UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
__________ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No. 34-22090
THE MULTICARE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3152527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
433 Hackensack Avenue
Hackensack, New Jersey 07601
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (201) 488-8818
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13,1998
Common Stock ($.01 Par Value) 100
THE MULTICARE COMPANIES, INC.
Index
Page
Cautionary statement regarding forward looking statements 1
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and March 31, 1998 2
Consolidated Statements of Operations
Three and six months ended March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows
Six months ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II. Other Information 15
Signatures 16
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements concerning the Medicaid and Medicare program and the Company's
ability to meet its liquidity needs and control costs and expected future
capital expenditure requirements and other statements contained herein regarding
matters that are not historical facts are forward looking statements within the
meaning of the Securities Act of 1933. Because such statements involve risks
and uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein and in the Company's other periodic reports filed with the Securities and
Exchange Commission, including the following: the occurrence of changes in the
mix of payment sources utilized by the Company's customers to pay for the
Company's services; the adoption of cost containment measures by private pay
sources such as commercial insurers and managed care organizations, as well as
efforts by governmental reimbursement sources to impose cost containment
measures; changes in the United States healthcare system, including changes in
reimbursement levels under Medicaid and Medicare, and other changes in
applicable government regulations that might affect the Company's profitability;
the Company's continued ability to operate in a heavily regulated environment
and to satisfy regulatory authorities, thereby avoiding a number of potentially
adverse consequences, such as the imposition of fines, temporary suspension of
admission of patients, restrictions on the ability to acquire new facilities,
suspension or decertification from Medicaid or Medicare programs, and, in
extreme cases, revocation of a facility's license or the closure of a facility,
including as a result of unauthorized activities by employees; the Company's
ability to staff its facilities appropriately with qualified healthcare
personnel and to maintain a satisfactory relationship with labor unions; the
level of competition in the Company's industry including, without limitation,
increased competition from acute care hospitals, providers of assisted and
independent living and providers of home health care and changes in the
regulatory system, such as changes in certificate of need laws in the states in
which the Company operates or anticipates operating in the future that
facilitate such competition; the continued availability of insurance for the
inherent risks of liability in the healthcare industry; the Company's reputation
for delivering high-quality care and its ability to attract and retain patients;
and the Company's ability to secure capital and the related cost of such
capital.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
<CAPTION>
September 30, March 31,
1997 1998
(Predecessor
Company)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,118 2,617
Accounts receivable, net 119,522 123,943
Prepaid expenses and other current assets 21,808 12,597
Deferred taxes 2,806 22,118
Total current assets 146,254 161,275
Property, plant and equipment, net 460,800 723,744
Goodwill, net 171,324 765,249
Other assets 44,755 57,948
823,133 1,708,216
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 28,863 31,466
Accrued liabilities 64,944 79,462
Current portion of long-term debt 625 28,677
Total current liabilities 94,432 139,605
Long-term debt 423,421 732,587
Deferred taxes 42,106 85,452
Other --- 2,847
Stockholders' Equity:
Preferred stock, par value $.01, at
September 30, 1997, 7,000,000 shares
authorized, none issued --- ---
Common stock, par value $.01,
70,000,000 and 100 shares
authorized at September 30, 1997 and
March 31, 1998 respectively; 31,731,963
and 100 issued and outstanding
at September 30, 1997 and March 31, 1998,
respectively 317 ---
Additional paid-in-capital 170,858 745,000
Retained earnings 91,999 2,725
Total stockholders' equity 263,174 747,725
823,133 1,708,216
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
(In Thousands)
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1997 1998 1997 1998
(Predecessor (Predecessor
Company) Company)
<S> <C> <C> <C> <C>
Net revenues $168,792 170,164 314,132 355,942
Expenses:
Operating expense 127,702 127,777 237,105 269,120
Corporate, general and
administrative 8,190 --- 14,971 ---
Management fee --- 10,210 --- 21,855
Depreciation and amortization
expense 6,870 11,090 13,166 22,874
Lease expense 4,151 3,246 7,387 6,689
Interest expense, net 7,184 14,994 13,401 29,712
Debenture conversion expense 785 --- 785 ---
Total expenses 154,882 167,317 286,815 350,250
Earnings before income taxes and
extraordinary item 13,910 2,847 27,317 5,692
Income Taxes 5,150 1,480 10,215 2,967
Earnings before extraordinary item 8,760 1,367 17,102 2,725
Extraordinary item - loss on
extinguishment of debt, net of tax
benefit 873 --- 2,219 ---
Net income 7,887 1,367 14,883 2,725
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Six months ended
March 31,
(Predecessor
Company)
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 43,819 3,856
Cash flows from investing activities:
Assets and operations acquired (73,017) ---
Capital expenditures (30,145) (18,683)
Other assets (5,817) (18,154)
Proceeds from repayment of construction advances 13,100 ---
Net cash used in investing activities (95,879) (36,837)
Cash flows from financing activities:
Proceeds from the issuance of common stock 51,942 ---
Proceeds from exercise of stock options and
stock purchase plan 477 ---
Equity contribution --- 745,000
Proceeds from sale of pharmacy business --- 50,000
Proceeds from sale of therapy business --- 24,000
Purchase of shares in tender offer --- (921,326)
Proceeds from long-term debt 398,381 1,698,832
Repayments of long-term debt (395,181) (984,370)
Debt and other financing obligation repayments in
connection with merger --- (452,223)
Severance, option payouts and transaction fees in
connection with merger --- (104,851)
Debt issuance costs (1,054) (21,582)
Net cash provided by financing activities 54,565 33,480
Increase in cash and cash equivalents 2,505 499
Cash and cash equivalents at beginning of period 1,893 2,118
Cash and cash equivalents at end of period 4,398 2,617
</TABLE>
See accompanying notes to consolidated financial statements.
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31,1998
(Unaudited)
(In thousands, except share and per share data)
(1) Organization and Basis of Presentation
The Multicare Companies, Inc. and Subsidiaries ("Multicare" or the "Company")
own, operate and manage skilled nursing facilities which provide long-term care
and specialty medical services in selected geographic regions within the eastern
and midwestern United States. In addition, the Company operates assisted-living
facilities and other ancillary healthcare businesses.
The financial information as of March 31, 1998 and for the three and six months
ended March 31, 1998 and 1997, is unaudited and has been prepared in conformity
with the accounting principles and practices as reflected in the Company's
audited annual financial statements. The unaudited financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position as of March 31, 1998 and the operating
results for the three and six months ended March 31, 1998 and 1997 and the cash
flows for the six months ended March 31, 1998 and 1997. Results for interim
periods are not necessarily indicative of those to be expected for the year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto incorporated in the Company's Annual Report on Form
10-K for the nine month transition period ended September 30, 1997.
All purchase accounting entries have been pushed down from Genesis ElderCare
Corp. and recorded on the consolidated financial statements of Multicare. The
operations of Multicare before the Merger (as defined below) are referred to as
Predecessor Company.
