<PAGE>
As filed with the Securities and Exchange Commission on January 16, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
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)
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<S> <C> <C>
Delaware 8051 22-3152527
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(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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433 HACKENSACK AVENUE
HACKENSACK, NJ 07601
(201) 488-8818
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Michael R. Walker
Chief Executive Officer
THE MULTICARE COMPANIES, INC.
148 West State Street
Kennett Square, PA 19348
(610) 444-6350
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Richard J. McMahon, Esquire
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
(215) 569-5500
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Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
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Proposed Proposed
Title of each Amount maximum maximum Amount of
class of securities to be offering price aggregate offering registration
to be registered registered per unit price fee
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<S> <C> <C> <C> <C>
9% Senior Subordinated Notes due 2007 $250,000,000 $1,000 $250,000,000 $73,750
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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 the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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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 such State.
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
PROSPECTUS
THE MULTICARE COMPANIES, INC.
Offer to Exchange its 9% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act
of 1933, as amended, for any and all of its outstanding
9% Senior Subordinated Notes due 2007.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
________, 1998, unless extended.
------------------------
The Multicare Companies, Inc. a Delaware corporation ("Multicare" or
the "Company"), hereby offers (the "Exchange Offer"), upon the terms and
conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 9% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which this Prospectus is a part, for each $1,000 principal amount of its
outstanding 9% Senior Subordinated Notes due 2007 (the "Existing Notes"), of
which $250,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are the same as the form and terms of the Existing Notes (which
they replace), except that as of the date hereof the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain certain provisions included in
the terms of the Existing Notes relating to an increase in the interest rate
in certain circumstances relating to the timing of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Existing Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture, dated as of August 11, 1997 (the "Indenture"), between the Company
and PNC Bank, National Association, as trustee (the "Trustee"), which also
governs the Existing Notes. The Exchange Notes and the Existing Notes are
sometimes referred to herein collectively as the "Notes." See " Exchange
Offer" and "Description of Exchange Notes."
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
with Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp.
("Acquisition Corp."), on October 10, 1997 (the "Merger Closing Date"),
Acquisition Corp. was merged with and into the Company and the Company continued
as the surviving corporation and became a subsidiary of Genesis ElderCare Corp.
The Existing Notes were issued by Acquisition Corp. as part of the financings to
consummate the Merger and, thereupon, became obligations of the Company.
The Company will accept for exchange any and all Existing Notes duly
tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on
, 1998, unless extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Existing Notes may be withdrawn at any time
prior to 5:00 p.m. New York City time on the Expiration Date. The Exchange
Offer is subject to certain customary conditions. The Existing Notes were sold
by the Company's predecessor on August 11, 1997 to the Placement Agents (as
defined herein) in transactions not registered under the Securities Act in
reliance upon an exemption from registration under the Securities Act (the
"Offering"). The Placement Agents subsequently resold the Existing Notes to
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Existing Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement (as defined herein) entered into by the Company in connection with
the Offering. See "Exchange Offer."
<PAGE>
Under existing interpretations of the staff of the Securities and
Exchange Commission (the "Commission") contained in several no-action letters
to third parties, the Exchange Notes will in general be freely tradeable after
the Exchange Offer without further registration under the Securities Act.
However, any purchaser of Existing Notes who is an "affiliate" of the Company
or who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) will not be able to rely on such
interpretations of the staff of the Commission, (ii) will not be able to
tender its Existing Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Existing Notes, unless such sale
or transfer is made pursuant to an exemption from such requirements. See
"Exchange Offer" and "--Resale of the Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer (a
"Participating Broker-Dealer") must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating
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Broker-Dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities.
Holders of Existing Notes not tendered and accepted in the Exchange
Offer will continue to hold such Existing Notes and will be entitled to all
the rights and benefits and will be subject to the limitations applicable
thereto under the Indenture and with respect to transfer under the Securities
Act. Holders of Existing Notes not tendered in the Exchange Offer will not
retain any rights under the Registration Rights Agreement, except in limited
circumstances. The Company will pay all the expenses incurred by it incident
to the Exchange Offer. See "Exchange Offer."
The Existing Notes are designated for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market.
There has not previously been any public market for the Exchange Notes. The
Company does not intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system other
than the Luxembourg Stock Exchange. There can be no assurance that an active
market for the Exchange Notes will develop. Morgan Stanley Dean Witter,
Montgomery Securities and First Union Capital Markets Corp. (the "Placement
Agents") have informed the Company that they currently intend to make a market
in the Exchange Notes, but are not obligated to do so and any such market
making may be discontinued at any time without notice. The Placement Agents
may act as principal or as agent in such transactions. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount
from their principal amount. See "Risk Factors --Absence of Public Market."
Moreover, to the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Existing Notes could be adversely affected.
------------------------
See "Risk Factors" on page 17 herein for a description of certain
risks to be considered by holders who tender their Existing Notes in the
Exchange Offer.
------------------------
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 COMMISSIONER OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
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CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" such as statements
concerning Medicare and Medicaid programs and the Company's ability to meet
its liquidity needs and control costs and expected future capital expenditure
requirements; expected effects of the Transactions; certain statements
contained in "Business" such as statements concerning strategy, government
regulation and Medicare and Medicaid programs; certain statements in the Pro
Forma Condensed Consolidated Financial Information, such as certain of the pro
forma adjustments; and other statements contained herein regarding matters
that are not historical facts are forward looking statements within the
meaning of the Securities Act. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under "Risk Factors", including the following: the occurrence of
changes in the mix of payment sources utilized by the Company's patients to
pay for the Company's services; the adoption of cost containment measures by
private pay sources and efforts by governmental reimbursement sources to
impose cost containment measures; changes in the United States healthcare
system and other changes in applicable government regulations that might
affect the Company's profitability; the Company's continued ability to operate
in a heavily regulated environment and to satisfy regulatory authorities; 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; the continued
availability of insurance for the inherent risks of liability in the
healthcare industry; price increases in pharmaceuticals, durable medical
equipment and other items; the Company's reputation for delivering
high-quality care and its ability to attract and retain patients; the ability
of Genesis Health Ventures, Inc. ("Genesis") to develop the clinical and
healthcare management information system to be used by the Company; and
changes in general economic conditions.
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<PAGE>
SUMMARY
The following summary information is qualified in its entirety by
reference to, and should be read in conjunction with, the more detailed
information and Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. As used herein, unless the
context otherwise requires, "Multicare" or the "Company" refers to The
Multicare Companies, Inc. and its subsidiaries.
THE COMPANY
Multicare is a leading provider of high quality eldercare and
specialty medical services in selected geographic regions. Multicare's
eldercare services include skilled nursing care, assisted living, Alzheimer's
care and related support activities traditionally provided in eldercare
facilities. The Company's specialty medical services consist of (i) sub-acute
care such as ventilator care, intravenous therapy and various forms of coma,
pain and wound management and (ii) rehabilitation therapies such as
occupational, physical and speech therapy and stroke and orthopedic
rehabilitation. The Company also provides management services to 51 facilities
and consulting services to 14 facilities.
As of September 30, 1997, Multicare operated 155 eldercare
facilities, 11 assisted living facilities and two outpatient rehabilitation
centers (90 owned, 27 leased and 51 managed) in Connecticut, Illinois,
Massachusetts, New Jersey, Ohio, Pennsylvania, Rhode Island, Vermont,
Virginia, West Virginia and Wisconsin with 17,615 beds.
THE TRANSACTIONS
The Tender Offer and Merger
On June 16, 1997, Genesis ElderCare Corp., Acquisition Corp. and
Multicare entered into the Merger Agreement whereby Acquisition Corp. agreed to
make a tender offer (the "Tender Offer") to purchase all of the outstanding
shares of common stock, par value $.01 per share (the "Shares"), of Multicare at
a purchase price of $28.00 per Share. The Tender Offer was consummated on
October 9, 1997. Acquisition Corp. was merged with and into the Company on the
Merger Closing Date. Following the Merger, the Company continued as the
surviving corporation and become a subsidiary of Genesis ElderCare Corp. Genesis
ElderCare Corp. is owned by Genesis, The Cypress Group L.L.C. (together with its
affiliates, "Cypress"), TPG Partners II, L.P. (together with its affiliates,
"TPG") and Nazem, Inc. (together with its affiliates "Nazem").
Therapy and Pharmacy Sale
Concurrently with the consummation of the Merger, the Company sold
its contract therapy business (the "Therapy Sale") to Genesis for
approximately $20.0 million in after-tax proceeds. Concurrently with the
consummation of the Merger, the Company entered into a contract to sell its
pharmacy business to Genesis for approximately $50.0 million in after-tax
proceeds (the "Pharmacy Sale").
The Financings
The Notes were issued by Acquisition Corp. as part of the financings
to consummate the Tender Offer and the Merger and, upon consummation of the
Merger, became direct obligations of the Company. The balance of the proceeds
necessary to consummate the Tender Offer and the Merger were obtained from (i)
borrowings under certain credit facilities (collectively, the "Credit
Facility") provided by a group of banks
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simultaneously with the consummation of the Tender Offer, (ii) equity
contributions by Genesis ElderCare Corp. from the sale by Genesis ElderCare
Corp. of its common stock to each of Genesis, Cypress, TPG and Nazem (the
"Equity Contributions") and (iii) proceeds from the Therapy Sale and Pharmacy
Sale.
The Tender Offer, the Merger (including the Debt Conversion (as
defined)), the Offering and the use of proceeds therefrom, the borrowings
under the Credit Facility and the use of proceeds therefrom, the Equity
Contributions and the use of proceeds therefrom, the Management Agreement, the
Therapy Sale and the Pharmacy Sale and the use of proceeds therefrom are
hereinafter collectively referred to as the "Transactions."
The following table sets forth the estimated sources and uses of
funds in connection with the Transactions:
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<CAPTION>
Amount Amount
Sources of Funds (in millions) Uses of Funds (in millions)
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<S> <C> <C> <C>
Credit Facility (1)(2)(3).............. $417.4 Tender Offer and Merger
Notes (4).............................. 248.6 Consideration...................... $1,037.0
Equity Contributions................... 745.0 Refinance Debt (3)(5).................. 381.0
Therapy Sale Net Proceeds.............. 20.0 Severance/Other Payments............... 19.0
Pharmacy Sale Net Proceeds (2)......... 50.0 Transaction Fees and Expenses (6)...... 44.0
-------------- --------------
Total.............................. $1,481.0 Total.............................. $1,481.0
============== ==============
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(1) Excludes approximately $106.0 million that will be available to the
Company under a revolving credit facility upon the consummation of the
Transactions.
(2) The Company borrowed an additional $50.0 million under the Credit
Facility until the Pharmacy Sale is consummated, which is expected to
occur in the first calendar quarter of 1998.
(3) As of October 9, 1997, the Company had $309.3 million outstanding under
its bank credit facility.
(4) Notes are net of debt discount of $1.4 million.
(5) Includes repayment of a $54.0 million lease financing facility.
(6) Includes underwriting discounts and commissions in connection with the
Offering and fees and expenses payable to Genesis, Cypress and TPG in
connection with the Transactions.
Put/Call Agreement
Pursuant to an agreement (the "Put/Call Agreement") entered into by
Genesis, Cypress, TPG and Nazem in connection with the Tender Offer and Merger,
among other things, (i) Genesis has an option (the "Call"), exercisable from and
after the fourth anniversary of the Merger Closing Date for a period of 270
days, to purchase the shares of common stock of Genesis ElderCare Corp. held by
Cypress, TPG and Nazem and (ii) Cypress, TPG and Nazem have an option (the
"Put"), exercisable from and after the fifth anniversary of the Merger Closing
Date until the sixth anniversary of the Merger Closing Date, to sell their
shares of common stock of Genesis ElderCare Corp. to Genesis. The option price
in either case will be derived from a formula that calculates the equity value
attributable to Cypress' and TPG's Genesis ElderCare Corp. common stock based
upon a multiple of Genesis ElderCare Corp.'s EBITDAR. The multiple to be applied
to EBITDAR will depend on whether the Call or the Put is being exercised. See
"Management -- Certain Agreements."
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THE OFFERING
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Notes....................................... The Existing Notes were sold by Acquisition Corp. on
August 11, 1997 to the Placement Agents pursuant to a
Placement Agreement, dated as of August 4, 1997 (the
"Placement Agreement"). The Placement Agents
subsequently resold the Existing Notes in the United States to
qualified institutional buyers pursuant to Rule 144A under the
Securities Act.
Registration Rights Agreement............... Pursuant to the Placement Agreement, the Company and the
Placement Agents entered into a Registration Rights
Agreement, dated August 11, 1997 (the "Registration Rights
Agreement"), which grants the holders of the Existing Notes
certain exchange and registration rights. The Exchange Offer
is being made pursuant to the Registration Rights Agreement
and such exchange rights terminate upon the consummation of
the Exchange Offer.
The Exchange Offer
Securities Offered.......................... $250,000,000 aggregate principal amount of 9% Senior Notes
due 2007 (the "Exchange Notes").
The Exchange Offer.......................... $1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of Existing Notes. As of the
date hereof, $250,000,000 aggregate principal amount of
Existing Notes are outstanding. The Company will issue the
Exchange Notes on or promptly after the Expiration Date.
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the
Exchange Notes will in general be freely tradeable after the
Exchange Offer without further registration under the
Securities Act. However, any purchaser of Existing Notes who is
an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on such interpretations of
the staff of the Commission, (ii) will not be able to tender
its Existing Notes in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of
the Existing Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each Participating Broker-Dealer that receives Exchange Notes
for its own account pursuant to the Exchange Offer must
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acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Existing Notes where such Existing
Notes were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities.
Any holder who tenders in the Exchange Offer with the intention
to participate or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on the position
of the staff of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may
result in such holder incurring liability under the Securities
Act for which the holder is not indemnified by the Company.
Expiration Date............................. 5:00 p.m., New York City time, on , 1998, unless the
Exchange Offer is extended by the Company in its sole
discretion, in which case the term "Expiration Date" means
that latest date and time to which the Exchange Offer is
extended.
Accrued Interest on the Exchange
Notes and Existing Notes................. Interest on each Exchange Note will accrue from the latest
date on which interest was paid on the Existing Notes
surrendered in exchange therefor or, if no interest has been
paid on the Existing Notes, from the date of original issuance
of such Note. No interest will be paid on the Existing Notes
accepted for exchange, and holders of Existing Notes whose
Existing Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of
interest on the Existing Notes accrued up to the date of the
issuance of the Exchange Notes. Holders of Existing Notes
that are not exchanged will receive the accrued interest
payable on February 1, 1998 in accordance with the Indenture.
See "Exchange Offer-- Interest on the Exchange Notes."
Conditions to the Exchange Offer............ The Exchange Offer is subject to certain customary conditions,
which may be waived by the Company. See "Exchange
Offer -- Conditions."
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Procedures for Tendering Existing
Notes.................................. Each holder of Existing Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying Letter
of Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile
thereof, together with the Existing Notes to be exchanged and
any other required documentation to the Exchange Agent (as
defined herein) at the address set forth herein or effect a tender
of such Existing Notes pursuant to the procedures for book-
entry transfer as provided herein. By executing the Letter of
Transmittal, each holder will represent to the Company that,
among other things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course
of business of the person receiving such Exchange Notes,
whether or not such person is the holder, that neither the
holder nor any such other person has any arrangement or
understanding with any person to participate in the distribution
of such Exchange Notes and that neither the holder nor any
such other person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. See "Exchange Offer
-- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tending." Each broker-dealer that receives
Exchange Notes for its own account in exchange for Existing
Notes, where such Existing Notes were acquired by such
broker- dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange
Notes. See "Exchange Offer-- Procedures for Tendering"
and "Plan of Distribution."
Untendered Notes............................ Following the consummation of the Exchange Offer, holders
of Existing Notes eligible to participate but who do not tender
their Existing Notes will not have any further registration
rights and such Existing Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of
the market for such Existing Notes could be adversely
affected.
Consequences of Failure to Exchange......... The Existing Notes that are not exchanged pursuant to the
Exchange Offer will remain outstanding and continue to
accrue interest and will also remain restricted securities.
Accordingly, such Existing Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other exemption from
registration under the Securities Act, (iii) outside the United
States to a foreign person pursuant to the requirements of
Regulation S under the Securities Act, or (iv) pursuant to an
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effective registration statement under the Securities Act. See
"Exchange Offer -- Consequences of Failure to Exchange."
Shelf Registration Statement................ In the event that any changes in law or the applicable
interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if for any reason
the Exchange Offer is not consummated by March 31, 1998,
or if any holder of the Existing Notes (other than the
Placement Agents) is not eligible to participate in the
Exchange Offer, the Company will, at its cost, use its best
efforts to (a) as promptly as practicable, file the Shelf
Registration Statement covering resales of the Existing Notes,
(b) cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep continuously
effective the Shelf Registration Statement until the second
anniversary of the Closing Date (as defined in the Placement
Agreement) or until such shorter period when all the Existing
Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement or are
eligible for resale pursuant to Rule 144 under the Securities
Act without volume limitations.
Special Procedures for Beneficial
Owners................................... Any beneficial owner whose Existing Notes are registered in
the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter
of Transmittal and delivering its Existing Notes, either make
appropriate arrangements to register ownership of the Existing
Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery Procedures.............. Holders of Existing Notes who wish to tender their Existing
Notes and whose Existing Notes are not immediately available
or who cannot deliver their Existing Notes, the Letter of
Transmittal or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with the
procedures for book-entry transfer) prior to the Expiration
Date must tender their Existing Notes according to the
guaranteed delivered procedures set forth in "Exchange
Offer-- Guaranteed Delivery Procedures."
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Withdrawal Rights........................... Tenders may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. See "Exchange Offer
-- Withdrawal of Tenders"
Acceptance of Notes and Delivery
of Exchange Notes......................... The Company will accept for exchange any and all Existing
Notes which are duly tendered in the Exchange Offer and not
validly withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly following the
Expiration Date. See "Exchange Offer-- Terms of the
Exchange Offer.
Certain Tax Consequences.................... The exchange pursuant to the Exchange Offer should not be a
taxable event for Federal income tax purposes. See "Tax
Considerations."
Use of Proceeds............................. There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer. See "Use of
Proceeds."
Exchange Agent.............................. PNC Bank, National Association.
The Exchange Notes
General..................................... The form and terms of the Exchange Notes are the same as the
form and terms of the Existing Notes (which they replace)
except that (i) the Exchange Notes have been registered under
the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, (ii) the Exchange Notes do not
include provisions providing for an increase in the interest rate
in certain circumstances relating to the timing of the Exchange
Offer and (iii) the holders of Exchange Notes will not be
entitled to certain rights under the Registration Rights
Agreement, which rights will terminate when the Exchange
Offer is consummated. The Exchange Notes will evidence the
same debt as the Existing Notes and will be entitled to the
benefits of the Indenture. See "Description of Notes."
Issuer...................................... The Multicare Companies, Inc.
Maturity.................................... August 1, 2007.
Interest.................................... Payable semi-annually in cash, on February 1 and August 1,
commencing on February 1, 1998.
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<CAPTION>
<S> <C>
Optional Redemption......................... The Notes are redeemable at the option of the Company, 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. See
"Description of the Notes-- Optional Redemption."
Change in Control........................... Upon a Change in Control (as defined herein), the Company
will be required to make an offer to purchase the Notes at a
purchase price equal to 101% of their principal amount, plus
accrued interest. Consummation of a transaction pursuant to
the Put/Call Agreement will not constitute a Change in
Control. See "Description of the Notes-- Repurchase of
Notes upon a Change in Control."
Ranking..................................... The Notes are unsecured, general obligations of the Company,
subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, including indebtedness
under the Credit Facility. The Notes rank pari passu in right
of payment with any future senior subordinated indebtedness
of the Company and will be senior in right of payment to all
future subordinated indebtedness of the Company. In addition,
the Notes are effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables. At
September 30, 1997, on a pro forma basis after giving effect to
the Transactions, the Company (excluding its subsidiaries)
would have had approximately $703.1 million of indebtedness
outstanding, of which $454.5 million would have been Senior
Indebtedness, and the Company's subsidiaries, on the same
pro forma basis, would have had approximately $90.1 million
of liabilities (excluding guarantees of the Company's
indebtedness). See "Risk Factors-- Substantial Leverage" and
"--Subordination of the Notes" and "Description of the Notes
-- Subordination."
Certain Covenants........................... The Indenture contains certain covenants, including, among
others, covenants limiting the incurrence of additional
indebtedness, the payment of dividends, the redemption of
capital stock, the making of certain investments, the issuance
of capital stock of subsidiaries, the creation of dividend and
other restrictions affecting subsidiaries, transactions with
affiliates, asset sales and certain mergers and consolidations.
However, these limitations will be subject to a number of
important qualifications and exceptions. See "Description of
the Notes-- Certain Covenants."
Use of Proceeds............................. The net proceeds of the Offering, together with the Equity
Contributions, borrowings under the Credit Facility and the
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
proceeds of the Therapy Sale and Pharmacy Sale, were used to
purchase the Shares pursuant to the Tender Offer and the
Merger; to refinance certain indebtedness of the Company; to
make certain cash payments to employees of the Company in
accordance with the Merger Agreement and certain noncompetition
and consulting agreements; and to pay fees and expenses related
to the Transactions.
Book-Entry; Delivery and Form.............. Notes will be represented by one or more permanent global
Notes in definitive, fully registered form, deposited with the
Trustee as custodian for, and registered in the name of a
nominee of, DTC.
Listings and Trading....................... Application has been made to list the Notes on the
Luxembourg Stock Exchange. The Notes have been
designated eligible for trading in the PORTAL market. The
Notes are a new issue of securities for which there is no
existing trading market. There can be no assurance regarding
the future development of a market for the Notes or the
liquidity of any such market. See "Risk Factors-- Absence of
a Public Market for the Notes; Volatility" and "Transfer
Restrictions."
Governing Law.............................. The Indenture and the Notes are governed by, and construed
in accordance with, the laws of the State of New York.
Trustee, Paying Agent and Registrar......... PNC Bank, National Association.
Paying Agent, Transfer Agent and
Listing Agent in Luxembourg.............. Banque Internationale a Luxembourg S.A.
</TABLE>
Exchange Offer Procedures
Issuance of Exchange Notes in exchange for Existing Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the
Existing Notes desiring to tender such Existing Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect
to the tenders of Notes for exchange. Existing Notes that are not tendered or
are tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof and, upon consummation of the Exchange Offer, the registration rights
under the Registration Rights Agreement will terminate. In addition, any
holder of Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Existing Notes, where such
Existing Notes
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<PAGE>
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Existing Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Existing Notes could be adversely affected. See "-- Consequences of
the Exchange Offer on Non-Tendering Holders of the Existing Notes."
Consequences of the Exchange Offer on Non-Tendering Holders of the
Existing Notes
The Company intends for the Exchange Offer to satisfy its
registration obligations under the Registration Rights Agreement. If the
Exchange Offer is consummated, the Company does not intend to file further
registration statements for the sale or other disposition of Existing Notes.
Consequently, following completion of the Exchange Offer, holders of Existing
Notes seeking liquidity in their investment would have to rely on an exemption
to the registration requirements under applicable securities laws, including
the Securities Act, with respect to any sale or other disposition of the
Existing Notes.
RISK FACTORS
Prospective investors should consider carefully certain matters
relating to the Company, its business and an investment in the Notes. See "Risk
Factors."
-14-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below
for, and as of, each of the years in the five-year period ended December 31,
1996 have been derived from the Consolidated Financial Statements of
Multicare, including the notes thereto, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The summary historical
consolidated financial data for, and as of, each of the nine months ended
September 30, 1996 and 1997 have been derived from unaudited consolidated
financial statements of Multicare which, in the opinion of management, include
all adjustments (consisting only of normal recurring items) necessary for a
fair and consistent presentation of such data. The results for the nine months
ended September 30, 1997 are not necessarily indicative of results to be
expected for the full fiscal year. The information set forth below should be
read in conjunction with "Pro Forma Condensed Consolidated Financial
Information," "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of Multicare, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
---------- -------- -------- -------- -------- -------- ----------
(in thousands, except ratio and operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Net revenues................................... $126,007 $162,384 $262,416 $353,048 $532,230 $386,890 $533,952
Income from operations before depreciation,
amortization, lease expense, interest, taxes
and extraordinary items ("EBITDAR") (1)...... 18,540 32,227 52,543 70,220 105,925 76,769 102,576
Depreciation and amortization.................. 5,734 6,292 9,358 13,171 22,344 16,048 21,620
Lease expense.................................. 226 862 2,823 5,039 12,110 8,874 12,693
Interest expense, net.......................... 9,410 13,229 12,866 16,065 25,164 18,947 21,640
Income before extraordinary item (2)........... 1,750 7,117 17,042 22,147 28,737 20,395 28,751
Net income..................................... $ 1,750 $ 3,254 $ 15,422 $ 18,425 $ 25,910 $ 18,914 $ 27,878
========== ======== ======== ======== ======== ======== ==========
Other Financial Data
EBITDA (3)..................................... $ 18,314 $ 31,365 $ 49,720 $ 65,181 $ 93,815 $ 67,895 $89,883
Ratio of EBITDA to interest expense, net....... 1.9x 2.4x 3.9x 4.1x 3.7x 3.6x 4.1x
Ratio of EBITDAR to interest expense, net,
plus lease expense........................... 1.9x 2.3x 3.3x 3.3x 2.8x 2.8x 3.0x
Ratio of earnings to fixed charges (4)......... 1.3x 1.9x 3.0x 2.9x 2.5x 2.8x 2.8x
Capital expenditures........................... $ 2,838 $ 18,730 $ 31,785 $ 39,917 $ 64,215 $ 49,510 $39,301
Operating Data:
Average number of licensed beds................ 3,271 4,241 6,006 6,861 11,620 11,168 16,224
Occupancy...................................... 91.0% 90.4% 92.2% 91.7% 91.0% 91.7% 90.4%
Payor mix:
Quality mix (5).............................. 55.5% 56.0% 62.5% 66.3% 64.5% 64.3% 67.3%
Medicaid..................................... 44.5% 44.0% 37.5% 33.7% 35.5% 35.7% 32.7%
Balance Sheet Data (at period end):
Working capital................................ $ 39,696 $ 15,158 $ 34,005 $ 55,542 $ 39,327 $ 69,135 $ 51,822
Total assets................................... 155,485 162,255 308,755 470,958 761,667 659,096 823,133
Long-term debt, including current portion...... 146,906 106,137 156,878 283,082 429,168 427,983 424,046
Stockholders' equity........................... $ (11,276) $ 32,591 $100,105 $113,895 $207,935 $138,632 $263,174
</TABLE>
- ----------
(1) EBITDAR represents earnings before interest expense, income taxes,
depreciation and amortization, extraordinary items (net of tax benefit),
debenture conversion expense and lease expense. EBITDAR should not be
considered an alternative measure of Multicare's net income, operating
performance, cash flow or liquidity. It is included herein to provide
additional information related to Multicare's ability to service debt.
(2) Multicare incurred extraordinary charges relating to early extinguishment
of debt.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, extraordinary items (net of tax benefit)
and debenture conversion expense. EBITDA should not be considered an
alternative measure of Multicare's net income, operating performance,
cash flow or liquidity. It is included herein to provide additional
information related to Multicare's ability to service debt. The Indenture
governing the Notes contains certain covenants that utilize a
Consolidated Fixed Charge Coverage Ratio calculation that is based upon
EBITDA. See "Description of the Notes" for a description of such
covenants.
(4) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of the sum of earnings before income taxes and
extraordinary items (net of tax benefit) plus fixed charges. Fixed
charges consist of interest on all indebtedness, amortization of debt
issuance costs and one-third of rental expense, which Multicare believes
to be representative of the interest factor. The definition of fixed
charges used in this calculation differs from that used in the
Consolidated Fixed Charge Coverage Ratio contained in the Indenture.
(5) Quality mix is defined as non-Medicaid patient revenues.
-15-
<PAGE>
SUMMARY PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The Summary Pro Forma Condensed Consolidated Financial Information
presented below gives effect to the Transactions, the Concord Acquisition (as
defined) and the A.D.S Acquisition (as defined). See "Pro Forma Condensed
Consolidated Financial Information."
