such facilities or units (collectively, the "Elder Care
Business").

6.24 Full Disclosure. All documents and other papers delivered
---------------
by or on behalf of Sellers in connection with this Agreement and the
transactions contemplated hereby are true and complete. The information
furnished by or on behalf of Sellers to Buyer in connection with this
Agreement and the transactions contemplated hereby does not contain any
untrue statement of a material fact and does not omit to state any material
fact necessary to make the statements made, in the context in which made,
not false or misleading.

6.25 Securities Laws. Each of Sellers who is receiving Parent
---------------
Shares is an investor in securities and acknowledges that he or she has, by
reason of his or her business and financial experience, the capacity to
protect his or her own interest in connection with this Agreement and that
he or she is able to bear the economic risk of his or her investment in
this transaction. Each such Seller (other than Thomas H. Grape and David
A. Roush) is an "Accredited Investor" as defined in Rule 501(a) under the
Securities Act. Each such Seller has been advised that the Parent Shares
have not been registered under the Securities Act and, accordingly, that he
or she may not be able to sell or otherwise dispose of such shares when he
or she wishes to do so. Each such Seller is acquiring the Parent Shares
for his or her own sole benefit and account for investment and not with a
view to, or for reselling in connection with, the public offering or
distribution thereof.

6.26 Undisclosed Liabilities. There are no liabilities or
-----------------------
obligations of the Seller Entities, either accrued, absolute, contingent or
otherwise, except (a) those reflected or otherwise provided for in the
Financial Statements, (b) those arising since December 31, 1995, in the
ordinary course of business and which, in the aggregate, are not material
to the Seller Entities (except to the extent consistent with past practice)
and (c) as disclosed in this Agreement including the Schedules hereto.

6.27 Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties of Sellers set forth in this Agreement and
in any agreement or certificate delivered or given to Buyer by or on behalf
of Sellers pursuant to this Agreement will be true and correct as of the
Closing Date with the same force and effect as if made on such date.

7. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
--------------------------------------
warrants to each Seller Entity and Owner Party as follows:

7.1 Due Organization and Authority. Parent, Buyer and each
------------------------------
Buyer Subsidiary is a corporation duly organized, validly existing and in
good standing under the

<PAGE>

laws of the state of Delaware. Buyer is qualified to do business in the
Commonwealth of Massachusetts and has all requisite power to own, operate
and manage the Business. Parent and Buyer each has full power and
authority to enter into this Agreement and the Guaranty, as the case may
be, and to perform its obligations hereunder and thereunder. This
Agreement and each other agreement or document to be delivered by Parent,
Buyer or any Buyer Subsidiary in connection herewith has been duly
authorized and approved by all necessary action of each of Parent, Buyer
and such Buyer Subsidiary, has been duly and validly executed and delivered
by each of Parent, Buyer and such Buyer Subsidiary and is a valid and
legally binding agreement of each of Parent, Buyer and such Buyer
Subsidiary, enforceable against each of them in accordance with their
terms.

7.2 Brokers and Finders. No broker, finder, agent or similar
-------------------
intermediary has acted on behalf of the Parent, Buyer or any Buyer
Subsidiary in connection with this Agreement or the transactions con-
templated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with Parent, Buyer or any Buyer
Subsidiary or on any action taken, permitted or suffered by Parent, Buyer
or Buyer Subsidiary.

7.3 SEC Documents; Financial Statements. Since December 31,
-----------------------------------
1995, Parent has filed all required reports, forms, and other documents
with the SEC (the "SEC Documents"). Parent has delivered or has caused to
-------------
be delivered (and as of the Closing will have delivered or caused to be
delivered) to the Sellers' Representative the SEC Documents. As of their
respective dates (i) the SEC Documents compiled as to form in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and (ii) none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later-
filed SEC Document filed and publicly available prior to the date of this
Agreement, none of the SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
financial statements of Parent included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended (subject, the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the SEC Documents filed and publicly available prior

<PAGE>

to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice
since the date of the most recent consolidated balance sheet included in
the SEC Documents filed and publicly available prior to the date of this
Agreement (the "Balance Sheet") and liabilities and obligations which would
-------------
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on Parent, neither Parent nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
Parent and its consolidated subsidiaries or in the notes thereto. Since
March 31, 1996, there has been no change which should reasonably be
expected to have a material adverse effect on the assets, properties,
business or condition, (financial or otherwise) or prospects of the Parent.

7.4 Title to Parent Shares. The Parent Shares, when issued to
----------------------
the applicable Sellers as set forth on Exhibit A, will be duly authorized,
validly issued, fully paid and nonassessable and, upon delivery of the
Stock Payment Amount herein provided, the Parent will convey to such
Sellers good and valid title thereto, free and clear of any Lien.

7.5 Capitalization; Validity of Shares. The authorized and
----------------------------------
issued shares of capital stock of the Parent is as set forth on
Schedule 7.5. All issued and outstanding capital stock of the Buyer is as
set forth on Schedule A and is owned by the Parent. All of the outstanding
shares of capital stock of Parent and Buyer are duly authorized and validly
issued, fully paid and nonassessable. No other class of capital stock of
Parent or Buyer is authorized or outstanding. Other than as set forth in
the SEC Documents, as of the date hereof, there are no existing options,
rights, subscriptions, warrants, unsatisfied preemptive rights, calls or
commitments of any character relating to the authorized and unissued
capital stock of Parent or to any securities or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for
or acquire from Parent any shares of capital stock of Parent and no such
convertible or exchangeable securities or obligations are outstanding.

8. SELLERS' COVENANTS. Each of the Seller Entities and the Owner
------------------
Parties covenants as follows:

8.1 Conduct of Business.
-------------------

8.1.1 Operation in Ordinary Cause. From the date of this
---------------------------
Agreement through the Closing Date, each Seller Entity shall (and each
Owner Party shall use its reasonable best efforts to cause the Seller
Entity of which it is a stockholder or a partner to) (i) continue to
conduct the Business in the ordinary and usual course of business
consistent with past practice, (ii) preserve intact the condition of each
Facility owned, leased, operated or managed by it and the portion of the
Business conducted by it, except for depletion, depreciation, ordinary wear
and tear, damage, casualty and loss by governmental taking, (iii) use its
reasonable best efforts to keep available the services of its present

<PAGE>

employees and preserve the good will of its suppliers and private pay
patients, (iv) not take any action referenced in Section 6.16, (v) maintain
or cause to be maintained all Licenses, (vi) perform all maintenance and
repairs reasonably necessary to maintain the Business, (vii) maintain or
cause to be maintained insurance upon the Business comparable in amount and
scope of coverage to insurance now carried (if and to the extent reasonably
available), (viii) take no action which shall cause any of the
representations or warranties set forth in Article 6 of this Agreement to
be untrue as at the Closing Date, and (ix) make all contributions to each
Benefit Plan that are required under each such plan with respect to any
period prior to the Closing, without regard to whether such contributions
are due on or before the Closing Date.

8.1.2 Business Organization. From the date of this
---------------------
Agreement through the Closing Date, each Seller Entity and Owner Party
shall use its reasonable best efforts to (a) preserve substantially intact
the business organization of the Seller Entities and keep available the
services of the present officers and key employees of the Seller Entities
and (b) preserve in all material respects the present business
relationships, financing arrangements and goodwill of the Facilities owned,
leased, operated or managed by it and the portion of the Business conducted
by it.

8.1.3 Corporate Organization. From the date of this
----------------------
Agreement through the Closing Date, the Seller Entities shall cause (and
the Owner Parties shall use their reasonable best efforts to cause) there
to be no amendment of the articles of organization or bylaws (or
partnership certificate or agreement) of any Seller Entities, except as may
be required by the transactions contemplated hereby, and shall not

(a) issue, sell or otherwise dispose of any of its
equity securities or partnership interests or create, sell or otherwise
dispose of any options, rights, conversion rights or other agreements or
commitments of any kind relating to the issuance, sale or disposition of
any of its equity securities or partnership interests;

(b) [intentionally omitted];

(d) except as contemplated by this Agreement, be
party to any merger, consolidation or other business combination;

(e) except as contemplated by this Agreement, sell,
lease, or otherwise dispose of any of its properties or assets;

(f) except as set forth on Schedule 6.16 and as
contemplated by this Agreement, organize any subsidiary or acquire any
equity securities

<PAGE>

or partnership interests of any Person or any equity or ownership
interest in any person or business; or

(g) except as contemplated by this Agreement, agree
or otherwise commit, whether in writing or otherwise, to do any of the
foregoing.

8.2 Rates; Private Pay. Each Seller Entity shall maintain the
------------------
rate schedule currently in effect with respect to the relevant Facility and
shall use its reasonable best efforts to maintain its percentage of
occupancy in such Facility at not less than the occupancy percentage at
such Facility on the date hereof and, except for reasonably de minimis
----------
amounts consistent with past practice, each Seller Entity will use its
reasonable best efforts to maintain its percentage of private pay patients
in such Facility at not less than the percentage of private pay patients in
such Facility on the date hereof.

8.3 Environmental Matters.
---------------------

8.3.1 Environmental Audit. Within twenty days following
-------------------
the date hereof, Buyer shall have the right to cause an environmental audit
of any Facilities with a scope acceptable to Buyer (the "Environmental
-------------
Audits"), to be completed at the Buyer's expense by a consultant or
- ------
engineer designated by Buyer to the end that a written report reflecting
the results of any such Environmental Audit shall be furnished to Buyer and
the Sellers' Representative as soon as such written reports become
available, and in any event prior to the Closing Date. Such written
reports shall identify any conditions or actions which may give rise to
Damages pursuant to Environmental Laws and estimate the Damages which may
be incurred as a result of such conditions or actions. Buyer may, subject
to the following sentence, at any time not fewer than ten days prior to the
Closing (except for conditions and actions first arising during such
period), notify the Sellers' Representative in writing that the results of
the Environmental Audits are, in Buyer's opinion, unsatisfactory, and
terminate this Agreement. Notwithstanding the foregoing, Buyer shall not
have the right to terminate this Agreement if the conditions identified by
the Environmental Audits (i) are addressed and/or remediated by the Seller
Entities prior to the Closing Date, at the relevant Owner's sole expense,
to a condition which will not give rise to Damages under any Environmental
Laws; or (ii) the estimated Damages arising out of such conditions or
actions are less than $250,000; provided, however, that a sum equal to two
-------- -------
times the estimated Damages arising out of such conditions or actions shall
be withheld from the Purchase Price and placed into an escrow account to be
held by an escrow agent under such escrow arrangements as shall be
satisfactory to Buyer, which shall provide for reimbursement of Buyer for
such Damages as they are incurred from the escrow account (including
interest accrued), with the balance (including interest accrued), if any,
to be delivered to Sellers when the conditions or actions identified by the
Environmental Audits are addressed and/or remediated to a condition which
will not give rise to Damages under any Environmental Laws.

<PAGE>

8.3.2 Environmental Transfer Laws. The Seller
---------------------------
Entities shall, at the Owners' sole expense, comply in a timely fashion
with the requirements of all Environmental Laws applicable to the transfer
of any Facility and Business (excluding environmental permits, licenses and
registrations that can be transferred in the ordinary course). Sellers
shall complete all necessary disclosure statements required by
Environmental Laws applicable to the transfer of any Facility and the
Business and provide the statements to Buyer prior to the Closing, all in
proper form for appropriate recordation and filing.

8.4 Sales or Transfer Taxes. All transfer, documentary, gross
-----------------------
receipts, sales, use and property gains Taxes, and liabilities similar in
nature, imposed or payable in connection with the sale or transfer of any
portion of the Business to Buyer pursuant to this Agreement or the
consummation of any of the transactions contemplated hereby (other than
Buyer's income taxes or in the nature thereof), shall be paid by the
relevant Seller Entity. The relevant Seller Entity shall timely file all
required transfer Tax Returns and/or notices of the transfer of any
Facility with the appropriate Tax authorities.

8.5 Buyer's Relations with Counterparties. The Seller
-------------------------------------
Entities and the Owner Parties hereby consent to any contacts, discussions,
negotiations, offers, acceptances and agreements which Buyer makes,
conducts or enters into, as the case may be, with any party to any
agreement to which the Seller Entities and the Owner Parties are also a
party relating to the Business, subject to prior consultation with and
approval by ADS or SSB provided such contacts, discussions, negotiations,
offers, acceptances and agreements are only for the purpose of facilitating
the effectuation of the transactions contemplated hereby.

8.6 Cost Reports. The Seller Entities shall prepare and
------------
timely file all Medicaid and Medicare cost reports required to be filed in
respect of the Business, including all cost reports for 1995 and, if
required, 1996 and all terminating cost reports if required. The Seller
Entities shall provide Buyer with drafts of each such cost report not fewer
than ten business days in advance of each such filing. Buyer shall have
the right to examine and, if appropriate, comment upon the cost reports
prior to their filing by the Seller Entities, insofar as such cost reports
may affect Buyer's operations of the Business after the Closing Date,
including reimbursement basis.

8.7 No Negotiation. Until such time, if any, as this Agree-
--------------
ment is terminated pursuant to Article 13, no Seller Entity or Owner Party
shall solicit or entertain offers from, negotiate with, provide information
to, or in any manner discuss, encourage, recommend or agree to any proposal
of, any other potential buyer or buyers of all or any substantial portion
of the Business or assets of, or any capital stock or equity interest or
any general or limited partnership interest in, the Seller Entities (except
as set forth on Schedule 6.1.3).

8.8 Change and Use of Name. No Seller Entity or Owner Party
----------------------
shall at any time after the Closing Date use for any business purpose the
initials "ADS" except

<PAGE>

that at Closing The A-D-S Group, Inc. shall grant to ADS Ventures, Inc. a
fully-paid perpetual irrevocable royalty free, nonexclusive license to use
the initials ADS in connection with that corporation's business of
providing governmental consulting services. Except as permitted by this
Section 8.8, ADS agrees not to engage in any healthcare business using the
initials ADS. The use of the names Solomont, Alan Solomont, A. Solomont,
Alan D. Solomont or A.D. Solomont is not prohibited by this Agreement.

8.9 Compliance with Securities Laws. Each Owner who receives
-------------------------------
Parent Shares agrees (or prior to the Closing shall agree) not to make any
disposition of all or any portion of such Shares until (a) there is in
effect an effective registration statement under the Securities Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement; or (b)(i) such Owner shall
have notified Parent of the proposed disposition and shall have furnished
Parent with a detailed statement of the circumstances surrounding the
proposed disposition; and (ii) if reasonably requested by Parent, such
Owner shall furnish Parent with an opinion of counsel, reasonably
satisfactory to Parent, that such disposition will not require registration
of such shares under the Securities Act. Such Owner further covenants and
agrees to provide any information to Parent reasonably necessary in order
for Parent to comply with the applicable state securities and blue sky
laws.

8.10 Legends. To the extent applicable, each certificate or
-------
other document evidencing any of the Parent Shares issued hereunder shall
be endorsed with the legend set forth below, and each Owner receiving such
shares covenants that, except to the extent such restrictions are waived by
Parent, such Owner shall not transfer the securities without complying with
the restrictions on transfer described in the legend endorsed thereon:

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IF REASONABLY
REQUESTED, SATISFACTORY TO ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED."

Parent shall not be required (i) to transfer on its books any of the
Parent Shares which shall have been transferred in violation of any of the
provisions set forth in this Agreement, or (ii) to treat as owner of such
shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such shares shall have been so transferred.

8.11 Sellers' Representative. Each Seller hereby irrevocably
-----------------------
appoints (or not later than the Closing shall appoint) ADS as such Sellers'
representative (the "Sellers' Representative") to accept on such Seller's
-----------------------
behalf any amount payable to such Seller under

<PAGE>

this Agreement or the Escrow Agreement and to take all such other actions
as may hereafter be authorized by such Seller. Buyer shall be entitled to
rely, as being binding upon such Seller, upon any document or other paper
believed by Buyer to be genuine and correct and to have been signed by the
Sellers' Representative, and Buyer shall not be liable to any Seller for
any action taken or omitted to be taken by Buyer in such reliance. The
Sellers' Representative shall have the sole and exclusive right on behalf
of Sellers to take any action pursuant to Article 12.

8.12 Waiver of Appraisal Rights. By the execution of this
--------------------------
Agreement, each Owner Party hereby now and forever waives any of his or her
rights to appraisal under any law, statute or regulation.