(2) Tender Offer and Merger and Recent Acquisitions
On October 9, 1997 Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a
wholly-owned subsidiary of Genesis ElderCare Corp., a Delaware corporation
formed by Genesis Health Ventures, Inc. ("Genesis"), The Cypress Group L.L.C
(together with its affiliates, "Cypress"), TPG Partners II, L.P., (together with
its affiliates, "TPG") and Nazem, Inc. (together with its affiliates "Nazem"),
acquired 99.65% of the shares of common stock of Multicare, pursuant to a tender
offer commenced on June 20, 1997 (the "Tender Offer"). On October 10, 1997,
Genesis ElderCare Corp. completed the merger (the "Merger") of Acquisition Corp.
with and into Multicare in accordance with the Agreement and Plan of Merger (the
"Merger Agreement") dated as of June 16, 1997 by and among Genesis ElderCare
Corp., Acquisition Corp., Genesis and Multicare. Upon consummation of the
Merger, Multicare became a wholly-owned subsidiary of Genesis ElderCare Corp.
In connection with the Merger, Multicare and Genesis entered into a management
agreement (the "Management Agreement") pursuant to which Genesis manages
Multicare's operations. The Management Agreement has a term of five years with
automatic renewals for two years unless either party terminates the Management
Agreement.
Genesis is paid a fee of six percent of Multicare's net revenues for its
services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of (i) $1,992 and (ii) four
percent of Multicare's consolidated net revenues for such month, shall be
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23,900 in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare are paid by Multicare. Genesis also entered into an asset
purchase agreement (the "Therapy Sale Agreement") with Multicare and certain of
its subsidiaries pursuant to which Genesis acquired all of the assets used in
Multicare's outpatient and inpatient rehabilitation therapy business for $24,000
subject to adjustment (the "Therapy Sale") and a stock purchase agreement (the
"Pharmacy Sale Agreement") with Multicare and certain subsidiaries pursuant to
which Genesis acquired all of the outstanding capital stock and limited
partnership interests of certain subsidiaries of Multicare that are engaged in
the business of providing institutional pharmacy services to third parties for
$50,000 subject to adjustment (the "Pharmacy Sale"). The Company completed the
Pharmacy Sale effective January 1, 1998.
Genesis Eldercare Corp. (the "Multicare Parent") paid approximately $1,492,000
to (i) purchase the shares pursuant to the Tender Offer and the Merger, (ii) pay
fees and expenses to be incurred in connection with the completion of the Tender
Offer, Merger and the financing transactions in connection therewith, (iii)
refinance certain indebtedness of Multicare and (iv) make certain cash payments
to employees. Of the funds required to finance the foregoing, approximately
$745,000 were furnished to Acquisition Corp. as capital contributions by the
Multicare Parent from the sale by Genesis ElderCare Corp. of its Common Stock
("Genesis ElderCare Corp. Common Stock") to Cypress, TPG, Nazem and Genesis.
Cypress, TPG and Nazem purchased shares of Genesis ElderCare Corp. Common Stock
for a purchase price of $210,000, $199,500 and $10,500, respectively, and
Genesis purchased shares of Genesis ElderCare Corp. Common Stock for a purchase
price of $325,000 in consideration for approximately 44% of the Common Stock of
the Multicare Parent. The balance of the funds necessary to finance the
foregoing came from (i) the proceeds of loans from a syndicate of lenders in the
aggregate amount of $525,000 and (ii) $250,000 from the sale of 9% Senior
Subordinated Notes due 2007 (the "9% Notes") sold by Acquisition Corp. on August
11, 1997.
In connection with the Merger, Genesis, Cypress, TPG and Nazem entered into an
agreement (the "Put/Call Agreement") pursuant to which, among other things,
Genesis will have the option, on the terms and conditions set forth in the
Put/Call Agreement to purchase (the "Call") Genesis ElderCare Corp. Common Stock
held by Cypress, TPG and Nazem commencing on October 9, 2001 and for a period of
270 days thereafter, at a price determined pursuant to the terms of the Put/Call
Agreement. Cypress, TPG and Nazem will have the option, on the terms and
conditions set forth in the Put/Call Agreement, to require Genesis to purchase
(the "Put") such Genesis ElderCare Corp. Common Stock commencing on October 9,
2002 and for a period of one year thereafter, at a price determined pursuant to
the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's Genesis
ElderCare Corp. Common Stock, plus a portion of the Genesis pharmacy business
(the "Calculated Equity Value"). The Calculated Equity Value will be determined
based upon a multiple of Genesis ElderCare Corp.'s earnings before interest,
taxes, depreciation, amortization and rental expenses, as adjusted ("EBITDAR")
after deduction of certain liabilities, plus a portion of the EBITDAR related to
the Genesis pharmacy business. The multiple to be applied to EBITDAR will depend
on whether the Put or the Call is being exercised. Any payment to Cypress, TPG
or Nazem under the Call or the Put may be in the form of cash or Genesis common
stock at Genesis' option.
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum
their original investment plus a 25% compound annual return thereon regardless
of the Calculated Equity Value. Any additional Calculated Equity Value
attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. Common Stock
will be determined on the basis set forth in the Put/Call Agreement which
provides generally for additional Calculated Equity Value of Genesis ElderCare
Corp. to be divided based upon the proportionate share of the capital
contributions of the stockholders to Genesis ElderCare Corp. Upon exercise of
the Put by Cypress, TPG or Nazem, there will be no minimum return to Cypress, or
TPG or Nazem; any payment to Cypress, TPG or Nazem will be limited to Cypress',
TPG's, or Nazem's share of the Calculated Equity Value based upon a formula set
forth in the terms of the Put/Call Agreement which provides generally for the
preferential return of the stockholders' capital contributions (subject to
certain priorities), a 25% compound annual return on Cypress', TPG's and Nazem's
capital contributions and the remaining Calculated Equity Value to be divided
based upon the proportionate share of the capital contributions of the
stockholders to Genesis ElderCare Corp.
Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated upon
an event of bankruptcy of Genesis, a change of control of Genesis or an
extraordinary dividend or distribution or the occurrence of the leverage
recapitalization of Genesis. Upon an event of acceleration or the failure by
Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and
Nazem will have the right to terminate the Stockholders' Agreement and
Management Agreement and to control the sale or liquidation of Genesis ElderCare
Corp. In the event of such sale, the proceeds from such sale will be distributed
among the parties as contemplated by the formula for the Put option exercise
price and Cypress, TPG and Nazem will retain a claim against Genesis for the
difference, if any, between the proceeds of such sale and the put option
exercise price.
In December 1996, the Company completed the acquisition of The ADS Group (ADS).
The Company paid approximately $10,000, repaid or assumed approximately $29,800
in debt, financed $51,000 through a lease facility, and issued 554,973 shares of
its common stock for ADS. Total goodwill approximated $30,700.
The following 1997 pro forma financial information has been prepared as if the
ADS acquisition, the Merger, the Therapy Sale and the Pharmacy Sale had been
consummated on October 1, 1996. The following 1998 pro forma financial
information has been prepared as if the Pharmacy Sale had been completed on
October 1, 1997. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the transactions
occurred at the beginning of the respective periods presented and is based upon
preliminary allocations of the purchase prices to property, plant and equipment
and goodwill that are subject to change.
<TABLE>
<CAPTION>
Six months ended
March 31
1997 1998
<S> <C> <C>
Net revenues 295,935 338,898
Earnings (loss) before extraordinary item (9,011) 1,891
Net income (loss) (11,230) 1,891
</TABLE>
(3) Commitments and Contingencies
Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or after
July 1, 1998, Medicare reimbursement for skilled nursing facilities will be on a
prospective payment system ("PPS"). Skilled nursing facilities will be paid a
per diem rate for all covered Part A skilled nursing facility services as well
as many services for which payment may be made under Part B during a period when
a beneficiary is provided covered skilled nursing facility care. The per diem
rate is adjusted based upon the resource utilization group of a resident. This
payment will cover rehabilitation and non-rehabilitation ancillary services;
however the per diem rate will not cover physician, nursing, physician assistant
and certain related services. For the first three cost reporting periods
beginning on or after July 1, 1998, the per diem will be based on a blend of a
facility specific rate and a federal per diem rate. In subsequent periods, and
for facilities first receiving payments for Medicare services on or after
October 1, 1995, the federal per diem rate will be used without any facility
specific blending.