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
------------------------ ------------------------
Historical Pro Forma Historical Pro Forma
----------- ----------- ---------- -----------
(in thousands, except per ratio data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................................................. $ 532,230 $ 536,176 $ 533,952 $ 457,924
Expenses:
Operating expenses......................................... 400,897 400,150 406,173 341,633
Corporate, general and administrative...................... 25,408 32,171 25,203 27,475
Depreciation and amortization.............................. 22,344 50,871 21,620 41,170
Lease expense.............................................. 12,110 11,241 12,693 9,024
Interest expense, net 25,164 59,008 21,640 44,618
Debenture conversion expense............................... -- -- 785 --
----------- ----------- ---------- -----------
Total expense............................................ 485,923 553,441 488,114 463,920
Income (loss) before income taxes and extraordinary item. 46,307 (17,265) 45,838 (5,996)
Income tax expense............................................ 17,570 3,841 17,087 2,340
----------- ----------- ---------- -----------
Income (loss) before extraordinary item.................... $ 28,737 $ (21,106) $ 28,751 $ (8,336)
=========== =========== ========== ===========
Other Data:
Adjusted EBITDA............................................... $ 93,815 $ 100,885 $ 89,883 $ 89,342
Adjusted EBITDAR.............................................. $ 105,925 $ 112,126 $ 102,576 $ 98,366
Ratio of Adjusted EBITDA to interest expense, net............. 3.7x 1.7x 4.1x 2.0x
Ratio of Adjusted EBITDAR to interest expense, net,
plus rent expense.......................................... 2.8x 1.6x 3.0x 1.8x
Ratio of earnings to fixed charges (1)........................ 2.5x -- 2.8x --
</TABLE>
- ----------------
(1) See Note 15 to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------
Historical Pro Forma
---------- -----------
Assets: (in thousands)
<S> <C> <C>
Cash and equivalents........................................................ $ 2,118 $ 436
Accounts receivable......................................................... 119,522 94,192
Prepaid expenses and other current assets................................... 24,614 21,352
---------- -----------
Current assets........................................................... 146,254 115,980
Property and equipment...................................................... 460,800 709,389
Goodwill, net............................................................... 171,324 755,545
Other assets................................................................ 44,755 84,742
---------- -----------
Total assets............................................................. $ 823,133 $1,665,656
========== ===========
Liabilities and Stockholders' Equity
Accounts payable............................................................ $ 28,863 $ 25,801
Accrued liabilities and other current liabilities........................... 64,944 48,081
Current portion of long-term debt........................................... 625 625
---------- -----------
Current liabilities...................................................... 94,432 74,507
Long-term debt, excluding current maturities................................ 423,421 702,443
Deferred taxes.............................................................. 42,106 143,706
Stockholders' equity........................................................ 263,174 745,000
---------- -----------
Total liabilities and stockholders' equity............................... $ 823,133 $1,665,656
========== ===========
</TABLE>
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<PAGE>
RISK FACTORS
An investment in the Notes involves a significant degree of risk. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before purchasing
the Notes offered hereby.
Substantial Leverage
The Company has substantial indebtedness and, as a result,
significant debt service obligations. As of September 30, 1997, after giving
pro forma effect to the Transactions, the Company would have had approximately
$703.1 million of indebtedness outstanding which would have represented 49% of
its total capitalization. See "Capitalization." In addition, as of September
30, 1997, after giving pro forma effect to the Transactions, the Company would
have approximately $106.0 million of availability under its Credit Facility.
The Company also has significant long-term operating lease obligations with
respect to certain of its eldercare centers. On a pro forma basis after giving
effect to the Transactions and the Concord and A.D.S Acquisitions, the
Company's earnings would have been insufficient to cover its fixed charges for
the year ended December 31, 1996 and the nine months ended September 30, 1997
by $20.0 million and $8.0 million, respectively. The degree to which the
Company is leveraged could have important consequences to holders of the
Notes, including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its operations; (iii) all of the
indebtedness incurred under the Credit Facility is scheduled to become due,
prior to the time any principal payments are required on the Notes; (iv)
certain of the Company's borrowings are and will continue to be at variable
rates of interest, which causes the Company to be vulnerable to increases in
interest rates; and (v) certain of the Company's indebtedness contains
financial and other restrictive covenants which, if breached, could result in
an event of default under such indebtedness.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that the Company's operating results will be
sufficient for payment of the Company's indebtedness.
Restrictive Debt Covenants
The terms of the Credit Facility and the Indenture contain certain
restrictive covenants, including, among others, covenants significantly
limiting or prohibiting the ability of the Company and certain of its
subsidiaries to incur indebtedness, make investments, engage in transactions
with shareholders and affiliates, incur liens, create restrictions on the
ability of certain subsidiaries to pay dividends or make certain payments to
the Company, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of the Company. In addition, the Company will be required under the
Credit Facility to maintain certain specified financial ratios. See
"Description of the Credit Facility." There can be no assurance that the
Company will be able to maintain such ratios or that such covenants will not
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company. The breach of any of these covenants or the inability
of the Company to comply with the required financial ratios could result in a
default under the Credit Facility or the Indenture. In the event of any such
default, depending on the actions
-17-
<PAGE>
taken by the lenders under the Credit Facility, the Company could be
prohibited from making any payments of principal or interest on the Notes. In
addition, such lenders could elect to declare all amounts borrowed under the
Credit Facility, together with accrued interest, to be due and payable. If the
Company were unable to repay such borrowings, the lenders under the Credit
Facility could proceed against their collateral. If the indebtedness under the
Credit Facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such indebtedness and the
Notes in full. See " -- Subordination of the Notes," "Description of the
Credit Facility" and "Description of the Notes -- Subordination."
Subordination of the Notes
The Notes will be subordinated to all existing and future Senior
Indebtedness of the Company and will rank pari passu in right of payment with
all of the Company's existing and future senior subordinated indebtedness. The
Notes will also be effectively subordinated to the indebtedness and other
liabilities of the Company's subsidiaries. As of September 30, 1997, on a pro
forma basis after giving effect to the Transactions, the Company (excluding
its subsidiaries) would have had approximately $703.1 million of indebtedness
outstanding, of which $454.5 million would have been Senior Indebtedness,
$22.4 million of indebtedness of other persons which are guaranteed by the
Company, and approximately $1.8 million of letters of credit issued under the
Credit Facility and, as of such date, the aggregate amount of liabilities of
the subsidiaries of the Company, which consist primarily of trade payables and
accrued compensation, that will effectively rank senior to the Notes, would
have been approximately $90.1 million. Upon any payment or distribution of
assets of the Company in a total or partial liquidation, dissolution,
reorganization or similar proceeding, the holders of Senior Indebtedness will
be entitled to receive payment in full before the holders of the Notes are
entitled to receive any payment. In addition, under certain circumstances, no
payment may be made with respect to the principal of or interest on the Notes
if a payment default or certain other defaults exist with respect to certain
Senior Indebtedness. See "Description of the Notes -- Subordination."
Risk of Adverse Effect of Healthcare Reform
In addition to extensive existing government healthcare regulation,
there are numerous initiatives on the federal and state levels for
comprehensive reforms affecting the payment for and availability of healthcare
services. It is not clear at this time what proposals, if any, will be
adopted, or what effect such proposals would have on the Company's business.
Aspects of certain of these healthcare proposals, such as reductions in
funding of the Medicare and Medicaid programs, potential changes in
reimbursement regulations by the Health Care Financing Administration
("HCFA"), enhanced pressure to contain healthcare costs by Medicare, Medicaid
and other payors and permitting greater state flexibility in the
administration of Medicaid, could adversely affect the Company. There can be
no assurance that currently proposed or future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs or regulations will not have a material adverse effect on the
Company. See "Business -- Government Regulation."
Regulation
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. In particular, the
provision of eldercare and specialty medical services are subject to federal,
state and local laws relating to the delivery and adequacy of medical care,
distribution of pharmaceuticals, equipment, personnel, operating policies,
fire prevention, rate-setting and compliance with building and safety codes
and environmental laws. Eldercare centers are subject to periodic inspection
by governmental and other authorities to assure continued compliance with
various standards, their continued licensing under state law, certification
under the Medicare and Medicaid programs and continued
-18-
<PAGE>
participation in the Veterans Administration program and the ability to
participate in other third party programs. The Company is also subject to
inspection regarding record keeping and inventory control. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
the Company from offering services or adversely affect its ability to receive
reimbursement of expenses and 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 meet or continue to meet the requirements for participation
in the Medicaid or Medicare programs or state licensing authorities or that
regulatory authorities will not adopt changes or new interpretations of
existing regulations that would adversely affect the Company.
Many states have adopted Certificate of Need or similar laws which
generally require that the appropriate state agency approve certain
acquisitions and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. To the extent
that Certificates of Need or other similar approvals are required for
expansion of Company operations, either through center acquisitions or
expansion or provision of new services or other changes, such expansion could
be adversely affected by the failure or inability to obtain the necessary
approvals, changes in the standards applicable to such approvals and possible
delays and expenses associated with obtaining such approvals. 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 which govern
financial and other arrangements between healthcare providers. These laws
often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the federal
"Stark legislation" which prohibits, with limited exceptions, the referral of
patients for certain services, including home health services, physical
therapy and occupational therapy, by a physician to an entity in which the
physician has an ownership interest and the federal "anti-kickback law" which
prohibits, among other things, the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare and Medicaid
patients or the purchasing, leasing, ordering or arranging for any goods,
facility services or items for which payment can be made under Medicare and
Medicaid. 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. The federal government, private insurers and various state
enforcement agencies have increased their scrutiny of providers, business
practices and claims in an effort to identify and prosecute fraudulent and
abusive practices. In addition, the federal government has issued fraud alerts
concerning nursing services, double billing, home health services and the
provision of medical supplies to nursing facilities; accordingly, these areas
may come under closer scrutiny by the government. See "Business --Government
Regulation." Furthermore, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs and civil and criminal penalties. These
laws vary from state to state, are often vague and have seldom been
interpreted by the courts or regulatory agencies. There can be no assurance
that such laws will ultimately be interpreted in a manner consistent with the
practices of the Company.
-19-
<PAGE>
In the ordinary course of business, the Company's facilities receive
notices of deficiencies following surveys for failure to comply with various
regulatory requirements. 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. There can be no assurance
that future surveys will not result in penalties or sanctions which could have
a material adverse effect on the Company.
In its role as owner and/or operator of properties, 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.
Payment by Third Party Payors
The Company derives a substantial percentage of its total revenues
from private pay sources, state Medicaid programs for indigent patients and
the federal Medicare program for certain elderly and disabled patients. The
Company's financial condition and results of operations may be affected by the
revenue reimbursement process, which in the Company's industry is complex and
can involve lengthy delays between the time that revenue is recognized and the
time that reimbursement amounts are settled. The majority of third-party payor
balances are settled within two to three years following the provision of
services. The Company's financial condition and results of operations may also
be affected by the timing of reimbursement payments and rate adjustments from
third-party payors. The Company has from time to time experienced delays in
receiving reimbursement from third-party payors.
For the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1997, respectively, the Company derived approximately 41%,
40% and 43% of its patient service revenue from private pay sources, 25%, 25%
and 24% from Medicare and 34%, 35% and 33% from various state Medicaid
agencies. 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. Changes in the number of private pay
patients and changes among different pay sources could significantly affect
the profitability and cash flows of the Company. Both governmental and private
third party payors (such as commercial insurers, managed care organizations,
health maintenance organizations ("HMOs") and preferred providers
organizations ("PPOs")) have employed cost containment measures designed to
limit payments made to eldercare providers such as the Company. Those measures
include the adoption of initial and continuing recipient eligibility criteria
which may limit payment for services, the adoption of coverage and duration
criteria which may limit the services which will be reimbursed and the
establishment of payment ceilings which may set the maximum reimbursement that
a provider may receive for services. Furthermore, government payment programs
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially increase or decrease the rate of program payments to the Company
for its services. There can be no assurance that payments under governmental
and private third party payor programs will remain at levels comparable to
present levels
-20-
<PAGE>
or, in the future, 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 centers owned, leased or managed by the Company, or the
provision of services and supplies by the Company, now or in the future will
continue to meet the requirements for participation in such programs. The
Company could be adversely affected by the continuing efforts of governmental
and private third party payors to reduce or limit the amount of reimbursement
for healthcare services. In an attempt to reduce the federal budget deficit,
there have been, and the Company expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid reimbursement for
healthcare services. In certain states there have been proposals to eliminate
the distinction in Medicaid payment for skilled versus intermediate care
services and to establish a case mix prospective payment system pursuant to
which the payment to a facility for a patient is based upon the patient's
condition and need for services. The Company cannot at this time predict
whether any of these proposals will be adopted or, if adopted and implemented,
what effect, if any, such proposals will have on the Company. In addition,
private payors, including managed care payors, increasingly are demanding
discounted fee structures or the assumption by healthcare providers of all or
a portion of the financial risk through prepaid capitation arrangements.
Efforts to impose reduced allowances, greater discounts and more stringent
cost controls by government and other payors are expected to continue. See
"Business -- Sources of Revenue."
Managed care organizations and other third party payors have
continued to consolidate in order to enhance their ability to influence the
delivery of healthcare services. Consequently, the healthcare needs of a large
percentage of the United States population are increasingly served by a small
number of managed care organizations. These organizations generally enter into
service agreements with a limited number of providers for needed services. To
the extent such organizations terminate the Company as a preferred provider
and/or engage the Company's competitors as a preferred or exclusive provider,
the Company's business could be materially adversely affected.
For those specialty medical services covered by 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 are expected to 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 any future requests. The failure to recover
these excess costs in the future would adversely affect the Company's
financial position and results of operations. 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 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.
Geographic Payor Concentration
The Company's operations are located in Connecticut, Illinois,
Massachusetts, New Jersey, Ohio, Pennsylvania, Rhode Island, Vermont,
Virginia, West Virginia and Wisconsin. Any adverse change in the regulatory
environment, the reimbursement rates paid under the Medicaid program or in the
supply and demand for services in the states in which the Company operates,
and particularly in New Jersey, Pennsylvania, West Virginia and Massachusetts
(in each of which the Company derived more than 10% of its total net revenues
in the nine months ended September 30, 1997), could have a material adverse
effect on the Company.
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<PAGE>
Competition
The healthcare industry is highly competitive. The Company competes
with a variety of other companies in providing eldercare and specialty medical
services. Certain competing companies have greater financial and other
resources and may be more established in their respective communities than the
Company. Competing companies may offer newer or different centers or services
than the Company and may thereby attract the Company's customers who are
either presently residents of its eldercare centers or are otherwise receiving
its healthcare services. See "Business -- Competition.
Risks Associated with the Multicare Acquisition
As a result of the Merger, Genesis owns approximately 44% of Genesis
ElderCare Corp., which owns 100% of the outstanding capital stock of the
Company. The Company and Genesis have entered into a Management Agreement
pursuant to which Genesis manages the Company's operations. The Company also
uses Genesis' clinical administration and healthcare management information
system to monitor and measure clinical and patient outcome data. Certain
problems may arise in implementing the Management Agreement; for example,
difficulties may be encountered by Genesis as a result of the loss of key
personnel of the Company, the integration of the Company's corporate,
accounting, financial reporting and management information systems with
Genesis' systems and strain on existing levels of its personnel managing both
businesses. There can be no assurance that Genesis will be able to
successfully implement the Management Agreement or manage the Company's
operations; failure to do so effectively and on a timely basis could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company may in the future engage in transactions with Genesis and
its affiliates. Mr. Michael R. Walker, the Chairman of the Board and Chief
Executive Officer of Genesis, has become the Chairman and Chief Executive
Officer of the Company and Mr. George V. Hager, Jr., the Chief Financial
Officer of Genesis, has become the Chief Financial Officer of the Company. In
addition, Mr. Walker, Mr. Hager and Mr. Richard R. Howard, President and a
member of the board of directors of Genesis, have become members of the board
of directors of the Company. Based on the foregoing, Genesis and Messrs.
Walker, Hager and Howard have substantial influence on the Company and the
outcome of any matters submitted to the Company's stockholders for approval
and are in positions that may result in conflicts of interest with respect to
transactions involving the Company and Genesis. Genesis and its affiliates
will provide healthcare and related services to the Company's customers and
facilities either directly or through contracts with the Company. Conflicts of
interest may arise in connection with the negotiation of the terms of such
arrangements. Under the Stockholders' Agreement, certain transactions with
Genesis will require the approval of the non-affiliated members of the Board
of Directors. In addition, certain decisions concerning the operations or
financial structure of the Company may present conflicts of interest between
Genesis and the other indirect owners of the Company's equity and the holders
of the Notes. Genesis may have an interest in pursuing acquisitions,
divestitures, financings or other transactions which, in its judgment, could
enhance the value of its equity, even though such transactions might involve
risk to the holders of the Notes. See "Management -- Certain Agreements --
Put/Call Agreement."
Genesis is in the business of providing healthcare and support
services to the elderly, and substantially all of its markets are contiguous
to or overlap with the Company's existing markets. Genesis may compete with
the Company in certain of these markets or in the provision of certain
healthcare services. Although directors of the Company who are also directors
or officers of Genesis have certain fiduciary obligations to the Company under
Delaware law, such directors and Genesis are in positions that may create
potential conflicts of interest with respect to certain business opportunities
available to and certain
-22-
<PAGE>
transactions involving the Company. Neither Genesis nor Messrs. Walker, Hager
and Howard are obligated to present to the Company any particular investment
opportunity which comes to their attention, even if such opportunity is of a
character which might be suitable for investment by the Company.
Limitations on Change in Control
The Indenture requires the Company, in the event of a Change in
Control, to make an offer to purchase the Notes at 101% of the principal
amount thereof, plus accrued interest to the purchase date. Certain events
involving a Change in Control may be an event of default under the Credit
Facility or indebtedness of the Company that may be incurred in the future.
Moreover, the exercise by the holders of the Notes of their right to require
the Company to purchase the Notes may cause a default under the Credit
Facility or such other indebtedness, even if the Change in Control does not.
There can be no assurance that the Company will have the financial resources
necessary to repurchase the Notes upon a Change in Control. See "Description
of the Notes -- Certain Covenants -- Repurchase of Notes upon a Change in
Control."
Risk of Fraudulent Transfer Liability
If a court of competent jurisdiction in a suit by an unpaid creditor
or a representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that either the Company did not receive
fair consideration or reasonably equivalent value for issuing the Notes at the
time of the incurrence of indebtedness represented by the Notes, the Company
was insolvent, was rendered insolvent by reason of such incurrence, was
engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital, intended to incur, or believed that it
would incur, debts beyond its ability to pay as such debts matured, or
intended to hinder, delay or defraud its creditors, such court could avoid
such indebtedness or subordinate such indebtedness to other existing and
future indebtedness of the Company. The measure of insolvency for purposes of
the foregoing will vary depending upon the law of the relevant jurisdiction.
Generally, however, a company would be considered insolvent for purposes of
the foregoing if the sum of the company's debts is greater than all the
company's property at a fair valuation, or if the present fair saleable value
of the company's assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
matured.
Adequacy of Certain 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.
Absence of a Public Market for the Notes; Volatility
The Notes are new securities for which there currently is no trading
market, and there can be no assurance as to the liquidity of any market for
the Notes that may develop, the ability of holders of the Notes to sell their
Notes, or the prices at which holders of the Notes would be able to sell their
Notes. If the Notes are traded after their initial issuance, they may trade at
a discount from their initial offering price depending on many factors,
including prevailing interest rates, the Company's operating results, the
market for similar securities and other factors beyond the control of the
Company, including general economic conditions. Although the Placement Agents
have informed the Company that they currently intend to make a market in
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<PAGE>
the Notes, the Placement Agents are not obligated to do so, and any such
market making may be discontinued at any time without notice. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Notes, even following the consummation of the exchange offer or
registration of the Notes. In addition, the market prices of the Notes may be
volatile. Factors such as concern about the potential effect of proposed
healthcare reform measures, the Company's earnings and cash flow and the
differences between the Company's actual results and results expected by
investors and analysts could cause the market prices of the Notes to fluctuate
substantially.
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<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering, together with borrowings under the
Credit Facility, the proceeds from the Therapy Sale, the Pharmacy Sale and the
Equity Contributions were used to purchase the Shares pursuant to the Tender
Offer and the Merger; to refinance certain indebtedness of the Company; to
make certain cash payments to employees of the Company in accordance with the
Merger Agreement and certain noncompetition and consulting agreements; and to
pay fees and expenses related to the Transactions. The indebtedness to be
refinanced was due from 2000 to 2002 and had an average interest rate of 7.1%
per annum. See "The Tender Offer and Merger," "Pro Forma Condensed
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of the Credit
Facility."
The following table sets forth the estimated sources and uses of
funds in connection with the Transactions:
<TABLE>
<CAPTION>
Amount Amount
Sources of Funds (in millions) Uses of Funds (in millions)
- --------------------------------------- -------------- --------------------------------------- --------------
<S> <C> <C> <C>
Credit Facility (1)(2)(3).............. $417.4 Tender Offer and Merger
Notes (4).............................. 248.6 Consideration...................... $1,037.0
Equity Contributions................... 745.0 Refinance Debt (5)..................... 381.0
Therapy Sale Net Proceeds.............. 20.0 Severance/Other Payments............... 19.0
Pharmacy Sale Net Proceeds (2)......... 50.0 Transaction Fees and Expenses (6)...... 44.0
-------------- --------------
Total.............................. $1,481.0 Total.............................. $1,481.0
============== ==============
</TABLE>
- -----------------
(1) Excludes approximately $109.0 million that will be available to the
Company under a revolving credit facility upon the consummation of the
Transactions.
(2) Because the Pharmacy Sale was not consummated concurrently with the
Merger, the Company borrowed an additional $50.0 million under the
Credit Facility until the Pharmacy Sale is consummated, which is expected
to occur in the first calendar quarter of 1998.
(3) As of October 9, 1997, the Company had $309.3 million outstanding under
its bank credit facility.
(4) Notes are net of debt discount of $1.4 million.
(5) Includes repayment of a $54.0 million lease financing facility.
(6) Includes underwriting discounts and commissions in connection with the
Offering and fees and expenses payable to Genesis, Cypress and TPG in
connection with the Transactions.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of September 30, 1997 (i) on an actual historical basis and (ii) on a pro
forma basis after giving effect to the Transactions as if the Transactions had
occurred on September 30, 1997. The following table should be read in
conjunction with "Use of Proceeds," "Pro Forma Condensed Consolidated
Financial Information," "Selected Consolidated Financial Data" and the
Consolidated Financial Statements of Multicare, and the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1997
-------------------------------
Actual Pro Forma
------------- -------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 2,118 $ 436
============= =============
Current portion of long-term debt...................................... $ 625 $ 625
Long-term debt, excluding current portion:
Bank Debt.......................................................... $ 305,129 $ 418,659
7% Convertible Debentures.......................................... 59,744 --
12.5% Senior Subordinated Notes.................................... 23,376 --
Other long term debt............................................... 35,172 35,172
9% Senior Subordinated Notes (1)................................... -- 248,612
------------- -------------
Total long-term debt, excluding current portion................ 423,421 702,443
Total stockholders' equity............................................. 263,174 745,000
------------- -------------
Total capitalization........................................ $ 686,595 $ 1,447,443
============= =============
</TABLE>
- ----------------
(1) Notes are net of debt discount of $1.4 million.
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<PAGE>
EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Existing Notes were originally sold by Acquisition Corp. on
August 11, 1997 to the Placement Agents pursuant to the Placement Agreement.
The Placement Agents subsequently resold the Existing Notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act. As a
condition to the closing under the Purchase Agreement, the Company entered
into the Registration Rights Agreement with the Placement Agents pursuant to
which the Company agreed, for the benefit of the holders of the Existing
Notes, at the Company's cost, among other things, to cause the Exchange Offer
to be consummated by the earlier of (i) March 31, 1998 and (ii) six months
after the Merger Closing Date. Promptly after the Exchange Offer Registration
Statement has been declared effective, the Company will offer the Exchange
Notes in exchange for the Existing Notes.
The Company will keep the Exchange Offer open until the Expiration
Date. For each Existing Note validly tendered to the Company pursuant to the
Exchange Offer and not withdrawn by the holder thereof, the holder of such
Existing Note will receive an Exchange Note having a principal amount equal to
that of the tendered Existing Note. Interest on each Exchange Note will accrue
from the last interest payment date on which interest was paid on the tendered
Existing Note in exchange therefor or, if no interest has been paid on such
Existing Note, from the date of the original issuance of the Existing Note.
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties and subject to the
immediately following sentence, the Company believes that the Exchange Notes
would in general be freely tradeable after the Exchange Offer without further
compliance with the registration and prospectus delivery requirements of the
Securities Act. However, any purchaser of Existing Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Existing Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Existing Notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Existing Notes (other than certain specified
holders) who wishes to exchange Existing Notes for Exchange Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) it is not a broker-dealer tendering Existing Notes
acquired directly from the Company or if it is such a broker-dealer, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iii) any Exchange Notes to be
received by it were acquired in the ordinary course of its business and (iv)
at the time of commencement of the Exchange Offer, it has no arrangement with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. In addition, in connection with any
resales of Exchange Notes, any broker-dealer who acquired the Existing Notes
for its own account as a result of market-making or other trading activities
(a "Participating Broker-Dealer") may be deemed to be an "underwriter" within
the meaning of the Securities Act and must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Existing Notes), with the
prospectus contained in the Exchange Offer Registration Statement so long as
the prospectus otherwise meets the requirements of the Securities Act. Under
the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons subject to similar prospectus
delivery requirements, if any, to use the prospectus contained in the
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<PAGE>
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes; provided however that the Company is not required to amend or
supplement the prospectus contained in the Exchange Offer Registration
Statement for a period exceeding 180 days after the last Exchange Date (as
such period may be extended pursuant to the Registration Rights Agreement) and
Participating Broker-Dealers are not authorized to deliver and will not
deliver such prospectuses after such period in connection with the resale of
such Exchange Notes.
In the event that any changes in law or the applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer, or if for any reason the Exchange Offer is not
consummated by March 31, 1998, or if any holder of the Existing Notes (other
than the Placement Agents) is not eligible to participate in the Exchange
Offer, the Company will, at its cost, use its best efforts to (a) as promptly
as practicable, file the Shelf Registration Statement covering resales of the
Existing Notes, (b) cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep continuously effective the
Shelf Registration Statement until the second anniversary of the Closing Date
(as defined in the Placement Agreement) or until such shorter period when all
the Existing Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement or are eligible for resale
pursuant to Rule 144 under the Securities Act without volume limitations. The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Existing Notes copies of the prospectus which is
a part of the Shelf Registration Statement, notify each such holder when the
Shelf Registration Statement for the Existing Notes has become effective and
take certain other actions as are required to permit unrestricted resales of
the Existing Notes. A holder of Existing Notes that sells such Existing Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
In addition, each holder of the Existing Notes will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Existing Notes included in the Shelf Registration Statement and to benefit
from the provisions regarding liquidated damages set forth in the following
paragraph.
In the event that the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to the Existing Notes is not declared
effective on or prior to March 31, 1998, the interest rate borne by the
Existing Notes shall be increased by one-half of one percent per annum. Upon
the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, the interest rate borne by the
Existing Notes from the date of such effectiveness or the day before the date
of consummation, as the case may be, will be reduced to the original interest
rate.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Existing Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Existing Notes accepted in the Exchange Offer. Holders
may tender some or all of their Existing Notes pursuant to the Exchange Offer.
However, Existing Notes may be tendered only in integral multiples of $1,000.
The Company has fixed the close of business on ______________, 1998 record
date for the Exchange Offer for purposes of determining the persons to whom
this Prospectus and the Letter of Transmittal will be mailed initially.
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<PAGE>
The form and terms of the Exchange Notes are the same as the form and
terms of the Existing Notes (which they replace), except that as of the date
hereof the Exchange Notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain certain provisions included in the terms of the Existing Notes
relating to an increase in the interest rate in certain circumstances relating
to the timing of the Exchange Offer. The holders of the Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
which rights will terminate when the Exchange Offer is consummated. The
Exchange Notes will evidence the same debt as the Existing Notes and will be
entitled to the benefits to the Indenture.
Holders of the Existing Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law or the Indenture
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered
Existing Notes when, as and if the Company has given written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, the certificates for any such unaccepted Existing Notes will be
returned to the tendering holder thereof, at the Company's expense, as
promptly as practicable after the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extension; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time,
on , 1998, unless the Company in its sole discretion extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Existing Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions"
shall not have been satisfied, by giving written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by
written notice thereof to the registered holders.
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<PAGE>
Interest on the Exchange Notes
Interest on each Exchange Note will accrue from the last date on
which interest was paid on the Existing Note surrendered in exchange therefor
or, if no interest has been paid on the Existing Note, from the date of
original issuance of such Existing Note. No interest will be paid on the
Existing Notes accepted for exchange, and holders of Existing Notes whose
Existing Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Existing Notes
accrued up to the date of the issuance of the Exchange Notes. Holders of
Existing Notes whose Existing Notes are not exchanged will receive the accrued
interest payable thereon on February 1, 1998, in accordance with the
Indenture.
Interest on the Exchange Notes is payable semi-annually on each
February 1 and August 1, commencing on February 1, 1998.