8.13 Section 338(h)(10). If Buyer so requests, each relevant
------------------
Seller will join with Parent, Buyer and the Buyer Subsidiaries, as
appropriate, in making an election (including a mutually agreed upon
allocation of purchase price) under sections 338(g) and 338(h)(10) of the
Code (and any corresponding elections under state, local or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale hereunder of the stock of Seller Entities that are
corporations. Each relevant Seller will pay any Taxes attributable to the
making of a Section 338(h)(10) Election and will indemnify Parent, Buyer
and the Buyer Subsidiaries, as the case may be, against any adverse
consequences arising out of any failure to pay such Taxes. Each relevant
Seller will also pay any state, local or foreign Taxes (and will indemnify
Parent, Buyer and the Buyer Subsidiaries, as the case may be, against any
adverse consequences arising out of any failure to pay such Taxes)
attributable to an election under state, local or foreign tax law
corresponding to the election available under section 338(g) of the Code
(or which results from the making of an election under section 338(g) of
the Code) with respect to the purchase and sale hereunder of the stock of
the Seller Entities that are corporations where the state, local or foreign
tax jurisdiction (i) does not provide or recognize a Section 338(h)(10)
Election or (ii) does not apply its provisions corresponding to section
338(h)(10) of the Code to the purchase and sale hereunder of the stock of
such Seller Entities (for example, because the relevant Seller Entity files
a separate company Tax Return in such jurisdiction).

8.14 Notice of Breach; Disclosure. The Seller Entities and the
----------------------------
Owner Parties shall promptly notify Buyer of their actual knowledge of
(i) any event, condition or circumstance occurring from the date hereof to
the Closing Date that would constitute a violation or breach of this
Agreement or, if the same were to continue to exist as of the Closing Date,
would constitute the non-satisfaction of any of the conditions set forth in
Article 4, and (ii) any event, occurrence, transaction or other item which
would have been required to have been disclosed on any schedule or
statement delivered hereunder had such event, occurrence, transaction or
item existed as of the date hereof.

8.15 Management Agreements. Each Seller Entity and Owner Party
---------------------
shall use reasonable best efforts to extend (or cause to be extended) for a
term as long and

<PAGE>

on terms as favorable, as may be reasonably negotiated, any management
agreement (each a "Management Agreement") pursuant to which such Seller
--------------------
Entity manages a Facility.

8.16 1995 Financial Statements. Not later than June 24, 1996,
-------------------------
the Seller Entities and the Owner Parties shall cause to be delivered to
Buyer the combined and combining financial statements of the Seller
Entities which has been prepared in accordance with generally accepted
accounting principles, applied on a basis consistent with prior periods
(except that the "A.D.S." trade name shall be carried on the books of The
A.D.S. Group, Inc. at zero) and which shall include a combined and
combining balance sheet, statement of operations, statement of changes in
net worth and statement of cash flows (the "Audited 1995 Financials"). The
Audited 1995 Financials shall be in form and substance satisfactory to
Buyer and if the same are not acceptable to Buyer, Buyer shall have the
right to declare a failure of the condition in Section 4.1 and this
Agreement shall thereupon terminate in accordance with Section 13.1(e), but
subject to Section 13.2.

8.17 Related Party Settlement. Effective immediately prior to
------------------------
the Closing, the following accounts of the Seller Entities shall be settled
in cash (other than between Seller Entities): Loans Receivable -
Affiliates and Shareholders; Notes Receivable - Affiliates; Due From
Related Parties; and Due to Related Parties.

9. BUYER'S COVENANTS. Buyer shall promptly notify the Sellers'
-----------------
Representative of Buyer's actual knowledge of (i) any event, condition or
circumstance occurring from the date hereof to the Closing Date that would
constitute a violation or breach of this Agreement or, if the same were to
continue to exist as of the Closing Date, would constitute the non-
satisfaction of any of the conditions set forth in Article 5, and (ii) any
event, occurrence, transaction or other item which would have been required
to have been disclosed on any schedule or exhibit or other document to be
delivered hereunder had such event, occurrence, transaction or item existed
as of the date hereof. Without limiting the generality of the foregoing,
Buyer shall use its good faith reasonable efforts to cause the release of
guaranties, liabilities and collateral referred to in Section 5.7 either by
(i) obtaining such releases or (ii) refinancing the indebtedness referred
to in Section 5.7. Buyer agrees to cause Parent to permit ADS and SSB to
include the sale of Parent Shares acquired by them pursuant to this
Agreement in any registration statement effected by the Parent under the
Securities Act of 1933 later than one year following the Closing Date on
the same basis that the co-chief executive officers may include shares of
common stock of the Parent therein, unless the Parent shall have received
an opinion of counsel that ADS or SSB, as the case may be, may sell such
shares without registration under such Act.

10. MUTUAL COVENANTS.
----------------

10.1 Access. From the date hereof through the Closing Date,
------
the Seller Entities and the Owner Parties shall provide, or cause to be
provided, Buyer and its

<PAGE>

authorized employees, agents, officers and representatives with access to
the properties, books, records, Tax Returns, contracts, information,
documents and personnel of the Seller Entities as they relate to the
Business during regular business hours, as Buyer may reasonably request for
the purpose of making such investigation of the business, properties,
financial condition and results of operations of any Facility as Buyer may
reasonably desire.

10.2 Title and Survey. Within 10 days following the execution
----------------
and delivery of this Agreement, the Seller Entities and the Owner Parties
shall deliver, or cause to be delivered, to Buyer copies of all title
policies and surveys with respect to the Real Property which are in their
possession. Buyer shall order promptly an examination of title to the
Owned Real Property from a title company licensed to do business in the
Commonwealth of Massachusetts, which title report (and any policy issued in
connection therewith) shall be on Buyer's behalf and expense. Buyer shall
deliver to the Sellers' Representative a copy of such report together with
a written statement identifying any defects, encumbrances or objections to
title (other than Permitted Encumbrances). The Seller Entities and the
Owner Parties shall have 30 days from their receipt of such report to
remove any such defects, encumbrances or objections to title, provided that
all mortgages, liens, judgments or defects representing security for the
payment of monetary obligations (other than those that are to be assumed or
paid by Buyer as indicated on Exhibit A) shall be paid (including payment
to a title company which insures over the same) or satisfied by the Seller
Entities and the Owner Parties at or prior to the Closing. If the Seller
Entities and the Owner Parties shall fail, or are unable, to remove any of
such defects, encumbrances or objections to title (other than any
mortgages, liens, judgements or defects representing security for the
payment of monetary obligations), Buyer may, at its option, either (i)
waive such defects, encumbrances or objections to title and proceed to
Closing, (ii) terminate this Agreement with respect to such Real Property
and receive a reduction in the Purchase Price based on the value allocated
to the interest of the applicable Owners in such Real Property set forth on
Exhibit A; provided, however that such reduction shall not exceed
-------- -------
$10 million or (iii) terminate this Agreement with respect to all Sellers,
whereupon no party shall have any further liability or obligation hereunder
except as set forth in Section 13.2.

10.3 Licensure Requirements. Subject to the Buyer's
----------------------
understanding set forth in Section 4.5, the obligations of Buyer hereunder
are expressly conditioned upon Buyer obtaining all requisite licenses and
permits for the transfer of the Business to Buyer or its affiliates, as the
case may be, together with such licenses and permits as may be necessary in
order for Buyer to operate the Operated Facilities, and to manage the Joint
Venture Facilities and the Managed Facilities as long-term care facilities
having the same number of licensed beds as are presently contained therein
and in the manner presently operated and without the need to make capital
improvements or material changes in their operations. The Seller Entities
and the Owner Parties shall cooperate with, and provide such information as
may be reasonably necessary to Buyer in order to assist Buyer in obtaining
all such licenses and permits. In the event Buyer shall fail to obtain the
necessary licenses and permits (or approval of the transfer thereof) on or
before November 30, 1996, Buyer may, by written notice to the Sellers'
Representative, terminate this Agreement, whereupon

<PAGE>

no party shall have any further liability or obligation hereunder;
provided, however, that if on or before such date, Buyer notifies the
- -------- -------
Sellers' Representative of its intent to continue to pursue obtaining such
licenses and permits, Buyer shall have an additional 30-day period in which
to obtain such licenses and permits. If Buyer shall fail to obtain such
licenses and permits within such additional 30-day period, either party
may, by written notice to the other party, terminate this Agreement,
whereupon neither party shall have any further liability or obligation
hereunder.

10.4 Confidentiality. Between the date of this Agreement and
---------------
the Closing Date and after any termination of the Agreement without the
Closing having occurred, and in the case of the Owner Parties, after the
Closing Date, each party will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in
confidence, all written, oral or other information obtained in confidence
from another party in connection with this Agreement or the transactions
contemplated hereby, including, without limitation, patient lists, sources
of supply, costs, pricing practices, trade secrets, financial information,
business plans, budgets and projections and other proprietary information
(collectively, the "Confidential Information"), unless (i) such information
------------------------
is already known to such party or to others not bound by a duty of
confidentiality, (ii) such information becomes publicly available through
no fault of such party, (iii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval
required for the consummation of the transactions contemplated hereby or
(iv) the furnishing or use of such information is required by or necessary
or appropriate in connection with legal proceedings. If the transactions
contemplated hereby are not consummated, each party receiving another
party's Confidential Information will return or, at the disclosing party's
option, destroy all of such Confidential Information, including, but not
limited to, all copies thereof and extracts therefrom and shall not use
such Confidential Information in any manner which may be detrimental to the
disclosing party or its Affiliates.

10.5 Expenses. Except as expressly otherwise provided herein,
--------
each party to this Agreement shall bear its respective expenses incurred in
connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of agents, representatives, financial advisors, counsel and
accountants. Except as set forth in this Agreement, the expenses of all
the Seller Entities and the Owners shall be borne by the Owners (or the
Seller Entities if such expenses result in a downward adjustment in the
Purchase Price under Section 2.3).

10.6 Public Announcements. Any public announcement or similar
--------------------
publicity with respect to this Agreement or the transactions contemplated
hereby shall be issued, if at all, at such time and in such manner as Buyer
shall determine after consultation with the Sellers' Representative.
Notwithstanding the preceding sentence, the Sellers' Representative shall
be primarily responsible, in consultation with Buyer, for the dissemination
of publicity respecting this Agreement and the transactions contemplated
hereby to the employees, suppliers, customers and joint venture partners of
the Seller Entities and to other interested persons in the communities
where the Seller Entities operate.

<PAGE>

Unless consented to by Buyer and the Sellers' Representative prior to the
Closing, the parties shall keep the provisions of this Agreement strictly
confidential and make no disclosure thereof to any Person, other than such
party's respective legal and financial advisors and other than as required
by law or as contemplated by this Agreement.

10.7 Consents and Approvals. Buyer and the Seller Entities and
----------------------
the Owner Parties shall make, or cause to be made, all filings required in
connection with the consummation of the transactions contemplated hereby
and shall use their respective reasonable best efforts to obtain prior to
the Closing Date all required consents and the transfer of all Licenses and
to satisfy all other conditions set forth in Articles 3 and 4. If the
parties shall fail to obtain any necessary consent or approval required to
consummate any of the transactions set forth on Exhibit A, Buyer shall have
the right in its sole discretion to proceed to consummate the other
transactions set forth on Exhibit A and the Purchase Price shall be reduced
in accordance with the allocation set forth on Exhibit A. Thereafter, the
parties shall continue to use their reasonable best efforts to complete the
remaining transactions on the terms set forth in this Agreement for a
period of 180 days thereafter.

10.8 Cooperation. The Buyer and each of the Seller Entities
-----------
and the Owner Parties shall generally cooperate with each other and each of
their officers, employees, legal counsel, accountants and other agents and,
generally, do such other acts and things in good faith as may be reasonable
or appropriate timely to effect the transactions contemplated hereby.

10.9 Non-Compete/Non Solicitation.
----------------------------

10.9.1 Covenants Against Competition. ADS and SSB (the
-----------------------------
"Restricted Persons") acknowledge that (a) the Seller Entities are engaged
------------------
in the Business; (b) the Business is conducted in the Northeast region of
the United States; (c) his or her relationship with the Seller Entities has
given him or her and will continue to give him or her trade secrets of and
confidential information concerning the Seller Entities; (d) the
agreements and covenants contained in this Section 10.9 are essential to
protect the business and goodwill of the Seller Entities which are being
purchased by Buyer; and (e) Buyer would not purchase the Seller Entities
but for such agreement and covenants. Accordingly, each covenants and
agrees as follows:

10.9.1(a) Non-Compete. For a period of three years
-----------
following the Closing (the "Restricted Period"), the Restricted Persons
-----------------
shall not in Connecticut, the Commonwealth of Massachusetts, Rhode
Island, Maine, New Hampshire or Vermont, directly or indirectly, (a)
engage in the Elder Care Business for such Restricted Person's own
account, except for the ownership and/or other involvement in the
assisted and/or independent living facilities or residences identified on
Schedule 6.23; (b) except as agreed to in writing by Buyer and such
Restricted Person, render any

<PAGE>

services to any person engaged in such activities; or (c) become
interested in any such person in any capacity, including, without
limitation, as a partner, shareholder, principal, agent, trustee or
consultant (other than in a pension or retirement investment plan);
provided, however, that any such ownership via a so-called mutual fund or
-------- -------
like investment vehicle for bona fide investment purposes shall not be
prohibited, and provided further, however, that a Restricted Person may
-------- ------- -------
own, directly or indirectly, solely as an investment, securities of any
person traded on a national securities exchange if such Restricted Person
is not a controlling person of, or a member of a group which controls,
such person and does not, directly or indirectly, own 5% or more of any
class of securities of such person.

10.9.1(b) Confidential Information; Personal
----------------------------------
Relationships. Each Restricted Person promises and agrees that, either
-------------
during the Restricted Period or at any time thereafter, it will not
disclose to any person not employed by the Seller Entities or not engaged
to render services to the Seller Entities, and that it will not use for
the benefit of itself or others, any confidential information of the
Seller Entities and other affiliates, including, without limitation,
"know-how," trade secrets, customer lists, details of client or
consultant contracts, pricing policies, financial data, operational
methods, marketing and sales information, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans and other personnel data, methods of
manufacture, technical processes, designs and design projects, inventions
and research projects, and other proprietary information of the Seller
Entities or their affiliates; provided, however, that this provision
-------- -------
shall not preclude the Restricted Persons from use or disclosure of
information known generally to the public (other than information known
generally to the public as a result of a violation of this Section 10.9.1
by any Restricted Person), from use or disclosure of information acquired
by any Restricted Person outside of its affiliation with the Seller
Entities or from disclosure required by law or court order.

10.9.1(c) Property of the Seller Entities. All
-------------------------------
memoranda, notes, lists, records and other documents (and all copies
thereof), including such items stored in computer memories, on microfiche
or by any other means, made or compiled by or on behalf of a Restricted
Person, or made available to a Restricted Person relating to the Seller
Entities, are and shall be the property of the Seller Entities, as the
case may be, and shall be delivered to the Seller Entities promptly after
the Closing or at any other time on request.

10.9.1(d) Employees of the Seller Entities. Except
--------------------------------
in furtherance of their employment by Parent, Buyer or any Buyer
Subsidiary or as agreed to in writing by Buyer and the Restricted
Persons, during the Restricted Period, the Restricted Persons shall not,
directly or indirectly, hire or solicit any employee of the Seller
Entities or encourage any such employee to leave such employment.

<PAGE>

10.9.2 Rights and Remedies upon Breach. If any
-------------------------------
Restricted Person breaches, or threatens to commit a breach of, any of the
provisions of Section 10.9.1 (the "Restrictive Covenants"), Buyer shall
---------------------
have the following rights and remedies, each of which rights and remedies
shall be independent of the others and severally enforceable, and each of
which is in addition to, and not in lieu of, any other rights and remedies
available to Buyer under law or in equity.

10.9.2(a) Specific Performance. The right and
--------------------
remedy to have the Restricted Covenants specifically enforced by any
court of competent jurisdiction, it being agreed that any breach or
threatened breach of the Restrictive Covenants would cause irreparable
injury to Buyer, and that money damages would not provide an adequate
remedy to Buyer.