The Act also required consolidated billing for skilled nursing facilities. The
skilled nursing facility must submit all Medicare claims for Part A and Part B
services received by its residents with the exception of physician, nursing,
physician assistant and certain related services. Medicare will pay the skilled
nursing facilities directly for all services on the consolidated bill and
outside suppliers of services to residents of the skilled nursing facilities
must collect payment from the skilled nursing facility.
The Act also repealed the Boren Amendment which required Medicaid payments to
nursing facilities to be "reasonable and adequate" to cover the costs of
efficiently and economically operated facilities. Under the Act, states must
now use a public notice and comment process for determining Medicaid rates and
give interested parties a reasonable opportunity to comment on proposed rates,
rate methodology and justifications. It is unclear what impact the Balanced
Budget Act of 1997 will have on the Company.
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of pending legal proceedings will not have a material effect on the
Company's consolidated financial statements.
(4) Financing Obligations
In February 1998 ElderTrust ("ETT"), a Maryland real estate investment trust
sponsored by Genesis, made term loans totaling $12,881, to subsidiaries of the
Company with respect to the lease-up of two assisted living facilities. The
loans have a fixed annual rate of interest of 10.5% and mature three years from
the date of the loans, subject to the right of the Company to extend the term
for up to three one-year extension periods in the event the facility has not
reached "stabilized occupancy" (as defined) as of the third anniversary of the
loan (or at the end of any extension period, if applicable).
In February 1998 ETT also made one construction loan in the amount of $3,000 to
a subsidiary of the Company to fund construction of an assisted living facility
being developed by the Company. The note bears interest at a fixed annual rate
of 10.5%, and will mature on the third anniversary of the loan, subject to the
right of the Company to extend the term for up to three one-year extension
periods in the event the facility has not reached "stabilized occupancy" as of
such third anniversary (or at the end of any extension period, if applicable).
ETT is obligated to purchase and leaseback the three facilities that secure the
term and construction loans being made to the Company upon the earlier of the
facility reaching stabilized occupancy or the maturity of the loan secured by
the facility provided, however, that the Company will not be obligated to sell
any facility if the purchase price for the facility would be less than the
applicable loan amount. The purchase agreements provide for a cash purchase
price in an amount which will result in an annual yield of 10.5% to ETT. If
acquired by ETT, these facilities would be leased to the Company under minimum
rent leases. The initial term of any minimum rent lease will be ten years, and
the Company will have the option to extend the term for up to two five-year
extension periods upon 12 months notice to ETT. Minimum rent for the first
lease year under any minimum rent lease will be established by multiplying the
purchase price for the applicable facility times 10.5%, and the increase each
year by an amount equal to the lesser of (i) 5% of the increase in the gross
revenues for such facility (excluding any revenues derived from ancillary
healthcare services provided by Genesis or its affiliates to residents of the
applicable facility) during the immediately preceding year or (ii) one-half of
the increase in the Consumer Price Index during the immediately preceding year.
(4) Financing Obligations, Continued.
During the last four years of the term (as extended, if applicable), the Company
is required to make minimum capital expenditures equal to $3 per residential
unit in each assisted living facility covered by a minimum rent lease.
The Company enters into interest rate swap agreements to manage interest costs
and risks associated with changing interest rates. In November 1997 the Company
entered into swap agreements with notional principal amounts totaling $100,000.
These agreements effectively convert underlying variable-rate debt based on
LIBOR into fixed-rate debt whereby the Company makes quarterly payments at a
weighted average fixed rate of 5.64% and receives quarterly payments at a
floating rate based on three month LIBOR (approximately 5.72% at May 7, 1998).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Prior to the Merger, Multicare had experienced significant growth, primarily
through acquisitions of long-term care facilities and ancillary businesses and
increased utilization of specialty medical services. It had been Multicare's
strategy to expand through construction and development of new facilities and
selective acquisitions with geographically concentrated operations. In
December 1996, the Company acquired The ADS Group, which owns, operates or
manages over 50 long-term care and assisted-living facilities with over 4,200
licensed beds, principally in Massachusetts.
Under Genesis' management, the Company's strategy is to integrate the talents
of physicians with case management, comprehensive discharge planning and, where
necessary, home support services, to provide cost effective care management to
achieve superior outcomes and return the Company's customers to the community.
Genesis' management believes that achieving improved customer outcomes will
result in increased utilization of specialty medical services and a broader base
of repeat customers in the Company's network. Moreover, the Company believes
that this strategy will lead to continued high levels of occupancy of available
beds, high quality payor mix and same store growth in net revenues and EBITDAR.
Genesis' management will also focus on the revenue and cost opportunities
presented through the further integration of the Company's recent acquisitions.
The Tender Offer and Merger
On June 16, 1997, Multicare entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Genesis ElderCare Corp. (the "Parent"), and Genesis
ElderCare Acquisition Corp., a wholly owned subsidiary of Parent (the
"Acquisition Corp.") pursuant to which Acquisition Corp. offered to acquire all
outstanding shares of common stock (the "Shares"), of Multicare at a purchase
price of $28.00 per Share, net to the seller in cash (the "Tender Offer"). The
Tender Offer expired on Wednesday, October 8, 1997 and Acquisition Corp.
accepted for purchase the Shares that had been validly tendered and not
withdrawn. The Shares accepted pursuant to the Tender Offer constituted
approximately 99.65% of Multicare's issued and outstanding Shares. On October
10, 1997, pursuant to the Merger Agreement, Acquisition Corp. was merged with
and into Multicare (the "Surviving Corporation") and the remaining Shares not
previously purchased in the Tender Offer were canceled, extinguished and
converted into the right to receive $28.00 in cash. As a result of the Merger,
Parent is the record and beneficial owner of all Shares of the Surviving
Corporation. Parent is owned by Genesis Health Ventures, Inc., a Pennsylvania
corporation ("Genesis"), The Cypress Group L.L.C. (together with its affiliates,
"Cypress"), TPG Partners II, L.P. (together with its affiliates, "TPG") and
Nazem, Inc. (together with its affiliates, "Nazem") and their affiliates.
On October 9, 1997, Multicare, Genesis and Genesis ElderCare Network Services,
Inc., a wholly-owned subsidiary of Genesis, entered into a management agreement
(the "Management Agreement") pursuant to which Genesis manages Multicare's
operations. The Management Agreement has a term of five years with automatic
renewals for two years unless either party terminates the Management Agreement.
Genesis will be paid a fee of six percent of Multicare's net revenues for its
services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of (i) $1.9 million and (ii) four
percent of Multicare's consolidated net revenues for such month, shall be
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23.9 million in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare are paid by Multicare.
On October 10, 1997, Genesis entered into an asset purchase agreement with
Multicare and certain of its subsidiaries pursuant to which Genesis acquired all
of the assets used in Multicare's outpatient and inpatient rehabilitation
therapy business for $24 million, subject to adjustment (the "Therapy Sale").