Procedures for Tendering
Only a holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile thereof,
together with the Existing Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Existing Notes, the Letter of Transmittal and
other required documents must be completed and received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date. Delivery of the Existing Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the fourth paragraph under
"Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
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<PAGE>
Signatures on the Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or any other "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended
that is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange, Inc. Medallion Program or the Stock Exchange
Medallion Program (an "Eligible Institution"), unless the Existing Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on the Letter of
Transmittal or the notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Existing Notes listed therein, such Existing Notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such
Existing Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and (except when
Exchange Notes are being issued to replace Existing Notes registered in the
same name) evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Existing Notes at the book-entry transfer facility, The Depository
Trust Company (the "Book-Entry Transfer Facility"), for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Existing Notes by causing
such Book-Entry Transfer Facility to transfer such Existing Notes into the
Exchange Agent's account with respect to the Existing Notes in accordance with
the Book-Entry Transfer Facility's procedures for such transfer. Although
delivery of the Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility, an
appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are compiled with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of tendered Existing Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Existing Notes not properly tendered or any Existing Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Existing
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Existing Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of
Existing Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability
-31-
<PAGE>
for failure to give such notification. Tenders of Existing Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Existing Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver their
Existing Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of such
Existing Notes and principal amount of Existing Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof, as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the Letter
of Transmittal are received by the Exchange Agent upon three New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a
telegram, telex, facsimile transmission or letter must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Existing Notes to be
withdrawn (the "Depositor"), (ii) identify the Existing Notes to be withdrawn
(including the certificate number(s) and principal amount of such delivered
Existing Notes, or, in the case of Existing Notes transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer
Facility to be credited and the transaction code number), (iii) state that
such Depositor is withdrawing its election to have the Existing Notes
exchanged and specify the name in which any such Existing Notes are to be
registered, if different from that of the Depositor and (iv) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such
-32-
<PAGE>
Existing Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Existing Notes register the transfer of such Existing Notes
into the name of the person withdrawing the tender. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Existing Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Existing Notes so
withdrawn are validly retendered. Any Existing Notes which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Existing
Notes may be retendered by following one of the procedures described above
under "Procedures for Tendering" at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company
shall not be required to accept for exchange, or exchange Exchange Notes for,
any Existing Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Existing Notes, if:
(a) the Exchange Offer or the making of any exchange by a holder of
Existing Notes violates applicable law or any applicable interpretation by the
staff of the Commission; or
(b) the tendering of the Existing Notes is not in accordance with the
Exchange Offer;
(c) each holder of Existing Notes to be exchanged in the Exchange
Offer shall not have represented that all Exchange Notes to be received by it
shall be acquired in the ordinary course of business and that at the time of
the consummation of the Exchange Offer it shall have no arrangement of
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and shall have made such
other representations as may be reasonably necessary under applicable
Commission rules, regulations or interpretations to render the use of the
Exchange Offer Registration Statement or other appropriate form under the
Securities Act available; or
(d) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company, would reasonably be expected to impair
the ability of the Company to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any
Existing Notes and return all tendered Existing Notes to the tendering
holders, (ii) extend the Exchange Offer and retain all Existing Notes
theretofore tendered in the Exchange Offer, subject, however, to the rights of
holders to withdraw such Existing Notes (see "Withdrawal of Tenders") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Existing Notes which have not been withdrawn.
Exchange Agent
PNC Bank, National Association has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
-33-
<PAGE>
By Registered, Certified or Overnight Mail or Hand:
PNC Bank, National Association
1600 Market Street
30th Floor
Philadelphia, Pennsylvania 19103
Attention: Sheila Wallbridge
By Facsimile: 215-585-8872
Confirm: 215-585-6938
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION
OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with
the Exchange Offer and will not make any payments to brokers, dealers, or
others soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company. Such expenses include fees and expenses of
the Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is face value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
will be expensed over the term of the Exchange Notes.
Consequences of Failure to Exchange
The Existing Notes that are not exchanged for Exchange Notes pursuant
to the Exchange Offer will remain outstanding and continue to accrue interest
and will also remain restricted securities. Accordingly, such Existing Notes
may be resold only (i) to the Company, (ii) pursuant to a registration
statement which has been declared effective under the Securities Act, (iii)
for so long as the Existing Notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person the seller reasonably believes is a
"qualified institutional buyer" within the meaning of Rule 144A that purchases
for its own account or for the account of a qualified institutional buyer and
to whom notice is given that the transfer is being made in reliance on Rule
144A, (iv) pursuant to offer and sale to non-U.S. persons that occur outside
the United States within the meaning of Regulation S under the Securities Act,
(v) to an institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities
-34-
<PAGE>
Act that is acquiring the Existing Notes for its own account or for the
account of such an institutional "accredited investor" for investment purposes
and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or (vi) pursuant to any other
available exemption from the registration requirements of the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States and in accordance with the Indenture. Holders of Existing
Notes not tendered in the Exchange Offer will not retain any rights under the
Registration Rights Agreement, except in limited circumstances.
Resale of the Exchange Notes
With respect to resales of Exchange Notes, based on an interpretation
by the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), who receives Exchange Notes in exchange for Existing Notes in
the ordinary course of business and who is not participating, does not intend
to participate, and has no arrangement or understanding with a person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Existing Notes, where such Existing Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
-35-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Financial
Information is based on the historical financial statements appearing
elsewhere in this Prospectus. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the nine months ended September 30, 1997 gives
effect to the following transactions (i) the Tender Offer, (ii) the Merger
(including the Debt Conversion), (iii) the Offering and the application of
proceeds therefrom, (iv) the Equity Contributions and the application of
proceeds therefrom, (v) the closing of the Credit Facility and the application
of the proceeds therefrom, and (vi) the Pharmacy Sale and Therapy Sale, as
though each transaction had occurred as of January 1, 1996. The Unaudited Pro
Forma Condensed Consolidated Statement of Operations for the year ended
December 31, 1996 gives effect to (i) each of the foregoing transactions; (ii)
the acquisition of Concord Health Group, Inc. ("Concord") by Multicare in
February 1996 (the "Concord Acquisition"); and (iii) the acquisition of The
A.D.S Group ("A.D.S") by Multicare in December 1996 (the "A.D.S Acquisition"),
as though each transaction had occurred as of January 1, 1996. The Unaudited
Pro Forma Condensed Consolidated Balance Sheet gives effect to each of the
foregoing transactions other than the Concord and A.D.S Acquisitions, as
though each transaction had occurred as of September 30, 1997. The contract
therapy businesses to be sold by the Company to Genesis pursuant to the
Therapy Sale were primarily acquired by the Company in April 1997;
accordingly, except for reflecting the proceeds of the Therapy Sale in the pro
forma balance sheet, no adjustments have been made in the pro forma
information at December 31, 1996 to reflect the Therapy Sale. In connection
with the Merger, the Company and Genesis entered into the Management Agreement
pursuant to which Genesis manages the Company's operations. The Unaudited Pro
Forma Condensed Consolidated Statements of Operations include the management
fees payable to Genesis under the Management Agreement and the elimination of
corporate, general and administrative expenses at the Company pursuant to the
Management Agreement.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable and are described
in the notes accompanying the Unaudited Pro Forma Condensed Consolidated
Statements of Operations and the Unaudited Pro Forma Condensed Consolidated
Balance Sheet. The Unaudited Pro Forma Condensed Consolidated Financial
Information is provided for informational purposes only and does not purport
to represent what the Company's results of operations or financial position
would actually have been had the transactions in fact occurred at such dates
or to project the Company's results of operations or financial position at or
for any future date or period. The Unaudited Pro Forma Condensed Consolidated
Financial Information has been prepared using the purchase method of
accounting, whereby the total cost of the Tender Offer and Merger are
allocated to the tangible and intangible assets acquired and liabilities
assumed based upon their respective fair values at the effective date of the
Merger. Such allocations are based on studies and valuations which have not
yet been completed. Accordingly, the allocations and estimated lives reflected
in the Unaudited Pro Forma Condensed Consolidated Financial Information are
preliminary and subject to revision. However, the Company does not expect
material changes to the allocation of the purchase price.
The Unaudited Pro Forma Condensed Consolidated Financial Information
should be read in conjunction with "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of Multicare, and notes thereto, appearing
elsewhere in this Prospectus.
-36-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------------------------------------------
Multicare/
A.D.S/
A.D.S/ Multicare/ Concord,
Concord A.D.S/ Adjusted for
Multicare Concord A.D.S Pro Forma Concord Transactions Transaction
Historical Historical Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ---------- ---------- ----------- --------- ------------ ------------
(in thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................................... $532,230 $ 8,090 $ 58,702 $ -- $ 599,02 $(62,846)(8) $ 536,176
Expenses........................................
Operating expenses.......................... 400,897 6,081 43,289 -- 450,267 (50,117)(8) 400,150
Corporate, general and administrative....... 25,408 545 7,778 (1,155)(3) 32,576 (405)(9) 32,171
Depreciation and amortization............... 22,344 351 1,166 734 (4) 24,595 26,276 (8)(10) 50,871
Lease expense............................... 12,110 -- -- 3,254 (5) 15,364 (4,123)(8)(11) 11,241
Interest expense, net....................... 25,164 520 2,228 1,000 (6) 28,912 30,096 (8)(11) 59,008
-------- -------- -------- -------- -------- -------- ---------
Total expense............................. 485,923 7,497 54,461 3,833 551,714 1,727 553,441
Income (loss) before income taxes and
extraordinary item.......................... 46,307 593 4,241 (3,833) 47,308 (64,573) (17,265)
Income tax expense (benefit)................ 17,570 201 -- 442 (7) 18,213 (14,372)(12) 3,841
-------- -------- -------- --------- -------- -------- ---------
Income (loss) before extraordinary item......... $ 28,737 392 $ 4,241 $ (4,275) $ 29,095 $(50,201) $ (21,106)
======== ======== ========= ========= ======== ======== =========
Other Data:
Adjusted EBITDA (13)............................ $ 93,815 $ 100,885
Adjusted EBITDAR (14)........................... $105,925 $ 112,126
Ratio of Adjusted EBITDA to interest expense,
net (13)...................................... 3.7x 1.7x
Ratio of Adjusted EBITDAR to interest expense, net,
plus rent expense 1(4)...................... 2.8x 1.6x
Ratio of earnings to fixed charges (15)......... 2.5x --
Nine Months Ended September 30, 1997
-----------------------------------------------
Multicare
Adjusted for
Multicare Transactions Transactions
Historical Adjustments Pro Forma
------------ ------------- ------------
Statement of Operations
Net revenues......................................................... $ 533,952 $ (76,028)(8) $ 457,924
Expenses:
Operating expenses............................................... 406,173 (64,540)(8) 341,633
Corporate, general and administrative............................ 25,203 2,272 (9) 27,475
Depreciation and amortization.................................... 21,620 19,550 (8)(10) 41,170
Lease expense.................................................... 12,693 (3,669)(8)(10) 9,024
Interest expense, net............................................ 21,640 22,978 (8)(11) 44,618
Debenture conversion expense..................................... 785 (785)(16) --
------------ ------------- ------------
Total expenses................................................. 488,114 (24,194) 463,920
Income (loss) before income taxes and extraordinary item............. 45,838 (51,834) (5,996)
Income tax expense (benefit)..................................... 17,087 (14,747)(12) 2,340
------------ ------------- ------------
Income (loss) before extraordinary item.............................. $ 28,751 $ (37,087) $ (8,336)
============ ============= ============
Other Data:
Adjusted EBITDA (13)................................................. $ 89,883 $ 89,342
Adjusted EBITDAR (14)................................................ $ 102,576 $ 98,366
Ratio of Adjusted EBITDA to interest expense, net (13)............... 4.1x 2.0x
Ratio of Adjusted EBITDAR to interest expense, net,
plus rent expense (14)........................................... 3.0x 1.8x
Ratio of earnings to fixed charges (15).............................. 2.8x --
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Operations.
-37-
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(1) Represents the historical results of operations of Concord from
January 1, 1996 through February 1996. Multicare acquired the outstanding
capital stock and warrants of Concord for approximately $75,000 including
transaction costs, repaid approximately $41,000 of debt, and assumed
historical debt of approximately $4,000. Total goodwill approximated $61,000.
(2) Represents the historical results of A.D.S from January 1, 1996
through December 1996. Multicare 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 A.D.S. Total goodwill
approximated $29,900.
(3) Reflects the elimination of duplicative positions at A.D.S and
Concord, consolidation and closing of Concord corporate offices, elimination
of various public company costs incurred by Concord, and the reduction of
professional and accounting fees.
(4) Reflects the additional depreciation and amortization expense
resulting from the amortization of goodwill incurred in the Concord and A.D.S
Acquisitions and depreciation resulting from the allocation of the purchase
price for the Concord and A.D.S Acquisitions to property, plant, and
equipment. Goodwill is being amortized over periods of 25 to 40 years.
(5) Reflects the additional lease expense associated with the $51,000
lease financing entered into in connection with the A.D.S Acquisition. The
lease facility will be repaid in connection with the Merger.
(6) Reflects the additional interest expense on the incremental debt
incurred in connection with the Concord and A.D.S Acquisitions of $120,000 and
$39,800, respectively at a weighted average interest rate of 7%.
(7) Income tax expense has been adjusted to reflect a consolidated
effective tax rate of 38.5%. The primary difference between the expense
calculated at statutory rates and the amount reflected in the pro forma
statements is attributable to non-deductible goodwill and the provision for
state income taxes.
(8) Represents the elimination of the operating results relating to
the Company's pharmacy business pursuant to the Pharmacy Sale as follows:
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- -------------------
(in thousands)
Revenues, net....................... $ (62,846) $ (65,380)
Operating expenses.................. (50,117) (55,309)
Depreciation and amortization....... (968) (656)
Lease expense....................... (553) (933)
Interest expense, net............... (43) (34)
Represents the elimination of the operating results of the
Company's therapy business pursuant to the Therapy Sale. The therapy business
was primarily acquired by the Company in April 1997.
-38-
<PAGE>
Nine Months Ended
September 30, 1997
--------------------
(in thousands)
Revenues, net ............................................ $ (10,648)
Operating expenses........................................ (9,231)
Depreciation and amortization............................. (226)
Lease expense............................................. (58)
Interest expense, net..................................... (377)
(9) Represents net changes in corporate, general and administrative
expense due to the elimination of Multicare/A.D.S/Concord Pro Forma corporate,
general and administrative expense and the incurrence of management fees in
connection with the Management Agreement.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
-------------------- -------------------
(in thousands)
<S> <C> <C>
Multicare/A.D.S Concord Pro Forma
corporate, general and administrative...... $ (32,576) $ (25,203)
Management fee.................................. 32,171 27,475
------------ -----------
Total................................. $ (405) $ 2,272
============ ===========
</TABLE>
(10) Depreciation and amortization have been increased by the
amortization of goodwill and depreciation resulting from the allocation of the
purchase price for the acquisition to property and equipment. The preliminary
allocation of the purchase price has resulted in an increase to property and
equipment ($254,000) and goodwill ($657,180) which are amortized over 30 years
and 35 years, respectively, as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
-------------------- -------------------
(in thousands)
<S> <C> <C>
Depreciation and amortization................... $ 27,244 $ 20,432
</TABLE>
(11) Interest and lease expense has been adjusted to reflect the
indebtedness incurred in connection with the Tender Offer and Merger and the
repayment of indebtedness (including the repayment of $54,000 under the lease
financing facility) from the proceeds of the Credit Facility, Notes and
Pharmacy Sale. The estimated average interest rate for the Credit Facility and
for the Notes is 8.4% and 9.0%, respectively.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
-------------------- -------------------
(in thousands)
<S> <C> <C>
Credit Facility................................. $ 33,207 $ 24,905
Notes........................................... 22,500 16,875
Other debt...................................... 3,344 2,508
Multicare/A.D.S//Concord Pro Forma
interest expense............................. (28,912) (21,640)
----------- ----------
Total...................................... $ 30,139 $ 22,648
=========== ==========
Lease expense................................... $ (3,570) $ (2,678)
</TABLE>
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<PAGE>
Each .25% change in the interest rate on the Credit Facility
would change the Company's pro forma interest expense as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
-------------------- -------------------
(in thousands)
<S> <C> <C>
Credit Facility................................. $ 987 $ 741
</TABLE>
(12) Represents income tax expense at an effective rate of 37%
excluding the amortization of any non-deductible goodwill. The primary
difference between the expense calculated at statutory rates and the amount
reflected in the pro forma statements is attributable to non-deductible
goodwill and the provision for state income taxes.
(13) Adjusted EBITDA represents EBITDA plus the portion of the
management fee that is accrued but not paid under the Management Agreement.
Under the Management Agreement, for the year ended December 31, 1996 and the
nine months ended September 30, 1997, the Company would have been prohibited
from paying management fees of $8,271 and $9,550, respectively. EBITDA or
Adjusted EBITDA should not be considered an alternative measure of the
Company's net income, operating performance, cash flow or liquidity. Each is
included herein to provide additional information related to the Company's
ability to service debt. The Indenture governing the Notes contains certain
covenants that utilize a Consolidated Fixed Charge Coverage Ratio calculation
that is based upon Adjusted EBITDA. See "Description of the Notes" for a
description of such covenants. On a pro forma basis, for the year ended
December 31, 1996 and the nine months ended September 30, 1997, EBITDA would
have been $92,614 and $79,792, respectively, and the ratio of EBITDA to
interest expense would have been 1.8x in both periods.
(14) Adjusted EBITDAR represents EBITDAR plus the portion of the
management fee that is accrued but not paid under the Management Agreement.
Under the Management Agreement, for the year ended December 31, 1996 and the
nine months ended September 30, 1997, the Company would have been prohibited
from paying management fees of $8,271 and $9,550, respectively. EBITDAR or
Adjusted EBITDAR should not be considered an alternative measure of the
Company's net income, operating performance, cash flow or liquidity. Each is
included herein to provide additional information related to the Company's
ability to service debt. On a pro forma basis, for the year ended December 31,
1996 and the nine months ended September 30, 1997, EBITDAR would have been
$103,855 and $88,816, respectively, and the ratio of EBITDAR to interest
expense plus rent expense would have been 1.7x in both periods.
(15) For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of the sum of earnings before income taxes and
extraordinary items (net of tax benefit) plus fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of debt discount and
one-third of rental expense which the Company believes to be representative of
the interest factor. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, on a pro forma basis, the Company's earnings would
have been insufficient to cover its fixed charges by $19,965 and $8,021,
respectively. The definition of fixed charges used in this calculation differs
from that used in the Consolidated Fixed Charge Coverage Ratio contained in
the Indenture.
(16) Represents the elimination of the debenture conversion expense
resulting from the premium paid by the Company to convert $11,000 of the
Company's Convertible Debentures into common stock.
-40-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------------------------------------------------
Pro Forma
Multicare
Adjusted for Debt
Therapy and Conversion,
Multicare Debt Merger Pharmacy Merger and
Historical Conversion(1) Adjustments Adjustments(4) Pharmacy Sale
------------ ------------- ------------ -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and equivalents........................ $ 2,118 -- -- $ (1,682) $ 436
Accounts receivable......................... 119,522 -- -- (25,330) 94,192
Prepaid expenses and other current assets... 24,614 -- -- (3,262) 21,352
------------ ------------- ------------ -------------- --------------
Current assets........................... 146,254 -- -- (30,274) 115,980
Property and equipment ..................... 460,800 -- 254,000(2) (5,411) 709,389
Goodwill, net............................... 171,324 -- 657,180(2) (72,959) 755,545
Other assets................................ 44,755 -- 24,000(2) 15,987 84,742
------------ ------------- ------------ -------------- --------------
Total assets.......................... $ 823,133 -- $ 935,180 $ (92,657) $ 1,665,656
============ ============= ============ ============== ==============
Liabilities and Stockholders' Equity
Accounts payable............................ $ 28,863 -- -- $ (3,062) $ 25,801
Accrued liabilities and other current
liabilities ............................ 64,944 -- -- (16,863) 48,081
Current portion of long-term debt........... 625 -- -- -- 625
------------ ------------- ------------ -------------- --------------
Current liabilities...................... 94,432 -- -- (19,925) 74,507
Long-term debt, excluding current maturities 423,421 (59,744) 411,498(3)(4) (72,732) 702,443
Deferred taxes.............................. 42,106 -- 101,600(2) -- 143,706
Stockholders' equity........................ 263,174 59,744 422,082(2) -- 745,000
------------ ------------- ------------ -------------- --------------
Total liabilities and stockholders'
equity................................. $ 823,133 -- $ 935,180 $ (92,657) $ 1,665,656
============ ============= ============ ============== ==============
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.
-41-
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(1) Reflects the expected conversion of the 7% Senior Subordinated
Convertible Debentures of Multicare into shares of Multicare common stock in
connection with the Merger as follows:
Long term debt....................................... $ (59,744)
Stockholders' equity................................. 59,744
(2) Reflects the allocation of the purchase price for the Tender
Offer and Merger and the Therapy Sale and Pharmacy Sale as follows:
<TABLE>
<CAPTION>
Therapy
Merger and
Elimination Merger Adjustments Pharmacy Total
----------- ----------- ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Property and equipment.............. -- $ 254,000 $ 254,000 -- $ 254,000
Goodwill............................ (171,324) 828,504 657,180 (46,066) 611,114
Debt issuance costs, net............ -- 24,000 24,000 -- 24,000
Deferred taxes...................... -- 101,600 101,600 -- 101,600
Stockholders' equity................ (322,918) 745,000 422,082 23,934 446,016
</TABLE>
In connection with the allocation of excess purchase price to
property and equipment, a deferred tax liability of $101,600 has been recorded
using an effective tax rate of 40% for the difference between the tax and book
bases.
(3) Reflects the acquisition of the common stock of Multicare in the
Tender Offer and Merger, the repayment of indebtedness and a lease financing
facility of Multicare in connection with the Merger, the proceeds of the
Therapy Sale and the Pharmacy Sale and the related financing transactions as
follows:
(in thousands)
Uses of funds:
Tender offer and Merger consideration............ $ 1,037,000
Refinance debt................................... 327,000
Repay lease financing facility (i)............... 54,000
Severance and other payments..................... 19,000
Estimated transaction fees and expenses.......... 44,000
----------------
Total........................................ $ 1,481,000
================
Sources of funds:
Credit facility.................................. $ 417,400
Notes ........................................... 248,600
Equity Contributions............................. 745,000
Pharmacy Sale net proceeds....................... 20,000
Therapy Sale net proceeds........................ 50,000
----------------
Total........................................ $ 1,481,000
================
- ----------------
(i) The lease financing facility represents a contingent liability and,
accordingly, is not reflected in the Company's balance sheet.
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<PAGE>
(4) Reflects the Pharmacy Sale and Therapy Sale as follows:
(in thousands)
Cash and equivalents................................. $ (1,682)
Accounts receivable.................................. (25,330)
Prepaid expenses and other current assets............ (3,262)
----------------
Current assets.................................... (30,274)
Property and equipment............................... (5,411)
Goodwill............................................. (26,893)
Other assets......................................... 15,987
----------------
Total assets.................................... $ (46,591)
================
Accounts payable..................................... $ (3,062)
Accrued liabilities and other current liabilities.... (16,863)
----------------
Current liabilities............................... (19,925)
Long-term debt....................................... (2,732)
Deferred taxes....................................... --
Stockholders' equity................................. (23,934)
----------------
Total liabilities and stockholders equity....... $ (46,591)
================
-43-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as
of, each of the years in the five-year period ended December 31, 1996 have
been derived from the Consolidated Financial Statements of Multicare,
including the notes thereto, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected consolidated financial
data for, and as of, each of the nine months ended September 30, 1996 and 1997
have been derived from unaudited consolidated financial statements of
Multicare which, in the opinion of management, include all adjustments
(consisting only of normal recurring items) necessary for a fair and
consistent presentation of such data. The results of the nine months ended
September 30, 1997 are not necessarily indicative of results to be expected
for the full fiscal year. The information set forth below should be read in
conjunction with "Pro Forma Condensed Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of Multicare including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- -------- --------- --------- ---------- ------------
(in thousands, except ratio, per share and operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................. $126,007 $162,384 $262,416 $353,048 $532,230 $386,890 $ 533,952
Expenses:
Operating expenses.................... 93,423 123,819 198,466 265,185 400,897 291,494 406,173
Corporate, general and administrative. 14,044 6,338 11,446 17,643 25,408 18,627 25,203
Depreciation and amortization......... 5,734 6,292 9,358 13,171 22,344 16,048 21,620
Lease expense......................... 226 862 2,823 5,039 12,110 8,874 12,693
Interest expense, net................. 9,410 13,229 12,866 16,065 25,164 18,947 21,640
Debenture conversion expense.......... -- -- -- -- -- -- 785(1)
--------- --------- -------- --------- --------- ---------- ---------
Total expenses........................... 122,837 150,540 234,920 317,103 485,923 353,990 488,114
Income before income taxes and
extraordinary item.................... 3,170 11,844 27,496 35,945 46,307 32,900 45,838
Income tax expense....................... 1,420 4,727 10,454 13,798 17,570 12,505 17,087
Income before extraordinary item......... 1,750 7,117 17,042 22,147 28,737 20,395 28,751
Extraordinary item, net of tax benefit (2) -- 3,863 1,620 3,722 2,827 1,481 873
--------- --------- -------- --------- --------- ---------- ---------
Net income............................... $ 1,750 $ 3,254 $ 15,422 $ 18,425 $ 25,910 $ 18,914 $ 27,878
========= ========= ======== ========= ========= ========== =========
Per common share data (fully diluted):
Income before extraordinary item per
share.................................. $ .12 $ .42 $ .71 $ .84 $ .99 $ .71 $ .85
Net income per share..................... $ .12 $ .19 $ .64 $ .69 $ .90 $ .67 $ .82
Weighted average number of shares
outstanding............................ 14,646 16,962 23,967 26,513 33,172 32,748 36,832
Other Financial Data:
EBITDA (3)............................ $ 18,314 $ 31,365 $ 49,720 $ 65,181 $ 93,815 $ 67,895 $ 89,883
EBITDAR (4)........................... 18,540 32,227 52,543 70,220 105,925 76,769 102,576
Ratio of EBITDA to interest expense, net 1.9x 2.4x 3.9x 4.1x 3.7x 3.6x 4.1x
Ratio of EBITDAR to interest expense, net,
plus lease expense................ 1.9x 2.3x 3.3x 3.3x 2.8x 2.8x 3.0x
Ratio of earnings to fixed charges (5) 1.3x 1.9x 2.9x 2.9x 2.5x 2.8x 2.8x
Capital expenditures.................. $ 2,838 $ 18,730 $ 31,785 $ 39,917 $ 64,215 $ 49,510 $ 39,301
Operating Data:
Average number of licensed beds....... 3,271 4,241 6,006 6,861 11,620 11,168 16,224
Occupancy............................. 91.0% 90.4% 92.2% 91.7% 91.0% 91.7% 90.4%
Payor mix:
Quality mix (6)................... 55.5% 56.0% 62.5% 66.3% 64.5% 64.3% 67.3%
Medicaid.......................... 44.5% 44.0% 37.5% 33.7% 35.5% 35.7% 32.7%
Balance Sheet Data (at period end):
Working capital....................... $ 39,696 $ 15,158 $ 34,005 $ 55,542 $ 39,327 $ 69,135 $ 51,882
Total assets.......................... 155,485 162,255 308,755 470,958 761,667 659,096 823,133
Long-term debt, including current
portion............................. 146,906 106,137 156,878 283,082 429,168 427,983 424,046
Stockholders' equity.................. $ (11,276) 32,591 100,105 113,895 207,935 $ 138,632 $ 263,174
</TABLE>
<PAGE>
- --------------
(1) Represents a non-recurring charge relating to the early conversion of $11.0
million of Multicare's 7% Convertible Debentures.
(2) Multicare incurred extraordinary charges relating to early extinguishment of
debt.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, extraordinary items (net of tax benefit) and
debenture conversion expense. EBITDA should not be considered an alternative
measure of Multicare's net income, operating performance, cash flow or
liquidity. It is included herein to provide additional information related
to Multicare's ability to service debt. The Indenture governing the Notes
contains certain covenants that utilize a Consolidated Fixed Charge Coverage
Ratio calculation that is based upon EBITDA. See "Description of the Notes"
for a description of such covenants.
(4) EBITDAR represents earnings before interest expense, income taxes,
depreciation and amortization, extraordinary items (net of tax benefit),
debenture conversion expense and lease expense. EBITDAR should not be
considered an alternative measure of Multicare's net income, operating
performance, cash flow or liquidity. It is included herein to provide
additional information related to Multicare's ability to service debt.