10.9.2(b) Accounting. The right and remedy to
----------
require each Restricted Person to account for and pay over to Buyer, all
compensation, profits, monies, accruals, increments or other benefits
derived or received by such Restricted Person as the result of any
transactions by such Restricted Person constituting a breach of the
Restrictive Covenants.

10.9.3 Severability of Covenants. Each Restricted Person
-------------------------
acknowledges and agrees that as to him or her the Restrictive Covenants are
reasonable and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable as to the Restricted
Persons or to any Restricted Person, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect as
to the Restricted Persons or such Restricted Person, without regard to the
invalid portions.

10.9.4 Blue-Pencilling. If any court determines that any
---------------
of the Restrictive Covenants, or any part thereof, is unenforceable as to
the Restricted Persons or to any Restricted Person because of the duration
or geographic scope of such provision, such court shall have the power to
reduce the duration or scope of such provision, as the case may be, as to
the Restricted Persons or such Restricted Person, and, in its reduced form,
such provision shall then be enforceable.

10.9.5 Enforceability in Jurisdictions. Buyer and each
-------------------------------
Restricted Person intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of the Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of
Buyer and each Restricted Person that such determination not bar or in any
way affect Buyer's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of the Restrictive
Covenants, as to breaches of the Restrictive Covenants in such other
respective jurisdictions, the Restrictive Covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.

<PAGE>

10.9.6 No Seller other than the respective Restricted
Persons shall have any liability under this Section 10.9.

10.10 Bulk Sales Laws. Buyer and the Seller Entities
---------------
hereby waive compliance by each other with the so-called "bulk sales law"
and any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated hereby. Nothing in this Section shall estop or
prevent any party hereto from asserting as a bar or defense to any action
or proceedings brought under any such law that such law is not applicable
to the transactions contemplated hereby.

11. RISK OF LOSS. The risk of loss or damage to any Operated
------------
Facility or Joint Venture Facility, by fire or otherwise, or by
condemnation or any governmental taking, shall be upon Sellers until the
Closing of the transactions contemplated hereby.

11.1 Casualty. If at any time prior to the Closing, any
--------
Operated Facility or Joint Venture Facility or any "material part" (as
hereinafter defined) of any Operated Facility or Joint Venture Facility is
damaged or destroyed by fire or other casualty, the Sellers' Representative
shall immediately notify Buyer by written notice and Buyer or the Sellers'
Representative shall have the right, within 60 days after receiving such
notice, to terminate this Agreement as to such Facility, whereupon neither
party hereto shall have any further liability or obligation hereunder with
respect thereto. If Buyer or the Sellers' Representative does not elect to
terminate this Agreement as to such Facility, then the Closing shall take
place as provided in this Agreement, and the Seller Entities and the Owner
Parties will take such steps as shall be requested by Buyer to assure that
all of the Seller Entity's right, title and interest in and to all
insurance proceeds which are thereafter payable on account of such fire or
casualty will be retained by the Seller Entity after the Closing, and the
Purchase Price shall be reduced by the amount of any insurance proceeds
that are not so retained by the Seller Entities and the Owner Parties and
by the amount of any "deductible" under the insurance policy.

11.2 Condemnation. If at any time prior to the Closing, title
------------
to or the use of any Operated or Joint Venture Facility, or any material
part of any Operated or Joint Venture Facility, is taken or threatened to
be taken by condemnation, eminent domain or other similar governmental
taking (a "Condemnation"), the Sellers' Representative shall immediately
------------
notify Buyer by written notice and Buyer or the Sellers' Representative
shall have the right, within 60 days after receiving such notice, to
terminate this Agreement as to such Facility, whereupon neither party
hereto shall have any further liability or obligation hereunder with
respect thereto. If Buyer or the Sellers' Representative does not elect to
terminate this Agreement as to such Facility, then the Closing shall take
place as provided in this Agreement, and the Seller Entities and the Owner
Parties shall take such steps as shall be requested by Buyer to assure that
all right, title and interest in and to any awards or other amounts (the
"Condemnation Proceeds") which may be payable by any Governmental Authority
---------------------
as the result of such Condemnation will be retained by the Seller Entity
after the Closing and the Purchase Price shall be reduced by the amount of
any Condemnation

<PAGE>

Proceeds that are not so retained by the Seller Entities and the Owner
Parties. Prior to the Closing, Buyer shall have the right to participate
in any hearings or proceedings with respect to any Condemnation.

11.3 Material Part. For purposes of Article 11, a "material
------------- --------
part" of any Facility shall mean any part which Buyer or the Sellers'
- ----
Representative reasonably determines would materially adversely affect the
operations of the Facility as a nursing home facility if damaged, destroyed
or taken by Condemnation.

12. INDEMNIFICATION; REMEDIES.
-------------------------

12.1 Survival. All representations, warranties and agreements
--------
contained in this Agreement or in any certificate, document or other paper
delivered pursuant to this Agreement shall survive the Closing for the time
periods set forth herein, notwithstanding any investigation conducted with
respect thereto or any knowledge acquired as to the accuracy or inaccuracy
of any such representation or warranty; provided, that if the Closing
--------
occurs, the Seller Entities and the Owner Parties shall have no liability
(for indemnification or otherwise) with respect to any representation or
warranty unless, on or before the second anniversary of the Closing Date,
the Sellers' Representative is given notice asserting a claim with respect
thereto and specifying the factual basis of that claim in reasonable to
detail to the extent then known by Buyer; provided, however that (i) a
-------- -------
claim with respect to Section 6.3 (Capitalization; Validity of Shares);
6.15 (Taxes); and 6.17 (Employee Benefits) may be made at any time until
the expiration of the applicable statute of limitations and (ii) a claim
with respect to Section 6.9 (Environmental Matters) may be made on or
before the fifth anniversary of the Closing Date. Buyer shall have no
liability (for indemnification or otherwise) with respect to any
representation or warranty unless on or before the second anniversary of
the Closing Date, Buyer is given notice of a claim with respect thereto and
specifying the factual basis of that claim in reasonable detail to the
extent known by the Seller Entities and Owner Parties. The covenants
contained in this Agreement shall not expire.

12.2 Indemnification by Owner Parties. Subject to the
--------------------------------
limitations set forth in Sections 12.4, 12.6 and 12.7, the Owner Parties
shall indemnify and hold harmless Buyer and its respective agents,
representatives, employees, officers, directors, stockholders, controlling
persons and Affiliates (collectively, the "Buyer Indemnities"), and shall
-----------------
reimburse the Buyer Indemnities for, any loss, liability, claim, damage,
expense (including, but not limited to, costs of investigation and defense
and reasonable attorneys' fees), whether or not involving a third party
claim (collectively, "Damages"), arising from or in connection with (a) any
-------
inaccuracy in any of the representations and warranties of the Seller
Entities or the Owner Parties in this Agreement or in any certificate,
delivered by the Seller Entities or the Owner Parties pursuant to this
Agreement, (b) any failure of the Seller Entities or the Owner Parties to
perform or comply with any agreement to be performed or complied with by it
in this Agreement or the enforcement of the same, (c) any Damages resulting
from or relating to any audit by any Governmental Authority concerning the
operation of any Facility

<PAGE>

prior to the Closing Date (d) noncompliance with any bulk sales or bulk
transfer law, (e) any and all claims or causes of actions of any Owner
against any Seller Entity, any other Owner, Parent or Buyer, arising out of
or in connection with the transactions contemplated hereunder, except in
connection with a breach by Parent or Buyer of any of its obligations
hereunder; or (f) the enforcement of Buyer's rights under this Agreement.

12.3 Indemnification by Buyer. Subject to the limitations set
------------------------
forth in Section 12.4, Buyer shall indemnify and hold harmless the Owner
Parties and their respective agents, representatives, employees, officers,
directors and stockholders (collectively, the "Sellers Indemnities") and
-------------------
shall reimburse the Sellers Indemnities for any Damages arising from or in
connection with (a) any inaccuracy in any of the representations and
warranties of Buyer in this Agreement or in any certificate or other
document delivered by Buyer pursuant to this Agreement or the enforcement
of the same, (b) any failure by Buyer to perform or comply with any
agreement to be performed or complied with by Buyer in this Agreement or
the enforcement of the same, (c) any and all claims or causes of actions of
Parent or Buyer (or any stockholder thereof) against any Seller Entity or
Owner Party, arising out of or in connection with the transactions
contemplated hereunder, except in connection with a breach by any Seller
Entity or Owner Party of its obligations hereunder; or (d) the enforcement
of the Sellers' rights under this Agreement.

12.4 Limitations on Liability. Notwithstanding anything to the
------------------------
contrary set forth in this Agreement:

(a) The Owner Parties shall only be liable for
indemnification payments for Damages with respect to any representation
and warranty other than those made by Sellers in Sections 6.1
(Organization and Authority; No Conflict), 6.3 (Capitalization; Validity
of Shares), 6.15 (Taxes) and 6.17 (Employee Benefits) (the "Basket
------
Exclusions") (i) relating solely to any one Facility, if such Damages
----------
exceed, in the aggregate, 1% of the allocated value of such Facility; and
(ii) (except as set forth in Section 12.7) to the extent such Damages
exceed in the aggregate, $250,000 ((i) and (ii) constitute the "Sellers'
--------
Basket").
------

(b) Buyer shall also be entitled to receive
indemnification payments with respect to the Basket Exclusions without
regard to the individual or aggregate amounts thereof and without regard
to whether the aggregate of all other indemnification payments shall have
exceeded, in the aggregate the Sellers' Basket.

(c) Following the Closing, except as set forth in
Section 12.7 respecting the Facility known as Academy, Buyer's sole
recourse against David Solomont of Lowell (the cousin of ADS) and Jay H.
Solomont (the brother ) (i.e. the two Owner Parties other than SSB, ADS
----
and his brothers David Solomont and Ahron Solomont) shall be solely as
set forth in Section 12.6. Following the Closing, Buyer's sole recourse
respecting the Facility known as Academy and the Owner Party thereof will

<PAGE>

be as set forth in Section 12.7. The indemnification obligations under
Sections 12.2(a) and (c) of SSB, ADS, and his brothers David Solomont and
Ahron Solomont shall not exceed, in the aggregate, $25,000,000 plus any
amounts recoverable from the Indemnification Holdback Amount. This
Section 12.4(c) shall not apply to a cause of action or claim by Buyer
against any Owner Party for fraud.

(d) Buyer shall only be liable for indemnification
payments for Damages with respect to any representation and warranty
other than those made by Buyer and Parent in Section 7.1 (the "Buyer
-----
Basket Exclusions") to the extent such Damages exceed 1% of the total
-----------------
Purchase Price (the "Buyer Basket"). The Owner Parties shall also be
------------
entitled to receive indemnification payments with respect to the Buyer
Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate of all other
indemnification payments shall have exceeded, in the aggregate, the Buyer
Basket.

(e) The indemnification obligations of Buyer
hereunder shall not exceed $10,000,000.

(f) Buyer's indemnification obligation may be
satisfied by payment of stock of Parent valued at Fair Market Value at
the time of delivery or in cash. "Fair Market Value" shall mean the
average value of Parent's stock during the ten New York Stock Exchange
trading days prior to the date such stock is delivered to Sellers.

12.5 Procedure for Indemnification -- Third Party Claims.
--------------------------------------------------
Promptly after receipt by an indemnified party under Section 12.2 or 12.3
of oral or written notice of a claim or the commencement of any proceeding
against it, such indemnified party shall, if a claim in respect thereof is
to be made against an indemnifying party under such Section, give notice to
the indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it
may have to any indemnified party except to the extent the indemnifying
party demonstrates that the defense of such action is prejudiced thereby.
In case any such proceeding shall be brought against an indemnified party
and it shall give notice to the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and, to the extent that it shall wish (unless the indemnifying party is
also a party to such proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate), to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such Section for
any fees of other counsel or any other expenses with respect to the defense
of such proceeding, in each case, subsequently incurred by such indemnified
party in connection with the defense thereof. If an indemnifying party
assumes the defense of such proceeding, (a) no compromise or settlement
thereof may be effected by the indemnifying party without the indemnified
party's consent unless (i) there is no finding or

<PAGE>

admission of any violation of law or any violation of the rights of any
Person and there is no effect on any other claims that may be made against
the indemnified party and (ii) the sole relief provided is monetary damages
that are paid in full by the indemnifying party and (b) the indemnified
party shall have no liability with respect to any compromise or settlement
effected without its consent. If notice is given to an indemnifying party
of the commencement of any proceeding and it does not, within ten (10) days
after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense thereof which
notice shall state that the indemnified party is entitled to
indemnification hereunder, the indemnifying party shall be bound by any
determination made in such action or any compromise or settlement effected
by the indemnified party. Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable probability that
a proceeding may adversely affect it or its Affiliates other than as a
result of monetary damages, such indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend, compromise or
settle such proceeding, but the indemnifying party shall not be bound by
any determination of a proceeding so defended or any compromise or
settlement thereof effected without its consent (which shall not be
unreasonably withheld).

12.6 Indemnity Escrow. At the Closing, Buyer shall deposit the
----------------
Indemnification Holdback Amount with the Escrow Agent to be held and
disbursed to Buyer or to the Sellers' Representative in accordance with the
Escrow Agreement. Buyer's sole recourse under this Agreement against any
Owner Party other than SSB, ADS and his brothers David Solomont and Ahron
Solomont (except, as to David Solomont of Lowell, who shall be liable for
indemnification respecting Academy without limitation under Section 12.7)
shall be by means of recourse to the Indemnification Holdback Amount.
Notwithstanding anything to the contrary in the parenthetical clause in the
introduction to Article 6, Buyer shall be entitled to receive
indemnification from the Indemnification Holdback Amount for any claim
under Article 12 without regard to which Seller Entity or Owner Party such
claim arises. Any funds deposited by Buyer as the Indemnification Holdback
Amount that are not disbursed for indemnification purposes pursuant to
Article 12 hereunder, shall be distributed to the Owner Parties by the
Sellers' Representative pursuant to a separate agreement among the Owner
Parties and the Sellers' Representative.

12.7 Special Provision Relating to Academy. The
-------------------------------------
indemnification under Section 12.2(a) and (c) relating to the 174-bed
Facility known as Academy Manor and the Seller Entities owning or operating
the same (collectively, "Academy") will be subject to the following special
provisions on indemnification. The sole Owner Party with responsibility
for indemnification under Section 12.2(a) and (c) relating to Academy shall
be David Solomont of Lowell (the cousin of ADS). Such indemnification will
be subject to all of the provisions of this Article 12, except that the
limitation in Section 12.4(a)(ii) shall not apply. There shall be a
$300,000 holdback on the Purchase Price relating to Academy in order to
partially secure David Solomont of Lowell's indemnification obligations
under this Section 12.7.

<PAGE>

13. TERMINATION.
-----------

13.1 Termination Events. Subject to the provisions of Section
------------------
13.2, this Agreement may, by written notice given at or prior to the
Closing in the manner hereinafter provided, be terminated:

(a) by either Buyer or the Sellers' Representative
if a material default or breach shall be made by the other party with
respect to the due and timely performance of any of its covenants and
agreements contained herein, or with respect to the due compliance with
any of its representations or warranties, and such default or
misrepresentation has not been cured within 15 days (plus up to an
additional 90 days but not later than March 31, 1997 with diligent
prosecution) after the other party has provided such party with written
notice thereof and has not been waived;

(b) by the Buyer if the satisfaction of any of the
conditions set forth in Article 4 is or becomes commercially impossible,
other than through failure of Buyer to comply fully with its obligations
hereunder, and shall not have been waived by Buyer on or before such
date;

(c) by the Sellers' Representative, if the
satisfaction of any of the conditions set forth in Article 5 is or
becomes commercially impossible, other than through failure of Sellers to
comply fully with its obligations hereunder, and shall not have been
waived by the Sellers' Representative on or before such date;

(d) by either the Sellers' Representative or Buyer
if the Closing shall not have occurred on or before November 30, 1996
(subject to the provisions of Section 10.3 (Licensure Requirements)) or
such later date as may be agreed upon in writing by the parties;
provided, however, that a party may not terminate this Agreement under
-------- -------
this Section 13.1(d) if the Closing has not occurred solely as a result
of such party's breach or willful failure to fulfill its obligations
hereunder; provided further, however, in the event any condition set
-------- ------- -------
forth in Article 4 or in Article 5 have not been satisfied, the Buyer or
the Sellers' Representative shall grant upon the reasonably detailed
written request of the other an extension of the Closing for up to
120 days, to enable such party to satisfy such condition and to fully
consummate the transactions contemplated hereby;

(e) pursuant to Sections 4.1 (Due Diligence), 8.3.1
(Environmental Audit), 10.2 (Title and Survey), 10.3 (Licensure
Requirements), 11.1 (Casualty), 11.2 (Condemnation) or 15.10 (Schedules);
or

(f) by mutual consent of Buyer and the Sellers'
Representative.