On October 10, 1997, Genesis entered into a stock purchase agreement with
Multicare and certain of its subsidiaries pursuant to which Genesis acquired all
of the outstanding capital stock and limited partnership interests of certain
subsidiaries of Multicare that are engaged in the business of providing
institutional pharmacy services to third parties for $50 million, subject to
adjustment (the "Pharmacy Sale"). The Company completed the Pharmacy Sale
effective January 1, 1998.
Results of Operations
Net Revenues. Net revenues for the three months ended March 31, 1998 increased
$1.4 million from the same period last year to $170.2 million. Net revenues for
the six months ended March 31, 1998 increased 13% or $41.8 million from the same
period last year to $355.9 million.
The increase in revenues in the second quarter of fiscal 1998 is comprised of
approximately $22.1 million relating to internal growth, offset by a decrease of
approximately $20.7 million relating to the exclusion of results for the
pharmacy and therapy businesses due to the Pharmacy Sale and the Therapy Sale.
The increase in revenues for the six months ended March 31, 1998 consisted of
approximately $45.6 million of internal growth and $12.9 million for results of
recent acquisitions, offset by a $16.7 million decrease relating to the
exclusion of results for the pharmacy and therapy businesses due to the Pharmacy
Sale and the Therapy Sale. The internal growth of revenues resulted mainly from
increases in payor rates and changes in census mix, and development and opening
of additional beds.
The Company's quality mix of private, Medicare and insurance revenues was 62%
and 65% of net revenues for the three and six months ended March 31, 1998
compared to 67% in the similar periods of last year. Occupancy rates were 91%
and 92% for the three and six months ended March 31, 1998 compared to 90% in the
similar periods of last year.
Operating Expense. Operating expenses for the three months ended March 31,
1998 were $127.8 million compared to $127.7 million last year. This increase is
comprised of approximately $17.5 million resulting primarily from higher
salaries, wages and benefits and expanded nursing staffing levels to support
higher acuity patients, offset by a decrease of $17.4 million relating to the
exclusion of results for the pharmacy and therapy businesses due to the Pharmacy
Sale and the Therapy Sale. Operating expenses for the six months ended March
31, 1998 increased 14% from the comparable period last year to $269.1 million.
The increase includes approximately $6.8 million relating to results of recent
acquisitions, offset by a decrease of $13.2 million relating to the exclusion of
results for the pharmacy and therapy businesses due to the Pharmacy Sale and the
Therapy Sale. The remainder of the increase resulted primarily from higher
salaries, wages and benefits and expanded nursing staffing levels to support
higher patient acuities and more complex product lines such as subacute and
Alzheimers care.
Management Fee and Corporate, General and Administrative Expense. In connection
with the Management Agreement, Genesis manages Multicare's operations for a fee
of approximately six percent of Multicare's revenues and is responsible for
Multicare's general and administrative expenses. The 1997 corporate, general
and administrative expenses include resources devoted to operations, finance,
legal, risk management, and information systems.
Lease Expense. Lease expense for the three months ended March 31, 1998
decreased 22% to $3.2 million. Lease expense for the six months ended March 31,
1998 decreased 9% to $6.7 million. In connection with the Merger, the Company
paid off its synthetic lease facility with proceeds from the Senior Facilities.
Depreciation and Amortization Expense. Depreciation and amortization expense
for the three and six months ended March 31, 1998 increased 61% and 74% from the
same periods last year to $11.1 million and $22.9 million, respectively. The
increase is due to depreciation on the allocation of the purchase price to
property, plant and equipment and to amortization of goodwill relating to the
Merger.
Interest Expense, net. Net interest expense for the three and six months ended
March 31, 1998 increased $7.8 million and $16.3 million from the same periods in
fiscal 1997 to $15.0 million and $29.7 million, respectively. This is a result
of incremental borrowings under the Company's Senior Facilities and 9% Notes
incurred to finance the Merger.
Income Tax Expense. The provision for income taxes increased to 52% of pre-tax
income in the six months ended March 31, 1998 from 37% of pre-tax income from
the similar period last year. The increase relates to higher non-deductible
goodwill amortization resulting from the Merger.
Liquidity and Capital Resources
The Company maintains adequate working capital from operating cash flows and
lines of credit for continuing operations, debt service, and anticipated capital
expenditures. At March 31, 1998, the Company had working capital of $21.7
million, compared to $51.8 million at September 30, 1997 due primarily to an
increase in current portion of long term debt incurred to finance the merger.
Cash flow from operations was $3.9 million for the six months ended March 31,
1998 compared to cash flow from operations of $43.8 million in the comparable
period of 1997. The decrease in operating cash flows results primarily from the
decline in earnings which is attributable to increased interest expense and the
Genesis management fee and the timing of payments, offset by the elimination of
corporate, general and administrative expenses. Net accounts receivable were
$123.9 million at March 31, 1998 compared to $119.5 million at September 30,
1997. The increase in net accounts receivable is attributable to the timing of
third-party interim and settlement payments and the utilization of specialty
medical services for higher acuity level patients, offset by a decrease relating
to the Pharmacy Sale and the Therapy Sale. Legislative and regulatory action
and government budgetary constraints could change the timing of payments and
reimbursement rates of the Medicare and Medicaid programs in the future. These
changes could have a material adverse effect on the Company's future operating
results and cash flows.
In connection with the Merger, Multicare entered into three term loans and a
revolving credit facility of up to $525 million, in the aggregate (collectively,
the "Senior Facilities"), provided by a syndicate of banks and other financial
institutions (collectively, the "Lenders") led by Mellon Bank, N.A., as
administrative agent (the "Administrative Agent"), pursuant to a certain credit
agreement (the "Long Term Credit Agreement") dated as of October 14, 1997. The
Senior Facilities are being used for the purpose of (i) refinancing certain
short term facilities in the aggregate principal amount of $431.6 million which
were funded on October 9, 1997 to acquire the Shares in the Tender Offer,
refinance certain indebtedness of Multicare and pay fees and expenses related to
the transactions, (ii) funding interest and principal payments on such
facilities and on certain remaining indebtedness and (iii) funding working
capital and general corporate purposes.
The Senior Facilities consist of: (1) a $200 million six year term loan (the
"Tranche A Term Facility"); (2) a $150 million seven year term loan (the
"Tranche B Term Facility"); (3) a $50 million term loan maturing on June 1, 2005
(the "Tranche C Term Facility"); (4) a $125 million six year revolving credit
facility (the "Revolving Credit Facility"); and (5) one or more Swing Loans
(collectively, the "Swing Loan Facility") in integral principal multiples of
$500,000 up to an aggregate unpaid principal amount of $10 million. The Tranche
A Term Facility, Tranche B Term Facility and Tranche C Term Facility are subject
to amortization in quarterly installments, commencing at the end of the first
calendar quarter after the date of the consummation of the Merger (the "Closing
Date"). The Revolving Credit Facility will mature six years after the Closing
Date. All net proceeds received by Multicare from (i) the sale of assets of
Multicare or its subsidiaries other than sales in the ordinary course of
business (and other than the sales of Multicare's rehabilitation therapy
business and pharmacy business to the extent that there are amounts outstanding
under the Revolving Credit Facility) and (ii) any sale of common stock or debt
securities (other than the 9% Notes and the Equity Contributions) of Multicare
in respect of common stock will be applied as a mandatory prepayment. Fifty
percent of Excess Cash Flow must be applied to the Senior Facilities and shall
be payable annually.