(5) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of the sum of earnings before income taxes and
extraordinary items (net of tax benefit) plus fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of debt issuance costs
and one-third of rental expense, which Multicare believes to be
representative of the interest factor. The definition of fixed charges used
in this calculation differs from that used in the Consolidated Fixed Charge
Coverage Ratio contained in the Indenture.
(6) Quality mix is defined as non-Medicaid patient revenues.
-44-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial
Statements of Multicare, including the notes thereto, appearing elsewhere in
this Prospectus.
Overview
Multicare has experienced revenue growth in excess of 43% per year in
the five-year period ended December 31, 1996, primarily through acquisitions
of eldercare facilities and increased utilization of specialty medical
services. It has been Multicare's strategy to expand through selective
acquisitions, development of new facilities with geographically concentrated
operations, and growth of specialty medical services. Upon consummation of the
Merger, the Company and Genesis entered into the Management Agreement pursuant
to which Genesis manages the Company's operations. 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, a high quality payor mix and same store growth in net revenues
and EBITDAR. Genesis' management also will focus on the revenue and cost
opportunities presented through the further integration of the Company's
recent acquisitions. See "-- Acquisitions and Development." It is contemplated
that the Company will do little, if any, new acquisitions or new construction
after the Merger; accordingly, capital expenditures after the Merger should
decrease significantly.
Acquisitions and Development
Multicare historically has grown through acquisition, construction,
lease and management agreements. Summarized below are the recent acquisitions
and development projects:
In 1994, Multicare acquired the outstanding capital stock of
Providence Health Care, Inc., an Ohio-based provider of eldercare and
specialized healthcare services through 15 facilities with over 1,200 beds,
located principally in Ohio.
In January 1995, Multicare acquired the assets and operations of an
institutional pharmacy business located in New Jersey.
In December 1995, Multicare acquired the outstanding capital stock of
Glenmark Associates, Inc., an eldercare provider through 21 facilities and
several ancillary businesses with approximately 1,700 beds, located
principally in West Virginia.
In February 1996, Multicare acquired the outstanding capital stock of
Concord, a provider of eldercare, assisted living, and specialty medical
services through 11 facilities with over 1,600 licensed beds and several
ancillary businesses in Pennsylvania.
In December 1996, Multicare acquired A.D.S which owned, operated or
managed over 50 eldercare and assisted living facilities with over 4,200
licensed beds, principally in Massachusetts.
-45-
<PAGE>
Between 1994 and 1996, Multicare further expanded its regional bases
by adding over 2,500 licensed beds through smaller acquisitions, construction
of new facilities, expansion of existing facilities, leasing arrangements and
management agreements.
Results of Operations
Quarterly Results
Net Revenues. Net revenues for the nine months ended September 30,
1997 increased 38% or $147.1 million from the same period last year to $534.0
million. Net revenues for the three months ended September 30, 1997 increased
38% or $51.1 million from the same period last year to $186.0 million.
Of the net revenues increase for the nine months ended September 30,
1997, 24% is attributable to the inclusion of results for the Company's recent
acquisitions. The internal growth rate of revenues amounted to 14% in the nine
months ended September 30, 1997, resulting mainly from increases in payor
rates and changes in census mix, development and opening of additional beds,
and growth in specialty medical service revenues. The revenue increase for the
quarter ended September 30, 1997 was due to results from recent acquisitions
of 23% and internal growth of 15%.
The Company's quality mix of private, Medicare and insurance revenues
was 67% of net revenues for the nine and three months ended September 30, 1997
compared to 64% in the similar periods of 1996. Occupancy rates were 90% for
the nine months ended September 30, 1997 compared to 92% in the similar period
of 1996. Occupancy rates were 92% for the three months ended September 30,
1997 and 1996.
Operating Expense and Margins. Operating expenses for the nine months
ended September 30, 1997 increased 39% or $114.7 million from the comparable
period in 1996 to $406.2 million. Operating expenses for the three months
ended September 30, 1997 increased 41% or $41.8 million from the comparable
period in 1996 to $142.9 million. The increases in operating expenses for the
nine and three month periods ended September 30, 1997 reflect the inclusion of
results for the recent acquisitions of $69.6 million and $22.8 million,
respectively. The remainder of the increase resulted primarily from higher
salaries, wages and benefits and the expanded utilization of salaried
therapists and nursing staffing levels to support higher patient acuities and
more complex product lines such as subacute and Alzheimers care.
Operating margins before interest were 13% of net revenues for the
nine months ended September 30, 1997 and 1996, and 12% and 14% for the three
month periods ended September 30, 1997 and 1996, respectively. Income before
interest, taxes, depreciation, amortization and lease expense (EBITDAR) before
debenture conversion expense was 19% and 20% of net revenues for the nine
month periods ended September 30, 1997 and 1996 respectively. Income before
interest, taxes, depreciation, amortization and lease expense (EBITDAR) was
19% and 21% of net revenues for the three months ended September 30, 1997 and
1996, respectively.
Corporate, General and Administrative Expense. Corporate, general and
administrative expense remained consistent at approximately 5% of net revenues
for the nine month periods ended September 30, 1997 and 1996, respectively and
4% and 5% of net revenues for the quarter ended September 30, 1997 and 1996,
respectively. The expenses include resources devoted to operations, finance,
legal, risk management, and information systems in order to support the
Company's operations.
Lease Expense. Lease expense for the nine months ended September 30,
1997 increased 43% or $3.8 million from the same period last year to $12.7
million. In the third quarter of 1997 lease expense increased
-46-
<PAGE>
40% or $1.2 million from the same period last year to $4.3 million. The
increases were primarily due to the inclusion of lease expense relating to a
recent acquisition.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the nine months ended September 30, 1997 increased 35% from the
same period in 1996 to $21.6 million, while depreciation and amortization
expense for the third quarter 1997 increased 29% to $7.5 million from the
comparable period in 1996. The increases were primarily due to the inclusion
of results for recent acquisitions.
Interest Expense, net. Net interest expense for the nine months ended
September 30, 1997 increased 14% from the same period in 1996 to $21.6
million, while net interest expense for the third quarter of 1997 increased 9%
to $7.5 million from the same period a year ago. This is primarily a result of
increased borrowings under the Company's credit facility in connection with
the financing of recent acquisitions. These increases have been offset by
decreases relating to the conversion of the Company's convertible debt and the
purchase of the Company's senior notes.
Debenture Conversion Expense. Debenture conversion expense for the
nine months ended September 30, 1997 relates to the premium paid in January
1997 to convert $11 million of convertible debentures into common stock.
Annual Results
Net Revenues. Net revenues increased 51% or $179.2 million to $532.2
million in 1996 and 35% or $90.6 million to $353.0 million in 1995.
Of the 1996 revenues increase, 37% is primarily attributable to the
inclusion of results for the recent acquisitions. The internal growth rate of
revenues amounted to 14% in 1996, resulting mainly from increases in payor
rates and changes in census mix, development and opening of additional beds,
and growth in specialty medical service revenues. The revenue increase in 1995
was predominantly due to results from recent acquisitions of 20% and internal
growth of 15%.
Multicare's quality mix of non-Medicaid patient revenues was 65%, 66%
and 63%, respectively, in 1996, 1995 and 1994. The 1996 percentages reflect
the impact of certain of Multicare's recent acquisitions which historically
have generated lower revenues in these areas. Occupancy rates were 91%, 92%
and 92%, respectively, for 1996, 1995 and 1994.
Operating Expenses and Margins. Operating expenses increased 53% or
$142.8 million to $413.0 million in 1996 and 34% or $68.9 million to $270.2
million in 1995. Operating margins were 13% in 1996 and 15% in 1994 and 1995.
The decrease in operating margin in 1996 is due primarily to an increase in
lease expense of $7.1 million relating to new operating leases. EBITDAR
margins were 20% in 1996, 1995, and 1994.
The increases in operating expenses in 1996 and 1995 reflect the
inclusion of results for the recent acquisitions of $100.2 million and $37.6
million, respectively. The remaining increases resulted primarily from higher
salaries, wages, and benefits ($23.4 million in 1996 and $17.7 million in
1995) for cost of living increases and the expanded utilization of salaried
therapists and staffing levels to support higher patient acuities and more
complex product lines.
-47-
<PAGE>
Corporate, General and Administrative Expenses. Corporate, general
and administrative expenses remained consistent at 5% of net revenues in 1996
and 1995. The expenses include resources devoted to operations, finance,
legal, risk management, and information systems to support Multicare's
operations.
Depreciation and Amortization. Depreciation and amortization
increased by $9.2 million in 1996 and $3.8 million in 1995. The increases
related primarily to inclusion of depreciation and amortization for the
recently acquired entities and to a lesser extent, amortization of debt
issuance costs and other assets.
Other Income (Expense). Net other expense increased 57% or $9.1
million in 1996 to $25.2 million, primarily as a result of interest expense
from increased borrowings under Multicare's various credit agreements in
connection with the financing of recent acquisitions. Net other expense
increased 25% or $3.2 million in 1995 as a result of interest expense from
higher borrowing levels on Multicare's credit agreements and interest
associated with Multicare's Convertible Debentures.
Extraordinary item. Multicare incurred extraordinary charges of $2.8
million, $3.7 million, and $1.6 million in 1996, 1995 and 1994, respectively,
relating to the restructuring of its bank credit facilities and the purchase
of Multicare's 12.5% Senior Subordinated Notes ("12.5% Notes").
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 September 30, 1997, the Company had
working capital of $51.8 million, compared to $39.3 million at December 31,
1996.
Cash flow from operations was $50.3 million in 1996 compared to $11.0
million in 1995. The increase is due, in part, to improved collection of
receivables. Net accounts receivable were $102.2 million at December 31, 1996
compared to $86.2 million at December 31, 1995. This increase is primarily
attributable to the recent acquisitions, the utilization of specialty medical
services for higher acuity level patients, and the timing of third-party
interim and settlement payments. The allowance for doubtful accounts
represents approximately 10% and 6% of gross accounts receivable at December
31, 1996 and 1995, respectively.
-48-
<PAGE>
Cash flow from operations was $37.0 million for the nine months ended
September 30, 1997 compared to cash from operations of $19.0 million in the
comparable period of 1996. This increase is due, in part, to improved
collections of accounts receivable and the conclusion of recent acquisitions.
Net accounts receivable were $119.5 million at September 30, 1997 compared to
$102.2 million at December 31, 1996. The increase in net accounts receivable
is attributable to the recent acquisitions, the utilization of specialty
medical services for higher acuity level patients, and the timing of
third-party interim and settlement payments. 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.
Capital expenditures were $64.2 million, $39.9 million and $31.8
million in the years ended December 31, 1996, 1995 and 1994, respectively.
These expenditures related primarily to new construction, existing facility
expansion, further development of specialty medical services and capital
improvements. As a result of the Merger, it is contemplated that the Company
will do little, if any, further new acquisitions or new construction.
Accordingly, capital expenditures after the Merger are expected to decrease
significantly to approximately $50.0 million for 1997, $30.0 million for 1998
and $30.0 million for 1999.
In January 1997 the Company purchased $6.5 million of its 12.5%
Senior Subordinated Notes. In addition, in the nine month period ended
September 30, 1997 $26.5 million of the Company's Convertible Debentures were
converted into common stock.
On June 16, 1997, Multicare entered into the Merger Agreement with
Genesis ElderCare Corp. and Acquisition Corp. pursuant to which Acquisition
Corp. offered to make the Tender Offer. The Tender Offer expired on Wednesday,
October 8, 1997 and Acquisition Corp. accepted for purchase 32,790,495 Shares
that had been validly tendered and not withdrawn. The Shares accepted pursuant
to the Tender Offer constitute 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,
Cypress, TPG and Nazem and their affiliates.
-49-
<PAGE>
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 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 sale of
Multicare's rehabilitation therapy business) and (ii) any sale of common stock
or debt securities 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
2.5%; loans under the Tranche B Term Facility bear interest at a rate equal to
LIBO Rate plus 2.75%; loans under the Tranche C Term Facility bear interest at
a rate equal to LIBO Rate plus 3.0%; loans under the Revolving Credit Facility
bear interest at a rate equal to LIBO Rate plus 2.5%; and loans under the
Swing Loan Facility bear interest at the Prime Rate unless otherwise agreed to
by the parties. Subject to meeting certain financial covenants, the
above-referenced interest rates will be reduced.
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
-50-
<PAGE>
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 defined below) as well as comply with certain financial covenants.
On August 11, 1997, Acquisition Corp. sold to the Placement Agents
$250 million principal amount of the Existing Notes which were issued pursuant
to the Indenture. The Existing 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.
Under the terms of the Indenture, the issuer of the 9% Notes is
obligated to consummate the Exchange Offer pursuant to an effective
registration statement or to cause resales of the Existing Notes to be
registered under the Securities Act pursuant to an effective shelf
registration statement. In the event that the Exchange Offer is not
consummated and a shelf registration statement is not declared effective on or
prior to March 31, 1998, the per annum interest rate on the Existing Notes
will be increased by .5% until the Exchange Offer is consummated or the shelf
registration statement is declared effective.
The Existing 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 Existing 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 Existing 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 Existing 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 Existing 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 Existing 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 Existing Notes
and the related Indenture.
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
will manage 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) $1,991,666 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
will be paid by Multicare.
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On October 10, 1997, Genesis entered into the Therapy Sale 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.
On October 10, 1997, Genesis and one of its wholly-owned subsidiaries
entered into the Pharmacy Sale pursuant to which Genesis will acquire 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.
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.
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, including without limitation,
discussions at the federal level concerning budget reductions and the
implementation of prospective payment systems for the Medicare and Medicaid
programs. The Company is unable to predict the impact of healthcare reform
proposals on the Company; 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 been proposed could materially adversely affect the Company's revenues
derived from ancillary services. See "Risk Factors -- Regulation" and "--
Payment By Third Party Payors."
Seasonality
Multicare's earnings generally fluctuate from quarter to quarter.
This seasonality is related to a combination of factors which include the
timing of Medicaid rate increases, seasonal census cycles and the number of
calendar days in a given quarter.
Inflation
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 Multicare in the form of higher prices. When faced
with increases in operating costs, Multicare has increased its charges for
services. The Company'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.
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BUSINESS
General
Multicare is a leading provider of high quality eldercare and
specialty medical services in selected geographic regions. Multicare's
eldercare services include skilled nursing care, assisted living, Alzheimer's
care and related support activities traditionally provided in eldercare
facilities. The Company's specialty medical services consist of (i) sub-acute
care such as ventilator care, intravenous therapy, and various forms of coma,
pain and wound management and (ii) rehabilitation therapies such as
occupational, physical and speech therapy and stroke and orthopedic
rehabilitation. The Company also provides management services to 44 facilities
and consulting services to 14 facilities.
Multicare is well-positioned in its markets because it provides high
quality care in concentrated geographic regions. As a result, Multicare has
achieved high occupancy rates, a favorable payor mix and sustained total and
same store growth in net revenues and operating profits. Multicare's overall
occupancy rate was approximately 92%, 92% and 91% for the years ended December
31, 1994, 1995 and 1996, respectively, and 90% for the nine months ended
September 30, 1997. Multicare achieved a quality mix (defined as non-Medicaid
revenues) of 63%, 66% and 65% of net revenues for the years ended December 31,
1994, 1995 and 1996, respectively, and 67% for the nine months ended September
30, 1997.
As of September 30, 1997, Multicare operated 155 eldercare
facilities, 11 assisted living facilities and two outpatient rehabilitation
centers (90 owned, 27 leased and 51 managed) in Connecticut, Illinois,
Massachusetts, New Jersey, Ohio, Pennsylvania, Rhode Island, Vermont,
Virginia, West Virginia and Wisconsin with 17,615 beds. In terms of beds, the
Company is the largest provider of eldercare services in Massachusetts, New
Jersey and West Virginia. In addition, the Company is one of the largest
providers of eldercare services in Pennsylvania, Ohio and Wisconsin. The
Company operates high quality, attractive facilities, many of which are newly
constructed; approximately one-third of the Company's beds are less than five
years old. In addition, 75% of the Company's facilities are owned rather than
leased. The Company believes that significant ownership of its assets enhances
the Company's credit quality and financial flexibility.
Patient Services
Basic Healthcare Services
Basic healthcare services are those traditionally provided to elderly
patients in eldercare facilities and assisted living residences 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
eldercare 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 eldercare 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 provides housing, personal care and support services as well as
certain routine nursing services in its assisted living residences.
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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 intensive treatment and a higher
level of skilled nursing care. These services typically generate higher profit
margins than basic healthcare services because the higher complexity of the
patients' medical conditions results in a need for increased levels of care
and ancillary services.
Sub-acute Care. Sub-acute 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 (cerebrovascular
accident) care, CAPD (continuous ambulatory peritoneal dialysis), pain
management, hospice care, and tracheotomy and other ostomy care. The Company
provides a range of sub-acute care services to patients at its facilities. The
Company plans to continue to expand its sub-acute 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 eldercare 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 employs full time physical,
occupational, and speech therapists at a majority of its facilities. The
Company also offers respiratory services at selected facilities. In addition,
Multicare operates two outpatient rehabilitation facilities in New Jersey and
Illinois. Upon consummation of the Merger, the Company sold its contract
rehabilitation therapy business to Genesis. See "The Tender Offer and Merger."
Institutional Pharmacy Services. Multicare operates eight
institutional pharmacies which currently serve a total of approximately 30,000
beds. The pharmacies provide eldercare healthcare facilities and other
institutions a variety of products and services including prescription drugs,
pharmacy consulting, and enteral, urological and intravenous therapies. Upon
the consummation of the Merger, the Company will sell its pharmacy business to
Genesis. See "The Tender Offer and Merger."
Operations
General. The day-to-day operations of each eldercare 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.
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Historically, the facilities operated by Multicare were divided into
five divisions, each supervised by a team including a divisional director, a
divisional controller, a marketing director, an operations performance
director, and a clinical services director. The divisional and facility
personnel were supported by a corporate staff based at Multicare's New Jersey
headquarters. Upon consummation of the Merger, Genesis and the Company entered
into the Management Agreement pursuant to which Genesis manages the Company's
operations. Genesis is in the process of overlaying its existing regional and
business unit management over the existing regional and business unit
management at Multicare. The Company believes that the integration of Genesis
and Multicare management will be facilitated by the geographic concentration
of Multicare's facilities, the proximity of Multicare facilities to Genesis'
existing markets, the quality of Multicare's unit and regional management and
Multicare's existing information systems which will allow a rational phase-in
of Genesis' management. See "Management -- Certain Agreements -- Management
Agreement."
Marketing. As a result of the Merger, Genesis manages the Company's
marketing program. Marketing for eldercare centers is focused at the local
level and is conducted primarily by the center administrator and its
admissions director who call on referral sources such as doctors, hospitals,
hospital discharge planners, churches and various organizations. Genesis
management's marketing objective for the Company is to maintain public
awareness of the eldercare center and its capabilities. Genesis' management
attempts to take advantage of the Company's regional concentrations in its
marketing efforts, where appropriate, through consolidated marketing programs
which benefit more than one center.
The Genesis corporate business development department, through
regional managers, markets the Company's sub-acute program directly to
insurance, managed care organizations and other third party payors. In
addition, the Genesis marketing department, supports the eldercare centers in
developing promotional materials and literature focusing on Genesis
management's philosophy of care, services provided and quality clinical
standards. See "-- Government Regulation" for a discussion of the federal and
state laws which limit financial and other arrangements between healthcare
providers.
Genesis has consolidated its core business, and is in the process of
consolidating the Company's core business, under the name Genesis ElderCare.
The Genesis ElderCare logo and trademark have been featured in a series of
print advertisements and publications serving many of the regional markets in
which the Company operates. The marketing of Genesis ElderCare is aimed at
increasing awareness among decision makers in key professional and business
audiences. Genesis is using and will continue to use advertising to promote
the Genesis ElderCare brand name in trade, professional and business
publications and to promote services directly to consumers.
Sources of Revenue
The Company derives its revenues from private pay sources, state
Medicaid programs for indigent patients and the federal Medicare program for
certain elderly and disabled patients. The Company classifies payments from
persons or entities other than the government as private pay and other
revenue. The private pay and other revenue classification also includes
revenues from commercial insurers, health maintenance organizations and other
charge-based payment sources. Blue Cross and Veterans Administration payments
are included in private pay and other revenue and are made pursuant to
renewable contracts negotiated with these payors. 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. Specialty medical services are usually reimbursed under casualty and
health insurance coverages. The acuity levels for these insurance patients are
generally higher
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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.
Medicare is a federally funded and administered health insurance
program that consists of Parts A and B. Participation in Part B is voluntary
and is funded in part through the payment of premiums. Benefits under Part A
include inpatient hospital services, skilled nursing in a skilled nursing
facility and medical services such as physical, speech and occupational
therapy, certain pharmaceuticals and medical supplies. Part B provides
coverage for physician services. Part B also reimburses for medical services
with the exception of pharmaceutical services. Medicare benefits are not
available for intermediate and custodial levels of care including but not
limited to residence in assisted living facilities; however, medical and
physician services furnished to such patients may be reimbursable under Part
B. Under the Part A reimbursement methodology, each skilled nursing facility
receives an interim payment during the year which is adjusted to reflect
actual allowable direct and indirect costs of services based on the submission
of a cost report at the end of each year. Final settlements are subject to an
audit of the filed cost report whereby adjustments may result in additional
payments to the Company or in recoupments from the Company. As the Company is
reimbursed for its direct costs plus an allocation of indirect costs up to a
regional limit, to the extent that the Company expands its specialty medical
services, the costs of care for these patients are expected to 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 can be no assurance that the Company will be able to
recover such excess costs under pending or any future requests. The failure to
recover these excess costs in the future would adversely affect the Company's
financial position and results of operations. For services not billed through
a facility, the Company's specialty medical operations bill Medicare, when
appropriate, directly for nutritional support services, infusion therapy,
certain medical supplies and equipment, physician services and certain therapy
services as provided. Medicare payments for these services may be based on
reasonable cost charges or a fixed-fee schedule determined by Medicare. 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.
Medicaid is the state administered reimbursement program that covers
both skilled nursing facilities and intermediate eldercare. Although Medicaid
programs vary from state to state, typically they provide for payment for
services including nursing facility services, physician's services, therapy
services and prescription drugs, up to established ceilings, at rates based
upon cost reimbursement principles. Reimbursement rates are typically
determined by the state from cost reports filed annually by each facility, on
a prospective or retrospective basis. In a prospective system, a rate is
calculated from historical data and updated using an inflation index.. The
resulting prospective rate is final, but in some cases may be adjusted
pursuant to an audit. In this type of payment system, facility cost increases
during the rate year do not affect payment levels in that year. In a
retrospective system, final rates are based on reimbursable costs for that
year. An interim rate is calculated from previously filed cost reports, and
may include an inflation factor to account for the time lag between the final
cost report settlement and the rate period. Consequently, facility cost
increases during any year may affect revenues in that year. Certain states are
scheduled to convert, or have recently converted, from a retrospective system,
which generally recognizes only two or three levels of care, to a case mix
prospective pricing system, pursuant to which payment to a facility for
patient services directly considers the individual patient's condition and
need for services. The effect, if any, of such a payment system on the Company
is unclear.
The following table identifies Multicare's net revenues attributable
to each of its revenue sources for the periods indicated below.
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<TABLE>
<CAPTION>
Net Revenues
-----------------------------------------------------------------------
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Private and other...................... 39% 41% 40% 40% 43%
Medicaid............................... 38 34 35 36 33
Medicare............................... 23 25 25 24 24
----------- ----------- ----------- ----------- -----------
Total......................... 100% 100% 100% 100% 100%
=========== =========== =========== =========== ===========
</TABLE>
Competition
The Company competes with a variety of other companies in providing
healthcare services. Certain competing companies have greater financial and
other resources and may be more established in their respective communities
than the Company. Competing companies may offer newer or different centers or
services than the Company and may thereby attract the Company's customers who
are either presently residents of its eldercare centers or are otherwise
receiving its healthcare services.
The Company operates eldercare centers in 11 states. In each market,
the Company's eldercare centers may compete for customers with rehabilitation
hospitals, sub-acute units of hospitals, skilled or intermediate nursing
centers, personal care or residential centers and assisted living facilities
which offer comparable services to those offered by the Company's centers.
Certain of these providers are operated by not-for-profit organizations and
similar businesses which can finance capital expenditures on a tax-exempt
basis or receive charitable contributions unavailable to the Company. In
competing for customers, a center's local reputation is of paramount
importance. Referrals typically come from acute care hospitals, physicians,
religious groups, other community organizations, health maintenance
organizations and the customer's families and friends. Members of a customer's
family generally actively participate in selecting an eldercare center.
Competition for sub-acute patients is intense among hospitals with long-term
care capability, rehabilitation hospitals and other speciality providers and
is expected to remain so in the future. Important competitive factors include
the reputation in the community, services offered, the appearance of a center
and the cost of services.
The Company competes in providing specialty medical services with a
variety of different companies. Generally, this competition is national,
regional and local in nature. The primary competitive factors in the
speciality medical services business are similar to those in the eldercare
center business and include reputation, the quality of clinical services,
responsiveness to patient needs, and the ability to provide support in other
areas such as third party reimbursements, information management and patient
record-keeping.
The Company believes that state regulations which require the
issuance of a Certificate of Need before a new eldercare center can be
constructed or additional beds can be added to an existing facility reduce the
possibility of overbuilding and promote higher utilization of existing
facilities. However, a relaxation, expiration or elimination 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 sub-acute 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. See "Risk Factors -- Risks Associated with Multicare
Transaction."
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Government Regulation
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. The Company's facilities
are subject to certain federal statutes and regulations and to statutory and
regulatory licensing and other requirements imposed by state and local
authorities.
All of the Company's facilities and programs, to the extent required,
are licensed under applicable law and have any required Certificates of Need
from responsible state authorities. Substantially all facilities and
healthcare services, or practitioners providing the services therein, are
certified or approved as providers under one or more of the Medicaid, Medicare
or Veterans Administration programs. Licensing, certification and other
applicable standards vary from jurisdiction to jurisdiction and are revised
periodically. State and local agencies survey licensed facilities on a regular
basis to determine whether such facilities are in compliance with governmental
operating and health standards and conditions for participation in government
sponsored third party payor programs. The Company believes that its facilities
are in substantial compliance with the various Medicare and Medicaid
regulatory requirements applicable to them. However, in the ordinary course of
its business, the Company receives notices of deficiencies for failure to
comply with various regulatory requirements. The Company reviews such notices
and takes appropriate corrective action. In most cases, the Company and the
reviewing agency will agree upon the measures to be taken to bring the
facility into compliance with regulatory requirements. In some cases or upon
repeat violations, the reviewing agency may take various adverse actions
against a facility, including the imposition of fines, temporary suspension of
admission of new patients to the facility, suspension or decertification from
participation in the Medicare or Medicaid programs and, in extreme
circumstances, revocation of a facility's license. These actions may adversely
affect the facilities' ability to continue to operate, the ability of the
Company to provide certain services, and eligibility to participate in the
Medicare, Medicaid or Veterans Administration programs or to receive payments
from other payors. Additionally, actions taken against one facility may
subject other facilities under common control or ownership to adverse
measures, including loss of licensure or eligibility to participate in
Medicare and Medicaid programs. 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 a material adverse effect on
the Company's operations, however, there can be no assurance that future
surveys will not result in penalties or sanctions which could have a material
adverse effect on the Company.
Both initial and continuing qualifications of a eldercare facility to
participate in the Medicare and Medicaid programs depend upon many factors
including accommodations, equipment, services, patient care, safety,
personnel, physical environment, and adequate policies, procedures and
controls. Failure to comply with these standards could result in the denial of
reimbursement, the imposition of fines, temporary suspension of admission of
new patients, the issuance of a provisional license for a facility, 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, the imposition of limitations on a facility's license, the
appointment of third-party temporary management for a facility, 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 meet the requirements for
participation in the Medicaid or Medicare programs or state licensing
authorities.
Under the various Medicaid programs, the federal government
supplements funds provided by the participating states for medical assistance
to "medically indigent" persons. The programs are administered by the
applicable state welfare or social service agencies. Although Medicaid
programs vary from state to
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state, traditionally they have provided for the payment of certain expenses,
up to established limits, at rates based generally on cost reimbursement
principles.