<PAGE>

13.2 Effect of Termination. In the event this Agreement is
---------------------
terminated pursuant to Section 13.1 or otherwise all further obligations of
the parties hereunder shall terminate, except that the obligations set
forth in Sections 10.4 (Confidentiality), 10.5 (Expenses) or 10.6 (Public
Announcements) and the representations in Sections 6.22 (Brokers and
Finders) and 7.2 (Brokers and Finders) shall survive. Each party's right
of termination hereunder is in addition to any other rights it may have
hereunder or otherwise and the exercise of a right of termination shall not
be an election of remedies.

14. DEFINITIONS.
-----------

14.1 Certain Definitions. For purposes of this Agreement, the
-------------------
following terms shall have the following meanings:

(a) "ADS" shall mean Alan D. Solomont.
---

(b) "Affiliate" shall mean, with respect to any
---------
natural person, corporation, partnership or other entity, a natural
person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such person or entity.

(d) "Commonly Controlled Entity" shall mean any
--------------------------
entity which together with any Seller Entity would be treated as a
"single employer" under Section 414 of the Code.

(e) "Corporations" shall mean such Seller Entities
------------
that are corporations, as set forth on Schedule A.

(f) "Environmental Laws" shall mean any state,
------------------
federal or local laws, ordinances, codes or regulations relating to
pollution, natural resources, protection of the environment, or public
health and safety, including, without limitation, laws and regulations
relating to the handling and disposal of medical and biological waste.

[(g) "Escrow Agent" shall mean a law firm, the bank
------------
or trust company named as such in the Escrow Agreement.

(h) "Escrow Agreement" shall mean an Escrow
----------------
Agreement among (i) Buyer, (ii) the Sellers' Representative on behalf of
the Seller Entities and the Owner Parties and (iii) the Escrow Agent, in
such form as Buyer, the Sellers' Representative and the Escrow Agent
shall reasonably agree not later than ten days prior to the Closing.]

<PAGE>

(i) "Exchange Act" shall mean the Security Exchange
------------
Act of 1934, as amended.

(j) "Governmental Authority" shall mean any
----------------------
government or political subdivision thereof, whether federal, state,
local or foreign, or any agency or instrumentality of any such government
or political subdivision, or any court or arbitration body.

(k) "Hazardous Substances" shall mean (i) any
--------------------
hazardous or toxic waste, substance, or material defined as such in (or
for the purposes of) any Environmental Law, (ii) asbestos-containing
material, (iii) medical and biological waste, (iv) polychlorinated
biphenyls, (v) petroleum products, including gasoline, fuel oil, crude
oil and other various constituents of such products, and (vi) any other
chemicals, materials or substances, exposure to which is prohibited,
limited or regulated by any Environmental Laws.

(l) "Intellectual Property" shall mean all patents,
---------------------
copyrights, trademarks, software and computer programs, corporate names
and other intellectual property rights, including the name "The ADS
Group, Inc." and the initials "ADS" (collectively, the "Trade Names"),
-----------
including any application for any of the foregoing, used or held in
connection with the Facilities.

(m) "Licenses" shall mean all licenses, permits,
--------
certificates, determination of need, consents, approvals, accreditations,
waivers and other authorizations (including, without limitation, any
authorizations to participate in any state or federal reimbursement
program such as Medicaid or Medicare), whether issued or granted by any
Governmental Authority or by any other Person, and all operating,
licensure and certification rights with respect to all licensed beds.

(n) "Lien" shall mean any lien, pledge, mortgage,
----
deed of trust, security interest, claim, lease, charge, option, right of
first refusal, easement, servitude, restrictive covenants, encroachment
or other survey defect, transfer restriction or other encumbrance of any
nature whatsoever.

(o) "Partnerships" shall mean such Seller Entities
------------
that are partnerships, as set forth on Schedule A.

(p) "Person" shall mean any individual, corporation,
------
partnership, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, or other organization, whether or not
a legal entity, and any Governmental Authority.

(q) "SEC" shall mean the Securities and Exchange
---
Commission, or any successor entity.

<PAGE>

(r) "SSB" shall mean Susan S. Bailis.
---

(s) "Securities Act" shall mean the Securities Act
--------------
of 1933, as amended.

(t) "Tax" or "Taxes" shall mean:
--- -----

(i) Any tax, duty, impost, fee or charge of any
kind or nature whatsoever imposed by any Governmental Authority,
including, without limitation, any income, sales, transfer, transfer
gains or use taxes, excise, franchise, business and occupation taxes,
real or personal property taxes, and gross receipt, unemployment, FICA,
FUTA, and other payroll taxes; and

(ii) Interest, additions and penalties (civil or
criminal) imposed in connection with any such tax and any interest in
respect of any such additions or penalties; and professional fees
incurred in connection with the defense, determination or litigation of
any such tax liability.

(u) "Tax Returns" shall mean all federal, state,
-----------
local, and foreign returns (including information returns), reports and
declarations of any kind required to be filed by or on behalf of any
Seller Entity with respect to Taxes, including, if applicable,
consolidated or combined federal, state or local income tax returns of
the general and limited partners of any Seller Entity for Code purposes
and any returns required with respect to the Taxes described in
Section 6.15.

14.2 Other Definitions. The following capitalized terms are
-----------------
defined in the following Sections of this Agreement:

Term Section
---- -------

Academy 12.7

Additional Facility 8.16
Balance Sheet 7.3

Basket Exclusions 12.4(a)

Benefit Plan 6.17

Business First recital
Buyer Preamble

<PAGE>

Term Section
---- -------

Buyer Basket 12.4(d)

Buyer Basket Exclusions 12.4(d)

Buyer Indemnities 12.2

Buyer Subsidiary 3.3.2(e)

Cash Payment 2.1

Closing 3.1

Closing Date 3.1

Condemnation 11.2

Condemnation Proceeds 11.2

Confidential Information 10.4

Contracts 6.13

Damages 12.2

Effective Time 3.2

Elder Care Business 6.23

Employment Agreements 4.10

Environmental Audits 8.3.1

Equity Seller Entities Third recital

ERISA 6.17

Facilities First recital

Fair Market Value 12.4(f)

Financial Statements 6.4

Guaranty Fourth recital

Indemnification Holdback 2.1

Amount

Joint Venture Facilities First recital

Leased Real Property 6.11.2

Leased Tangible Property 6.10.2

<PAGE>

Term Section
---- -------

Leases 6.11.2

Management Agreements 8.15

Managed Facilities First recital

Material Adverse Effect 6.5

Merged Seller Entities Third recital

Necessary Consents 15.10

Operated Facilities First recital

Operator Seller Entities 3.3.1(d)

Owned Real Property 6.11.1

Owned Tangible Property 6.10.1

Owner Parties Preamble

Owners Preamble

Parent Fourth recital

Parent Shares 2.1

Patients' Trust Fund 3.3.1(e)
Assignment

Permitted Encumbrances 6.11.1

Purchase Price 2.1

Real Property 6.11.2

Restricted Period 10.9.1(a)

Restricted Persons 10.9.1

Restrictive Covenants 10.9.2

Section 338(h)(10) 8.13
Election

SEC Documents 7.3

Seller Entities Preamble

Sellers Preamble

<PAGE>

Term Section
---- -------

Sellers Basket 12.4(a)

Sellers Indemnities 12.3

Sellers' Representative 8.11

Stock Payment Amount 2.1

Tangible Property 6.10.3

Tangible Property Leases 6.10.2

Trade Names 14.1(f)

WARN 6.17(P)

14.3 Miscellaneous Definitions. The words "hereof," "herein,"
-------------------------
"hereby" and "hereunder," and words of like import, refer to this Agreement
as a whole and not to any particular Section hereof. References herein to
any Section, Schedule or Exhibit refer to such Section of, or such Schedule
or Exhibit to, this Agreement, unless the context otherwise requires. All
pronouns and any variations thereof refer to the masculine, feminine or
neuter gender, singular or plural, as the context may require.

15. MISCELLANEOUS.
-------------

15.1 Successors. Without derogating from the restrictions on
----------
assignment hereafter specified in Section 15.6, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns.

15.2 Further Assurances. Each of the parties hereto agrees
------------------
that it will, from time to time after the date of this Agreement, execute
and deliver such other certificates, documents and instruments and take
such other action as may be reasonably requested by any other party to
carry out more effectively the transactions contemplated hereby. The Owner
Parties and the Seller Entities acknowledge that to the extent that their
consent is required under any agreement or document to effect any
transaction set forth on Exhibit A (as the same may hereafter be modified
in accordance with this Agreement) their execution and delivery of this
Agreement shall constitute such consent.

15.3 Waiver. Any provision of this Agreement may be waived at
------
any time by the party which is entitled to the benefits thereof, and this
Agreement may be amended or supplemented at any time. No such waiver,
amendment, or supplement shall be effective unless in writing and signed by
the Sellers' Representative and Buyer.

<PAGE>

15.4 Entire Agreement. This Agreement (together with the
----------------
certificates, agreements, including, without limitation, the Guaranty,
Exhibits, Schedules, instruments and other documents referred to herein)
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, both written and
oral, with respect to such subject matter. The only representations made
by the parties hereto with respect to the subject matter hereof are the
representations and warranties contained in or made pursuant to this
Agreement by reference in this Agreement.

15.5 Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts applicable to agreements made and to be
performed entirely within such state. Any action or proceeding brought by
a party against any other party in connection with this Agreement may be
commenced in any federal or state court located in the City of Boston, and
all objections to personal jurisdiction and venue in any action or proceed-
ing so commenced are hereby waived. As long as service of process is by
notice as provided in this Agreement or as required by any such court, all
objections to improper service of process are hereby waived.

15.6 Assignment. Neither Buyer nor the Seller Entities and the
----------
Owner Parties may assign this Agreement to any other Person without the
prior written consent of the Sellers' Representative and Buyer and any such
purported assignment shall be void; provided, however, that (i) Buyer may
-------- -------
assign its rights hereunder to one or more Affiliates of Buyer and
(ii) Buyer or its permitted assigns may assign for collateral their rights
hereunder to any Person who is providing financing in connection with the
transactions contemplated hereunder. The Seller Entities and the Owner
Parties agree that Buyer may elect to cause all or a portion of the
acquisitions described herein to be effected through a sale to a third
person and simultaneous lease to Buyer or its Affiliates.

15.7 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (a) when
delivered personally, (b) when transmitted by telecopy (receipt confirmed),
(c) on the fifth business day following mailing (with proper postage
affixed) by registered or certified mail in the continental United States
(return receipt requested), or (d) on the next business day following
deposit with an overnight delivery service of national reputation, to the
parties at the following addresses and telecopy numbers (or at such other
address or telecopy number for a party as may be specified by like notice):

<PAGE>

If to any Seller, to:

The A-D-S Group
400 Centre Street
Newton, MA 02158
Attention: Alan D. Solomont
Telephone: 617-332-5522
Telecopy: 617-332-2196

With a copy to:

Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110-3333
Attention: Alan S. Goldberg
Telephone: 617-482-1776
Telecopy: 617-574-4112

If to Buyer or Parent, to:

c/o The Multicare Companies, Inc.
411 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: Daniel E. Straus
Telephone: 201-488-8818
Telecopy: 201-525-5959

With a copy to:

The Multicare Companies, Inc.
411 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: General Counsel
Telephone: 201-488-8818
Telecopy: 201-525-5959

And to:

Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Carl L. Reisner
Telephone: 212-373-3017
Telecopy: 212-757-3990

<PAGE>

15.8 Headings. The headings contained in this Agreement,
--------
including the Schedules and Exhibits, are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement.

15.9 Counterparts. This Agreement may be executed in multiple
------------
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other party but parties are
bound notwithstanding that other parties do not sign, it being understood
that all parties need not sign the same counterpart. The parties will
nevertheless be bound as to all matters included herein (except respecting
Academy) when this Agreement is executed by all parties other than David
Solomont of Lowell.

15.10 Exhibits, Schedules and Due Diligence. The Exhibits
-------------------------------------
and Schedules to this Agreement are incorporated by reference herein and
are made a part hereof as if they were fully set forth herein. The parties
hereto acknowledge that Buyer is executing this Agreement without any
Schedules attached, with only a provisionally completed Exhibit A attached
and without Buyer having received all information required to be furnished
to it hereunder. ADS agrees to deliver, or cause to be delivered, to the
Buyer complete drafts of such Schedules, a completed draft of Exhibit A and
the balance of the required information on or before July 10, 1996.
Thereafter the parties shall use their respective best efforts to finalize
and agree to such Schedules and Exhibit and to review such information on
or before August 15, 1996. In all events, the Schedules, such Exhibit and
such information must be acceptable to Buyer in its sole discretion. In
addition, ADS agrees to use his best efforts to obtain any consents
(including necessary corporate votes and partnership approvals in
ratification of execution by ADS on behalf of Seller Entities of this
Agreement) of the persons set forth on Schedule 6.1.3 and of the Owners
other than the Owner Parties (the "Necessary Consents") on or before
------------------
August 15, 1996. If such Schedules, such Exhibit and such information are
not delivered, or if the Schedules, such Exhibit and such information are
not agreed upon, or if the Necessary Consents are not obtained, in each
case in the manner and within the time periods described above, unless the
Buyer and Sellers' Representative have agreed otherwise, then Buyer, except
as set forth in Section 13.2, shall have the right to terminate this
Agreement, by notice thereof given not later than August 18, 1996, without
liability of any party. So long as ADS has used his best efforts to obtain
the Necessary Consents, so to complete the Schedules and such Exhibit and
to furnish such information (it being recognized and understood by the
parties hereto that some of such information may not be furnished to Buyer
without the approval of third Persons) neither ADS, any Seller Entity nor
any other Owner Party shall have any liability for the failure to obtain
any Necessary Consents, so to complete the Schedules and such Exhibit or so
to furnish such information. Notwithstanding such best efforts, if on or
before August 15, 1996 the Necessary Consents have not been obtained, the
Schedules and such Exhibit have not been so completed, or such information
has not been so furnished, then the parties shall use their best efforts
prior to September 30, 1996 to modify this Agreement or to enter into
alternative arrangements, to achieve, as nearly as practicable, the
purposes and intents of this

<PAGE>

Agreement, it being understood that in all events Section 10.7 shall be
binding on the Seller Entities and the Owner Parties; provided, however
that if this Agreement is not so modified or alternative arrangements are
not so entered into prior to March 31, 1997, then the Buyer shall have the
right to terminate this Agreement, by notice thereof given not later than
March 31, 1997, without liability to any party.

15.11 Severability. The invalidity of any term or terms of
------------
this Agreement shall not affect any other term of this Agreement, which
shall remain in full force and effect.

15.12 No Third Party Beneficiaries. There are no third
----------------------------
party beneficiaries of this Agreement or of the transactions contemplated
hereby and nothing contained herein shall be deemed to confer upon any one
other than the parties hereto (and their heirs, successors and permitted
assigns) any right to insist upon or to enforce the performance of any of
the obligations contained herein.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.

BUYER:

ADS/MULTICARE, INC.

By: ___________________________________
Name:
Title:

SELLER ENTITIES:

ACADEMY MANOR NURSING HOME, INC.

By: ___________________________________
Name:
Title:

ACADEMY REALTY

By: ___________________________________
Name:
Title:

ADS APPLE VALLEY, INC.

By: ___________________________________
Name:
Title:

ADS CONSULTING, INC.

By: ___________________________________
Name:

<PAGE>

Title:

ADS HINGHAM LIMITED PARTNERSHIP

By: ADS Hingham Nursing Facility, Inc., its
general partner

By: ___________________________________
Name:
Title:

ADS HINGHAM NURSING FACILITY, INC.

By: ___________________________________
Name:
Title:

ADS MANAGEMENT, INC.

By: ___________________________________
Name:
Title:

ADS PALM CHELMSFORD, INC.

By: ___________________________________
Name:
Title:

<PAGE>

ADS RECUPERATIVE CENTER, INC.