The Senior Facilities are secured by a first priority security interest in all
of the (i) stock of Multicare, (ii) stock, partnership interests and other
equity of all of Multicare's present and future direct and indirect subsidiaries
and (iii) intercompany notes among Parent and any subsidiaries or among any
subsidiaries.
Loans under the Senior Facilities bear, at Multicare's option, interest at the
per annum Prime Rate as announced by the Administrative Agent, or the applicable
Adjusted LIBO Rate. Loans under the Tranche A Term Facility bear interest at a
rate equal to LIBO Rate plus a margin up to 2.5%; loans under the Tranche B Term
Facility bear interest at a rate equal to LIBO Rate plus a margin up to 2.75%;
loans under the Tranche C Term Facility bear interest at a rate equal to LIBO
Rate plus a margin up to 3.0%; loans under the Revolving Credit Facility bear
interest at a rate equal to LIBO Rate plus a margin up to 2.5%; and loans under
the Swing Loan Facility bear interest at the Prime Rate unless otherwise agreed
to by the parties. Subject to meeting certain financial covenants, the
above-referenced interest rates may be reduced.
The Long Term Credit Agreement contains a number of covenants that, among other
things, restrict the ability of Multicare and its subsidiaries to dispose of
assets, incur additional indebtedness, make loans and investments, pay
dividends, engage in mergers or consolidations, engage in certain transactions
with affiliates and change control of capital stock, prepay debt, make material
changes in accounting and reporting practices, create liens on assets, give a
negative pledge on assets, make acquisitions and amend or modify documents. In
addition, the Long Term Credit Agreement requires that Multicare and its
affiliates maintain the Management Agreement as well as comply with certain
financial covenants.
On August 11, 1997, Acquisition Corp. sold to Morgan Stanley & Co.
Incorporated, Montgomery Securities, L.P. and First Union Capital Markets Corp.
(collectively, the "Placement Agents") $250 million principal amount of its 9%
Senior Subordinated Notes due 2007 (the "9% Notes") which were issued pursuant
to an Indenture, dated as of August 7, 1997 (the "Indenture") by and between
Acquisition Corp., as issuer, and PNC Bank, National Association, as trustee.
The 9% Notes bear interest at 9% per annum from August 11, 1997, payable
semiannually on February 1 and August 1 of each year, commencing on February 1,
1998.
The 9% Notes are unsecured, general obligations of the issuer, subordinated in
right of payment to all existing and future Senior Indebtedness, as defined in
the Indenture, of the issuer, including indebtedness under the Senior
Facilities. The 9% Notes rank pari passu in right of payment with any future
senior subordinated indebtedness of the issuer and are senior in right of
payment to all future subordinated indebtedness of the issuer. The 9% Notes are
redeemable at the option of the issuer, in whole or in part, at any time on or
after August 1, 2002, initially at 104.5% of their principal amount, plus
accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest, on or after August 1, 2004. The 9% Notes are subject to
mandatory redemption at 101%. Upon a Change in Control, as defined in the
Indenture, the issuer is required to make an offer to purchase the 9% Notes at a
purchase price equal to 101% of their principal amount, plus accrued interest.
The Indenture contains a number of covenants that, among other things, restrict
the ability of the issuer of the 9% Notes to incur additional indebtedness, pay
dividends, redeem capital stock, make certain investments, issue the capital
stock of its subsidiaries, engage in mergers or consolidations or asset sales,
engage in certain transactions with affiliates, and create dividend and other
restrictions affecting its subsidiaries.
Upon the consummation of the Merger, Multicare assumed all obligations of
Acquisition Corp. with respect to and under the 9% Notes and the related
Indenture.
At May 11, 1998, there is approximately $454.8 million outstanding under the
Senior Facilities and approximately $55.4 million available under the Senior
Facilities after giving effect to approximately $1.7 million outstanding letters
of credit.
In February 1998 ElderTrust ("ETT"), a Maryland real estate investment trust
sponsored by Genesis, made term loans to subsidiaries of the Company with
respect to the lease-up of two assisted living facilities. The loans have a
fixed annual rate of interest of 10.5% and mature three years from the date of
the loans, subject to the right of the Company to extend the term for up to
three one-year extension periods in the event the facility has not reached
"stabilized occupancy" (as defined) as of the third anniversary of the loan (or
at the end of any extension period, if applicable).
In February 1998 ETT also made one construction loan to a subsidiary of the
Company to fund construction of an assisted living facility being developed by
the Company. The note bears interest at a fixed annual rate of 10.5%, and will
mature on the third anniversary of the loan, subject to the right of the Company
to extend the term for up to three one-year extension periods in the event the
facility has not reached "stabilized occupancy" as of such third anniversary (or
at the end of any extension period, if applicable).
ETT is obligated to purchase and leaseback the three facilities that secure the
term and construction loans being made to the Company upon the earlier of the
facility reaching stabilized occupancy or the maturity of the loan secured by
the facility provided, however, that the Company will not be obligated to sell
any facility if the purchase price for the facility would be less than the
applicable loan amount. The purchase agreements provide for a cash purchase
price in an amount which will result in an annual yield of 10.5% to ETT. If
acquired by ETT, these facilities would be leased to the Company under minimum
rent leases. The initial term of any minimum rent lease will be ten years, and
the Company will have the option to extend the term for up to two five-year
extension periods upon 12 months notice to ETT. Minimum rent for the first
lease year under any minimum rent lease will be established by multiplying the
purchase price for the applicable facility times 10.5%, and the increase each
year by an amount equal to the lesser of (i) 5% of the increase in the gross
revenues for such facility (excluding any revenues derived from ancillary
healthcare services provided by Genesis or its affiliates to residents of the
applicable facility) during the immediately preceding year or (ii) one-half of
the increase in the Consumer Price Index during the immediately preceding year.
During the last four years of the term (as extended, if applicable), the Company
is required to make minimum capital expenditures equal to $3,000 per residential
unit in each assisted living facility covered by a minimum rent lease.
The Company anticipates its capital requirements for the construction of new
facilities and the expansion and renovation of existing facilities to
approximate $10 million over the next twelve months based on existing
construction commitments and plans.
Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on or after
July 1, 1998, Medicare reimbursement for skilled nursing facilities will be on a
prospective payment system ("PPS"). Skilled nursing facilities will be paid a
per diem rate for all covered Part A skilled nursing facility services as well
as many services for which payment may be made under Part B during a period when
a beneficiary is provided covered skilled nursing facility care. The per diem
rate is adjusted based upon the resource utilization group of a resident. This
payment will cover rehabilitation and non-rehabilitation ancillary services;
however the per diem rate will not cover physician, nursing, physician assistant
and certain related services. For the first three cost reporting periods
beginning on or after July 1, 1998, the per diem will be based on a blend of a
facility specific rate and a federal per diem rate. In subsequent periods, and
for facilities first receiving payments for Medicare services on or after
October 1, 1995, the federal per diem rate will be used without any facility
specific blending.
The Act also required consolidated billing for skilled nursing facilities. The
skilled nursing facility must submit all Medicare claims for Part A and Part B
services received by its residents with the exception of physician, nursing,
physician assistant and certain related services. Medicare will pay the skilled
nursing facilities directly for all services on the consolidated bill and
outside suppliers of services to residents of the skilled nursing facilities
must collect payment from the skilled nursing facility.