States in which the Company operates generally have adopted
Certificate of Need or similar laws which generally require that a state
agency approve certain acquisitions and determine that the need for certain
bed additions, new services, and capital expenditures or other changes exists
prior to the acquisition or addition of beds or services, the implementation
of other changes, or the expenditure of capital. Certificate of Need
legislation is currently in place in all states in which the Company operates,
except in Pennsylvania where the existing Certificate of Need legislation
expired on December 18, 1996. A bill has been introduced in the Pennsylvania
legislature to re-establish Certificate of Need requirements; however, the
Company has been advised that there is little likelihood such bill will be
passed. The Pennsylvania Department of Public Welfare has issued a policy
statement to the effect that generally it will not enter into a provider
agreement with any eldercare facility which did not receive Certificate of
Need approval for the beds at issue prior to the sunset of Pennsylvania's
Certificate of Need law. 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 which govern
financial and other arrangements between healthcare providers. These laws
often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the
"anti-kickback" provisions of the Medicare and Medicaid programs, which
prohibit, among other things, knowingly and willfully soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe or rebate)
directly or indirectly in return for or to induce the referral of an
individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part under
Medicare or Medicaid. These laws also include the "Stark legislation" which
prohibits, with limited exceptions, the referral of patients by physicians for
certain services, including home health services, physical therapy and
occupational therapy, to an entity in which the physician has an ownership
interest. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs and civil and criminal penalties. These
laws vary from state to state, are often vague and have seldom been
interpreted by the courts or regulatory agencies. From time to time, the
Company has sought guidance as to the interpretation of these laws; however,
there can be no assurance that such laws will ultimately be interpreted in a
manner consistent with the practices of the Company. Although the Company has
contractual arrangements with some healthcare providers to which the Company
pays fees for services rendered or products provided, the Company believes
that its practices are not in violation of these laws. The Company cannot
accurately predict whether enforcement activities will increase or the effect
of any such increase on its business. There have also been a number of recent
federal and state legislative and regulatory initiatives concerning
reimbursement under the Medicare and Medicaid programs. In particular, the
federal government has issued fraud alerts concerning double billing, home
health services and the provisions of medical supplies. Accordingly, it is
anticipated that these areas may come under closer scrutiny by the government.
The Company cannot accurately predict the impact of any such initiatives.
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
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expenditures. The Company is unable to predict the impact of healthcare
reforms on the Company; 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.
Employees
As of September 30, 1997, Multicare employed approximately 15,500
persons. Approximately 2,000 employees at 28 of Multicare's facilities are
covered by collective bargaining agreements. The Company believes that it has
had good relationships with its employees and 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. The Company competes with other healthcare
providers and with non-healthcare providers for both professional and
non-professional employees. 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.
Insurance
The provision of healthcare services entails an inherent risk of
liability. Multicare maintains liability insurance providing coverage which it
believes to be adequate. In addition, Multicare maintains property, business
interruption, and workers' compensation insurance covering all facilities in
amounts deemed adequate by Multicare. 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.
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Legal Proceedings
Multicare is a party to claims and legal actions arising in the
ordinary course of business. Multicare does not believe that any litigation to
which Multicare is currently a party, alone or in the aggregate, will have a
material adverse effect on the Company.
Significant Acquisitions
In December 1996, Multicare acquired A.D.S, an affiliated group of
eldercare companies operating 22 eldercare facilities with 2,930 beds, 20
hospital based sub-acute units with 514 beds and eight assisted living
facilities with 821 beds, all but one of which are located in Massachusetts.
A.D.S also provided consulting services to an additional 14 facilities with
1,668 beds and operated several ancillary businesses. In December 1996,
Multicare completed the acquisition of the assets and operations of three
eldercare facilities in Rhode Island with 373 beds which Multicare had been
managing since December 1995 when Multicare acquired the assets and operations
of two related eldercare facilities with 356 beds in Connecticut. In February
1996, Multicare acquired the outstanding capital stock of Concord which
operated 11 eldercare facilities with approximately 1,600 beds, including
assisted living facilities, and several ancillary businesses in Pennsylvania.
In December 1995, Multicare acquired the outstanding capital stock of Glenmark
Associates, Inc., an eldercare service provider that operated 21 facilities
and several ancillary businesses with approximately 1,700 beds located
principally in West Virginia. In 1996 and 1997, Multicare completed the
construction of four new skilled nursing facilities which are currently
managed by the Company. One additional facility under construction is
scheduled to open in 1997. In addition, Multicare opened its first three newly
constructed assisted living facilities during 1996 and 1997.
Properties
As of September 30, 1997, Multicare operated 155 eldercare
facilities, 11 assisted living facilities and two outpatient rehabilitation
centers (90 owned, 27 leased and 51 managed). Multicare has sought to retain
ownership of a significant portion of its real estate and it believes this
provides it with substantial financing flexibility. Twenty-seven of
Multicare's facilities are leased by the respective operating entities from
third parties. The inability of the Company to make rental payments under
these leases 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 considers its properties to be in good operating
condition and suitable for the purposes for which they are being used.
The following table summarizes by state certain information regarding
Multicare's facilities and outpatient rehabilitation centers at September 30,
1997 (excluding 14 facilities with 1,668 beds at which Multicare provides
quality assurance consulting services):
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<TABLE>
<CAPTION>
Owned (1) Leased Managed Total
-------------------- -------------------- -------------------- --------------------
Facilities Beds Facilities Beds Facilities Beds Facilities Beds
---------- -------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Massachusetts................ 8 1,118 5 742 37 2,459 50 4,319
New Jersey................... 13 1,425 8 1,294 4 659 25 3,378
Pennsylvania................. 16 1,805 -- -- 3 654 19 2,459
West Virginia................ 17 1,503 4 326 1 62 22 1,891
Ohio......................... 10 896 4 250 -- -- 14 1,146
Connecticut.................. 5 766 2 250 6 872 13 1,888
Illinois..................... 10 876 1 92 -- -- 11 968
Wisconsin.................... 6 729 2 231 -- -- 8 960
Rhode Island................. 3 373 -- -- -- -- 3 373
Virginia..................... 1 90 1 85 -- -- 2 175
Vermont...................... 1 58 -- -- -- -- 1 58
---------- -------- ---------- --------- ---------- --------- ---------- ---------
Total............... 90 9,639 27 3,270 51 4,706 168 17,615
========== ======== ========== ========= ========== ========= ========== =========
</TABLE>
- ------------------------
(1) Includes seven facilities with 883 beds which are not wholly owned.
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MANAGEMENT
Directors and Executive Officers of the Company
The following table sets forth certain information regarding each of
the directors and executive officers of the Company. Each was appointed to his
position with the Company at or about the time of the Tender Offer.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------ -------- -----------------------------------------------------
<S> <C> <C>
Michael R. Walker................... 49 Chairman, Chief Executive Officer and Director
George V. Hager, Jr................. 41 Senior Vice President, Chief Financial Officer and
Director
James L. Singleton.................. 42 Vice President, Assistant Secretary and Director
James G. Coulter.................... 37 Vice President, Assistant Secretary and Director
Jonathan J. Coslet.................. 32 Director
Richard R. Howard................... 48 Director
Karl I. Peterson.................... 26 Director
William L. Spiegel.................. 35 Director
James A. Stern...................... 47 Director
</TABLE>
Michael R. Walker is the Chairman of the Board, Chief Executive
Officer and a director of the Company. Mr. Walker is the founder of Genesis
and has served as Chairman and Chief Executive Officer of Genesis since its
inception in 1985. In 1981, Mr. Walker co-founded Health Group Care Centers
("HGCC"). At HGCC, he served as Chief Financial Officer and, later, as
President and Chief Operating Officer. Prior to its sale in 1985, HGCC
operated eldercare facilities with 4,500 nursing beds in 12 states. From 1978
to 1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare
Centers, Inc. ("AID"). AID, which owned and operated 20 nursing centers, was
co-founded in 1977 by Mr. Walker as the nursing home division of Hospital
Affiliates International. Mr. Walker holds a Master of Business Administration
degree from Temple University and a Bachelor of Arts in Business
Administration from Franklin and Marshall College. Mr. Walker serves on the
Board of Directors of Renal Treatment Centers, Inc. and on the Board of
Trustees of Universal Health Realty & Income Trust.
George V. Hager, Jr. is the Senior Vice President, Chief Financial
Officer and a director of the Company. Mr. Hager has served as the Senior Vice
President and Chief Financial Officer of Genesis since February 1994. Mr.
Hager joined Genesis in July 1992 as Vice President and Chief Financial
Officer. Prior thereto, Mr. Hager was the partner in charge of the healthcare
practice for KPMG Peat Marwick LLP in the Philadelphia office. Mr. Hager began
his career at KPMG Peat Marwick LLP in 1979 and has over 15 years of
experience in the healthcare industry. Mr. Hager received a Bachelor of Arts
degree in Economics from Dickinson College in 1978 and a Master of Business
Administration degree from Rutgers Graduate School of Management. He is a
certified public accountant and a member of the American Institute of
Certified Public Accountants and Pennsylvania Institute of Certified Public
Accountants.
James L. Singleton is a Vice President, Assistant Secretary and a
director of the Company. Mr. Singleton has been a Vice Chairman of Cypress
since its formation in April 1994. Prior to joining Cypress, he was a Managing
Director in the Merchant Banking Group of Lehman Brothers Inc. Mr. Singleton
holds a Master of Business Administration degree from the University of
Chicago Graduate School of Business and a Bachelor of Arts degree from Yale
University. Mr. Singleton serves on the Board of Directors of Able Body
Corporation, Cinemark USA, Inc., L.P. Thebault Company and Williams Scotsman,
Inc.
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James G. Coulter is a Vice President, Assistant Secretary and a
director of the Company. Mr. Coulter was a founding partner of TPG in 1992.
Prior to forming TPG, Mr. Coulter was a Vice President of Keystone, Inc., the
personal investment vehicle of Fort Worth, Texas-based investor, Robert M.
Bass. Mr. Coulter holds a Master of Business Administration degree from
Stanford University and a Bachelor of Arts degree from Dartmouth College. Mr.
Coulter is Co-Chairman of the Board of Beringer Wine Estates. He also serves
on the Board of Directors of America West Airlines, Inc., Virgin Cinemas
Limited, Paradyne Partners, L.P. and Del Monte Corp. Mr. Coulter is also an
officer of the general partner of Colony Investors and Newbridge Investment
Partners.
Jonathan J. Coslet is a director of the Company. Mr. Coslet has been
a partner of TPG since 1993. Prior to joining TPG, Mr. Coslet was in the
Investment Banking Department of Donaldson, Lufkin & Jenrette, specializing in
leveraged acquisitions and high-yield finance. Mr. Coslet holds a Master of
Business Administration degree from Harvard Business School, where he was a
Baker Scholar and a Loeb Fellow, and a Bachelor of Science degree in Economics
from the University of Pennsylvania Wharton School. Mr. Coslet serves on the
Board of Directors of PPOM, L.P.
Richard R. Howard is a director of the Company. Mr. Howard has served
as a director of Genesis since its inception and as Chief Operating Officer
since June 1986. Mr. Howard joined Genesis in September 1985 as Vice President
of Development. Mr. Howard's background in healthcare includes two years as
the Chief Financial Officer of HGCC. Mr. Howard's experience also includes
over ten years with Fidelity Bank, Philadelphia, Pennsylvania and one year
with Equibank, Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the
University of Pennsylvania Wharton School, where he received a Bachelor of
Science degree in Economics in 1971.
Karl I. Peterson is a director of the Company. Mr. Peterson has
served as Vice President of TPG since 1995. Prior to joining TPG, Mr. Peterson
was in the Mergers and Acquisitions Department and the Leveraged Buyout Group
of Goldman, Sachs & Co. Mr. Peterson holds a Bachelor of Business
Administration degree in Finance from the University of Notre Dame.
William L. Spiegel is a director of the Company. Mr. Spiegel has been
a Principal of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Spiegel was with Lehman Brothers Inc. where he worked in the
Merchant Banking Group. Mr. Spiegel holds a Master of Business Administration
degree from the University of Chicago Graduate School of Business, a Master of
Arts degree in Economics from the University of Western Ontario and a Bachelor
of Science degree in Economics from The London School of Economics.
James A. Stern is a director of the Company. Mr. Stern has been
Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. He served as head of Lehman's
High Yield and Primary Capital Markets Groups, and was co-head of Investment
Banking. In addition, Mr. Stern was a member of Lehman's Operating Committee.
Mr. Stern holds a Master of Business Administration degree from Harvard
Business School and a Bachelor of Science degree from Tufts University where
he is a trustee. Mr. Stern is a director of Amtrol Inc., Cinemark USA, Inc.,
Lear Corporation, Noel Group, Inc. and R.P. Scherer Corporation.
Certain Agreements
Management Agreement. In connection with the Merger, the Company and
Genesis entered into the Management Agreement pursuant to which Genesis
manages the Company's operations. The Management
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Agreement is for a term of five years with automatic renewals for two years
unless either party terminates the agreement. Genesis is entitled to receive a
fee of six percent of the Company's consolidated 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) $1,991,666 and (ii) four percent of
the Company's consolidated net revenues for such month shall be subordinate to
the satisfaction of the Company's senior and subordinate debt covenants and
that payment of the management fee shall be no less than $23.9 million in any
year. Under the Management Agreement, Genesis will be responsible for the
Company's non-extraordinary sales, general and administrative expenses (other
than certain specified third-party expenses), and all other expenses of the
Company will be paid by the Company.
Stockholders' Agreement. In connection with their investments in
Genesis ElderCare Corp., Genesis, Cypress and TPG have entered into a
Stockholders' Agreement (the "Stockholders' Agreement"). Pursuant to the
Stockholders' Agreement, among other things, each of Genesis, Cypress and TPG,
as holders of Genesis ElderCare Corp. common stock, will at all times have the
right to designate one-third of the members to Genesis ElderCare Corp.'s Board
of Directors. The following actions by Genesis ElderCare Corp. require the
consent of a member of the Board designated by Cypress, TPG and Genesis: sales
of capital stock, mergers, dissolution, acquisitions in excess of specified
thresholds, transactions with affiliates, dividends and redemptions, loans and
investments in excess of specified thresholds, amendments of articles, by-laws
and loan documents, change in business, fundamental changes and material
contracts (other than termination of the Management Agreement in accordance
with its terms). The Stockholders' Agreement also provides that sales of
Genesis ElderCare Corp. common stock by a stockholder to a party other than an
affiliate of such stockholder (including partners) and, in the case of
Cypress, other than TPG, and in the case of TPG, other than Cypress, will
require approval of the other stockholders, and shall be subject to a right of
first offer on the part of each such stockholder.
Put/Call Agreement. In connection with the funding pursuant to their
respective equity commitments, Genesis, Cypress, TPG and Nazem entered into an
agreement dated as of October 9, 1997 pursuant to which, among other things,
Genesis has the option, on the terms and conditions set forth in the Put/Call
Agreement, to purchase (the "Call") the common stock of Parent 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 have the option, on the terms and conditions
set forth in the Put/Call Agreement, to require Genesis to purchase (the
"Put") such common stock of Parent 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 the common stock of Parent
held by Cypress, TPG and Nazem plus a portion of the Genesis pharmacy business
(the "Calculated Equity Value"). The Calculated Equity Value is 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
depends 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 to
be divided based upon the proportionate share of the capital
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contributions of the stockholders to Parent. Upon exercise of the Put by
Cypress, TPG or Nazem, there will be no minimum return to Cypress, TPG or
Nazem; any payment to Cypress, TPG or Nazem will be limited to Cypress', TPG's
or Nazem's share of the Calculated Equity Value based upon a formula set forth
in the terms of the Put/Call Agreement which provides generally for the
preferential return of the stockholders' capital contributions (subject to
certain priorities), a 25% compound annual return on Cypress, TPG's and
Nazem'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 Parent.
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 have the right, inter alia, to terminate the
Stockholders' Agreement and Management Agreement and to control the sale or
liquidation of Parent. In the event of such sale, the proceeds from such sale
will be distributed among the parties as contemplated by the formula for the
Put option exercise price and Cypress, TPG and Nazem will retain a claim
against Genesis for the difference, if any, between the proceeds of such sale
and the put option exercise price. In the event of a bankruptcy or change of
control of Genesis, the option price shall be payable solely in cash provided
any such payment will be subordinated to the payment of principal and interest
under the Genesis Bank Financing.
Commencing on October 10, 2003, if the Put option has not been
exercised, subject to Genesis' right of first offer, Cypress and TPG have the
right to sell their stock of Genesis ElderCare Corp. Genesis shall have the
right to participate in such sale and Cypress and TPG will have the right to
require Genesis to participate in such sale. Upon such sale, Genesis shall pay
to Cypress and TPG (in cash or Genesis common stock at Genesis' option) the
difference between the proceeds received by them and the amount they would
have received had they exercised the Put on October 9, 2003.
The Put/Call Agreement also contains certain restriction on Genesis'
right to take certain corporate actions including its ability to sell all or a
portion of its pharmacy business.
Therapy and Pharmacy Sale. Concurrently with the consummation of the
Merger, the Company sold all of the assets used in its outpatient and
inpatient rehabilitation therapy business to Genesis for approximately $24.0
million and entered into an agreement to sell all of the outstanding capital
stock and limited partnership interests of certain subsidiaries of the Company
that are engaged in the business of providing institutional pharmacy services
to third parties to Genesis for approximately $50.0 million, subject to
adjustment.
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DESCRIPTION OF THE NOTES
The Existing Notes will be issued under an Indenture to be dated as
of August 1, 1997 (the "Indenture") between the Issuer and PNC Bank, National
Association, trustee (the "Trustee"). A copy of the Indenture is available
upon request from the Issuer. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Whenever
particular defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. For
definitions of certain capitalized terms used in the following summary, see
"Certain Definitions."
General
The Notes will mature on August 1, 2007, will be initially limited to
$250,000,000 aggregate principal amount, and will be unsecured senior
subordinated obligations of the Issuer. The Notes bear interest at 9% per
annum from August 11, 1997 or from the most recent interest payment date to
which interest has been paid, payable semiannually on February 1 and August 1
of each year, commencing February 1, 1998, to the Person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
January 15 or July 15 next preceding such interest payment date.
If, by March 31, 1998, the Issuer has not consummated a registered
exchange offer for the Notes or caused a shelf registration statement with
respect to resales of the Notes to be declared effective, the interest rate
per annum on the Notes will increase by .5% until the consummation of a
registered exchange offer or the effectiveness of a shelf registration
statement. See "-- Registration Rights."
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Issuer in the City of New York maintained for such purposes;
provided, however, that payment of interest may be made at the option of the
Issuer by check mailed to the Person entitled thereto as shown on the Security
Register. The Notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. See "--
Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer, exchange or redemption of Notes, except in certain
circumstances for any documentary, stamp or similar issue or transfer taxes or
other tax or other governmental charge that may be imposed in connection
therewith.
Subject to the covenants described below under "-- Certain Covenants"
and applicable law, the Issuer may issue additional Notes under the Indenture.
The Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
Optional Redemption
The Notes will be redeemable, at the Issuer's option, in whole or in
part, at any time or from time to time, on or after August 1, 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed
by first class mail to each Holder's last address as it appears in the
Security Register, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
regular record date that is on or prior to the redemption date to receive
interest due on an interest payment date), if redeemed during the 12-month
period commencing August 1, of the years set forth below:
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Year Redemption Price
- ------- --------------------
2002................................................... 104.500%
2003................................................... 102.250
2004 and thereafter.................................... 100.000
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by
lot or by such other method as the Trustee in its sole discretion shall deem
to be fair and appropriate; provided that no Note of $1,000 in principal
amount or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
Sinking Fund
The Notes will not be subject to the benefit of any sinking fund.
Registration Rights
The Issuer has agreed with the Placement Agents, for the benefit of
the Holders, that the Issuer will use its best efforts, at its cost, to file
and cause to become effective a registration statement with respect to a
registered offer (the "Exchange Offer") to exchange the Existing Notes for the
Exchange Notes with terms identical to the Existing Notes (except that the
Exchange Notes will not bear legends restricting the transfer thereof nor
contain terms concerning interest rate increases). Upon such registration
statement being declared effective, the Issuer shall offer the Exchange Notes
in return for surrender of the Existing Notes. Such offer shall remain open
for not less than 20 business days after the date notice of the Exchange Offer
is mailed to Holders. For each Existing Note surrendered to the Issuer under
the Exchange Offer, the Holder will receive an Exchange Note of equal
principal amount. Interest on each Exchange Note shall accrue from the last
Interest Payment Date on which interest was paid on the Existing Notes so
surrendered or, if no interest has been paid on such Existing Notes, from the
Closing Date. In the event that applicable interpretations of the staff of the
Securities and Exchange Commission (the "Commission") do not permit the Issuer
to effect the Exchange Offer, or under certain other circumstances, the Issuer
shall, at its cost, use its best efforts to cause to become effective a shelf
registration statement (the "Shelf Registration Statement") with respect to
resales of the Existing Notes and to keep such Shelf Registration Statement
effective until two years after the Closing Date, or such shorter period that
will terminate when all Existing Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement. The
Issuer shall, in the event of such a shelf registration, provide to each
Holder copies of the prospectus, notify each Holder when the Shelf
Registration Statement for the Existing Notes has become effective and take
certain other actions as are required to permit resales of the Existing Notes.
A Holder that sells its Existing Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a Holder (including
certain indemnification obligations).
In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to March 31,
1998, the per annum interest rate borne by the Notes will be
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increased by .5% until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective.
If the Issuer effects the Exchange Offer, the Issuer will be entitled
to close the Exchange Offer 20 business days after the commencement thereof,
provided that it has accepted all Existing Notes theretofore validly
surrendered in accordance with the terms of the Exchange Offer. Existing Notes
not tendered in the Exchange Offer shall bear interest at the rate set forth
on the cover page of this Prospectus and be subject to all of the terms and
conditions specified in the Indenture and to certain transfer restrictions.
Subordination
The payment of the principal of, premium, if any, and interest on,
the Notes will be subordinated, as described below, in right of payment to the
prior payment in full in cash or Cash Equivalents of all Senior Indebtedness.
The Notes will be senior subordinated indebtedness of the Issuer ranking pari
passu with all other existing and future senior subordinated indebtedness of
the Issuer and senior to all existing and future Subordinated Indebtedness of
the Issuer. After giving pro forma effect to the Transactions, as of September
30, 1997 the Company would have had approximately $703.1 million of
Indebtedness outstanding, of which $454.5 million would have been Senior
Indebtedness. See "Risk Factors -- Substantial Leverage" and "Capitalization."
Notwithstanding the foregoing, payment from (x) the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under "--
Defeasance" below and (y) the money or the proceeds of U.S. Government
Securities held under the Escrow Agreement, will not be contractually
subordinated in right of payment to any Senior Indebtedness or subject to the
restrictions described herein.
Upon the occurrence of any default in the payment of any Designated
Senior Indebtedness no payment or distribution of any assets of the Issuer or
any Subsidiary of any kind or character (excluding certain permitted equity or
subordinated securities) shall be made by the Issuer or any Subsidiary or on
behalf of, or out of the property of, the Issuer, or received by the Trustee
or any Noteholder on account of the principal of, premium, if any, or interest
on, the Notes or on account of the purchase, redemption, defeasance or other
acquisition of or in respect of the Notes unless and until such default has
been cured, waived or has ceased to exist or such Designated Senior
Indebtedness shall have been paid in full in cash or Cash Equivalents.
Upon the occurrence of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and after the receipt by the Trustee and
the Issuer from a representative or the holder of any Designated Senior
Indebtedness of written notice of such Non-payment Default, no payment (other
than any payments made from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "-- Defeasance" or
distribution of any assets of the Issuer or any Subsidiary of any kind or
character (excluding certain permitted equity or subordinated securities) may
be made by the Issuer or any Subsidiary or on behalf of, or out of the
property of, the Issuer or any Subsidiary or received by the Trustee or any
Noteholder on account of any principal of, premium, if any, or interest on,
the Notes (including payments under any guaranty thereof) or on account of the
purchase, redemption or other acquisition of or in respect of the Notes (or
any guaranty thereof) for the period specified below (the "Payment Blockage
Period").
The Payment Blockage Period shall commence upon the receipt of notice
of the Non-payment Default by the Trustee and the Issuer from a representative
or the holder of any Designated Senior Indebtedness and shall end on the
earliest of (i) 179 days after receipt of such notice by the Trustee (provided
any Designated Senior Indebtedness as to which notice was given shall not
theretofore have been
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<PAGE>
accelerated), (ii) the date such Non-payment Default and all other Non-payment
Defaults as to which notice is also given after such period is initiated shall
have been cured or waived or shall have ceased to exist or the Senior
Indebtedness related thereto shall have been paid in full or (iii) the date
such Payment Blockage Period and any Payment Blockage Periods initiated during
such period shall have been terminated by written notice to the Issuer or the
Trustee from the senior representative and the holders of the Designated
Senior Indebtedness that have given notice of a Non-payment Default at or
after the initiation of such Payment Blockage Period, after which, in the case
of clause (i), (ii) or (iii), the Issuer shall resume making any and all
required payments in respect of the Notes, including any missed payments. In
no event will a Payment Blockage Period extend beyond 179 days from the date
of the receipt by the Trustee of the notice initiating the first such Payment
Blockage Period (such 179-day period referred to as the "Initial Period"). Not
more than one Payment Blockage Period may be commenced with respect to the
Notes during any period of 360 consecutive days; provided that, subject to the
limitations set forth in the next sentence, the commencement of a Payment
Blockage Period by the representative of Designated Senior Indebtedness other
than the Credit Facility shall not bar the commencement of another Payment
Blockage Period by the representative for the Credit Facility within such
period of 360 consecutive days. Notwithstanding anything in the Indenture to
the contrary, there must be 180 days in any 360-day period in which no Payment
Blockage Period is in effect. No event of default (other than an event of
default pursuant to the financial maintenance covenants under the Credit
Facility) that existed or was continuing (it being acknowledged that any
subsequent action that would give rise to an event of default pursuant to any
provision under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose) on the date of
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or shall
be made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the holders of, such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
If the Issuer fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event
of Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "Events of Default."
The Indenture will provide that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to the Issuer or its assets, or any liquidation, dissolution or other
winding up of the Issuer, whether voluntary or involuntary, or any assignment
for the benefit of creditors or other marshaling of assets or liabilities of
the Issuer, all Senior Indebtedness must be paid in full in cash or Cash
Equivalents before any payment or distribution (excluding certain permitted
equity or subordinated securities) is made on account of the principal of,
premium, if any, or interest on the Notes.
By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Issuer who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness
in full in cash or Cash Equivalents, and the Issuer may be unable to meet its
obligations fully with respect to the Notes.
"Senior Indebtedness" means the following obligations, whether
outstanding on the Closing Date or thereafter Incurred: (a) all Indebtedness
and other monetary obligations of the Issuer or any Subsidiary of the Issuer
under or in respect of the Credit Facility (including obligations in respect
of any lease financing facility of the Credit Facility) or any Interest Rate
Contract or Currency Agreement related to Indebtedness
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under the Credit Facility, whether for principal, interest (including interest
accruing after the filing of a petition by or against the Issuer or any
Subsidiary of the Issuer under any state or federal Bankruptcy Laws, whether
or not such interest is allowed as a claim after such filing in any proceeding
under such law), fees, expenses, indemnification or otherwise, and (b) the
principal of, premium, if any, and interest on all other Indebtedness of the
Issuer (other than the Notes) unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
be pari passu with or subordinated in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness that is by its terms subordinate in right of payment to any
Indebtedness of the Issuer, (ii) Indebtedness which when incurred and without
respect to any election under Section 1111(b) of the Bankruptcy Law is without
recourse to the Issuer, (iii) any repurchase, redemption or other obligation
in respect of Redeemable Capital Stock, (iv) Indebtedness for goods, materials
or services purchased in the ordinary course of business or indebtedness
consisting of trade payables or other current liabilities, (v) Indebtedness of
or amounts owed by the Issuer to employees, officers or directors, (vi) any
liability for federal, state, local or other taxes owed or owing by the
Issuer, (vii) Indebtedness of the Issuer to a Subsidiary of the Issuer or any
other Affiliate of the Issuer or any of such Affiliate's subsidiaries, (viii)
that portion of any Indebtedness which at the time of issuance is issued in
violation of the Indenture and (ix) amounts owing under leases (other than
Capital Lease Obligations).
"Designated Senior Indebtedness" is defined as (i) all Senior
Indebtedness under, or in respect of, the Credit Facility and any Interest
Rate Contract or Currency Agreement related to Indebtedness under the Credit
Facility and (ii) any other Senior Indebtedness which, at the time of
determination, has an aggregate principal amount outstanding, together with
any commitments to lend additional amounts, of at least $30,000,000 and is
specifically designated in the instrument evidencing such Senior Indebtedness
as "Designated Senior Indebtedness."