By: ___________________________________
Name:
Title:

ADS RECUPERATIVE CENTER LIMITED PARTNERSHIP

By: ADS Recuperative Center, Inc., its
general partner

By: ___________________________________
Name:
Title:

ADS RESERVOIR WALTHAM, INC.

By: ___________________________________
Name:
Title:

ADS SENIOR HOUSING, INC.

By: ___________________________________
Name:
Title:

ARCADIA ASSOCIATES

By: ___________________________________
Alan D. Solomont

<PAGE>

ASL, INC.

By: ___________________________________
Name:
Title:

NORTH ANDOVER ASSOCIATES

By: ___________________________________
Alan D. Solomont

NURSING AND RETIREMENT CENTER
OF THE ANDOVERS

By: ___________________________________
Name:
Title:

PRESCOTT NURSING HOME ASSOCIATES

By: Prescott Nursing Home, Inc.

By:__________________________________
Name:
Title:

PRESCOTT NURSING HOME, INC.

By: ___________________________________
Name:
Title:

<PAGE>

SENIOR SOURCE, INC.

By: ___________________________________
Name:
Title:

SOLOMONT BROOKLINE LIMITED PARTNERSHIP

By: Solomont Family Brookline Venture
Limited Partnership, its general partner

By: Solomont Family Brookline, Inc.
its general partner

By:_________________________________
Name:
Title:

SOLOMONT FAMILY BROOKLINE VENTURE LIMITED
PARTNERSHIP

By: Solomont Family Brookline Venture, Inc.
its general partner

By:__________________________________
Name:
Title:

SOLOMONT FAMILY BROOKLINE
VENTURE, INC.

By: ___________________________________
Name:
Title:

<PAGE>

SOLOMONT FAMILY FALL RIVER
VENTURE, INC.

By: ___________________________________
Name:
Title:

SOLOMONT FAMILY MEDFORD
VENTURE, INC.

By: ___________________________________
Name:
Title:

THE ADS GROUP, INC.

By: ___________________________________
Name:
Title:

WESTFORD NURSING AND RETIREMENT
CENTER, INC.

By: ___________________________________
Name:
Title:

<PAGE>

WESTFORD NURSING AND RETIREMENT CENTER LIMITED
PARTNERSHIP

By: Westford Nursing & Retirement Center,
Inc., its general partner

By:__________________________________
Name:
Title:

WILLOW MANOR NURSING HOME, INC.

By: ___________________________________
Name:
Title:

OWNER PARTIES:

_______________________________________
Alan D. Solomont

_______________________________________
David Solomont

_______________________________________
Ahron M. Solomont

_______________________________________
Jay H. Solomont

_______________________________________
Susan S. Bailis

_______________________________________
David Solomont

<PAGE>

Exhibit A

<PAGE>

PWRW&G DRAFT
6/17/96

Exhibit A
---------

Transactions
------------

PRELIMINARY NOTE: SUBJECT TO REVIEW
FOR, AMONG OTHER THINGS, TRANSFER TAX AND
REIMBURSEMENT ISSUES. REVERSE MERGERS ARE
A POSSIBLE ALTERNATIVE IN CERTAIN CASES.

1.ADS Management, Inc. (S Corporation)

A.Each stockholder of ADS Management, Inc. (i.e., Alan Solomont (45%),
----
David Solomont (22.5%), Ahron Solomont (22.5%) and Susan Bailis (10%))
shall sell their stock to the Buyer (except that Susan Bailis shall only
transfer 4.02% of her shares of stock).

B. Buyer shall pay cash consideration to each stockholder of ADS
Management, Inc. as follows:

Alan Solomont $ 3,750,750
David Solomont $ 1,875,375
Ahron Solomont $ 1,875,375
Susan Bailis $ 33,500
----------
Total $ 7,535,000

C. Susan Bailis shall transfer her remaining shares of stock of ADS
Management, Inc. to Parent in exchange for 40,251 Parent Shares.
Parent shall make a contribution of the shares of ADS Management,
Inc. to the capital of Buyer.

D. Contractual consents required:

(i) Need to check Loan and Trust Agreement among Mass.
Industrial Finance Agency, Mary Ann Morse Nursing Home, Inc.
and Fleet Bank regarding consents. Document not provided.

(ii) Pursuant to the Management Agreement with Village Manor
Nursing Home, Inc. ("Owner"), if a majority of the voting
shares of ADS Management, Inc. is to be transferred, ADS
must notify Owner of identity of transferee; if Owner does
not approve transferee (such approval not to be unreasonably
withheld), Owner shall then have right, within 10 days after

<PAGE>

giving of such transfer notice by ADS Management, Inc., to
elect to terminate agreement, such agreement to terminate 90
days after Owner's notice.

(iii) Terminate Loan Agreement ("Loan"), dated 6/17/94
between ADS Management, Inc. and Enterprise Bank and
Trust Company; Release liens.

(iv) Release of Guarantees of Alan Solomont, Susan Bailis and
David Solomont in connection with Loan

E. Owner consents (other than Owner Parties):

None.

<PAGE>

2. ADS Consulting, Inc. (S Corporation)

A. Each stockholder of ADS Consulting, Inc. (i.e., Alan Solomont
----
(27%), David Solomont (13.5%), Ahron Solomont (13.5%), Susan
Bailis (26%) and David Rouch (20%)) shall transfer their shares
of stock to Parent (except that David Rouch shall only transfer
50% of his shares of stock) in exchange for Parent Shares.

B. Parent shall make a contribution of the shares of ADS Consulting,
Inc. to the capital of Buyer. Parent shall transfer 168,588
Parent Shares to the stockholders of ADS Consulting, Inc. as
follows:

Alan Solomont 50,577 Shares

David Solomont 25,288 Shares

Ahron Solomont 25,288 Shares

Susan Bailis 48,703 Shares

David Rouch 18,732 Shares
-------------------
Total: 168,588 Shares

C. David Rouch shall sell his remaining shares of stock of ADS
Consulting, Inc. to Buyer in consideration of $372,300 Buyer
shall pay to David Rouch.

D. Consents required:

None.

<PAGE>

3. ADS Senior Housing, Inc. (S Corporation)

A. Each stockholder of ADS Senior Housing, Inc. (i.e., Alan Solomont
----
(36%), David Solomont (18%), Ahron Solomont (18%), Susan Bailis
(18%) and Thomas Grape (10%)) shall transfer their shares of
stock to Parent in exchange for Parent Shares.

B. Parent shall make a contribution of the shares of ADS Senior
Housing, Inc. to the capital of Buyer. Parent shall transfer
111,346 Parent Shares to the stockholders of ADS Senior Housing,
Inc. as follows:

Alan Solomont 40,085 Shares

David Solomont 20,042 Shares

Ahron Solomont 20,042 Shares

Susan Bailis 20,042 Shares

Thomas Grape 11,135 Shares
-------------------
TotaL 111,346 Shares

C. Contractual consents required:

(i) Management Agreement with Heritage at Falls Assisted Living
Limited Partnership ("Partnership") - terminable by either
party within 15 days upon a sale or transfer of
substantially all of the assets to any party not an
affiliate of General Partner of the Partnership. [G&S: Who
has authority to give consent for the Partnership?]

(ii) Note: Management Agreements with Cabot Park Limited
Partnership, Cleveland Circle Assisted Living L.P., Vernon
Court Associated L.P. permits Massachusetts Housing Finance
Authority ("MHFA") to terminate agreements without cause.
[Will we approach MHFA for consent?]

(iii) No assignment of Development & Overview Agreement with
MetroWest Health, Inc. and Mary Ann Morse. [GPS: Do
you agree no consent required?]

D. Owner consents (other than Owner Parties):

None.

<PAGE>

4. Senior Source, Inc. (S Corporation)

A. Each stockholder of Senior Source, Inc. (i.e., Alan Solomont
----
(36%), David Solomont (18%), Ahron Solomont (18%), Susan Bailis
(18%) and Thomas Grape (10%)) shall transfer their shares of
stock to Parent in exchange for Parent Shares to the Buyer.

B. Parent shall make a contribution of the shares of Senior Source,
Inc. to the capital of Buyer. Parent shall transfer 25,157
Parent Shares to the stockholders of Senior Source, Inc. as
follows:

Alan Solomont 9,057 Shares

David Solomont 4,528 Shares

Ahron Solomont 4,528 Shares
Susan Bailis 4,528 Shares

Thomas Grape 2,516 Shares

-------------------
TotaL 25,157 Shares

C. Consents required:

None.

<PAGE>

5. Scotchwood

A. Each partner of Scotchwood (i.e., Alan Solomont (40%), David
----
Solomont (20%), Ahron Solomont (20%) and Susan Bailis (20%))
shall sell their partnership interests to Buyer (except that
Susan Bailis shall only transfer 53.58% of her partnership
interests).

B. Buyer shall pay cash consideration to each partner of Scotchwood,
as follows:

Alan Solomont $ 861,600

David Solomont $ 430,800

Ahron Solomont $ 430,800

Susan Bailis $ 230,800
-----------

Total $1,954,000

C. Susan Bailis shall transfer her remaining partnership interests
of Scotchwood to Parent in exchange for 10,063 Parent Shares.
Parent shall make a contribution of the partnership interests of
Scotchwood to the capital of Buyer.

D. Consents required:

None.

<PAGE>

6. The ADS Group, Inc.

A. Alan Solomont, the sole stockholder of The ADS Group, Inc. shall
transfer 63.636% of his shares of stock to Parent in exchange for
176,102 Parent Shares.

B. Alan Solomont shall sell his remaining shares of stock of The ADS
Group, Inc. to Buyer in consideration of $2 million Buyer shall
pay to Alan Solomont.

C. Consents required.

None.

<PAGE>

7. Academy Manor Nursing Home, Inc. ("Academy, Inc.")
Academy Realty

A. Each stockholder of Academy, Inc. (i.e., David Solomont of Lowell
----
(24%), Robert Kahn (24%) and Meyer Solomont (53%)) shall sell
their stock to Buyer.

B. Buyer shall pay cash consideration to each partner of Academy,
Inc., as follows:

David Solomont $ 480,000

Robert Kahn $ 480,000

Meyer Solomont $ 1,040,000
------------
Total $ 2,000,000

C. Each partner of Academy Realty (i.e., David Solomont of Lowell
----
(24%), Robert Kahn (24%) and Meyer Solomont (52%)) shall sell
their stock to Buyer.1

D. Buyer shall pay cash consideration to each partner of Academy
Realty, as follows:

David Solomont $ 780,000

Robert Kahn $ 780,000

Meyer Solomont $ 1,690,000
------------
Total $ 3,250,000

- --------------------
1/ We have a1ssumed that the ownership structure is identical to
- - Academy, Inc.

<PAGE>

8. Arcadia Associates (General Partnership)
ASL, Inc. d/b/a Heritage Nursing Care Center (S Corporation)

A. Buyer shall incorporate Health Resources of Arcadia, Inc. as a
wholly-owned subsidiary.

B. First, Alan Solomont shall transfer his 12.5% partnership
interest to Parent in consideration for $136,500 and Parent shall
contribute interest to Buyer who shall contribute it to Health
Resources of Arcadia, Inc. Next, each other partner of Arcadia
Associates (i.e., David Solomont (12.5%), Jay Solomont (12.5%),
----
Ahron Solomont (12.5%), Leon Landa (25%), E. Casso (6.25%), G.
Jasne (6.25%), P. Altsher (6.25%) and B. Petty (6.25%)) shall
each transfer their partnership interests in Arcadia Associates
to Buyer for cash as follows:

David Solomont $ 136,500
Jay Solomont 136,500
Ahron Solomont $ 136,500
Leon Landa $ 273,000
E. Casso $ 68,250
G. Jasne $ 68,250
P. Altsher $ 68,250
B. Petty $ 68,250
------------
Total $ 1,092,000

C. Each stockholder of ASL, Inc., (i.e., Alan Solomont (12.5%),
----
David Solomont (12.5%), Jay Solomont (12.5%), Ahron Solomont
(12.5%), Leon Landa (25%), E. Casso (6.25%), G. Jasne (6.25%), P.
Altsher (6.25%) and B. Petty (6.25%)) shall sell their stock to
Buyer.

D. Buyer shall pay cash consideration to each stockholder of ASL,
Inc. as follows:

Alan Solomont $ 125,000
David Solomont $ 125,000
Jay Solomont $ 125,000
Ahron Solomont $ 125,000
Leon Landa $ 250,000
E. Casso $ 62,500
G. Jasne $ 62,500
P. Altsher $ 62,500
B. Petty $ 62,500
-----------
Total $1,000,000

<PAGE>

E. Lease will remain between Arcadia Associates and ASL, Inc.
Management Agreement will remain between ADS Management, Inc. and
ASL, Inc. License is held by ASL, Inc.

F. Consents required:

(i) ASL, Inc. - stockholder wishing to sell, transfer or assign
any stock must notify the Board of Directors and give the
corporation the option to purchase such stock. ASL, Inc.
hereby consents to transfer to Buyer.

(ii) Loan Agreement dated 11/30/93 between ASL, Inc. and Fleet
Bank to be repaid. Will need to release collateral and
Guaranty made by [Murray Altsher], Ahron Solomont, Alan
Solomont, Leon Landa, Jay Solomont and David Solomont

G. Owner consents (other than Owner Parties)

(i) Arcadia Associates Partnership Agreement - transfer of
interest requires unanimous consent. If consent not
obtained, sale will be effected through an asset sale as to
which Alan Solomont requires no consent from any other
partner.

(ii) Arcadia Realty Trust - need to check/understand

<PAGE>

9. North Andover Associates ("NAA") (General Partnership) Nursing and
Retirement Center of the Andovers, Inc. ("NRCA") (S Corporation)

A. Buyer shall incorporate Health Resources of North Andover, Inc.,
as a wholly-owned subsidiary of Buyer.

B. Each partner of NAA other than Alan Solomont (i.e., David
----
Solomont (18%), Jay Solomont (18%), Ahron Solomont (18%), Susan
Bailis (9%), David Solomont of Lowell (9%) and Mark Tobin (10%))
shall each transfer their partnership interests to Buyer and Alan
Solomont (18%) shall transfer his partnership interest to Health
Resources of North Andover, Inc.

C. Buyer (or Health Resources of North Andover, Inc.) shall pay a
cash consideration to each partner of North Andover Associates as
follows:

Alan Solomont $ 478,980
David Solomont $ 478,980
Jay Solomont $ 478,980
Ahron Solomont $ 478,980
Susan Bailis $ 239,490
David Solomont
of Lowell $ 239,490
Mark Tobin $ 266,100
-----------
Total $ 2,661,000

D. Each stockholder of NRCA (i.e., Alan Solomont (18%), David
----
Solomont (18%), Jay Solomont (18%), Ahron Solomont (18%), Susan
Bailis (9%), David Solomont of Lowell (9%) and Mark Tobin (10%))
shall sell their respective shares of stock to Buyer.

E. Buyer shall pay cash consideration to each stockholder of NRCA as
follows:

Alan Solomont $ 540,000
David Solomont $ 540,000
Jay Solomont $ 540,000
Ahron Solomont $ 540,000
Susan Bailis $ 270,000
David Solomont
of Lowell $ 270,000
Mark Tobin $ 300,000
-----------
Total $ 3,000,000

F. Lease will remain between NRCA and NAA

<PAGE>

Management Agreement will remain between ADS Management, Inc. and
NRCA. License is held by NRCA.

G. Consents required:

(i) Pursuant to NAA Partnership Agreement, transfers of interest
requires consent of other partners.

(ii) Bay Bank Term Loan will be repaid.

Note: Loan is cross collateralized with working capital
loan of North Andover Assisted Living Limited Partnership.
Need to release mortgage, security agreement and pledge
agreement which were executed in connection therewith.
Guarantees to be released.