The Act also repealed the Boren Amendment which required Medicaid payments to
nursing facilities to be "reasonable and adequate" to cover the costs of
efficiently and economically operated facilities. Under the Act, states must
now use a public notice and comment process for determining Medicaid rates and
give interested parties a reasonable opportunity to comment on proposed rates,
rate methodology and justifications. It is unclear what impact the Balanced
Budget Act of 1997 will have on the Company.
Year 2000 Issues
The Company is aware of issues associated with the programming code in many
existing computer systems (the "Year 2000" issue) as the millennium approaches.
The Company has conducted a review of its computer systems to identify hardware
and software affected by the Year 2000 issue. This issue affects computers
systems having date sensitive programs that may not properly recognize the Year
2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail resulting in business interruption.
With respect to its existing computer systems, the Company is upgrading,
generally, in order to meet the demands of its expanding business. In the
process, the Company is taking steps to identify, correct, or reprogram and test
its existing systems for Year 2000 compliance. It is anticipated that all new
system upgrades or reprogramming efforts will be completed by mid calendar year
1999, allowing adequate time for testing. The Company presently believes that
with modification to existing software and conversions to new software, the Year
2000 issue can be mitigated. However, given the complexity of the Year 2000
issues, there can be assurances that the Company will be able to address the
problem without costs and uncertainties that might affect future financial
results or cause reported financial information not to be necessarily indicative
of future operating results or future financial condition.
The Company has incurred, and expects to incur additional, internal costs as
well as other expenses to address the necessary software upgrades, training,
data conversion, testing and implementation related to the Year 2000 issue.
Such costs are being expensed as incurred. The Company does not expect the
amounts required to be expensed to have a material effect on its financial
position or results of operations. The Year 2000 issue is expected to affect
the systems of various entities with which the Company interacts including
payors, suppliers and vendors. There can be no assurance that data produced by
systems of other entities on which the Company's systems rely will be converted
on a timely basis or that a failure by another entity's system to be Year 2000
compliant will not have a material adverse effect on the Company.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). This Statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. This Statement is effective for fiscal years
beginning after December 15, 1997. The Company plans to adopt this accounting
standard as required. The adoption of this standard will have no impact on the
Company's earnings, financial condition or liquidity, but will require the
Company to classify items of other comprehensive income in a financial statement
and display the accumulated balance of other comprehensive income separately in
the equity section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supersedes Statement of Financial Standards
No. 14, Financial Reporting for Segments of a Business Enterprise, and
establishes new standards for reporting information about operation segments in
annual financial statements and requires selected information about operating
segments in interim financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for periods beginning after December 15,
1997. This Statement will have no impact on the Company's financial statements,
results of operations, financial condition or liquidity.
Part II-Other Information
Item 1. Legal Proceedings. Not Applicable.
Item 2. Changes in Securities and Use of Proceeds. Not Applicable.
Item 3. Defaults Upon Senior Securities. Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable.
Item 5. Other Information. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit
No. Description
10.7 Second Amended and Restated Stock Purchase Agreement dated October
10, 1997 among Genesis Health Ventures, Inc., The Multicare Companies,
Inc., Concord Health Group, Inc., Horizon Associates, Inc., Horizon
Medical Equipment and Supply, Inc., Institutional Health Care
Services, Inc., Care4, L.P., Concord Pharmacy Services, Inc., Compass
Health Services, Inc. and Encare of Massachusetts, Inc.
27 Financial Data Schedule
b) Reports on Form 8-K. Not Applicable.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Multicare Companies, Inc.
/S/ GEORGE V. HAGER, JR.
By:
George V. Hager, Jr.
Senior Vice President
and Chief Financial Officer
May 13, 1998
SECOND AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This Agreement is made as of this 10th day of October, 1997, by and among
Genesis Health Ventures, Inc., a Pennsylvania corporation, and/or its designee
pursuant to Section 9.2 hereof (the "Buyer"), The Multicare Companies, Inc., a
Delaware corporation, Concord Health Group, Inc., a Delaware corporation, and
Horizon Associates, Inc., a West Virginia corporation (collectively, the
"Sellers"), and Horizon Medical Equipment and Supply, Inc., a West Virginia
corporation, Institutional Health Care Services, Inc., a New Jersey corporation,
Care4, L.P., a Delaware limited partnership, Concord Pharmacy Services, Inc., a
Pennsylvania corporation, Compass Health Services, Inc., a West Virginia
corporation, and Encare of Massachusetts, Inc., a Delaware corporation (each a
"Company" and collectively, the "Companies").
BACKGROUND
WHEREAS, the Sellers and each of the Companies have agreed to sell and
Buyer has agreed to purchase, all of the issued and outstanding capital stock
and limited partnership interests, whichever is applicable, of each of the
Companies on the terms and conditions provided for in this Agreement.
AGREEMENT
NOW, THEREFORE, in order to consummate such transactions and in
consideration of the mutual agreements set forth herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1. DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, unless otherwise
defined herein or unless the context otherwise requires, the following terms
shall have the following meanings:
"Agreement" means this Stock Purchase Agreement, all schedules hereto and
all amendments, modifications, and supplements hereto.
"Buyer" is defined in the preamble hereto.
"Closing" has the meaning specified in Section 2.2 hereof.
"Closing Date" has the meaning specified in Section 2.2 hereof.
"Company" or "Companies" is defined in the preamble hereto.
"Encumbrance" means any mortgage, claim, lien, pledge, option, charge,
security interest or other similar interest, easement, judgment or imperfection
of title of any nature whatsoever.
"Material Adverse Effect" means any change or effect that would or would
reasonably be expected to materially and adversely affect the financial
condition, results of operations, assets or business of each of the Companies,
the each of the Sellers, or Buyer and its subsidiaries taken as a whole, as the
case may be.
"Merger Agreement" means the Merger Agreement, dated as of June 16, 1997,
by and among Genesis ElderCare Corp. (formerly known as Waltz Corp.), a Delaware
corporation, Genesis ElderCare Acquisition Corp. (formerly known as Waltz
Acquisition Corp.), a Delaware corporation, and The Multicare Companies, Inc.
pursuant to which Genesis ElderCare Acquisition Corp. shall merge with and into
The Multicare Companies, Inc.
"Purchase Price" means Fifty Million Dollars ($50,000,000) to be paid by
Buyer for the Shares in accordance with an allocation to be mutually determined
by the parties.
"Sellers" is defined in the preamble hereto.
"Shares" means all of the outstanding capital stock and limited partnership
interests, whichever is applicable, of each of the Companies.
ARTICLE 2. SALE OF SHARES AND PURCHASE PRICE
Section 2.1 Sale of Shares. On the terms and subject to the conditions
set forth in this Agreement, the Sellers shall cause the sale, transfer and
delivery to Buyer, and Buyer shall purchase, on the Closing Date, all right,
title and interest in and to all of the Shares.
Section 2.2 Closing. The closing of the purchase and sale of the
Shares (the "Closing") shall take place as soon as practicable after the closing
under the Merger Agreement at the offices of Blank Rome Comisky & McCauley, One
Logan Square, Philadelphia, Pennsylvania 19103, or at such other place as shall
be mutually agreeable to the parties hereto (which time and place are designated
as the "Closing Date"), subject to the satisfaction or waiver of the conditions
specified in Article 6; provided, however, that if acceptable to the parties,
the Closing may be effected by facsimile transmission of executed copies of the
documents (including without limitation, this Agreement) delivered at the
Closing and payment of the purchase price specified in Section 2.3 and by
sending original copies of the documents (including without limitation, this
Agreement) delivered at the Closing by reputable overnight delivery service,
postage or delivery charges prepaid, for delivery to the parties at their
respective addresses set forth in Section 9.1 herein by the third business day
following the Closing.