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness. The Issuer will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (including any
Acquired Indebtedness but excluding Permitted Indebtedness) unless at the time
of such event and after giving effect thereto on a pro forma basis the
Issuer's Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding such event taken as one period, calculated on the
assumption that (i) such Indebtedness, and any Indebtedness Incurred or repaid
after the first day of such four-quarter period and on or prior to the date of
such event (other than Indebtedness Incurred or repaid under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or
under any predecessor revolving credit or similar arrangement) in effect on
the last day of such four quarter period unless any portion of such
Indebtedness is projected, in the reasonable judgment of the senior management
of the Issuer, to remain outstanding for a period in excess of 12 months from
the date of the Incurrence thereof), had been Incurred or repaid on the first
day of such four-quarter period and (ii) any acquisition or disposition by the
Issuer and its Restricted Subsidiaries out of the ordinary course of business
of any assets constituting a company, division, line of business or business
facility, in each case after the first day of such four-quarter period, and on
or prior to the date of such event, had been consummated on the first day of
such four-quarter period (including giving pro forma effect to the application
of the proceeds of any such disposition), would have been at least equal to
2:00:1.00.
Limitation on Restricted Payments. The Issuer will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
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(i) declare or pay any dividend on, or make any distribution
to holders of, its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Qualified Capital Stock
or in options, warrants or other rights to acquire such Qualified
Capital Stock and (y) pro rata dividends or distributions on Common
Stock of Restricted Subsidiaries held by minority stockholders);
(ii) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock (or any option, warrant or other
right to acquire such Capital Stock) of (A) the Issuer or an
Unrestricted Subsidiary held by any Person or (B) a Restricted
Subsidiary held by an Affiliate of the Issuer (other than any Wholly
Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Issuer;
(iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case, prior
to any scheduled repayment, or maturity, any Subordinated
Indebtedness; or
(iv) make any Investment in any Person (other than a Permitted
Investment)
(such payments described in (i) through (iv) collectively, "Restricted
Payments"), unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (x) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment
shall not be an event which is, or after notice or lapse of time or both,
would be, an "event of default" under the terms of any Indebtedness of the
Issuer or any Restricted Subsidiary; (y) the Issuer could Incur $1.00 of
additional Indebtedness under the "Limitation on Indebtedness" covenant (other
than Permitted Indebtedness); and (z) the aggregate amount of all Restricted
Payments, including any Restricted Payments made pursuant to clauses (i) and
(iv) of the succeeding paragraph, declared or made after the Closing Date
shall not exceed the sum of:
(A) 50% of the Consolidated Net Income of the Issuer accrued
on a cumulative basis during the period beginning on the first day of
the fiscal quarter beginning immediately following the Closing Date
and ending on the last day of the fiscal quarter ending prior to the
date of such proposed Restricted Payment for which reports have been
filed with the Commission or provided to the Trustee pursuant to the
"Reporting Requirements" covenant (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of the amount of
such loss);
(B) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer as capital contributions to the Issuer;
(C) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer from the issuance and sale (other than to
any of its Subsidiaries) of shares of Qualified Capital Stock of the
Issuer or any options or warrants to purchase such shares (other than
issuances to the extent used to make a Restricted Payment under
clause (ii) of the subsequent paragraph) of Qualified Capital Stock
of the Issuer;
(D) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer for debt securities that have been
converted into or exchanged for Qualified Capital Stock of the Issuer
to the extent such debt securities were originally sold for cash plus
the aggregate cash received by the Issuer at the time of such
conversion or exchange; and
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(E) $10 million.
None of the foregoing provisions shall be deemed to prohibit the
following Restricted Payments so long as in the case of clauses (ii), (iii)
and (iv) at the time of and after giving effect to the proposed Restricted
Payment no Default or Event of Default shall have occurred and be continuing:
(i) dividends paid within 60 days after the date of
declaration if at the date of declaration, such payment would be
permitted by the provisions of the preceding paragraph;
(ii) the redemption, repurchase or other acquisition or
retirement of Capital Stock of the Issuer or Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially concurrent issue and sale (other than to a Subsidiary)
of shares of Qualified Capital Stock of the Issuer;
(iii) the redemption, repurchase, or other acquisition or
retirement of Subordinated Indebtedness of the Issuer, including
premium, if any, and accrued and unpaid interest, made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Issuer permitted to be Incurred under clause (k)
of the definition of "Permitted Indebtedness"; and
(iv) Investments in an aggregate amount not to exceed $25
million in any Person which owns, operates or services Healthcare
Related Businesses.
Restrictions on Preferred Stock of Restricted Subsidiaries. The
Issuer will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any Preferred Stock of a Restricted
Subsidiary other than to the Issuer or a Wholly Owned Restricted Subsidiary,
or permit any Person (other than the Issuer or a Wholly Owned Restricted
Subsidiary) to own or hold any Preferred Stock of any Restricted Subsidiary,
unless such Restricted Subsidiary would be entitled to Incur Indebtedness
pursuant to the "Limitation on Indebtedness" covenant in an aggregate
principal amount equal to the aggregate liquidation value of the Preferred
Stock to be issued.
Limitation on Transactions with Affiliates. The Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into, renew or extend any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of
assets, property or services) with any Affiliate of the Issuer (other than a
Wholly Owned Restricted Subsidiary) unless (i) such transaction or series of
related transactions is on terms that are no less favorable to the Issuer or
such Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction in arm's-length dealings with an unrelated third party
and (ii) with respect to a transaction or series of related transactions
involving payments in excess of $10 million in the aggregate, the Issuer
delivers an Officers' Certificate to the Trustee certifying that (A) such
transaction complies with clause (i) above and (B) such transaction or series
of related transactions shall have been approved by a majority of the
independent directors of the Board of Directors of the Issuer or for which the
Issuer or a Restricted Subsidiary has received a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Issuer or such Restricted Subsidiary from a financial point of
view (a copy of which opinion shall be attached to such Officers'
Certificate); provided, however, that the foregoing restriction shall not
apply to (a) the payment of reasonable and customary regular fees to directors
of the Issuer or any of its Restricted Subsidiaries who are not employees of
the Issuer or any Affiliate, (b) the payment of monthly fees in accordance
with the "Limitation on Management Fees" covenant described below and the
reimbursement of expenses pursuant to the terms of management agreements with
Genesis or any of its affiliates, (c) any payments or other transactions
pursuant to any tax-sharing agreement between the Issuer and any other
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Person with which the Issuer files a consolidated tax return or with which the
Issuer is part of a consolidated group for tax purposes, (d) the Therapy Sale,
provided the Issuer or its Restricted Subsidiaries receives at least $20
million from the Therapy Sale, (e) the Pharmacy Sale, provided the Issuer or
its Restricted Subsidiaries receives at least $50 million from the Pharmacy
Sale, (f) transactions in the ordinary course of business with Genesis or any
of its Affiliates, related to the Issuer's healthcare businesses or
facilities; provided that the aggregate amount of any such transactions in any
twelve month period does not exceed $10 million, (g) any Restricted Payments
not prohibited by the "Limitation on Restricted Payments" covenant or (h) the
payment of fees and expenses in connection with the Transactions to Genesis,
Cypress and TPG.
Limitation on Asset Sales. The Issuer will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Issuer or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (ii) at
least 75% of the consideration received consists of cash or Temporary Cash
Investments. In the event and to the extent that the Net Cash Proceeds
received by the Issuer or any of its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed $10 million, then the Issuer shall or shall cause
the relevant Restricted Subsidiary to (i) within 12 months after the date Net
Cash Proceeds so received exceed $10 million (A) apply an amount equal to such
excess Net Cash Proceeds to permanently repay Senior Indebtedness of the
Issuer or any Subsidiary Guarantor or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than the Issuer or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement;
provided that if any such agreement is terminated, the Issuer may invest such
Net Cash Proceeds prior to the end of the 12-month period referred to in
clause (i) or six months after the termination of such agreement, whichever is
later), in property or assets (other than current assets) of a nature or type
or that are used in a business (or in a company having property and assets of
a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Issuer and its
Restricted Subsidiaries existing on the date of such investment and (ii) apply
(no later than the end of the 12-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10 million, the
Issuer must commence, not later than the fifteenth Business Day of such month,
and consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus,
in each case, accrued interest (if any) to the Payment Date.
Repurchase of Notes upon a Change in Control. The Issuer must
commence, within 30 days of the occurrence of a Change in Control, and
consummate an Offer to Purchase for all Notes then outstanding, at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest (if
any) to the Payment Date.
There can be no assurance that the Issuer will have sufficient funds
available at the time of any Change in Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities of the Issuer which might be
outstanding at the time). The above covenant requiring the Issuer to
repurchase the Notes will, unless consents are obtained,
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require the Issuer to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently
with such Note repurchase.
Limitation on Liens. The Issuer will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens
of any kind upon any of its respective properties now owned or acquired after
the Closing Date or any income or profits therefrom securing (i) any
Indebtedness of the Issuer which is expressly subordinate in right of payment
to any other Indebtedness of the Issuer, unless the Notes are equally and
ratably secured; provided that, if such Indebtedness is subordinate in right
of payment to the Notes, the Lien securing such Indebtedness shall be
subordinate to the Lien securing the Notes with the same relative priority as
such subordinated Indebtedness shall have with respect to the Notes; provided
further that this clause (i) shall not be applicable to any Liens securing any
such Indebtedness which became Indebtedness of the Issuer pursuant to a
transaction permitted under "-- Merger, Sales of Assets, etc." or Liens
securing Acquired Indebtedness and, in each case, which Liens were in
existence at the time of such transaction or Incurrence of such Acquired
Indebtedness and not Incurred in connection with or in contemplation of such
transaction or Incurrence, so long as such Liens do not extend to or cover any
property or assets of the Issuer or any Restricted Subsidiary other than
property or assets acquired in such transaction, or (ii) any assumption,
guarantee or other liability of any Restricted Subsidiary in respect of any
Indebtedness of the Issuer which is expressly subordinate in right of payment
to any other Indebtedness of the Issuer, unless the substantially similar
assumption, guarantee or other liability of such Restricted Subsidiary in
respect of the Notes is equally and ratably secured; provided that, if such
subordinated Indebtedness is subordinate in right of payment to the Notes, the
Lien securing the assumption, guarantee or other liability of such Restricted
Subsidiary in respect of such Indebtedness shall be subordinate to the Lien
securing the assumption, guarantee or other liability of such Restricted
Subsidiary with respect to the Notes with the same relative priority as such
subordinated Indebtedness shall have with respect to the Notes; provided
further that this clause (ii) shall not be applicable to Liens securing any
such assumption, guarantee or other liability which existed at the time such
Restricted Subsidiary became a Restricted Subsidiary and which Liens were in
existence at the time of such transaction (unless such assumption, guarantee
or other liability was Incurred in connection with or in contemplation of such
Person becoming a Restricted Subsidiary), so long as such Liens do not extend
to or cover any property or assets of the Issuer or any other Restricted
Subsidiary.
Limitation on Senior Subordinated Indebtedness. The Issuer will not
Incur any Indebtedness, other than the Notes, that is subordinate in right of
payment to any Senior Indebtedness, unless such Indebtedness is also pari
passu with, or subordinate in right of payment to, the Notes pursuant to
subordination provisions substantially similar to those contained in the
Indenture; provided that the foregoing limitation shall not apply to
distinctions between categories of Senior Indebtedness of the Issuer that
exist by reason of any Liens or Guarantees arising or created in respect of
some but not all of such Senior Indebtedness.
Limitation on Issuance of Guarantees by Restricted Subsidiaries. (a)
The Issuer will not permit any Restricted Subsidiary, directly or indirectly,
to assume, guarantee or in any other manner become liable with respect to any
Indebtedness of the Issuer which is expressly by its terms pari passu with or
subordinate in right of payment to the Notes ("Guaranteed Indebtedness")
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a guarantee of payment
of the Notes by such Restricted Subsidiary and (ii) such Subsidiary waives and
will not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other rights
against the Issuer or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee. If the
Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee
of such Guaranteed Indebtedness shall be pari passu with, or subordinate in
right of payment to, the Subsidiary Guarantee or (B) subordinated to the
Notes, then the
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Guarantee of such Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated in right of payment to the Notes.
(b) Each guarantee created pursuant to the provisions described in
the foregoing paragraph is referred to as a "Subsidiary Guarantee" and the
issuer of each such Guarantee is referred to as a "Subsidiary Guarantor."
Notwithstanding the foregoing, any Subsidiary Guarantee may provide by its
terms that it (together with any Liens arising from such Subsidiary Guarantee)
shall be automatically and unconditionally released and discharged upon (i)
any sale, exchange or transfer, to any Person not an Affiliate of the Issuer,
of all of the Issuer's Capital Stock in, or all or substantially all the
assets of, such Subsidiary Guarantor, which is in compliance with the
Indenture or (ii) the release or discharge of the assumption, guarantee or
other liability which resulted in the creation of such Subsidiary Guarantee,
except a release or discharge by or as a result of payment under such
Subsidiary Guarantee.
Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Issuer will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any restriction of any kind, on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distribution on its Capital
Stock to the Issuer or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Issuer or any other Restricted Subsidiary, (iii) make
any Investment in the Issuer or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to the Issuer or any other Restricted
Subsidiary, except (a) any encumbrance or restriction existing under or by
reason of applicable law; (b) any encumbrance or restriction existing under or
by reason of customary non-assignment provisions of any lease governing a
leasehold interest of the Issuer, or any Restricted Subsidiary; (c) any
restriction pursuant to an agreement in effect at or entered into on the
Closing Date; (d) any restriction, with respect to a Restricted Subsidiary
that is not a Subsidiary on the Closing Date, in existence at the time such
Person becomes a Restricted Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Restricted Subsidiary; (e) any
restriction existing under any agreement that extends, renews, refinances or
replaces the agreements containing the restrictions in the foregoing clauses
(c) and (d), provided that the terms and conditions of any such restrictions
are not materially less favorable to the holders of the Notes than those under
or pursuant to the agreement so extended, renewed, refinanced or replaced (in
the opinion of the Board of Directors of the Issuer whose determination shall
be conclusive); (f) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of the Issuer or any
Restricted Subsidiary in any manner material to the Issuer or any Restricted
Subsidiary; (g) with respect to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary or (h) contained in the terms of any Indebtedness or any
agreement pursuant to which such Indebtedness was issued if (A) the
encumbrance or restriction applies only in the event of a payment default or a
default with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in comparable
financings (as determined by the Issuer) and (C) the Issuer determines that
any such encumbrance or restriction will not materially affect the Issuer's
ability to make principal or interest payments on the Notes.
Limitation on Management Fees. The Issuer will not, and will not
permit any of its Restricted Subsidiaries to pay any management fees in any
month to the extent such fees would exceed the greater of (i) $1,991,666 and
(ii) 4% of the Issuer's consolidated net revenues for such month; provided
that the Issuer may pay management fees in excess of such amount (including
accrued fees) to the extent that (A) both before and after giving effect to
the proposed payment (x) no Default or Event of Default shall have occurred
and be continuing and (y) the Issuer's Fixed Charge Coverage Ratio for the
four full fiscal quarters
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immediately preceding such event, taken as one period and calculated on the
assumption that (I) any Indebtedness Incurred or repaid after the first day of
such four-quarter period and on or prior to the date of such payment (other
than Indebtedness Incurred or repaid under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such four quarter period unless any portion of such Indebtedness is
projected, in the reasonable judgment of the senior management of the Issuer,
to remain outstanding for a period in excess of 12 months from the date of the
Incurrence thereof), had been Incurred or repaid on the first day of such
four-quarter period, (II) any acquisition or disposition by the Issuer and its
Restricted Subsidiaries out of the ordinary course of business of any assets
constituting a company, division, line of business or business facility, in
each case after the first day of such four-quarter period, and on or prior to
the date of such payment, had been consummated on the first day of such
four-quarter period (including giving pro forma effect to the application of
the proceeds of any such disposition) and (III) the proposed management fees
were paid during such period, would have been at least equal to 2:00:1.00; and
(B) the aggregate amount of management fees paid with respect to any month do
not exceed 6% of the Issuer's consolidated net revenues for such month. To the
extent the Issuer is prohibited from paying any management fees as a result of
clause (y) of the proviso to the preceding sentence, the Issuer may accrue
such fees until they may be paid in accordance with this "Limitation on
Management Fees" covenant provided the payment of such fees is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of
all of the Issuer's obligations under the Notes and the Indenture.
Reporting Requirements. At all times from and after the earlier of
(i) the date of the commencement of an Exchange Offer or the effectiveness of
the Shelf Registration Statement (the "Registration") and (ii) the date that
is six months after the Closing Date, in either case, whether or not the
Issuer is then required to file reports with the Commission, the Issuer shall
file with the Commission all such reports and other information as it would be
required to file with the Commission by Section 13(a) or 15(d) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") if it were
subject thereto. The Issuer shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information. In addition, at all
times prior to the earlier of the date of the Registration and the date that
is six months after the Closing Date, the Issuer shall, at its cost, deliver
to each Holder of the Notes quarterly and annual reports substantially
equivalent to those which would be required by the Exchange Act. In addition,
at all times prior to the Registration, upon the request of any Holder or any
prospective purchaser of the Notes designated by a Holder, the Issuer shall
supply to such Holder or such prospective purchaser the information required
under Rule 144A under the Securities Act.
Merger, Sale of Assets, etc.
The Issuer shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons, or permit any of its Restricted Subsidiaries to
enter into any such transaction or transactions if such transaction or
transactions, in the aggregate, would result in a sale, assignment, transfer,
lease or disposal of all or substantially all of the properties and assets of
the Issuer and its Restricted Subsidiaries on a consolidated basis to any
other Person or group of affiliated Persons, unless at the time and after
giving effect thereto (i) either (A) the Issuer shall be the continuing
corporation, or (B) the Person (if other than the Issuer) formed by such
consolidation or into which the Issuer is merged or the Person which acquires
by conveyance, transfer, lease or disposition the properties and assets of the
Issuer, substantially as an entirety (the "Surviving Entity") shall be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and shall, in
either case, expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form
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satisfactory to the Trustee, all the obligations of the Issuer under the Notes
and the Indenture, and the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Issuer or a Restricted Subsidiary which becomes the
obligation of the Issuer or any of its Restricted Subsidiaries in connection
with or as a result of such transaction as having been incurred at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the Issuer (or the Surviving Entity
if the Issuer is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Issuer immediately before such
transaction; (iv) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Issuer or a Restricted Subsidiary which
becomes the obligation of the Issuer or any of its Restricted Subsidiaries in
connection with or as a result of such transaction as having been incurred at
the time of such transaction), the Issuer (or the Surviving Entity if the
Issuer is not the continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness under the "Limitation on Indebtedness" covenant (other
than Permitted Indebtedness); provided that this clause (iv) shall not apply
to a consolidation or merger with or into a Wholly Owned Restricted Subsidiary
with a positive net worth; provided that, in connection with any such merger
or consolidation, no consideration (other than Qualified Capital Stock in the
Surviving Entity or the Issuer) shall be issued or distributed to the
stockholders of the Issuer; and (v) the Issuer or the Surviving Entity shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease or
disposition and such supplemental indenture comply with the terms of the
Indenture.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Issuer in accordance with the immediately
preceding paragraph, the successor Person formed by such consolidation or into
which the Issuer is merged or the successor Person to which such sale,
assignment, conveyance, transfer, lease or disposition is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under the Indenture with the same effect as if such successor had been
named as the Issuer herein. When a successor assumes all the obligations of
its predecessor under the Indenture and the Notes, the predecessor shall be
released from those obligations; provided that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal and
interest on the Notes.
Events of Default
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise, whether or not such payment is prohibited by the
subordination provisions described under "Subordination"; (b) default in the
payment of interest on any Note when the same becomes due and payable, and
such default continues for a period of 30 days, whether or not such payment is
prohibited by the subordination provisions described under "--Subordination";
(c) default in the performance or breach of the "Merger, Sale of Assets, etc."
provisions contained in the Indenture or the failure to make or consummate an
Offer to Purchase in accordance with the "Limitation on Asset Sales" or
"Repurchase of Notes upon a Change in Control" covenant; (d) the Issuer
defaults in the performance of or breaches any other covenant or agreement of
the Issuer in the Indenture or under the Notes (other than a default specified
in clause (a), (b) or (c) above) and such default or breach continues for a
period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes; (e) there
occurs with respect to any issue or issues of Indebtedness of the Issuer or
any Significant Subsidiary having an outstanding principal amount of $10
million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an
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event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default; (f) any final judgment or
order (not covered by insurance) for the payment of money in excess of $10
million in the aggregate for all such final judgments or orders against all
such Persons (treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Issuer or any Significant Subsidiary
and shall not be paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10 million during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; (g) a court having
jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Issuer or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Issuer or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Issuer or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or (h) the Issuer or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Issuer or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) above that occurs with respect to the Issuer) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice
to the Issuer (and to the Trustee if such notice is given by the Holders),
may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such
principal of, premium, if any, and accrued interest shall be immediately due
and payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured by the Issuer or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60
days after the declaration of acceleration with respect thereto. If an Event
of Default specified in clause (g) or (h) above occurs with respect to the
Issuer, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
Notes by written notice to the Issuer and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction. For information as to the waiver of
defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
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direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event
of Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture will require certain officers of the Issuer to certify,
on or before a date not more than 90 days after the end of each fiscal year,
that a review has been conducted of the activities of the Issuer and its
Restricted Subsidiaries and the Issuer's and its Restricted Subsidiaries'
performance under the Indenture and that the Issuer has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Issuer will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture.
Defeasance
Defeasance and Discharge. The Indenture will provide that the Issuer
will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the deposit
referred to below, and the provisions of the Indenture will no longer be in
effect with respect to the Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the Notes, to replace
stolen, lost or mutilated Notes, to maintain paying agencies and to hold
monies for payment in trust) if, among other things, (A) the Issuer has
deposited with the Trustee, in trust, money and/or U.S. Government Obligations
that through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the Notes on the
Stated Maturity of such payments in accordance with the terms of the Indenture
and the Notes, (B) the Issuer has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income, gain
or loss for federal income tax purposes as a result of the Issuer's exercise
of its option under this "Defeasance" provision and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the Closing
Date such that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit,
the trust fund will not be subject to the effect of Section 547 of the
Bankruptcy Law or Section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the
date of such deposit, and such deposit shall not result in
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a breach or violation of, or constitute a default under, any other agreement
or instrument to which the Issuer or any of its Subsidiaries is a party or by
which the Issuer or any of its Subsidiaries is bound, (D) the Issuer is not
prohibited from making payments in respect of the Notes by the provisions
described under "-- Subordination" above and (E) if at such time the Notes are
listed on a national securities exchange, the Issuer has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be
delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "-- Merger,
Sale of Assets, etc." and all the covenants described herein under
"--Covenants," clause (c) under "-- Events of Default" with respect to such
clauses (iii) and (iv) under "-- Merger, Sale of Assets, etc.," clause (d)
with respect to such other covenants and clauses (e) and (f) under "-- Events
of Default" shall be deemed not to be Events of Default, and the provisions
described herein under "Subordination" with respect to the assets held by the
Trustee referred to below shall not apply, upon, among other things, the
deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the Notes on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the Notes, the satisfaction of the provisions described
in clauses (B)(ii), (C), (D) and (E) of the preceding paragraph and the
delivery by the Issuer to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the
Issuer exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Issuer
will remain liable for such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Issuer and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of
each Holder affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any Note, (ii) reduce the principal
amount of, or premium, if any, or interest on, any Note, (iii) change the
place or currency of payment of principal of, or premium, if any, or interest
on, any Note, (iv) impair the right to institute suit for the enforcement of
any payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Note, (v) reduce the above-stated
percentage of outstanding Notes the consent of whose Holders is necessary to
modify or amend the Indenture, (vi) waive a default in the payment of
principal of, premium, if any, or interest on the Notes, (vii) modify the
subordination provisions or the Escrow Agreement in a manner adverse to the
Holders or (viii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults. Any
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amendment to the subordination provisions under the Indenture that is adverse
to the holders of Senior Indebtedness will require the consent of such
holders.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (i) existing
at the time such Person becomes a Restricted Subsidiary or (ii) existing at
the time and assumed in connection with the acquisition of assets by a
Restricted Subsidiary from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition; provided that Indebtedness of a
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such asset acquisition shall not be
Acquired Indebtedness. Acquired Indebtedness shall be deemed to be incurred on
the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Affiliate" means with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person, (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock, (iii) any officer or director of (A) any such specified Person, (B) any
Subsidiary of such specified Person or (C) any Person described in clauses (i)
or (ii) above or (iv) any other Person having a relationship with any natural
Person described in clauses (i), (ii) or (iii) above by blood, marriage or
adoption not more remote than first cousin or any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such other Person described in this clause (iv). For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of
the properties and assets of any division or line of business of the Issuer or
its Restricted Subsidiaries; or (iii) any other properties or assets of the
Issuer or any Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (a) any transfer of properties and assets that is governed by the
provisions described under "-- Merger, Sale of Assets, etc.," (b) any transfer
of properties or assets of the Issuer to a Restricted Subsidiary, or of a
Restricted Subsidiary to the Issuer or another Restricted Subsidiary, (c) any
transfer of inventory, receivables and other current assets, (d) any transfer
of assets for consideration at least equal to the Fair Market Value of the
assets transferred, to the extent that the consideration received would
satisfy clause (B) of the "Limitation on Asset Sales" covenant, (e) the
Therapy Sale, (f) the Pharmacy Sale, or (g) any transfer of property or assets
with a Fair Market Value not in excess of $1 million in any transaction or
series of related transactions.
"Attributable Debt" in respect of a sale-leaseback transaction or an
operating lease in respect of a healthcare facility means, at the time of
determination, the present value (discounted at the interest rate implicit in
the lease, compounded semiannually) of the obligation of the lessee of the
property subject to such sale-leaseback transaction or operating lease in
respect of a healthcare facility for rental payments during the remaining term
of the lease included in such transaction including any period for which such
lease has been extended or may, at the option of the lessor, be extended or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental
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payments shall include such penalty), after excluding all amounts required to
be paid on account of maintenance and repairs, insurance, taxes, assessments,
water, utilities and similar charges.
"Average Life" means, as of the date of determination with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the
products of (A) the number of years from the date of determination to the date
or dates of each successive scheduled principal payment of such Indebtedness
multiplied by (B) the amount of each such principal payment by (ii) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11, United States Code, as amended, or
any similar United States Federal or State law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Capital Lease Obligation" means the discounted present value of the
rental obligations under any lease of real or personal property which, in
accordance with GAAP, is required to be recorded on the balance sheet of such
Person as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated, whether voting or
non-voting) of such Person's capital stock or equity interests.
"Cash Equivalent" means (i) any security, maturing not more than six
months after the date of acquisition, issued by the United States of America,
or an instrumentality or agency thereof and guaranteed fully as to principal,
premium, if any, and interest by the United States of America, (ii) any
certificate of deposit, time deposit, money market account or bankers'
acceptance, maturing not more than six months after the date of acquisition,
issued by any commercial banking institution that is a member of the Federal
Reserve System and that has combined capital and surplus and undivided profits
of not less than $500,000,000, whose debt has a rating, at the time as of
which any investment therein is made, of "P-1" (or higher) according to
Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or
higher) according to Standard & Poor's Ratings Services or any successor
rating agency and (iii) commercial paper, maturing not more than three months
after the date of acquisition, issued by any corporation (other than an
Affiliate or Subsidiary of the Issuer) organized and existing under the laws
of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Ratings Services or any successor rating
agency.
"Change in Control" means any time that (i) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than an Existing Stockholder or Genesis ElderCare Corp., in a single
transaction or through a series of related transactions, is or becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 35% of the total voting power of the
Voting Stock of the Issuer on a fully diluted basis and such ownership is
greater than the amount of voting power of the Voting Stock of the Issuer, on
a fully diluted basis, held by Genesis and its Affiliates on such date; (ii)
the Issuer consolidates or merges with or into another corporation or conveys,
transfers or leases all or substantially all of its assets to any Person, or
any corporation consolidates or merges with or into the Issuer, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Issuer is changed into or exchanged for cash, securities or other property,
other than any such transaction where (A) the outstanding Voting Stock of the
Issuer is changed into or exchanged for (x) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (y) cash, securities or
other property in an amount which could be paid by the Issuer as a Restricted
Payment under the "Limitation on Restricted Payments" covenant (and such
amount shall be treated as a Restricted Payment), and (B) the holders of the
Voting Stock of the Issuer immediately prior to such
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transaction own, directly or indirectly, not less than 50% of the Voting Stock
of the surviving corporation immediately after such transaction; (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Issuer (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Issuer was (a) approved by a vote of at
least 66% of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved or (b) approved by Genesis in connection with its
acquisition of the Common Stock of the Issuer held by Cypress or TPG) cease
for any reason to constitute a majority of the Board of Directors of the
Issuer then in office; or (iv) the Issuer is liquidated or dissolved or adopts
a plan of liquidation.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the date of the Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Consolidated EBITDA" of any Person means, with respect to any
period, the Consolidated Net Income of such Person for such period, plus, to
the extent such amount was deducted in calculating such Consolidated Net
Income (i) Consolidated Income Tax Expense, (ii) depreciation expense, (iii)
amortization expense, (iv) Consolidated Interest Expense, (v) all other
non-cash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
by GAAP to be, made), less all non-cash items increasing Consolidated Net
Income and (vi) all management fees, and minus all management fees paid during
such period (whether or not such fees were deducted in calculating
Consolidated Net Income for such period), all as determined on a consolidated
basis in accordance with GAAP; provided that, if any Restricted Subsidiary is
not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA of the Issuer
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the percentage
ownership interest in the income of such Restricted Subsidiary not owned on
the last day of such period by the Issuer or any of its Restricted
Subsidiaries.