<PAGE>

10. Prescott Nursing Home, Inc. (S Corporation)
Prescott Nursing Home Associates ("PNHA")

A. Each stockholder of Prescott Nursing Home, Inc. (i.e., Alan
----
Solomont (8.33%), David Solomont (8.33%), Jay Solomont (8.33%),
Ahron Solomont (8.33%),Meyer Solomont (33.34%) and Stan Sydney
(33.34%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of
Prescott Nursing Home, Inc. as follows:

Alan Solomont $ 83,134
David Solomont $ 83,134
Jay Solomont $ 83,133
Ahron Solomont $ 83,133
Meyer Solomont $ 332,733
Stan Sydney $ 332,733
----------
Total $ 998,000

C. Each limited partner of PNHA (i.e., Alan Solomont (10.72%), David
----
Solomont (10.72%), Jay Solomont (10.72%), Ahron Solomont
(10.72%), David Solomont of Lowell (6.93%) Stan Sydney (33.00%)),
Meyer Solomont (8.00%), Scott Kahn (2.0463%), Amy Kahn (2.0463%),
Lisa Kahn (2.0463%) and Gabriel Kahn (2.0463%) shall sell their
Partnership interests to Buyer.

D. Buyer shall pay cash consideration to each partner of PNHA as
follows:

Alan Solomont $ 651,911
David Solomont $ 651,911
Jay Solomont $ 651,911
Ahron Solomont $ 651,911
Meyer Solomont $ 486,400
David Solomont
of Lowell $ 421,096
Stan Sydney $ 2,006,400
Scott Kahn $ 124,415
Amy Kahn $ 124,415
Lisa Kahn $ 124,415
Gabriel Kahn $ 124,415
------------
Total $ 6,019,200

E. Consents required:

(i) Prescott Nursing Home, Inc. -- stockholder wishing to sell
or transfer any stock must notify Board of Directors and
give the corporation the option to purchase such stock.

<PAGE>

Note: Documents have not been provided with respect to PNHA
or the HUD loan.

<PAGE>

11. ADS Palm Chelmsford, Inc. ("ADS Palm") (S Corporation)

A. Each stockholder of ADS Palm (i.e., Alan Solomont (22.5%), David
----
Solomont (22.5%), Jay Solomont (22.5%), Ahron Solomont (22.5%)
and Susan Bailis (10%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder as
follows:

Alan Solomont $ 292,275
David Solomont $ 292,275
Jay Solomont $ 292,275
Ahron Solomont $ 292,275
Susan Bailis $ 129,900
--------------
Total $ 1,299,000

C. Consents required:

(i) Health Care Properties Investors, Inc., which is the owner
of the Facility and the lessor under an Operating Lease,
dated 6/30/95, must consent under the Operating Lease.

D. Owner consents (other than Owner Parties):

None.

<PAGE>

12. ADS Reservoir Waltham, Inc. (S Corporation)

A. Each stockholder of ADS Reservoir Waltham, Inc. (i.e., Alan
----
Solomont (22.5%), David Solomont (22.5%), Jay Solomont (22.5%),
Ahron Solomont (22.5) and, Susan Bailis (10%)) shall sell their
stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder as
follows:

Alan Solomont $ 297,450
David Solomont $ 297,450
Jay Solomont $ 297,450
Ahron Solomont $ 297,450
Susan Bailis $ 132,200
------------
Total $ 1,322,000

C. Facility is leased by ADS Palm Chelmsford, Inc. from Health Care
Properties Investors, Inc. pursuant to an Operating Lease, dated
6/30/95. ADS Palm Chelmsford, Inc. subleases Reservoir NH to ADS
Reservoir Waltham, Inc. pursuant to a sublease, dated 6/30/95.
Sublease will remain between ADS Palm Chelmsford, Inc. as
Sublessor and ADS Reservoir Waltham, Inc. as Sublessee.

D. Consents required:

(i) Health Care Properties Investors, Inc. pursuant to Operating
Lease.

E. Owner consents (other than Owner Parties):

None.

<PAGE>

13. Willow Manor Nursing Home, Inc. (S Corporation) ("WMNH")

A. Each stockholder of WMNH (i.e., Alan Solomont (25%), David
----
Solomont (25%), Jay Solomont (25%) and Ahron Solomont (25%))
shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of WMNH as
follows:

Alan Solomont $ 649,000
David Solomont $ 649,000
Jay Solomont $ 649,000
Ahron Solomont $ 649,000
--------------
Total $ 2,596,000

C. Consents required:

(i) Loan from Fleet Bank of Massachusetts, N.A. to be repaid.

(ii) Release of Mortgage and Security Agreements and Pledge
Agreements and of Collateral and Guarantees of Alan, Jay,
David & Ahron Solomont

(iii) Two classes of stock exist. Must notify Board of
Directors and give the corporation the option to
purchase the stock.

D. Owner consents (other than Owner Parties):

None.

[NOTE: CONSIDER SPLIT OF OPERATION FROM REAL ESTATE. CONSIDER
SELLING OPERATION FIRST TO A SPECIAL PURPOSE SUBSIDIARY OF BUYER.]

<PAGE>

14. Solomont Family Brookline Venture, Inc. (S-Corporation) ("SFBV, Inc.")

Solomont Family Brookline Venture, L.P. ("SFBV, L.P.")
Solomont Brookline, LP ("SB")

A. Each stockholder of SFBV, Inc. (i.e., Alan Solomont (22.5%),
----
David Solomont (22.5%), Ahron Solomont (22.5%), Jay Solomont
(22.5%) and Susan Bailis (10%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of SFBV,
as follows:

Alan Solomont $ 4,296
David Solomont $ 4,296
Ahron Solomont $ 4,296
Jay Solomont $ 4,296
Susan Bailis $ 1,907
---------
Total $ 19,091

C. Each partner of SFBV, L.P. (i.e., Alan Solomont (24.75%), David
----
Solomont (24.75%), Ahron Solomont (24.75%) and Jay Solomont
(24.75%)) shall sell their partnership interests to Buyer.

D. Buyer shall pay cash consideration to each partner of SFBV, L.P.
as follows:

Alan Solomont $ 472,505
David Solomont $ 472,505
Ahron Solomont $ 472,505
Jay Solomont $ 472,505
-----------
Total $ 1,890,020

E. Buyer shall incorporate Health Resources of Brookline, Inc. as a
wholly-owned subsidiary.

F. The [Rinet Group] and Susan Bailis shall transfer their limited
partnership interests (Rinet Group (63.59%) and Susan Bailis
(1.41%) to Health Resources of Brookline, Inc. for cash as
follows:

Rinet Group $ 5,456,848
Susan Bailis $ 121,040
------------
Total $ 5,577,888

G. Consents Required:

(i) Loan between Solomont Brookline, L.P. and BayBank will be
repaid.

<PAGE>

(ii) Release Guaranty of Alan Solomont and collateral in
connection with the Loan.

(iii) Consents required by the Subscription Agreements.

<PAGE>

15. Westford Nursing and Retirement Center, Inc. ("Westford, Inc.")
Westford Nursing and Retirement Center, LP ("Westford, LP")

A. Each stockholder of Westford, Inc. (i.e., Alan Solomont (14%),
----
David Solomont (13.83%), Jay Solomont (13.83%), Ahron Solomont
(13.83%), R. & H. Kahn (22.17%) and D. & J. Solomont (22.34%))
shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of
Westford, Inc. as follows:

Alan Solomont $ 9,160
David Solomont $ 9,051
Jay Solomont $ 9,051
Ahron Solomont $ 9,051
R.&H. Kahn $ 14,506
D.&J. Solomont $ 14,611
------------
Total $ 65,430

C. Each limited partner of Westford, LP. (i.e., Alan D. Solomont
----
(13.86%), David Solomont (13.695%), Jay Solomont (13.695%), Ahron
Solomont (13.695%), R. & H. Kahn (21.945%), and D. & J. Solomont
(22.11%)) shall sell their limited partnership interests to
Buyer.

D. Buyer shall pay cash consideration to each limited partner of
Westford, LP. as follows:

Alan Solomont $ 906,860
David Solomont $ 896,064
Jay Solomont $ 896,064
Ahron Solomont $ 896,064
R.&H. Kahn $ 1,435,861
D.&J. Solomont $ 1,446,657
-------------
Total $ 6,477,570

E. Consents required:

(i) Pursuant to Westford, LP Partnership Agreement, transfers of
interest requires consent of other parties.

(ii) Need to see HUD Loan - Assumption is consent will be
required, and that this will not be paid off.

(iii) Consents pursuant to Subscription Agreement.
F. Owner consents (other than Owner Parties)

<PAGE>

Transfer requires Kahns' and D. & J. Solomonts' consent. If they
fail to consent, consider reverse merger for Westford, Inc. and
asset sale or merger for Westford L.P.

<PAGE>

16. ADS Hingham Nursing Facility, Inc. ("Hingham, Inc.")
ADS Hingham Limited Partnership ("Hingham, LP")

A. Each stockholder of Hingham, Inc. (i.e., Alan Solomont (25%),
----
David Solomont (25%), Ahron Solomont (25%) and Susan Bailis
(25%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of
Hingham, Inc. as follows:

Alan Solomont $ 5,245
David Solomont $ 5,245
Ahron Solomont $ 5,245
Susan Bailis $ 5,245
------------
Total $ 20,980

C. Each limited partner of Hingham, LP. (i.e., Alan Solomont
----
(27.5%), David Solomont (27.5%), Ahron Solomont (27.5%) and Susan
Bailis (16.5%)) shall sell their limited partnership interests to
Buyer.

D. Buyer shall pay cash consideration to each limited partner of
Hingham, LP as follows:

Alan Solomont $ 576,950
David Solomont $ 576,950
Ahron Solomont $ 576,950
Susan Bailis $ 346,170
--------------
Total $ 2,077,020

E. Consents required:

(i) Consent of joint venture partners (i.e., Welch family,
----
Casale and Hingham Healthcare Development Corp.) is
required.

(ii) $9,698,500 Loan from Charles River Mortgage Co. to Hingham
Healthcare Limited Partnership is joint obligation and will
not be paid off.

[Note to Multicare: ADS does not manage this joint venture]

F. Owner consents (other than Owner Parties):

None.

<PAGE>

17. ADS Apple Valley, Inc. ("Apple, Inc.")
ADS Apple Valley, LP ("Apple, LP") [This entity is not yet formed and
is therefore subject to change]

A. Each stockholder of Apple, Inc. (i.e., Alan Solomont (20%), David
----
Solomont (20%), Jay Solomont (20%), Ahron Solomont (20%) and
Susan Bailis (20%)) shall sell their stock to Buyer.

B. Buyer shall pay the cash consideration to each stockholder of
Apple, Inc. as follows:

Alan Solomont $ 2,374
David Solomont $ 2,374
Jay Solomont $ 2,374
Ahron Solomont $ 2,374
Susan Bailis $ 2,374
-----------
Total $ 11,870

C. Each limited partner of Apple, LP. (i.e., Alan D. Solomont
----
(19.8%) David Solomont (19.8%), Jay Solomont (19.8%), Ahron
Solomont (19.8%) and Susan Bailis (19.5%)) shall sell their
limited partnership interests to Buyer.

D. Buyer shall pay the cash consideration to each limited partner of
Apple, LP. as follows:

Alan Solomont $ 235,026
David Solomont $ 235,026
Jay Solomont $ 235,026
Ahron Solomont $ 235,026
Susan Bailis $ 235,026
---------------
Total $ 1,175,130

E. Consents required:

(i) Will require consent to transfer GP&LP interests.

None. [G & S : Does The Apple Valley, L.P. Agreement
require consent of joint venture partners.]

Document not provided.

<PAGE>

18. ADS Recuperative Center, Inc. ("Center, Inc.")
ADS Recuperative Center, LP ("Center, LP")

A. Each stockholder of Center, Inc. (i.e., Alan Solomont (20%),
----
David Solomont (20%), Jay Solomont (20%), Ahron Solomont (20%)
and Susan Bailis (20%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of Center,
Inc. as follows:

Alan Solomont $ 1,828
David Solomont $ 1,828
Jay Solomont $ 1,828
Ahron Solomont $ 1,828
Susan Bailis $ 1,828
----------
Total $ 9,140

C. Each limited partner of Center, LP. (i.e., Alan Solomont (19.8%),
----
David Solomont (19.8%), Jay Solomont (19.8%), Ahron Solomont
(19.8%) and Susan Bailis (19.8%)) shall sell their limited
partnership interests to Buyer.

D. Buyer shall pay cash consideration to each limited partner of
Center, LP as follows:

Alan Solomont $ 180,972
David Solomont $ 180,972
Jay Solomont $ 180,972
Ahron Solomont $ 180,972
Susan Bailis $ 180,972
--------------
Total $ 904,860

E. Consents required:

(i) Bank Loan with BayBank is a joint obligation and will not be
paid off. ADS Guarantee to be released.

(ii) Consent of joint venture partner (FRC, Inc.) is required to
transfer GP & LP interests.

GS: Does the transfer require consent under The Recuperative
Center Limited Partnership?

<PAGE>

19. Solomont Family Medford Venture, Inc. ("Medford, Inc.")

A. Each stockholder of Medford, Inc. (i.e., Alan Solomont (22.5%),
----
David Solomont (22.5%), Jay Solomont (22.5%), Ahron Solomont
(22.5%) and Susan Bailis (10%)) shall sell their stock to Buyer.

B. Buyer shall pay cash consideration to each stockholder of
Medford, Inc. as follows:

Alan D. Solomont $ 808,875
David Solomont $ 808,875
Jay Solomont $ 808,875
Ahron Solomont $ 808,875
Susan Bailis $ 359,500
------------
Total $ 3,595,000

C. Consents required:

New England Long Term Care, LM Long Term Care Services, Inc.
and Lawrence Memorial.

<PAGE>

20. Solomont Family Fall River Venture, Inc. ("Fall River, Inc.")

A. Each stockholder of Fall River, Inc. (i.e., Alan Solomont
----
(22.5%), David Solomont (22.5%), Jay Solomont (22.5%), Ahron
Solomont (22.5%) and Susan Bailis (10%)) shall sell their stock
to Buyer.

B. Buyer shall pay cash consideration to each stockholder of Fall
River, Inc. as follows:

Alan Solomont $ 270,900
David Solomont $ 270,900
Jay Solomont $ 270,900
Ahron Solomont $ 270,900
Susan Bailis $ 120,400
------------
Total $ 1,204,000

C. Consents required:

(i) Consent of Charlton Long Term Care Services, Inc. pursuant
to SBNC Partnership Agreement

(ii) Loan with Shawmut is a joint obligation and will not be
repaid.

<PAGE>

SCHEDULE A
SELLER ENTITIES
- --------------------------------------------------------------------------------
1. ADS Management, Inc.

- --------------------------------------------------------------------------------
2. ADS Consulting, Inc.

- --------------------------------------------------------------------------------
3. ADS Senior Housing, Inc.

- --------------------------------------------------------------------------------
4. Senior Source, Inc.

- --------------------------------------------------------------------------------
5. Academy Manor Nursing Home

- --------------------------------------------------------------------------------
6. Academy Realty

- --------------------------------------------------------------------------------
7. The A-D-S Group, Inc.

- --------------------------------------------------------------------------------
8. Arcadia Associates

- --------------------------------------------------------------------------------
9. ASL, Inc.

- --------------------------------------------------------------------------------
10. North Andover Associates

- --------------------------------------------------------------------------------
11. Nursing and Retirement Center of the Andovers, Inc.

- --------------------------------------------------------------------------------
12. Prescott Nursing Home, Inc.

- --------------------------------------------------------------------------------
13. Prescott Nursing Home Associates

- --------------------------------------------------------------------------------
14. ADS Palm Chelmsford, Inc.

- --------------------------------------------------------------------------------
15. ADS Reservoir Waltham, Inc.

- --------------------------------------------------------------------------------
16. Willow Manor Nursing Home, Inc.

- --------------------------------------------------------------------------------
17. Solomont Family Brookline Venture, Inc.

- --------------------------------------------------------------------------------
18. Solomont Family Brookline Venture Limited Partner

- --------------------------------------------------------------------------------
19. Westford Nursing and Retirement Center, Inc.

- --------------------------------------------------------------------------------
20. Westford Nursing and Retirement Center Limited
Partnership

- --------------------------------------------------------------------------------
21. ADS Hingham Nursing Facility, Inc.

- --------------------------------------------------------------------------------
22. ADS Hingham Nursing Facility Limited Partnership

- --------------------------------------------------------------------------------
23. ADS Apple Valley, Inc.
- --------------------------------------------------------------------------------

24. ADS Apple Valley, Limited Partnership
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
25. ADS Recuperative Center, Inc.

- --------------------------------------------------------------------------------
26. ADS Recuperative Center Limited Partnership

- --------------------------------------------------------------------------------
27. Solomont Family Medford Venture, Inc.