Section 2.3 Purchase Price. On the Closing Date, Buyer shall pay the
Purchase Price for the Shares. Buyer shall pay the Purchase Price, against
delivery of the certificates and the amended limited partnership agreement,
whichever is applicable, for the Shares required by Section 2.4, by wire
transfer of immediately available funds to such accounts as the Sellers shall
designate. The parties agree to allocate the Purchase Price among the Shares in
a manner to be mutually determined by the parties.
Section 2.4 Delivery of Certificates, Amended Limited Partnership
Agreement.
(i) On the Closing Date, the Sellers and the Companies shall
cause to be delivered to Buyer certificates (with respect to only those
Companies that are corporations) evidencing all of the Shares, duly endorsed in
blank (or in such name as may be designated by Buyer), and accompanied by stock
powers duly executed in blank (or in such name as may be designated by Buyer),
in proper form to transfer all right, title and interest in and to all Shares to
Buyer. Buyer shall have no obligation to purchase any of the Shares unless the
Sellers and the Companies deliver certificates for all of the Shares.
(ii) On the Closing Date, the Sellers and the Companies
shall cause to be delivered to Buyer an amended limited partnership agreement
(with respect to only those Companies that are limited partnerships) stating,
among other things, that Buyer is the sole limited partner for the Company that
is a partnership on and as of the Closing Date. Buyer shall have no obligation
to purchase any of the Shares unless the Sellers and the Companies deliver such
amended limited partnership agreement.
ARTICLE 3. CERTAIN UNDERSTANDINGS AND AGREEMENTS
Section 3.1 Conduct of Business. From the date of this Agreement to the
Closing Date, the Companies shall, and the Sellers shall cause the Companies to,
conduct their operations according to their ordinary and usual course of
business, to preserve their business organization intact, keep available the
services of their officers and employees and maintain satisfactory relationships
with suppliers, customers and others having business relationships with them.
Section 3.2 Pre-Closing Access to Properties and Records;
Confidentiality. Between the date hereof and the Closing Date, the Companies
shall, and the Sellers shall cause the Companies to, give authorized
representatives of Buyer, reasonable access to the premises, properties,
contracts, books, records and affairs of the Companies (including reasonable
access to the properties of the Companies for the purposes of conducting a Phase
1 environmental assessment of such properties) and will cause the Companies'
officers to furnish such financial, technical and operating data and other
information pertaining to the Companies' businesses as Buyer shall from time to
time reasonably request.
Section 3.3 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each party shall use all commercially reasonable efforts to
take, or cause to be taken, all actions necessary to consummate the transactions
contemplated by this Agreement. The parties shall cooperate with one another
(a) in determining whether any action by or in respect of, or filing with, any
governmental authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any contracts and (b)
subject to the terms and conditions of this Agreement, in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking to obtain in a timely fashion any such actions, consents approvals
or waivers.
Section 3.4 Notice of Certain Events. The Companies and, to the extent
known by it, the Sellers shall give notice to Buyer promptly of:
(a) any notice of breach or default received subsequent to the date of
this Agreement, or any instrument or agreement to which the Companies or any of
the Sellers is a party or by which it is bound; or
(b) any suit, action, proceeding or investigation instituted or, to the
Companies' and the Sellers' knowledge, threatened against or affecting any of
the Sellers or Companies subsequent to the date of this Agreement and prior to
the Closing.
Section 3.5 Section 338(h)(10) Election. With respect to the Buyer's
acquisition of the Shares pursuant to this Agreement, Buyer and the Sellers
shall jointly make a timely election under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code") (and any corresponding elections
under any state or local tax laws) (such elections being hereinafter
collectively referred to as the "338(h)(10) Election"). The Sellers shall
cooperate with Buyer and take such action as may be necessary to cause each of
the Companies to cooperate with Buyer and take any and all action reasonably
necessary or appropriate (including filing such forms, returns, elections,
schedules and other documents as may reasonably be required) to effect and
preserve a timely 338(h)(10) Election in accordance with Code Section 338 and
the applicable regulations thereunder. The allocation of values to the assets
of the Companies shall be in accordance with the allocation set forth in
Schedule D attached hereto. Thereafter, Buyer and the Sellers shall report the
sale of the stock and other equity interests of the Companies pursuant to this
Agreement in a manner which is consistent with the 338(h)(10) Election and shall
take no position contrary thereto or inconsistent therewith in any tax returns
in any discussion with or proceeding before any taxing authority or otherwise.
The Sellers will pay any tax attributable to the making of the Section
338(h)(10) Election and arising out of a deemed sale of assets as of the
Closing.
Section 3.6 Adjustment of Assets. It is the intention of the parties
that the Companies comprise the institutional pharmacy services companies of
Multicare which have generated year to date annualized revenues of $82.3 million
and EBITDAR of $13.4 million. To the extent that (i) any of the Companies are
not included in the institutional pharmacy services companies which generated
such annualized revenues and EBITDAR or (ii) other entities owned by Seller are
included in such annualized revenues or EBITDAR but are not sold to Buyer
hereunder, the parties agree to make appropriate adjustment of the assets sold
hereunder.
Section 3.7 Tax Adjustment. To the extent that any taxes are imposed
upon Seller as a result of the sale of the Companies hereunder, Buyer will pay
to Seller the amount of such taxes when Seller is required to pay such taxes.
To the extent that the sale of Companies hereunder generates tax losses to
Seller, Seller will pay to Buyer the tax savings realized from such tax losses
when Seller receives the benefit from such tax losses.
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF EACH PARTY
The obligations of each party to consummate the transactions contemplated
hereby shall be subject to the fulfillment, at or prior to the Closing Date, of
the following conditions, each of which may be waived by the parties in writing:
Section 4.1 No Action or Proceeding. No claim, action, suit or other
proceeding shall be pending or threatened by any public authority or person
before any court, agency or administrative body which creates a substantial
likelihood that the consummation of this Agreement or the transactions
contemplated hereby will be restrained, enjoined or otherwise prevented or that
any material damages will be recovered or other material relief obtained as a
result of the transactions contemplated hereby or as a result of any agreement
entered into in connection with, or as a condition precedent to, the
consummation of the transactions contemplated hereby.
Section 4.2 Compliance with Law. No provision of any applicable law and
no judgment, injunction, order or decree shall prohibit the Closing. There
shall have been obtained any and all permits, approvals and consents of any
governmental body or agency which Buyer or the Sellers may reasonably deem
necessary so that consummation of the transactions contemplated by this
Agreement will be in compliance in all material respects with the applicable
laws.
Section 4.3 Hart-Scott-Rodino Requirements. The waiting periods (as
such may be extended by the governmental agencies involved) applicable to the
consummation of the transactions contemplated hereby under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
thereunder shall have expired or have been terminated by the appropriate
governmental agency.