"Consolidated Income Tax Expense" means for any period, as applied to
any Person, the provision for federal, state, local and foreign income taxes
of such Person and its Consolidated Subsidiaries for such period (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets) as determined in accordance
with GAAP.
"Consolidated Interest Expense" means, without duplication, for any
period, as applied to any Person, the sum of (i) the interest expense of such
Person and its Consolidated Subsidiaries for such period, including, without
limitation, (A) amortization of debt discount, (B) the net cost under interest
rate contracts (including amortization of discounts), (C) the interest portion
of any deferred payment obligation calculated in accordance with the effective
interest method of accounting and (D) accrued interest, plus (ii) the interest
component of the Capital Lease Obligations paid, accrued and/or scheduled to
be paid, or accrued by such Person during such period, in each case as
determined in accordance with GAAP, plus (iii) Preferred Stock dividends in
respect of Preferred Stock of the Issuer or any Restricted Subsidiary held by
Persons other than the Issuer or a Wholly Owned Restricted Subsidiary. For
purposes of clause (c) of the preceding sentence, dividends shall be deemed to
be an amount equal to the actual dividends paid divided by one minus the
applicable actual combined federal, state, local and foreign income tax rate
of the Issuer and its Consolidated Subsidiaries (expressed as a decimal).
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"Consolidated Net Income" of any Person means, for any period, as
applied to any Person, the net income (or loss) of such Person and its
Consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted, to the extent included in calculating such net income (loss),
by excluding (without duplication) (i) all extraordinary gains or losses (less
all fees and expenses relating thereto), (ii) the portion of net income of
such Person and its Consolidated Subsidiaries allocable to investments in
Persons other than Consolidated Subsidiaries to the extent that cash dividends
or distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Consolidated Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) any gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, or (vi) the net income of any Consolidated
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Consolidated Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Consolidated Subsidiary.
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable for
the sale of Capital Stock) of such Person and its Consolidated Subsidiaries,
as set forth on the most recent consolidated balance sheet of such Person and
its Consolidated Subsidiaries (which shall be as of a date not more than 90
days prior to the date of such computation determined in accordance with
GAAP).
"Consolidated Rental Payments" of any Person means, for any period,
the aggregate rental obligations of such Person and its Consolidated
Subsidiaries (not including taxes, insurance, maintenance and similar expenses
that the lessee is obligated to pay under the terms of the relevant leases),
determined on a consolidated basis in conformity with GAAP, payable in respect
of such period under Attributable Debt or leases of real or personal property
not constituting Attributable Debt (net of income from subleases thereof, not
including taxes, insurance, maintenance and similar expenses that the
sublessee is obligated to pay under the terms of such sublease), whether or
not such obligations are reflected as liabilities or commitments on a
consolidated balance sheet of such Person and its Subsidiaries or in the notes
thereto, excluding, however, in any event, (i) that portion of Consolidated
Interest Expense of such Person representing payments by such Person or any of
its Consolidated Subsidiaries in respect of Capital Lease Obligations (net of
payments to such Person or any of its Consolidated Subsidiaries under
subleases qualifying as capitalized lease subleases to the extent that such
payments would be deducted in determining Consolidated Interest Expense) and
(ii) the aggregate amount of amortization of obligations of such Person and
its Consolidated Subsidiaries in respect of such Capital Lease Obligations for
such period (net of payments to such Person or any of its Consolidated
Subsidiaries and subleases qualifying as capitalized lease subleases to the
extent that such payments would be deducted in determining such amortization
amount).
"Consolidation" means, (i) with respect to the Issuer, the
consolidation of the accounts of the Issuer and each of its Restricted
Subsidiaries and (ii) with respect to any other Person, the consolidation of
the accounts of such Person and each of its Subsidiaries, in each case if and
to the extent the accounts of such Person and such Subsidiaries would normally
be consolidated with those of such Person, all in accordance with GAAP. The
term "Consolidated" shall have a similar meaning.
"Credit Facility" means (i) any and all credit agreements (whether of
the Issuer or any Subsidiary) contemplated by the Amended and Restated
Commitment Letter dated June 14, 1997 between the Issuer and Mellon Bank,
N.A., Citicorp Securities, Inc., Citibank, N.A., First Union Capital Markets
Corp., First Union
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National Bank and NationsBank, N.A. as the same may be amended, restated,
renewed, extended, restructured, supplemented or otherwise modified from time
to time; (ii) any agreements, instruments and documents executed or delivered
pursuant to or in connection with such credit agreement and (iii) any credit
agreement, loan agreement, note purchase agreement, indenture or other
agreement, document or instrument refinancing, refunding or otherwise
replacing the credit agreement or any other agreement deemed a Credit Facility
under clause (i), (ii) or (iii) hereof, whether or not with the same agent,
trustee, representative, lenders or holders, regardless of whether the Credit
Facility or any portion thereof was outstanding or in effect at the time of
such restatement, renewal, extension, restructuring, supplement or
modification. Without limiting the generality of the foregoing, the term
"Credit Facility" shall include any amendment, restatement, renewal extension,
restructuring, supplement or modification to any Credit Facility and all
refundings, refinancings and replacements of any Credit Facility, including
any agreement (a) extending the maturity of any Indebtedness Incurred
thereunder or contemplated thereby, (b) adding or deleting borrowers or
guarantors thereunder, provided that the addition of such borrower or
guarantor would not be prohibited by the "Limitation on Indebtedness,"
"Limitation on Liens" and "Limitation on Issuance of Guarantees by Restricted
Subsidiaries" covenants, (c) increasing the amount of Indebtedness Incurred
thereunder or available to be borrowed thereunder, provided such increase is
permitted to be Incurred under the "Limitation on Indebtedness" covenant, or
(d) otherwise altering the terms and conditions thereof in a manner not
prohibited by the "Limitation on Indebtedness," "Limitation on Liens,"
"Limitation on Issuance of Guarantees by Restricted Subsidiaries" and
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenants. Notwithstanding the foregoing, with respect to any
agreement providing for the refinancing, refunding or replacement of
Indebtedness under the Credit Facility, such agreement shall be the Credit
Facility under the Indenture only if a notice to that effect is delivered by
the Issuer to the Trustee and there shall be at any time only one instrument
that is (together with the related agreements, instruments and documents) the
Credit Facility under the Indenture.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Escrow Agreement" means the Escrow and Security Agreement made and
entered into as of the Closing Date by and among the Issuer, Genesis and the
Placement Agents in favor of the Trustee for the Holders of the Notes.
"Existing Stockholders" means Genesis, The Cypress Group L.L.C. and
TPG Partners II, L.P. and their Affiliates.
"Expiration Date" means October 31, 1997, subject to an extension of
up to one month at the Issuer's option.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy as determined in good faith by the
Board of Directors, whose determination shall be conclusive if evidenced by a
Board Resolution.
"Fixed Charge Coverage Ratio" of any Person means, for any period,
the ratio of (i) the sum of Consolidated EBITDA plus one-third of Consolidated
Rental Payments, in each case for such period, of the Issuer and its
Consolidated Subsidiaries, as determined in accordance with GAAP to (ii) the
sum of
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Consolidated Interest Expense and one-third of Consolidated Rental Payments,
in each case, for such period of the Issuer and its Consolidated Subsidiaries;
provided that in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, as
in effect on the Closing Date.
"Genesis" means Genesis Health Ventures, Inc.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv)
to maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor or
(v) otherwise to assure a creditor against loss; provided that the term
"Guaranteed Debt" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Healthcare Related Business" means a business, the majority of whose
revenues result from healthcare, long-term care, or managed care related
businesses or facilities, including businesses which provide insurance
relating to the costs of healthcare, long-term care or managed care services.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money, (ii) all
obligations for the payment of money of such Person for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person
in connection with any letters of credit or acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities and in
connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(iii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iv) all obligations under Interest Rate Contracts
and Currency Agreements of such Person, (v) all Capital Lease Obligations of
such Person, (vi) all Indebtedness of other Persons the payment of which is
secured by a Lien, upon any property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; provided that
the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable
Capital Stock valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and
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unpaid dividends, and (ix) all Attributable Debt of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with
respect to contingent obligations, the maximum liability upon the occurrence
of the contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) that money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall not be
deemed to be "Indebtedness" and (C) that Indebtedness shall not include any
liability for federal, state, local or other taxes. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value to be determined in good faith by the Board of Directors.
"Interest Rate Contracts" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other similar agreements or arrangements.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan or other extension of credit (including, without
limitation, any guarantee or similar arrangement but excluding advances in the
ordinary course of business that are, in conformity with generally accepted
accounting principles, recorded as accounts receivable on the balance sheet of
the Issuer or a Restricted Subsidiary) or capital contribution to (by means of
any transfer of cash or other property (tangible or intangible) to others, or
any payment for property or services for the account or use of others or
otherwise), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities (including,
without limitation, any interests in any partnership or joint venture) issued
or owned by any other Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the issuance or
sale of Capital Stock of a Restricted Subsidiary if immediately after giving
effect thereto such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and the Issuer or another Restricted Subsidiary would
have an Investment in such Restricted Subsidiary after giving effect to such
issuance or sale. For purposes of the definition of "Unrestricted Subsidiary"
and the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the fair market value of the assets (net of liabilities (other than
liabilities to the Issuer or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value of the
assets (net of liabilities (other than liabilities to the Issuer or any of its
Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) "Investment" shall
include the fair market value of the Capital Stock (or any other remaining
Investment), held by the Issuer or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary; provided that
the fair market value of the Investment in an Unrestricted Subsidiary or any
other Person that has ceased to be a Restricted Subsidiary shall not exceed
the aggregate amount of Investments previously made in such Person valued at
the time such Investments were made less the net reduction of such
Investments.
"Issuer" means Genesis ElderCare Acquisition Corp. and, following the
Merger, Multicare until a successor replaces it pursuant to the provisions
described under "-- Merger, Sale of Assets, etc." and thereafter means the
successor.
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"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Merger" means the merger of Genesis ElderCare Acquisition Corp. with
and into Multicare which shall be the surviving corporation in the merger.
"Merger Closing Date" means the date the Merger is consummated.
"Multicare" means The Multicare Companies, Inc.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Issuer or any Restricted Subsidiary) net of (i) brokerage commissions
and other reasonable fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness either (A) is secured by the
assets or properties sold or (B) is required to be paid as a result of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Issuer or any Subsidiary of the Issuer) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Issuer or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Issuer or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Cash
Equivalents (except to the extent such obligations are financed or sold with
recourse to the Issuer or any Restricted Subsidiary), net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.
"Offer to Purchase" means an offer to purchase Notes by the Issuer
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such notice
is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the
Issuer defaults in the payment of the purchase price, any Note accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest on
and after the Payment Date; (v) that Holders electing to have a Note purchased
pursuant to the Offer to Purchase will be required to surrender the Note,
together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes
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purchased; and (vii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
On the Payment Date, the Issuer shall (i) accept for payment on a pro rata
basis Notes or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so accepted; and (iii) deliver, or cause to
be delivered, to the Trustee all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Issuer. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Issuer will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the paying agent
for an Offer to Purchase. The Issuer will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Issuer
is required to repurchase Notes pursuant to an Offer to Purchase.
"Permitted Indebtedness" means:
(a) Indebtedness outstanding at any time in an aggregate
principal amount not to exceed $625 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on
Asset Sales" covenant;
(b) Indebtedness of Multicare in existence on the Merger
Closing Date; provided that upon consummation of the Merger not more
than $40 million of such Indebtedness shall remain outstanding;
(c) Indebtedness of the Issuer pursuant to the Notes;
(d) Indebtedness evidenced by letters of credit issued in
the ordinary course of business consistent with past practice to
support the Issuer's or any Subsidiary's insurance or self-insurance
obligations (including to secure workers' compensation and other
similar insurance coverages) to the extent such letters of credit are
not drawn upon or, if drawn upon, to the extent such drawing is
reimbursed no later than the third Business Day following a demand
for reimbursement;
(e) Interest Rate Contracts and Currency Agreements to the
extent that the notional principal amount of such obligations under
Interest Rate Contracts does not exceed the amount of Indebtedness
outstanding or committed to be incurred on the date such Interest
Rate Contracts are entered into;
(f) Indebtedness owed (A) to the Issuer evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such Indebtedness (except to the Issuer or
a Restricted Subsidiary) shall be deemed, in each case to be an
Incurrence of such Indebtedness not permitted by this clause (f);
(g) any guarantees of Indebtedness by a Restricted
Subsidiary entered into in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant;
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(h) Indebtedness incurred by the Issuer or any Restricted
Subsidiary, and any renewals, extensions, substitutions, refundings,
refinancings or replacements thereof, in an amount not to exceed $20
million at any one time outstanding to finance the acquisition or
construction of any property or assets or any business, including
Acquired Indebtedness and Indebtedness incurred within 90 days after
such acquisition or construction, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on
Asset Sales" covenant;
(i) Capital Lease Obligations, and any renewals, extensions,
substitutions, refundings, refinancings or replacements thereof, in
an amount not to exceed $10 million at any time outstanding, less any
amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant;
(j) Indebtedness in addition to that described in clauses
(a) through (i) of this definition of "Permitted Indebtedness," in an
aggregate principal amount outstanding at any time not to exceed $20
million, less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant; and
(k) any renewals, extensions, substitutions, refundings,
refinancings or replacements of any Indebtedness (other than
Indebtedness Incurred under clause (a), (d), (e), (f), (g), (h), (i)
or (j) of this definition of "Permitted Indebtedness"), including any
successive renewals, extensions, substitutions, refundings,
refinancings or replacements, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced, plus the
amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness being refinanced or the amount
of any premium reasonably determined by the Issuer as necessary to
accomplish such refinancing through means of a tender offer or
privately negotiated transactions and, in each case, actually paid,
plus the amount of expenses of the Issuer incurred in connection with
such refinancing; (ii) in case the Notes are refinanced in part or
the Indebtedness to be refinanced is pari passu with the Notes, such
new Indebtedness is expressly made pari passu with, or subordinate in
right of payment to, the remaining Notes; (iii) in the case of any
refinancing of Subordinated Indebtedness, such new Indebtedness is
made subordinate in right of payment to the Notes at least to the
same extent as the Indebtedness being refinanced; and (iv) such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; provided that in no
event may Indebtedness of the Issuer be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (k).
For purposes of determining any particular amount of Indebtedness under the
"Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Credit Facility on or prior to the Merger Closing Date shall be treated as
Incurred pursuant to clause (a) of this "Permitted Indebtedness" definition,
(2) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (3) any Liens granted pursuant to
the equal and ratable provisions referred to in the "Limitation on Liens"
covenant described below shall not be treated as Indebtedness. For purposes of
determining compliance with the "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in this "Permitted Indebtedness" definition
(other than Indebtedness referred to in clause (1) of
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the preceding sentence), the Issuer, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and type
of such Indebtedness in one of such clauses.
"Permitted Investment" means (i) Investments in the Issuer or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to the
Issuer or a Restricted Subsidiary; provided that such Person's primary
businesses are Healthcare Related Businesses; (ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP; and (iv) Investments in existence on the Closing Date
(including Investments held by Multicare and its Subsidiaries).
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pharmacy Sale" means the sale of Multicare's pharmacy business to
Genesis or any of its Affiliates in connection with the Merger.
"Preferred Stock," as applied to any Person, means Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Qualified Capital Stock" of any Person means any Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Redeemable Capital Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change in control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change in
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change in Control"
covenants described above and such Capital Stock specifically provides that
such Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Issuer's repurchase of such Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Notes upon a Change in Control" covenants described above.
"Registration Rights Agreement" means the Registration Rights
Agreement dated the Closing Date among the Issuer and the Placement Agents.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than
an Unrestricted Subsidiary.
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"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Issuer, accounted for more than 10% of the
consolidated revenues of the Issuer and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Issuer and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Issuer for such fiscal year.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Issuer
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by
such Person and one or more other Subsidiaries of such Person.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit and money market deposit,
maturing not more than one year after the date of acquisition, issued by, or
time deposit of, a commercial banking institution that is a member of the
Federal Reserve System and that has combined capital and surplus and undivided
profits of not less than $500,000,000, whose debt has a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or
higher) according to Standard & Poor's Ratings Services or any successor
rating agency or any money market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) commercial paper, maturing not more than one
year after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Issuer) organized and existing under the laws
of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Ratings Services or any successor rating agency
and (iv) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Services or Moody's Investors Service, Inc.
"Tender Offer" means the offer to purchase all of the issued and
outstanding shares of Common Stock of Multicare made by Genesis ElderCare
Acquisition Corp.
"Therapy Sale" means the sale of Multicare's contract therapy
business to Genesis or any of its Affiliates in connection with the Merger.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Issuer) to be an Unrestricted
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Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Issuer or any Restricted Subsidiary; provided
that (A) any guarantee by the Issuer or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by the Issuer or such
Restricted Subsidiary (or both, if applicable) at the time of such
designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on
Restricted Payments" covenant described below and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in clause (A) of
this proviso would be permitted under the "Limitation on Indebtedness" and
"Limitation on Restricted Payments" covenants described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that (i) no Default or Event of Default shall have
occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred (and shall be deemed to have
been Incurred) for all purposes of the Indenture. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing provisions.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America (x) the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America or (y) that are
rated at least "Aaa" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "AAA" (or the then equivalent grade) by Standard & Poor's
Ratings Services.
"Voting Stock" means stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary
all the Capital Stock of which is owned by the Issuer or another Wholly Owned
Restricted Subsidiary.
Trustee
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties as are specifically set forth in such Indenture. If an Event of Default
has occurred and is continuing, the Trustee will use the same degree of care
and skill in its exercise of the rights and powers vested in it under the
Indenture as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated
by reference therein contain limitations on the rights of the Trustee, should
it become a creditor of the Issuer, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
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No Personal Liability of Incorporators, Stockholders, Officers, Directors or
Employees
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Issuer in the Indenture, or
in any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of the Issuer or of any successor
Person thereof. Each Holder, by accepting the Notes, waives and releases all
such liability.
Book-Entry; Delivery and Form
The Notes will be represented by a permanent global Note in
definitive, fully registered form without interest coupons (the "Global Note")
and will be deposited with the Trustee as custodian for, and registered in the
name of a nominee of, DTC.
Ownership of beneficial interests in a Global Note is limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note is shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold
their interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of
a Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Issuer, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Issuer also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC rules and will be settled in same-day
funds.
The Issuer expects that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such
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portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Notes, DTC will exchange the applicable
Global Note for Certificated Notes, which it will distribute to its
participants and which may be legended as set forth under the heading "--
Transfer Restrictions."
The Issuer understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates and certain other organizations. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interests in a Global Note among its participants,
DTC is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Issuer nor
the Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of its obligations under the rules and
procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by the Issuer
within 90 days, the Issuer will issue Certificated Notes, which may bear the
legend referred to under "-- Transfer Restrictions," in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes, which may bear the legend referred to under "-- Transfer Restrictions,"
in accordance with the DTC's rules and procedures, in addition to those
provided for under the Indenture.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain United States federal income
tax consequences of the ownership of the Notes as of the date hereof. Except
where noted, it deals only with Notes held as capital assets and does not deal
with special situations, such as those of dealers in securities or currencies,
tax exempt organizations, individual retirement accounts and other tax
deferred accounts, financial institutions, life insurance companies, persons
holding Notes as a part of a hedging or conversion transaction or a straddle,
persons subject to the alternative minimum tax or holders of Notes whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in federal income tax consequences
different from those discussed below. In addition, except as otherwise
indicated, the following does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
Persons considering the purchase, ownership or disposition of Notes should
consult their own tax advisors concerning the federal income tax consequences
in light of their particular situations, as well as any consequences arising
under the laws of any other taxing jurisdiction.
Stated Interest on Notes
Except as set forth below, interest on a Note will generally be
taxable to a United States Holder as ordinary income from domestic sources at
the time it is paid or accrued in accordance with the United States Holder's
method of accounting for tax purposes. As used herein, a "United States
Holder" of a Note means a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate the income of which is subject to United States federal income taxation
regardless of its source, or a trust if (i) a U.S. court is able to exercise
primary supervision over the administration of the trust and (ii) one or more
U.S. trustees or fiduciaries have the authority to control all substantial
decisions of the trust. A "Non-United States Holder" is a holder that is not a
United States Holder.
Failure of the Company to consummate the Exchange Offer or to file or
cause to be declared effective the Shelf Registration Statement as described
under "Description of the Notes -- Registration Rights" will cause additional
interest to accrue on the Notes in the manner described therein. According to
Treasury regulations, the possibility of a change in the interest rate will
not affect the amount of interest income recognized by a United States Holder
(or the timing of such recognition) if the likelihood of the change, as of the
date the Notes are issued, is remote. The Company believes that the likelihood
of a change in the interest rate on the Notes is remote and does not intend to
treat the possibility of a change in the interest rate as affecting the yield
to maturity of any Note. In the unlikely event that the interest rate on the
Notes is increased, then such increased interest may be treated as original
issue discount, includible by a United States Holder in income as such
interest accrues, in advance of receipt of any cash payment thereof. If, as
anticipated, the issue price of the Notes will equal their stated principal
amount, and because the likelihood of a change in the interest rate is remote,
the Notes will not be issued with original issue discount.
Market Discount
If a United States Holder purchases a Note for an amount that is less
than its principal amount, the amount of the difference will be treated as
"market discount" for U.S. federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
United States Holder will be required to treat any partial principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the market discount which has
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not previously been included in income and is treated as having accrued on
such Note at the time of such payment or disposition. In addition, the United
States Holder may be required to defer, until the maturity of the Note or its
earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless
the United States Holder elects to accrue on a constant interest method. A
United States Holder of a Note may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income currently
once made applies to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service (the "IRS").
Amortizable Bond Premium
A United States Holder that purchases a Note for an amount in excess
of the principal amount will be considered to have purchased the Note at a
"premium." A United States Holder generally may elect to amortize the premium
over the remaining term of the Note on a constant yield method. However, if
the Note is purchased at a time when the Note may be optionally redeemed for
an amount that is in excess of its principal amount, special rules would apply
that could result in a deferral of the amortization of bond premium until
later in the term of the Note. The amount amortized in any year will be
treated as a reduction of the United States Holder's interest income from the
Note. Bond premium on a Note held by a United States Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Note. The election to amortize premium on a
constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing United States Holder on or after the
first day of the first taxable year to which the election applies and may not
be revoked without the consent of the IRS.
Sale, Exchange and Retirement of Notes
Upon the sale, exchange, redemption, retirement or other disposition
of a Note, a United States Holder generally will recognize gain or loss equal
to the difference between the amount realized upon the sale, exchange,
redemption, retirement or other disposition and such holder's adjusted tax
basis of the Note. A United States Holder's adjusted tax basis in a Note will,
in general, be the United States Holder's cost therefor, increased by market
discount previously included in income by the United States Holder and reduced
by any amortized premium previously deducted from income by the United States
Holder. Except as described above with respect to market discount or except to
the extent the gain or loss is attributable to accrued but unpaid stated
interest, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if at the time of sale, exchange, redemption, retirement
or other disposition the Note has been held for more than one year. Under
current law, net long-term capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
The exchange of a Note by a United States Holder for an Exchange Note
should not constitute a taxable exchange. A United States Holder will have the
same tax basis and holding period in the Exchange Note as it did in the Note.
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Non-United States Holders
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
(a) no United States federal withholding tax will be imposed with
respect to the payment by the Company or paying agent of principal or interest
on a Note owned by a Non-United States Holder (the "Portfolio Interest
Exception"), provided (i) that such Non-United States Holder does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote within the meaning of section
871(h)(3) of the Code and the regulations thereunder, (ii) such Non-United
States Holder is not a controlled foreign corporation that is related,
directly or indirectly, to the Company through stock ownership, (iii) such
Non-United States Holder is not a bank whose receipt of interest on a Note is
described in section 881(c)(3)(A) of the Code and (iv) such Non-United States
Holder satisfies the statement requirement (described generally below) set
forth in section 871(h) and section 881(c) of the Code and the regulations
thereunder;
(b) no United States federal withholding tax will be imposed
generally with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange, redemption, retirement or other disposition of
a Note; and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the company entitled to vote
within the meaning of section 871(h)(3) of the Code and provided that the
interest payments with respect to such Note would not have been, if received
at the time of such individual's death, effectively connected with the conduct
of a United States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the
beneficial owner of such Note, or a financial institution holding the Note on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of the Company with a statement to the effect that the beneficial
owner is not a United States Holder. Pursuant to current temporary Treasury
regulations, these requirements will be met if (1) the beneficial owner
provides his name and address, and certifies, under penalties of perjury, that
he is not a United States Holder (which certification may be made on an
Internal Revenue Service Form W-8 (or successor form)) or (2) a financial
institution holding the Note on behalf of the beneficial owner certifies,
under penalties of perjury, that such statement has been received by it and
furnishes a paying agent with a copy thereof. The IRS has proposed regulations
that, if finalized, would modify certain of the certification requirements
described above.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payments on a Note made
to such Non-United States Holder will be subject to a 30% withholding tax
unless the beneficial owner of the Note provides the Company or its paying
agent, as the case may be, with a properly executed (1) Internal Revenue
Service Form 1001 (or successor form) claiming an exemption from withholding
under the benefit of a tax treaty or (2) Internal Revenue Service Form 4224
(or successor form) stating that interest paid on the Note is not subject to
withholding tax because it is effectively connected with the beneficial
owner's conduct of a trade or business in the United States.
If a Non-United States Holder is engaged in a trade or business in
the United States and payment on a Note is effectively connected with the
conduct of such trade or business, the Non-United States Holder,
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although exempt from United States federal withholding tax as discussed above,
will be subject to United States federal income tax on such payment on a net
income basis in the same manner as if it were a United States Holder. In
addition, if such holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, such
payment on a Note will be included in such foreign corporation's earnings and
profits.
Any gain or income realized upon the sale, exchange, retirement or
other disposition of a Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected
with a trade or business in the United States of the Non-United States Holder
or (ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, exchange, retirement or other disposition, and certain
other conditions are met.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments
on a Note and to the proceeds of the sale of a Note made to United States
Holders other than certain exempt recipients (such as corporations). A 31%
backup withholding tax will apply to such payments if the United States Holder
fails to provide a taxpayer identification number or certification of foreign
or other exempt status or fails to report in full dividend and interest
income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United
States Holders if a statement described in (a)(iv) under "-- Non-United States
Holders" has been received and the payor does not have actual knowledge that
the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not
apply if payments on a Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Note, or if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of a Note to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for United
States federal income tax purposes, a United States person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States, such payments will be subject to information reporting (but not
backup withholding), unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a United
States person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Temporary Treasury regulations provide
that the Treasury is considering whether backup withholding will apply with
respect to payments of principal, interest or the proceeds of a sale that are
not subject to backup withholding under the current regulations.
Payments on a Note paid to the beneficial owner of a Note by a United
States office of a custodian, nominee or agent, or the payment by the United
States office of a broker of the proceeds of sale of a Note, will be subject
to both backup withholding and information reporting unless the beneficial
owner provides the statement referred to in (a)(iv) above and the payor does
not have actual knowledge that the beneficial owner is a United States person
or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against such holder's United States federal
income tax liability provided the required information is furnished to the
IRS.
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes will
be passed upon for the Company by Blank Rome Comisky & McCauley LLP,
Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries as of December 31, 1995 and 1996, and for each of the years in
the three-year period ended December 31, 1996 included herein have been
audited by KPMG Peat Marwick LLP, independent certified public accountants as
stated in their report, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Multicare is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commissioner's regional
offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621 and 75 Park Place, 14 Floor, New York, New York
10007. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site that
contains registration statements, reports, proxy and information statements
and other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Consolidated Financial Statements
Independent Auditor's Report..................................................................................F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996..................................................F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996.....................................................................................................F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995
and 1996.................................................................................................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.................................................................................................F-7
Notes to Consolidated Financial Statements....................................................................F-8
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited)........................F-17
Unaudited Consolidated Statements of Operations for the three months ended
September 30, 1996 and 1997 and the nine months ended September 30, 1996 and 1997........................F-18
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 1996
and 1997.................................................................................................F-19
Notes to Unaudited Consolidated Financial Statements..........................................................F-20
</TABLE>
F-1
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F-2
THIS PAGE [INTENTIONALLY BLANK]
<PAGE>
Independent Auditor's Report
The Board of Directors
The Multicare Companies, Inc.