- --------------------------------------------------------------------------------
28. Solomont Family Fall River Venture, Inc.
- --------------------------------------------------------------------------------

<PAGE>
2

- --------------------------------------------------------------------------------
29. Solomont Brookline Limited Partnership
- --------------------------------------------------------------------------------

OWNER PARTIES
- --------------------------------------------------------------------------------

1. Alan D. Solomont
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. David Solomont

- --------------------------------------------------------------------------------
3. Ahron M. Solomont

- --------------------------------------------------------------------------------
4. Jay H. Solomont

- --------------------------------------------------------------------------------
5. Susan S. Bailis

- --------------------------------------------------------------------------------
6. David Solomont (Lowell)

- --------------------------------------------------------------------------------

OWNERS BUT NOT OWNER PARTIES
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. Thomas H. Grape

- --------------------------------------------------------------------------------
2. David A. Roush

- --------------------------------------------------------------------------------
3. Leon B. Landa

- --------------------------------------------------------------------------------
4. Elizabeth Casso

- --------------------------------------------------------------------------------
5. Gail Jasne

- --------------------------------------------------------------------------------
6. Philip M. Altsher

- --------------------------------------------------------------------------------
7. Barbara Petty

- --------------------------------------------------------------------------------
8. Mark Tobin

- --------------------------------------------------------------------------------
9. Meyer Solomont

- --------------------------------------------------------------------------------
10. Stanley Sydney

- --------------------------------------------------------------------------------
11. Robert I. and Harriet A. Kahn

- --------------------------------------------------------------------------------
12. Judith and David Solomont

- --------------------------------------------------------------------------------
13. Amy Kahn

- --------------------------------------------------------------------------------
14. Gabrielle Kahn

- --------------------------------------------------------------------------------
15. Lisa Kahn

- --------------------------------------------------------------------------------
16. Scott Kahn

- --------------------------------------------------------------------------------
17. RINET Syndicate

- --------------------------------------------------------------------------------

<PAGE>

For
SCHEDULE A
----------

ISSUED/OUTSTANDING SHARES

- --------------------------------------------------------------------------------
1. ADS Management, Inc. Alan D. Solomont 500
- --------------------------------------------------------------------------------
David Solomont (Brookline) 250
- --------------------------------------------------------------------------------
Ahron Solomont 250
- --------------------------------------------------------------------------------
Susan S. Bailis 111.11
- --------------------------------------------------------------------------------
Total issued/outstanding 1,111.11
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. ADS Senior Housing, Inc. Alan D. Solomont 360
- --------------------------------------------------------------------------------
David Solomont (Brookline) 180
- --------------------------------------------------------------------------------
Ahron Solomont 180
- --------------------------------------------------------------------------------
Susan S. Bailis 180
- --------------------------------------------------------------------------------
Thomas H. Grape* 100
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3. ADS Consulting, Inc. Alan D. Solomont 540
- --------------------------------------------------------------------------------
David Solomont (Brookline) 270
- --------------------------------------------------------------------------------
Ahron Solomont 270
- --------------------------------------------------------------------------------
Susan S. Bailis 520
- --------------------------------------------------------------------------------
David A. Roush* 400
- --------------------------------------------------------------------------------
Total issued/outstanding 2,000
- --------------------------------------------------------------------------------
4. Senior Source, Inc. Alan D. Solomont 360
- --------------------------------------------------------------------------------
David Solomont (Brookline) 180
- --------------------------------------------------------------------------------
Ahron Solomont 180
- --------------------------------------------------------------------------------
Susan S. Bailis 180
- --------------------------------------------------------------------------------
Thomas H. Grape* 100
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000
- --------------------------------------------------------------------------------

<PAGE>
2

- --------------------------------------------------------------------------------
6. ADS Hingham Nursing
- --------------------------------------------------------------------------------
Facility, Inc. Alan D. Solomont 2
- --------------------------------------------------------------------------------
David Solomont (Brookline) 2
- --------------------------------------------------------------------------------
Ahron Solomont 2
- --------------------------------------------------------------------------------
Susan S. Bailis 2
- --------------------------------------------------------------------------------
Total issued/outstanding 8
- --------------------------------------------------------------------------------
7. ADS Palm Chelmsford, Inc. Alan D. Solomont 225
- --------------------------------------------------------------------------------
David Solomont (Brookline) 225
- --------------------------------------------------------------------------------
Ahron Solomont 225
- --------------------------------------------------------------------------------
Susan S. Bailis 100
- --------------------------------------------------------------------------------
Jay Solomont 225
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000
- --------------------------------------------------------------------------------
8. ADS Recuperative Center,
Inc. Alan D. Solomont 2
- --------------------------------------------------------------------------------
David Solomont (Brookline) 2
- --------------------------------------------------------------------------------
Ahron Solomont 2
- --------------------------------------------------------------------------------
Susan S. Bailis 2
- --------------------------------------------------------------------------------
Jay Solomont 2
- --------------------------------------------------------------------------------
Total issued/outstanding 10
- --------------------------------------------------------------------------------
9. ADS Reservoirs Waltham,
Inc. Alan D. Solomont 225
- --------------------------------------------------------------------------------
David Solomont (Brookline) 225
- --------------------------------------------------------------------------------
Ahron Solomont 225
- --------------------------------------------------------------------------------
Susan S. Bailis 100
- --------------------------------------------------------------------------------
Jay Solomont 225
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000
- --------------------------------------------------------------------------------

<PAGE>
3

- --------------------------------------------------------------------------------
NO. OF
CORPORATION NAME STOCKHOLDERS NAME SHARES
- --------------------------------------------------------------------------------
10. ASL, Inc. Alan D. Solomont 125
- --------------------------------------------------------------------------------
David Solomont (Brookline) 125
- --------------------------------------------------------------------------------
Ahron Solomont 125
- --------------------------------------------------------------------------------
Jay Solomont 125
- --------------------------------------------------------------------------------
Leon Landa* 250
- --------------------------------------------------------------------------------
Elizabeth Casso (documentation in
progress)* 62.5
- --------------------------------------------------------------------------------
Gail Jasne (documentation in 62.5
progress)*
- --------------------------------------------------------------------------------
Barbara Petty (documentation in 62.5
progress)*
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000.00
- --------------------------------------------------------------------------------
11. Nursing and Retirement
Center of the Andovers Alan D. Solomont 400
- --------------------------------------------------------------------------------
David Solomont (Brookline) 400
- --------------------------------------------------------------------------------
Ahron Solomont 400
- --------------------------------------------------------------------------------
Susan S. Bailis 200
- --------------------------------------------------------------------------------
Jay Solomont 400
- --------------------------------------------------------------------------------
David Solomont (Lowell) 200
- --------------------------------------------------------------------------------
Mark Tobin* 222.22
- --------------------------------------------------------------------------------
Total issued/outstanding 2,222.22
- --------------------------------------------------------------------------------
12. Prescott Nursing Home, Alan D. Solomont 5
Inc.
- --------------------------------------------------------------------------------
David Solomont (Brookline) 5
- --------------------------------------------------------------------------------
Ahron Solomont 5
- --------------------------------------------------------------------------------
Jay Solomont 5
- --------------------------------------------------------------------------------
Meyer Solomont (documentation in 20
progress)*
- --------------------------------------------------------------------------------
Stanley Sydney (documentation in 20
progress)
- --------------------------------------------------------------------------------
Total issued/outstanding 60
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
13. Solomont Family
Brookline Venture, Inc. Alan D. Solomont 225
- --------------------------------------------------------------------------------
David Solomont 225
- --------------------------------------------------------------------------------

<PAGE>
4

- --------------------------------------------------------------------------------
14. Solomont Family Fall
- --------------------------------------------------------------------------------
River Venture, Inc. Alan D. Solomont 202.5
- --------------------------------------------------------------------------------
David Solomont (Brookline) 202.5
- --------------------------------------------------------------------------------
Ahron Solomont 202.5
- --------------------------------------------------------------------------------
Susan S. Bailis 90
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15. Solomont Family Medford
- --------------------------------------------------------------------------------
Venture, Inc. Alan D. Solomont 900
- --------------------------------------------------------------------------------
David Solomont (Brookline) 900
- --------------------------------------------------------------------------------
Ahron Solomont 900
- --------------------------------------------------------------------------------
Susan S. Bailis 400
- --------------------------------------------------------------------------------
Jay Solomont 900
- --------------------------------------------------------------------------------
Total issued/outstanding 4,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16. Westford Nursing and
- --------------------------------------------------------------------------------
Retirement Center, Inc. Alan D. Solomont 140
- --------------------------------------------------------------------------------
David Solomont (Brookline) 138.33
- --------------------------------------------------------------------------------
Ahron Solomont 138.33
- --------------------------------------------------------------------------------
Jay Solomont 138.33
- --------------------------------------------------------------------------------
Robert and Harriet Kahn* 221.67
- --------------------------------------------------------------------------------
Judith and David Solomont* 223.34
- --------------------------------------------------------------------------------
Total issued/outstanding 1,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17. Willow Manor Nursing
Home, Inc. Alan D. Solomont 225
- --------------------------------------------------------------------------------
David Solomont (Brookline) 225
- --------------------------------------------------------------------------------
Ahron Solomont 225
- --------------------------------------------------------------------------------
<PAGE>
5

- --------------------------------------------------------------------------------
18. The ADS Group, Inc. Alan D. Solomont 100
- --------------------------------------------------------------------------------
Total issued/outstanding 100
- --------------------------------------------------------------------------------

<PAGE>

PERCENTAGE INTERESTS

PARTNERSHIPS
------------

- --------------------------------------------------------------------------------
PERCENTAGE
PARTNERSHIP NAME PARTNERS' NAMES OF INTEREST
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
19. ADS Apple Valley
Limited Partnership ADS Apple Valley, Inc. 1.00%
- --------------------------------------------------------------------------------
Alan D. Solomont 79.50%
- --------------------------------------------------------------------------------
Susan S. Bailis 19.50%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
20. ADS Hingham Limited ADS Hingham Nursing Facility, Inc.
Partnership 1.00%
- --------------------------------------------------------------------------------
Alan D. Solomont 27.50%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 27.50%
- --------------------------------------------------------------------------------
Susan S. Bailis 16.50%
- --------------------------------------------------------------------------------
Ahron Solomont 27.50%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
21. ADS Recuperative Center
- --------------------------------------------------------------------------------
Limited Partnership ADS Recuperative Center, Inc. 1.00%
- --------------------------------------------------------------------------------
Alan D. Solomont 19.80%
- --------------------------------------------------------------------------------
Ahron M. Solomont 19.80%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 19.80%
- --------------------------------------------------------------------------------
Jay H. Solomont 19.80%
- --------------------------------------------------------------------------------
Susan S. Bailis 19.80%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------
22. Arcadia Associates Alan D. Solomont 12.50%
- --------------------------------------------------------------------------------
Ahron M. Solomont 12.50%
- --------------------------------------------------------------------------------
Jay H. Solomont 12.50%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 12.50%
- --------------------------------------------------------------------------------
Leon B. Landa* 25.00%
- --------------------------------------------------------------------------------
Elizabeth Casso* 6.25%
- --------------------------------------------------------------------------------
<PAGE>

7
- --------------------------------------------------------------------------------
PERCENTAGE
PARTNERSHIP NAME PARTNERS' NAMES OF INTEREST
- --------------------------------------------------------------------------------
Gail Jasne* 6.25%
- --------------------------------------------------------------------------------
Barbara Petty* 6.25%
- --------------------------------------------------------------------------------
Philip M. Altsher* 6.25%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------
23. North Andover Alan D. Solomont 18.00%
Associates
- --------------------------------------------------------------------------------
David Solomont (Brookline) 18.00%
- --------------------------------------------------------------------------------
Jay H. Solomont 18.00%
- --------------------------------------------------------------------------------
Ahron Solomont 18.00%
- --------------------------------------------------------------------------------
Susan S. Bailis 9.00%
- --------------------------------------------------------------------------------
David Solomont (Lowell)* 9.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mark Tobin* 10.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------
24. Prescott Nursing Home Prescott Nursing Home, Inc. 1.00%
Associates
- --------------------------------------------------------------------------------
Alan D. Solomont 10.72%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 10.72%
- --------------------------------------------------------------------------------
Jay H. Solomont 10.72%
- --------------------------------------------------------------------------------
Ahron M. Solomont 10.72%
- --------------------------------------------------------------------------------
Meyer Solomont* 8.00%
- --------------------------------------------------------------------------------
David Solomont (Lowell)* 6.93%
- --------------------------------------------------------------------------------
Stanley Sydney* 33.00%
- --------------------------------------------------------------------------------
Amy Kahn (documentation in 2.0463%
progress)*
- --------------------------------------------------------------------------------
Gabrielle Kahn (documentation in 2.0463%
progress)*
- --------------------------------------------------------------------------------
Lisa Kahn (documentation in 2.0463%
progress)*
- --------------------------------------------------------------------------------
Scott Kahn (documentation in 2.0463%
progress)*
- --------------------------------------------------------------------------------
Total Percentage of 100.00%
Interest

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
25. Solomont Brookline Solomont Family Brookline GP-
Limited Partnership Venture Limited Partnership Distribution
determined
by formula
- --------------------------------------------------------------------------------
RINET Syndicate* LPS -
Distribution
based on
formula

- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------
26. Solomont Family Solomont Family Brookline 1.00%
Brookline Venture Limited Venture, Inc.
Partnership
- --------------------------------------------------------------------------------
Ahron M. Solomont 24.75%
- --------------------------------------------------------------------------------
Alan D. Solomont 24.75%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 24.75%
- --------------------------------------------------------------------------------
Jay H. Solomont 24.75%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
27. Westford Nursing and Westford Nursing & Retirement 1.00%
Retirement Center Center, Inc.
Limited Partnership
- --------------------------------------------------------------------------------
Ahron M. Solomont 13.695%
Alan D. Solomont 13.860%
- --------------------------------------------------------------------------------
David Solomont (Brookline) 13.695%
- --------------------------------------------------------------------------------
Jay H. Solomont 13.695%
- --------------------------------------------------------------------------------
David & Judith Solomont* 22.110%
- --------------------------------------------------------------------------------
Robert I. & Harriet A. Kahn 21.945%
- --------------------------------------------------------------------------------
Total Percentage of Interest 100.00%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

* Indicates Owner but not Owner Party.

EXHIBIT 10.36

Amendment No. 1 to Acquisition Agreement

Amendment No. 1, dated as of August 12, 1996 ("Amendment No.1"), to
the Acquisition Agreement, dated as of June 17, 1996, by and among
ADS/Multicare, Inc. and Alan D. Solomont, David Solomont, Ahron M. Solomont, Jay
H. Solomont, Meyer Solomont (who has become a party to such Agreement in lieu of
David Solomont (of Lowell)), Susan S. Bailis and the Seller Entities signatory
thereto (the "Acquisition Agreement").

The parties to the Acquisition Agreement hereby agree as follows:

1. Capitalized terms used herein but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Acquisition
Agreement.

2. The phrase "within 45 business days of the date hereof" set forth
in Section 4.1 is hereby deleted and the phrase "not later than September 30,
1996," is substituted therefore.