Section 4.4. Regulatory Approvals. Any material approval, permit,
authorization, consent or waiting period of any governmental authority
applicable to (i) the purchase of all of the outstanding shares of common stock,
par value $.01 per share, of Multicare at a purchase price of $28.00 per share
(the "Equity Tender Offer"), (ii) the merger of Genesis ElderCare Acquisition
Corp. with and into Multicare (the "Merger") pursuant to the terms and
conditions of the Merger Agreement or (iii) the ownership or operation by
Multicare, Genesis ElderCare Corp. or Genesis Health Ventures, Inc. of all or a
material portion of the business or assets of Multicare shall have been obtained
or satisfied on terms satisfactory to Genesis ElderCare Corp. in its reasonable
discretion.
ARTICLE 5. TERMINATION
This Agreement may be terminated at any time prior to the Closing Date as
follows:
(a) by mutual consent in writing of the parties hereto;
(b) at any time on or prior to the Closing Date, by either the Buyer, on
the one hand, or the Companies and Sellers, on the other hand, as the case may
be, if the other party(ies) has, in any material respect, breached any covenant
or undertaking contained herein and such breach has not been cured within thirty
days.
ARTICLE 6. MISCELLANEOUS
Section 6.1 Notices. All notices, requests, demands and other
communications hereunder shall be in writing (including telecopy or similar
writing) and shall be given:
If to Buyer:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael R. Walker
Telephone: (610) 444-6350
Facsimile: (610) 444-7438
with a copy to:
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Stephen E. Luongo, Esq.
Telephone: (215) 569-5500
Facsimile: (215) 569-5555
If to the Sellers or Companies:
Genesis ElderCare Corp.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael R. Walker
Telephone: (610) 444-6350
Facsimile: (610) 444-7438
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: William E. Curbow, Esquire
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
or to such other address or telecopy number and with such other copies as such
party may hereafter specify for the purpose of notice to the other party. Each
such notice, request, demand or other communication shall be effective (a) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and evidence of receipt is received or (b) if given by
any other means, upon delivery or refusal of delivery at the address specified
in this Section.
Section 6.2 Assignability; Parties in Interest. This Agreement shall
not be assignable by any of the parties hereto, except that this Agreement shall
be assignable in whole or in part by Buyer to any subsidiary or subsidiaries of
Buyer, provided that no such assignment shall relieve the assignor of its
obligations hereunder. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Except as specifically referred to herein, this Agreement is for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns and nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person any legal or equitable rights, remedies or
claims under or by reason of this Agreement.
Section 6.3 Governing Law; Jurisdiction. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the Commonwealth
of Pennsylvania, without regard to conflicts of laws. In any action between or
among any of the parties, whether arising out of this Agreement or otherwise,
(a) each of the parties irrevocably consents to the exclusive jurisdiction and
venue of the federal and state courts located in the Commonwealth of
Pennsylvania; (b) each of the parties irrevocably waives the right to trial by
jury; (c) each of the parties irrevocably consents to service of process by
first class certified mail, return receipt requested, postage prepaid, to the
address at which such party is to receive notice in accordance with Section
11.1.
Section 6.4 Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
shall have received a counterpart signed by the other party.
Section 6.5 Publicity. The Sellers, the Companies and Buyer agree that
press releases and other announcements with respect to the transactions
contemplated hereby shall be subject to mutual agreement; provided, however,
that Buyer may make such announcements as in the opinion of its counsel, such
party is required to make pursuant to comply with law or the requirements of any
stock exchange or other applicable self-regulatory organization, but in such
event Buyer shall, to the extent practicable, give the Sellers and the Companies
reasonable prior notice and an opportunity to comment on the proposed
announcement.
Section 6.6 Complete Agreement. This Agreement, the exhibits hereto and
the schedules and documents delivered pursuant hereto or referred to herein
contain the entire agreement between the parties hereto with respect to the
transactions contemplated herein and supersede all previous negotiations,
commitments and writings.
Section 6.7 Amendments and Waivers. The parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
parties hereto, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any or documents delivered pursuant hereto,
(c) waive compliance with any of the covenants or agreements contained in this
Agreement or (d) amend this Agreement, if and only, in the case of an extension
or amendment, if such action is set forth in a written agreement signed by both
parties, or, in the case of a waiver, if such waiver is signed by the party
against whom the waiver is to be effective.
Section 6.8 Expenses. Except as specifically provided in this
Agreement, each party shall bear the expenses incurred by it in connection with
the transactions contemplated by this Agreement.
Section 6.9 Consents. Notwithstanding anything herein to the contrary,
this Agreement shall not constitute an agreement to assign any contract,
license, lease, commitment or other arrangement if an attempted assignment would
constitute a breach thereof. Whenever such consent is required, the Sellers
will use commercially reasonable efforts to cause such consents to be obtained
and Buyer agrees to cooperate with the Sellers and to enter into any reasonable
arrangement designed to provide for Buyer the benefits under such contracts and
agreements.
Section 6.10 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.11 Severability. Any portion or provision of the Agreement
which is invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of the Agreement invalid,
illegal or unenforceable in any other jurisdiction.
Section 6.12 Further Assurances. Each party hereto agrees to execute any
and all documents and to perform such other acts as may be necessary or
expedient to further the purposes of this Agreement and the transactions
contemplated hereby.
Section 6.13. Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
GENESIS HEALTH VENTURES, INC., THE MULTICARE COMPANIES, INC.
or its designee
By:/s/ Michael R. Walker By:/s/ Michael R. Walker
Name: Michael R. Walker Name: Michael R. Walker
Title: Chairman and Chief Executive Officer Title: Chairman and Chief
Executive Officer
CONCORD HEALTH GROUP, INC. HORIZON ASSOCIATES, INC.
By:/s/ Michael R. Walker By:/s/ Michael R. Walker
Name: Michael R. Walker Name: Michael R. Walker
Title: Chairman and Chief Executive Officer Title: Chairman and Chief
Executive Officer
INSTITUTIONAL HEALTH CARE CARE4, L.P.
SERVICES, INC. Inc.,
By: Institutional Health Care
Services, General Partner of
Care4, L.P.
By:/s/ Michael R. Walker By:/s/ Michael R. Walker
Name: Michael R. Walker Name: Michael R. Walker
Title: Chairman and Chief Executive Officer Title: Chairman and Chief
Executive Officer
CONCORD PHARMACY SERVICES, INC. COMPASS HEALTH SERVICES, INC.
By:/s/ Michael R. Walker By:/s/ Michael R. Walker
Name: Michael R. Walker Name: Michael R. Walker
Title: Chairman and Chief Executive Officer Title: Chairman and Chief
Executive Officer
ENCARE OF MASSACHUSETTS, INC. HORIZON MEDICAL EQUIPMENT
AND SUPPLY, INC.
By:/s/ Michael R. Walker By:/s/ Michael R. Walker
Name: Michael R. Walker Name: Michael R. Walker
Title: Chairman and Chief Executive Officer Title: Chairman and Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MULTICARE
COMPANIES, INC. FORM 10-Q QUARTERLY REPORT FOR THE SIX-MONTH PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,617
<SECURITIES> 0
<RECEIVABLES> 123,943
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 161,275
<PP&E> 723,744
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,708,216
<CURRENT-LIABILITIES> 139,605
<BONDS> 761,264
0
0
<COMMON> 0
<OTHER-SE> 747,725
<TOTAL-LIABILITY-AND-EQUITY> 1,708,216
<SALES> 0
<TOTAL-REVENUES> 355,942
<CGS> 0
<TOTAL-COSTS> 269,120
<OTHER-EXPENSES> 22,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,712
<INCOME-PRETAX> 5,692
<INCOME-TAX> 2,967
<INCOME-CONTINUING> 2,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,725
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