3. Section 15.10 of the Acquisition Agreement is hereby deleted and
replaced with the following:

"Exhibits, Schedules and Due Diligence. The Exhibits and
-------------------------------------
Schedules to this Agreement are incorporated by reference herein and
are made a part hereof as if they were fully set forth herein. The
parties hereto acknowledge that Buyer is executing this Agreement
without any Schedules attached, with only a provisionally completed
Exhibit A attached and without Buyer having received all information
required to be furnished to it hereunder. ADS agrees to deliver, or
cause to be delivered, to the Buyer drafts of such Schedules that have
not heretofore been delivered to the Buyer and the balance of the
required information on or before August 30, 1996. The parties shall
use their respective best efforts (i) to finalize and agree to Exhibit
A as promptly as practicable and in any event by August 30, 1996 and
(ii) to finalize and agree to the Schedules and to review such
information on or before September 30, 1996. In all events, the
Schedules, such Exhibit and such information must be acceptable to
Buyer in its sole discretion. In addition, ADS agrees to use his best
efforts to obtain any consents (including necessary corporate votes
and partnership approvals in ratification of execution by ADS on
behalf of Seller Entities of this Agreement) of the persons set forth
on Schedule 6.1.3 and of the Owners other than the Owner Parties (the
"Necessary Consents") not later than 30 days following agreement on
------------------
Exhibit A. If such Schedules, such Exhibit and such information are
not delivered, or if the Schedules, such Exhibit and such information
are not

<PAGE>

agreed upon, or if the Necessary Consents are not obtained, in each case in
the manner and within the time periods described above, unless the Buyer
and Sellers' Representative have agreed otherwise, then Buyer, except as
set forth in Section 13.2, shall have the right to terminate this
Agreement, by notice thereof given not later than September 30, 1996,
without liability of any party. So long as ADS has used his best efforts
to obtain the Necessary Consents, so to complete the Schedules and such
Exhibit and to furnish such information (it being recognized and understood
by the parties hereto that some of such information may not be furnished to
Buyer without the approval of third Persons) neither ADS, any Seller Entity
nor any other Owner Party shall have any liability for the failure to
obtain any Necessary Consents, so to complete the Schedules and such
Exhibit or so to furnish such information. Notwithstanding such best
efforts, if within the respective time periods set forth above, the
Necessary Consents have not been obtained, the Schedules and such Exhibit
have not been so completed, or such information has not been so furnished,
then the parties shall use their best efforts prior to October 31, 1996 to
modify this Agreement or to enter into alternative arrangements, to
achieve, as nearly as practicable, the purposes and intents of this
Agreement, it being understood that in all events Section 10.7 shall be
binding on the Seller Entities and the Owner Parties; provided, however
that if this Agreement is not so modified or alternative arrangements are
not so entered into prior to March 31, 1997, then the Buyer shall have the
right to terminate this Agreement, by notice thereof given not later than
March 31, 1997, without liability to any party."

4. Except as specifically set forth in this Amendment No. 1, the
Acquisition Agreement shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment No. 1 as of the day and year first above written.

ADS/MULTICARE, INC.

By: /s/ Daniel E. Straus
----------------------------
Name: Daniel E. Straus
Title:

/s/ Alan D. Solomont,
----------------------------
Alan D. Solomont, as Sellers'
Representative

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Jurisdiction of Percent of
Incorporation Ownership
ADS/Multicare, Inc. DE 100%
ANR, INC. DE 100%
APPLEWOOD HEALTH RESOURCES, INC. DE 100%
AUTOMATED PROFESSIONAL ACCOUNTS, INC. WV 100%(HA)
BERKS NURSING HOMES, INC. PA 100%(CHG)
BETHEL HEALTH RESOURCES, INC. DE 100%
BREYUT CONVALESCENT CENTER, INC. NJ 100%
BRIGHTWOOD PROPERTY, INC. WV 100% (GA)
CENTURY CARE MANAGEMENT, INC. DE 100%
CHATEAU VILLAGE HEALTH RESOURCES, INC. DE 100%
CHG INVESTMENT CORP., INC. DE 100%(CH)
CHNR-I, INC. DE 100%
COLONIAL HALL HEALTH RESOURCES, INC. DE 100%
COLONIAL HOUSE HEALTH RESOURCES, INC. DE 100%
COMPASS HEALTH SERVICES, INC. WV 100% (HA)
CONCORD HEALTH GROUP, INC. DE 100%
CONCORD HEALTHCARE SERVICES, INC. PA 100% (CSC)
CONCORD HOME HEALTH, INC. PA 100%(CHG)
CONCORD PHARMACY SERVICES, INC. PA 100%(CHG)
CONCORD REHAB, INC. PA 100%(CHG)
CONCORD SERVICE CORPORATION PA 100%(CHG)
CVNR, INC. DE 100%
DAWN VIEW MANOR, INC. WV 100% (GA)
DELM NURSING, INC. PA 100%(CHG)
ELMWOOD HEALTH RESOURCES, INC. DE 100%
ENCARE OF MENDHAM, INC. NJ 100%
ENCARE OF PENNYPACK, INC. PA 100%
ENCARE OF QUAKERTOWN, INC. PA 100%
ENCARE OF WYNCOTE, INC. PA 100%
ENR, INC. DE 100%
GLENMARK ASSOCIATES, INC. WV 100%
GLENMARK ASSOCIATES - DAWNVIEW MANOR, INC. WV 100% (GA)
GLENMARK PROPERTIES, INC. WV 100% (GA)
GMA - BRIGHTWOOD, INC. WV 100% (GA)
GMA CONSTRUCTION, INC. WV 100% (GA)
GMA - MADISON, INC. WV 100% (GA)
GMA PARTNERSHIP HOLDING COMPANY, INC. WV 100% (GA)
GMA - UNIONTOWN, INC. PA 100% (GA)
HEALTH RESOURCES OF BOARDMAN, INC. DE 100% (PHC)

<PAGE>

HEALTH RESOURCES OF BRIDGETON, INC. NJ 100%
HEALTH RESOURCES OF CEDAR GROVE, INC. NJ 100%
HEALTH RESOURCES OF CINNAMINSON, INC. NJ 100%
HEALTH RESOURCES OF COLCHESTER, INC. CT 100%
HEALTH RESOURCES OF COLUMBUS, INC. DE 100%
HEALTH RESOURCES OF CRANBURY, INC. NJ 100%
HEALTH RESOURCES OF CUMBERLAND, INC. DE 100%
HEALTH RESOURCES OF EMERY, INC. DE 100%
HEALTH RESOURCES OF ENGLEWOOD, INC. NJ 100%
HEALTH RESOURCES OF EWING, INC. NJ 100%
HEALTH RESOURCES OF FAIR LAWN, INC. DE 100%
HEALTH RESOURCES OF FARMINGTON, INC. DE 100%
HEALTH RESOURCES OF GLASTONBURY, INC. CT 100%
HEALTH RESOURCES OF GROTON, INC. DE 100%
HEALTH RESOURCES OF JACKSON, INC. NJ 100%
HEALTH RESOURCES OF LAKEVIEW, INC. NJ 100%
HEALTH RESOURCES OF LEMONT, INC. DE 100%
HEALTH RESOURCES OF KARMENTA
AND MADISON, INC. DE 100%
HEALTH RESOURCES OF MARCELLA, INC. DE 100%
HEALTH RESOURCES OF MIDDLETOWN (RI), INC. DE 100%
HEALTH RESOURCES OF MONTCLAIR, INC. NJ 100%
HEALTH RESOURCES OF MORRISTOWN, INC. NJ 100%
HEALTH RESOURCES OF NORFOLK, INC. DE 100%
HEALTH RESOURCES OF NORWALK, INC. CT 100%
HEALTH RESOURCES OF RIDGEWOOD, INC. NJ 100%
HEALTH RESOURCES OF ROCKVILLE, INC. DE 100%
HEALTH RESOURCES OF SOUTH BRUNSWICK, INC. NJ 100%
HEALTH RESOURCES OF WALLINGFORD, INC. DE 100%
HEALTH RESOURCES OF WARWICK, INC. DE 100%
HEALTH RESOURCES OF WEST ORANGE, INC. DE 100%
HNCA, INC. PA 100%(CHG)
HORIZON ASSOCIATES, INC. WV 100% (GA)
HORIZON MEDICAL EQUIPMENT AND SUPPLY, INC. WV 100% (HA)
HORIZON MOBILE, INC. WV 100% (HA)
HORIZON REHABILITATION, INC. WV 100% (HA)
THE HOUSE OF CAMPBELL, INC. WV 100% (GA)
INSTITUTIONAL HEALTH CARE SERVICES, INC. NJ 100%
LAKEWOOD HEALTH RESOURCES, INC. DE 100%
LAUREL HEALTH RESOURCES, INC. DE 100%
LEHIGH NURSING HOMES, INC. PA 100% (CHG)
LWNR, INC. DE 100%

<PAGE>

MABRI CONVALESCENT CENTER, INC. CT 100%
MARSHFIELD HEALTH RESOURCES, INC. DE 100%
MONTGOMERY NURSING HOMES, INC. PA 100% (CHG)
NATIONAL PHARMACY SERVICE, INC. PA 100% (CPS)
PHC OPERATING CORP. DE 100% (PH)
POCAHONTAS CONTINUOUS CARE CENTER, INC. WV 100% (GA)
POMPTON CARE, INC. NJ 100%
PROGRESSIVE REHABILITATION CENTERS, INC. DE 100%
PROVIDENCE HEALTH CARE, INC. DE 100%
REST HAVEN NURSING HOME, INC. WV 100% (GA)
RIDGELAND HEALTH RESOURCES, INC. DE 100%
RIVER PINES HEALTH RESOURCES, INC. DE 100%
RIVERSHORES HEALTH RESOURCES, INC. DE 100%
RLNR, INC. DE 100%
ROEPHEL CONVALESCENT CENTER, INC. NJ 100%
ROSE HEALTHCARE, INC. NJ 100%
ROSE VIEW MANOR, INC. PA 100% (CHG)
RSNR, INC. DE 100%
RVNR, INC. DE 100%
SCHUYLKILL NURSING HOMES, INC. PA 100% (CHG)
SCHUYLKILL PARTNERSHIP ACQUISITION CORP. PA 100% (CHG)
SENIOR LIVING VENTURES, INC. PA 100% (CHG)
SNOW VALLEY HEALTH RESOURCES, INC. DE 100%
STAFFORD CONVALESCENT CENTER, INC. DE 100%
S.T.B. INVESTORS, LTD. NY 100%
SVNR, INC. DE 100%
TOTAL REHABILITATION CENTER, INC. DE 100%
TRI-STATE MOBILE MEDICAL SERVICES, INC. WV 100% (HM)

(HA) - 100% of the stock is owned by Horizon Associates, Inc.
(GA) - 100% of the stock is owned by Glenmark Associates, Inc.
(PHC) - 100% of the stock is owned by PHC Operating Corp.
(PH) - 100% of the stock is owned by Providence Health Care, Inc.
(CSC) - 100% of the stock is owned by Concord Service Corporation
(CPS) - 100% of the stock is owned by Concord Pharmacy Services, Inc.
(CHG) - 100% of the stock is owned by Concord Health Group, Inc.
(HM) - 100% of the stock is owned by Horizon Mobile, Inc.

CHG Investment Corp., Inc. owns one non-voting Series "K20" Preferred Share of
Mutual Holdings (Bermuda) Ltd.

<PAGE>
4

LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES:
- ----------------------------------------------------
<TABLE>
<S> <C> <C>
CARE4, L.P. (formerly known as DE Institutional Health Care
INSTITUTIONAL HEALTH CARE SERVICES, L.P.) Services, Inc. is a .5%
General Partner; The
Multicare Companies, Inc.
is a 99.5% Limited
Partner

CARE HAVEN ASSOCIATES LIMITED PARTNERSHIP WV Glenmark Associates, Inc.
is a 7.69% General
Partner and a 58.69%
Limited Partner; GMA
Partnership Holding
Company, Inc. is a 2.31%
General Partner

CUMBERLAND ASSOCIATES OF RHODE ISLAND, DE *Health Resources of
L.P. Cumberland, Inc. is a 1%
General Partner
GLENMARK LIMITED LIABILITY COMPANY I WV Glenmark Associates, Inc.
owns a 99% membership
interest; Horizon
Associates, Inc. owns a
1% membership interest

GLENMARK PROPERTIES I, LIMITED WV Glenmark Associates, Inc.
PARTNERSHIP is a 28.9% General
Partner and a 45% Limited
Partner; GMA Partnership
Holding Company is a 1.1%
General Partner

GROTON ASSOCIATES OF CONNECTICUT, L.P. DE *Health Resources of
Groton, Inc. is a 1%
General Partner
HOLLY MANOR ASSOCIATES OF NEW JERSEY, DE *Encare of Mendham, Inc.
L.P. is a 1% General Partner

MERCERVILLE ASSOCIATES OF NEW JERSEY, DE *Breyut Convalescent
L.P. Center, Inc. is a 1%
General Partner

</TABLE>

<PAGE>
5
<TABLE>
<S> <C> <C>
MIDDLETOWN (RI) ASSOCIATES OF RHODE DE *Health Resources of
ISLAND, L.P. Middletown (RI), Inc. is
a 1% General Partner

POINT PLEASANT HAVEN LIMITED PARTNERSHIP WV Glenmark Associates, Inc.
is a 98.8% General
Partner and a 1% Limited
Partner; GMA Partnership
Holding Company, Inc. is
a .2% Limited Partner

POMPTON ASSOCIATES, L.P. NJ *Pompton Care, Inc. is a
1% General Partner
RALEIGH MANOR LIMITED PARTNERSHIP WV Glenmark Associates, Inc.
is a 98% General Partner;
GMA Partnership Holding
Company, Inc. is a 2%
Limited Partner

ROMNEY HEALTH CARE CENTER LIMITED WV Glenmark Associates, Inc.
PARTNERSHIP is a 50% General Partner
and a 49.8% Limited
Partner; GMA Partnership
Holding Company, Inc. is
a .2% Limited Partner

SISTERVILLE HAVEN LIMITED PARTNERSHIP WV Glenmark Associates, Inc.
is a 99.8% General
Partner; GMA Partnership
Holding Company, Inc. is
a .2% Limited Partner
TEAYS VALLEY HAVEN LIMITED PARTNERSHIP WV Glenmark Associates, Inc.
is a 98% General Partner;
GMA Partnership Holding
Company, Inc. is a 2%
Limited Partner

THE STRAUS GROUP - HOPKINS HOUSE, L.P. NJ **Encare of Wyncote, Inc.
is a 1% General Partner

THE STRAUS GROUP - QUAKERTOWN MANOR, L.P. NJ **Encare of Quakertown,
Inc. is a 1% General
Partner

</TABLE>

<PAGE>

6
<TABLE>

<S> <C> <C>
THE STRAUS GROUP - RIDGEWOOD, L.P. NJ *Health Resources of
Ridgewood, Inc. is a 1%
General Partner

THE STRAUS GROUP - OLD BRIDGE, L.P. NJ *Health Resources of
Emery, Inc. is a 1%
General Partner

WALLINGFORD ASSOCIATES OF CONNECTICUT, DE *Health Resources of
L.P. Wallingford, Inc. is a 1%
General Partner

WARWICK ASSOCIATES OF RHODE ISLAND, L.P. DE *Health Resources of
Warwick, Inc. is a 1%
General Partner

</TABLE>

*The Multicare Companies, Inc. is a 99% Limited Partner
**RVNR is a 99% Limited Partner

EXHIBIT 23.1

ACCOUNTANTS' CONSENT

The Board of Directors
The Multicare Companies, Inc.

We consent to the use of our reports relating to the consolidated financial
statements of The Multicare Companies, Inc. and subsidiaries incorporated herein
by reference, and to the reference to our firm under the heading "Experts" in
the prospectus.

/s/ KPMG PEAT MARWICK LLP

Short Hills, New Jersey
September 25, 1996

EXHIBIT 23.2

INDEPENDENT AUDITORS CONSENT

We consent to the incorporation by reference in this Registration Statement
of The Multicare Companies, Inc. on Form S-3 of our report dated March 28, 1995
(December 1, 1995 as to the second paragraph of Note 13) on the consolidated
financial statements of Glenmark Associates, Inc. and subsidiaries as of
December 31, 1994 and 1993 and for each of the two years in the period ended
December 31, 1994 appearing in the Form 8-K/A of The Multicare Companies, Inc.
dated February 12, 1996 and to the reference to us under the heading "Experts"
in the Prospectus, which is part of this Registration Statement.

/s/ Deloitte & Touche LLP
September 25, 1996

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of The Multicare Companies, Inc. and Subsidiaries on Form S-3 of our report
dated August 15, 1995, except for Note 17 as to which the date is September 12,
1995 on our audits of the consolidated financial statements of Concord Health
Group, Inc. as of June 30, 1995 and 1994, and for the years ended June 30, 1995,
1994 and 1993. We also consent to the reference to our firm under the caption
"Experts."

/s/ Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, PA
September 25, 1996

EXHIBIT 23.4

ACCOUNTANT'S CONSENT

To the Board of Directors
The A.D.S Group
Newton, Massachusetts

We consent to the use of our reports relating to the combined financial
statements of the A.D.S Group, included herein by, and to the reference to our
firm under the heading "Experts" in The Multicare Companies, Inc. prospectus.

/s/ Landa & Altsher, P.C.

Randolph, Massachusetts
September 25, 1996