We have audited the accompanying consolidated balance sheets of The
Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 4, 1997
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The Multicare Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31
(In thousands, except share data)
<TABLE>
<CAPTION>
1995 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 3,921 $ 1,150
Accounts receivable, net of allowance for doubtful accounts of $5,241
and $11,531 in 1995 and 1996, respectively ........................ 86,168 102,234
Prepaid expenses and other current assets ........................... 8,181 14,586
Deferred taxes ...................................................... 3,353 3,833
--------- ---------
Total current assets ............................................. 101,623 121,803
Property, plant and equipment:
Land, buildings and improvements ................................. 260,952 386,870
Equipment, furniture and fixtures ................................. 39,048 58,963
Construction in progress .......................................... 24,979 43,373
--------- ---------
324,979 489,206
Less accumulated depreciation and amortization ..................... 38,212 46,187
--------- ---------
286,767 443,019
Goodwill, net ...................................................... 59,610 157,298
Debt issuance costs, net .......................................... 4,738 4,017
Other assets ...................................................... 18,220 35,530
--------- ---------
$ 470,958 $ 761,667
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 13,619 $ 26,948
Accrued liabilities ................................................ 30,850 54,707
Current portion of long-term debt ................................. 1,612 821
--------- ---------
Total current liabilities .......................................... 46,081 82,476
Long-term debt ...................................................... 281,470 428,347
Deferred taxes ...................................................... 24,200 42,909
Contingent stock purchase commitment .............................. 5,312 --
Stockholders' equity:
Preferred stock, par value $.01, 7,000,000 shares authorized, none
issued
Common stock, par value $.01, 70,000,000 shares authorized,
17,680,932 and 30,133,535 issued and outstanding in 1995 and
1996, respectively ............................................. 177 301
Additional paid-in capital ....................................... 75,419 143,513
Retained earnings ................................................ 38,299 64,121
--------- ---------
Total stockholders' equity ....................................... 113,895 207,935
--------- ---------
$ 470,958 $ 761,667
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net revenues .................................... $ 262,416 $ 353,048 $ 532,230
Expenses:
Operating expenses:
Salaries, wages and benefits .................. 127,407 171,471 258,404
Other operating expenses ..................... 71,020 93,714 142,493
Corporate, general and administrative ............ 11,446 17,643 25,408
Lease expense .................................... 2,823 5,039 12,110
Depreciation and amortization ..................... 9,358 13,171 22,344
--------- --------- ---------
Total expenses .............................. 222,054 301,038 460,759
--------- --------- ---------
Income from operations ..................... 40,362 52,010 71,471
Other income (expense):
Investment income .............................. 296 2,713 425
Interest expense .............................. (13,162) (18,778) (25,589)
--------- --------- ---------
Total other income (expense) ............... (12,866) (16,065) (25,164)
--------- --------- ---------
Income before income taxes and
extraordinary item ........................ 27,496 35,945 46,307
Income tax expense .............................. 10,454 13,798 17,570
--------- --------- ---------
Income before extraordinary item ............ 17,042 22,147 28,737
Extraordinary item--loss on extinguishment of debt,
net of tax benefit of $1,057, $2,379 and $1,884 in
1994, 1995, and 1996, respectively ............... 1,620 3,722 2,827
--------- --------- ---------
Net income ................................. $ 15,422 $ 18,425 $ 25,910
========= ========= =========
Income per common and common equivalent share
data:
Income before extraordinary item ............... $ .71 $ .84 $ 1.02
Net income .................................... $ .64 $ .69 $ .92
Weighted average number of common and
common equivalent shares outstanding ......... 23,967 26,513 28,062
Income per common share assuming full dilution:
Income before extraordinary item ............... $ .71 $ .84 $ .99
Net income .................................... $ .64 $ .69 $ .90
Weighted average number of common shares
outstanding assuming full dilution ............ 23,967 26,513 33,172
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
--------- -------- ------------ ---------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 ............... 14,230 $ 142 $ 27,997 $ 4,452 $ 32,591
Issuance of common stock in connection
with public offering ..................... 3,450 35 52,000 52,035
Effect of restricted stock .................. (18) 57 57
Net income ................................. 15,422 15,422
------ ------ --------- -------- ---------
Balances, December 31, 1994 ............... 17,662 177 80,054 19,874 100,105
Exercise of stock options (including tax
benefit) ................................. 19 304 304
Proceeds from issuance of put options ...... 373 373
Contingent stock purchase commitment . (5,312) (5,312)
Net income ................................. 18,425 18,425
------ ------ --------- -------- ---------
Balances, December 31, 1995 ............... 17,681 177 75,419 38,299 113,895
Exercise of stock options (including tax
benefit) ................................. 21 347 347
Shares issued under stock purchase plan . 30 442 442
Contingent stock purchase commitment . 5,312 5,312
Stock split ................................. 8,847 88 (88) --
Issuance of common stock in connection
with public offering ..................... 3,000 30 51,982 52,012
Issuance of stock in acquisition ............ 555 6 10,011 10,017
Net income ................................. 25,910 25,910
------ ------ --------- -------- ---------
Balances, December 31, 1996 ............... 30,134 $ 301 $ 143,513 $ 64,121 $ 207,935
====== ====== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 15,422 $ 18,425 $ 25,910
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item .............................. 2,677 6,101 4,711
Depreciation and amortization .................. 9,583 13,204 22,029
Provision for doubtful accounts .................. 1,712 3,483 4,760
Changes in assets and liabilities:
Deferred taxes ................................. 1,162 (445) (1,208)
Accounts receivable ........................... (28,479) (25,104) (13,967)
Prepaid expenses and other current assets . (8,270) (1,479) (2,528)
Accounts payable and accrued liabilities ...... 8,419 (3,174) 10,566
--------- ---------- ----------
Net cash provided by operating activities . 2,226 11,011 50,273
--------- ---------- ----------
Cash flows from investing activities:
Net marketable securities (acquired) sold ......... 5,195 (200) 202
Assets and operations acquired ..................... (40,435) (63,415) (193,067)
Capital expenditures .............................. (31,785) (39,917) (64,215)
Proceeds from sale-leaseback ........................ -- 12,522 --
Proceeds from repayment of construction advances -- 11,000 --
Other assets ....................................... (2,351) (1,072) (5,531)
--------- ---------- ----------
Net cash used in investing activities ............ (69,376) (81,082) (262,611)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock ............ 52,035 -- 52,012
Proceeds from exercise of stock options and stock
purchase plan .................................... -- 245 717
Proceeds from issuance of put options ............... -- 373 --
Proceeds from long-term debt ........................ 221,465 278,154 562,981
Payments of long-term debt ........................ (203,574) (208,358) (402,848)
Debt issuance costs ................................. (1,750) (4,431) (3,295)
--------- ---------- ----------
Net cash provided by financing activities ......... 68,176 65,983 209,567
--------- ---------- ----------
Increase (decrease) in cash and cash equivalents 1,026 (4,088) (2,771)
Cash and cash equivalents at beginning of year ...... 6,983 8,009 3,921
--------- ---------- ----------
Cash and cash equivalents at end of year ............ $ 8,009 $ 3,921 $ 1,150
========= ========== ==========
Supplemental disclosure of non cash investing and
financing activities:
Fair value of assets and operations acquired ......... $ 90,560 $ 134,323 $ 213,873
Debt and liabilities assumed in connection with
assets and operations acquired ..................... 50,125 70,908 10,789
Stock issued in connection with assets and operations
acquired .......................................... -- -- 10,017
--------- ---------- ----------
$ 40,435 $ 63,415 $ 193,067
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
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, institutional pharmacies, medical supply companies,
outpatient rehabilitation centers and other ancillary healthcare businesses.
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Multicare Companies, Inc. was organized in March 1992. The
consolidated financial statements include the accounts of the Company and its
majority owned and controlled subsidiaries. Investments in affiliates that are
not majority owned are reported using the equity method.
All significant intercompany transactions and accounts of the Company have
been eliminated.
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.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Cash equivalents consist of highly liquid instruments with original
maturities of three months or less.
(b) Financial Instruments
The carrying amounts of cash, marketable securities, and other current
assets and current liabilities approximate fair value due to the short term
maturity of these instruments. The fair value of the Company's long term debt
is estimated based on quoted market prices or current rates offered to the
Company for similar instruments with the same remaining maturities.
(c) Debt Issuance Costs
Debt issuance costs are amortized on a straight-line basis over periods of
four to ten years.
(d) Goodwill
Goodwill resulting from acquisitions accounted for as purchases is
amortized on a straight-line basis over periods of fifteen to forty years. At
December 31, 1995 and 1996, accumulated amortization of goodwill was $1,832 and
$4,636, respectively.
(e) Other Assets
At December 31, 1995 and 1996, other assets include $1,300 and $1,331,
representing amounts due from stockholders.
Direct costs incurred to develop and implement new specialty medical
services at certain facilities are deferred during the start-up period and
amortized on a straight-line basis over five years.
At December 31, 1995 and 1996, investments in non-consolidated affiliates
included in other assets amounted to $5,054 and $19,913, respectively. Results
of operations relating to the non-consolidated affiliates were insignificant to
the Company's financial statements in 1995 and 1996.
F-8
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
(f) Net Revenues
Net revenues primarily consist of services paid for by patients and
amounts for services provided that are reimbursable by certain third-party
payors. Medicare and Medicaid revenues are determined by various rate setting
formulas and regulations. Final determinations of amounts paid by Medicaid and
Medicare are subject to review or audit. In the opinion of management, adequate
provision has been made for any adjustment that may result from these reviews
or audits. To the extent that final determination may result in amounts which
vary from management estimates, future earnings will be charged or credited.
(g) Property, Plant and Equipment
Land, buildings and improvements, equipment, furniture and fixtures are
stated at cost. Depreciation of buildings and improvements is calculated using
the straight-line method over their estimated useful lives that range from
twenty to forty years. Depreciation of equipment and furniture and fixtures is
calculated using the straight-line method over their estimated useful lives
that range from five to ten years. Depreciation expense for the years ended
December 31, 1994, 1995, and 1996 was $8,146, $10,875, and $17,724,
respectively.
(h) Income Taxes
The Company follows the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
(i) Net Income Per Share
The computation of primary earnings per share is based on the weighted
average number of outstanding shares during the period and includes, when their
effect is dilutive, common stock equivalents consisting of certain shares
subject to stock options. Fully diluted earnings per share additionally assumes
the conversion of the Company's Convertible Subordinated Debentures. Net income
used in the computation of fully diluted earnings per share was determined on
the assumption that the convertible debentures were converted and net income
was adjusted for the amounts representing interest and amortization of debt
issuance costs, net of tax effect.
(j) Stock Split
In May 1996, the Company effected a three-for-two stock split in the form
of a 50% stock dividend. In 1996, stockholders' equity has been adjusted to
give recognition to the stock split by reclassifying from retained earnings to
common stock the par value of the additional shares arising from the stock
split. All references to average number of shares outstanding, stock options,
and per share amounts have been restated to reflect the stock split.
(k) SFAS 121
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ",
on January 1, 1996. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset. Adoption of this
Statement did not have any impact on the Company's financial position, results
of operations, or liquidity.
F-9
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 3 -- ACQUISITIONS
In March 1994, the Company acquired the outstanding capital stock of
Providence Health Care, Inc. (Providence), an Ohio-based provider of long-term
nursing care through 15 long-term care facilities for a cash purchase price of
approximately $29,000 and the assumption and refinancing of approximately
$27,000 of indebtedness. Total goodwill approximated $16,900.
In January 1995, the Company acquired the assets and operations of an
institutional pharmacy business for a purchase price of approximately $12,000.
Total goodwill approximated $11,000.
In December 1995, the Company completed the acquisition of Glenmark
Associates, Inc. (Glenmark). The Company acquired the outstanding capital stock
of Glenmark for approximately $32,000 including transaction costs, repaid
approximately $24,200 of debt, and assumed historical debt of approximately
$24,700. Total goodwill approximated $30,000.
In February 1996, the Company completed the acquisition of Concord Health
Group, Inc. (Concord). The Company acquired the outstanding capital stock and
warrants of Concord for approximately $75,000 including transaction costs,
repaid approximately $41,000 of debt, and assumed historical debt of
approximately $4,000. Total goodwill approximated $61,000.
In December 1996, the Company completed the acquisition of The A.D.S Group
(A.D.S). 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 A.D.S. Total goodwill
approximated $29,900.
All acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the consolidated financial statements reflect the
results of operations of each facility from the date of acquisition.
The following unaudited pro forma financial information has been prepared
as if the Glenmark, Concord and A.D.S acquisitions had been consummated on
January 1, 1995. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the acquisitions
occurred on January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
(Unaudited)
<S> <C> <C>
Net revenues ................................. $ 512,995 $ 599,022
Income before extraordinary item ............ 20,006 29,095
Net income .................................... 16,284 26,267
Income per common share assuming full dilution:
Income before extraordinary item ............ .74 .98
Net income ................................. $ .60 $ .90
</TABLE>
NOTE 4 -- INCOME TAXES
The provision for income taxes, exclusive of income taxes related to the
extraordinary items, consists of the following:
1994 1995 1996
----------- ------------ ---------
Federal:
Current ............... $ 8,810 $ 11,092 $ 13,554
Deferred ............... (594) (35) 1,275
State:
Current ............... 2,343 2,876 2,695
Deferred ............... (105) (135) 46
-------- -------- --------
$ 10,454 $ 13,798 $ 17,570
======== ======== ========
F-10
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 4 -- INCOME TAXES -- (Continued)
The difference between the Company's effective tax rate and the Federal
statutory tax rate of 35% is primarily attributable to state taxes.
The tax effects of temporary differences giving rise to deferred tax
assets and liabilities at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable .............................. $ 1,620 $ 1,642
Employee benefits and compensated absences ...... 1,429 2,191
Other .......................................... 829 --
-------- --------
$ 3,878 $ 3,833
======== ========
Deferred tax liabilities:
Property, plant and equipment .................. $ 24,408 $ 42,033
Other .......................................... 317 876
-------- --------
$ 24,725 $ 42,909
======== ========
</TABLE>
Cash paid for income taxes was $9,504, $12,910 and $14,555 in 1994, 1995
and 1996, respectively.
NOTE 5 -- FINANCING OBLIGATIONS
Long-term debt at December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Bank credit facility, with interest at approximately 6% in 1995 and 7%
in 1996 ............................................................... $ 105,629 $ 276,429
Convertible debentures, due 2003, with interest at 7%, convertible at
$17.33 per share ...................................................... 86,250 86,250
Senior Subordinated Notes, due 2002, net of unamortized original issue
discount of $911 and $682 in 1995 and 1996, respectively, with
interest at 12.5% ................................................... 36,990 29,719
Mortgages and other debt, including unamortized premium of $3,819
and $3,412, in 1995 and 1996, respectively, payable on varying
monthly or quarterly installments with interest at rates between 6%
and 12%. These loans mature between 1999 and 2033 ..................... 43,202 26,135
Revenue bonds, rates ranging from 7% to 10%, with maturities
between 2004 and 2015, net of unamortized discount of $465 and
$431 in 1995 and 1996, respectively ................................. 11,011 10,635
--------- ---------
$ 283,082 $ 429,168
Less current portion ................................................... 1,612 821
--------- ---------
$ 281,470 $ 428,347
========= =========
</TABLE>
In 1995, the Company restructured its credit agreement with The Chase
Manhattan Bank, N.A. to extend the amount of available credit to $200,000. In
addition, several terms, including the interest rate were revised. The Company
recorded an extraordinary charge of $1,206, net of tax, for the write-off of
debt issuance costs and prepayment penalties relating to the restructuring of
the credit facility and extinguishment of certain mortgage debt.
F-11
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 5 -- FINANCING OBLIGATIONS -- (Continued)
In March 1995, the Company completed an offshore offering and a concurrent
private placement in the United States of $86,250 of its 7% Convertible
Subordinated Debentures (Convertible Debentures) due 2003. The Convertible
Debentures are convertible at a price of $17.33 per share. The net proceeds
approximated $83,300 of which $23,000 was used to repay amounts outstanding
under the Company's credit agreement, with the remainder utilized for general
corporate purposes. In January 1997, $11,000 of Convertible Debentures were
converted into common stock.
The Company purchased or retired an aggregate amount of $38,177 of its
$100,000 Senior Subordinated Notes (Notes) in 1994, 1995 and 1996, resulting in
extraordinary charges after tax of $1,620, $2,516 and $957, respectively, for
premiums paid above the recorded values and the write-off of debt issuance
costs and original issue discounts. In January 1997, the Company purchased
$6,500 principal amount of Notes.
In 1996, the Company restructured its credit agreement with The Chase
Manhattan Bank, N.A. to extend the amount of credit available from $200,000 to
$350,000 and to revise other terms. In December 1996, the Company entered into
a new $350,000 credit facility which expires in 2000 and added a $60,000 lease
facility with NationsBank, N.A., as agent. The Company recorded extraordinary
charges of $1,870, net of tax, for the write-off of unamortized debt issuance
costs related to the restructurings.
The fair value of the Company's debt, based on quoted market prices or
current rates for similar instruments with the same maturities was
approximately $288,767 and $432,398 at December 31, 1995 and 1996,
respectively.
The Company is subject to various financial and restrictive covenants
under its credit facility and other indebtedness and is in compliance with such
covenants at December 31, 1996.
At December 1996, the aggregate maturities of long-term debt for the five
years ending December 31, 2001 and thereafter are as follows:
1997 ............ $ 821
1998 ............ 1,335
1999 ............ 804
2000 ............ 277,146
2001 ............ 759
Thereafter ...... 146,004
---------
426,869
Discount ......... (1,113)
Premium ......... 3,412
---------
$429,168
=========
Interest expense of $1,225, $1,605 and $2,773 was capitalized in 1994,
1995 and 1996, respectively, in connection with new construction and facility
renovations and expansions.
Cash paid for interest was $13,565, $17,704 and $25,762 in 1994, 1995, and
1996, respectively.
F-12
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 6 -- ACCRUED LIABILITIES
At December 31, 1995 and 1996, accrued liabilities consist of the
following:
1995 1996
---------- ---------
Salaries and wages ......... $ 11,428 $ 19,469
Deposits from patients ...... 2,437 3,386
Interest ..................... 4,739 4,742
Insurance .................. 2,492 7,079
Other ........................ 9,754 20,031
-------- --------
$ 30,850 $ 54,707
======== ========
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The Company has operating leases on certain of its facilities and offices.
Three of such leases are with entities that are owned wholly or in part by
certain of the stockholders of the Company. In 1996, the Company renegotiated
and amended the terms of certain of its capital lease agreements, resulting in
their treatment as operating leases which did not have a material impact on the
financial statements. Minimum rental commitments under all noncancelable leases
at December 31, 1996 are as follows:
Operating
----------
1997 ............ $ 17,145
1998 ............ 17,170
1999 ............ 16,193
2000 ............ 15,870
2001 ............ 15,612
Thereafter ...... 65,070
---------
$ 147,060
=========
Letters of credit ensure the Company's performance or payment to third
parties in accordance with specified terms and conditions. At December 31,
1996, letters of credit outstanding amounted to $1,709.
Included in the accompanying consolidated financial statements are
management fees and interest income from related parties of $1,501, $1,689 and
$123 for the years ended December 31, 1994, 1995, and 1996, respectively.
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; 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
been proposed could materially adversely affect the Company's revenues derived
from ancillary services.
F-13
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (Continued)
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 Company in the form of higher prices. When faced with
increases in operating costs, the Company has increased its charges for
services. The Company'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.
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.
NOTE 8 -- CAPITAL STOCK AND STOCK PLANS
In May 1996, the Company increased the number of authorized shares of
preferred and common stock for the purpose of effecting a three-for-two stock
split in the form of a 50% stock dividend. In October 1996, the Company
completed a public offering of 3,000,000 shares of its common stock, resulting
in net proceeds of $52,000. The proceeds from the offering were used to repay a
portion of outstanding bank indebtedness under the Company's credit agreement
which was incurred to finance certain of the Company's acquisitions.
The Company's 1993 Stock Option Plan and Non-Employee Director Stock
Option Plan (Plans) provide for the issuance of options to directors, officers,
key employees and consultants of the Company. The aggregate number of shares
authorized for issuance under the Plans is 3,840,000. Options are issued at
market value on the date of the grant, vest ratably over maximum periods of
five years, and expire ten years from the date of the grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", and applies APB Opinion No. 25 in
accounting for its plans and, accordingly, has not recognized compensation cost
for stock option plans and stock purchase plans in its financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date consistent with the provisions of SFAS 123, the Company's net income
would have been changed to the pro forma amounts indicated below:
1995 1996
---------- ---------
Net income--as reported ............... $ 18,425 $ 25,910
Net income--pro forma .................. 17,530 24,181
Net income per share--as reported ...... .69 .90
Net income per share--pro forma ......... .66 .85
The fair value of the stock options granted in 1995 and 1996 is estimated
at grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1995 and 1996: dividend yield of 0%; expected
volatility of 38.4%; a risk-free interest rate of 6.5%; and expected lives of
9.9 years.
F-14
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 8 -- CAPITAL STOCK AND STOCK PLANS -- (Continued)
Presented below is a summary of the stock option plans for the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year ........................ 395,250 $ 7.09 1,772,778 $ 10.74 2,441,364 $ 11.46
Granted ........................ 1,585,893 10.94 750,828 13.10 828,746 17.60
Exercised ........................ -- -- (27,969) 8.73 (24,789) 11.05
Forfeited/expired ............... (208,365) 8.33 (54,273) 12.15 (78,084) 13.10
--------- ------ --------- -------- --------- -------
Options outstanding at end of year 1,772,778 $10.74 2,441,364 $ 11.46 3,167,237 $ 13.03
========= ========= =========
Weighted-average grant-date fair
value of options granted ...... $7.08 $8.23 $11.06
</TABLE>
The following table summarizes information for stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Weighted Avg.
Remaining Weighted Avg. Weighted Avg.
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- -------------------------- ------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$6.67-$10.83 ............ 311,251 6.8 $ 8.06 165,749 $ 7.71
11.17-14.67 ............ 2,051,610 7.6 11.97 826,881 11.81
16.00-20.59 ............ 804,376 9.5 17.66 22,500 18.67
--------- --- ------ ------- ------
3,167,237 8.0 $13.03 1,015,130 $11.29
========= === ====== ========= ======
</TABLE>
The Company's Employee Stock Purchase Plan (ESPP) was adopted by the
Company's Board of Directors in 1995 and approved by shareholders in 1996. The
ESPP permits employees of the Company to purchase the Company's common stock at
a price equal to the lesser of 85% of the fair market value of the common stock
on the first or last day of each quarter. There are 1,200,000 shares authorized
for issuance under the ESPP.
In 1996, the Company adopted the Directors Retainer and Meeting Fee Plan
(Directors Plan) under which a director who is not an employee of the Company
may elect to receive payment of all or any portion of his or her annual cash
retainer and meeting fees either in cash or shares of the Company's common
stock. The number of shares payable is determined by the fair market value of a
share on the date payment is due. The aggregate number of shares authorized for
issuance under the Directors Plan is 75,000.
In 1995, the Company issued put options on 500,000 shares of its common
stock which expired unexercised in 1996. As of December 31, 1995 the balance in
Contingent stock purchase commitment is the amount the Company would have been
obligated to pay if all of the remaining put options were exercised.
At December 31, 1996, the Company has 4,976,000 shares of its common stock
reserved for the conversion of its Convertible Debentures.
NOTE 9 -- SUBSEQUENT EVENTS (UNAUDITED)
In February 1997, options to purchase 556,000 shares of common stock were
granted at exercise prices representing fair market value as of the date of the
grants.
F-15
<PAGE>
The Multicare Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years Ended December 31, 1994, 1995 and 1996
(In thousands, except share and per share data)
NOTE 10 -- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues .................................... $ 81,700 $ 85,605 $ 90,948 $ 94,795
Income from operations ........................... 12,350 12,652 13,443 13,565
Income before extraordinary item ............... 5,094 5,264 5,780 6,009
Net income ....................................... 5,094 5,264 5,780 2,287
Income per common share assuming full dilution(2):
Income before extraordinary item ............... .19 .20 .22 .23
Net income .................................... $ .19 $ .20 $ .22 $ .09
Price range of stock (2)(3)(4)
High .......................................... $ 15 1/2 $ 15 1/8 $ 15 5/8 $ 16 1/8
Low ............................................. $ 11 5/8 $ 11 1/4 $ 11 1/4 $ 11 3/4
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter Quarter Quarter(1)
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues .................................... $ 120,057 $ 131,889 $ 134,944 $ 145,340
Income from operations ........................... 15,478 17,610 18,759 19,624
Income before extraordinary item ............... 6,197 6,780 7,418 8,342
Net income ....................................... 4,716 6,780 7,418 6,996
Income per common share assuming full dilution(2):
Income before extraordinary item ............... .23 .24 .26 .27
Net income .................................... $ .18 $ .24 $ .26 $ .23
Price range of stock (2)(3)(4)
High .......................................... $ 19 1/4 $ 20 7/8 $ 21 3/4 $ 22 3/8
Low ............................................. $ 14 7/8 $ 17 1/2 $ 18 $ 17 3/4
</TABLE>
- ------------
(1) The Company incurred extraordinary charges of $3,722, $1,481 and $1,346,
net of taxes, in the fourth quarter of 1995, first quarter of 1996, and
fourth quarter of 1996, respectively, relating to extinguishment of debt.
(2) Income per share and prices have been adjusted for a 50% stock dividend in
May 1996.
(3) The Company has not paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future.
(4) Stock prices are from official data released by the NASDAQ stock market and
The New York Stock Exchange. As of February 21, 1997, there were
approximately 88 record holders of the Company's common stock.
NOTE 11 -- SUBSEQUENT EVENT (UNAUDITED)
On June 16, 1997, Genesis ElderCare Acquisition Corp. (Acquisition Corp.)
and the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) whereby Acquisition Corp. agreed to make the Tender Offer to
purchase all of the outstanding shares of common stock, par value $.01 per
share (the Shares), of the Company at a purchase price of $28.00 per Share.
Consummation of the Tender Offer is subject to certain conditions. As soon as
practicable after the consummation of the Tender Offer, Acquisition Corp. will
be merged with and into the Company. Following the Merger, the Company will
continue as the surviving corporation and become a subsidiary of Genesis
ElderCare Corp. Genesis ElderCare Corp. will be owned by Genesis Health
Ventures, Inc., The Cypress Group L.L.C. and TPG Partners II, L.P.
F-16
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------------- -------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 1,150 2,118
Accounts receivable, net.................................... 102,234 119,522
Prepaid expenses and other current assets................... 18,419 24,614
------------------- -------------------
Total current assets.................................... 121,803 146,254
Property, plant and equipment, net............................. 443,019 460,800
Goodwill, net.................................................. 157,298 171,324
Other assets................................................... 39,547 44,755
------------------- -------------------
$ 761,667 823,133
=================== ===================
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable............................................ $ 26,948 28,863
Accrued liabilities......................................... 54,707 64,944
Current portion of long-term debt........................... 821 625
------------------- -------------------
Total current liabilities............................... 82,476 94,432
Long-term debt................................................. 428,347 423,421
Deferred taxes................................................. 42,909 42,106
Stockholders' equity:
Preferred stock, par value $.01, 7,000,000 shares -- --
authorized, none issued.....................................
Common stock, par value $.01, 70,000,000 shares
authorized; 30,133,535 and 31,731,963 issued
and outstanding in 1996 and 1997, respectively.............. 301 317
Additional paid-in-capital..................................... 143,513 170,858
Retained earnings.............................................. 64,121 91,999
------------------- -------------------
Total stockholders' equity..................................... 207,935 263,174
------------------- -------------------
$ 761,667 823,133
=================== ===================
</TABLE>
F-17
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
-------------------------- --------------------------
1996 1997 1996 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................................................ $134,944 185,996 386,890 533,952
Expenses:
Operating expense........................................ 101,025 142,873 291,494 406,173
Corporate, general and administrative expense............ 6,214 8,112 18,627 25,203
Lease expense............................................ 3,105 4,335 8,874 12,693
Depreciation and amortization expense.................... 5,841 7,537 16,048 21,620
Interest expense, net.................................... 6,863 7,472 18,947 21,640
Debenture conversion expense............................. -- -- -- 785
-------- ------- ------- -------
Total expenses....................................... 123,048 170,329 353,990 488,114
-------- ------- ------- -------
Income before income taxes and extraordinary item........... 11,896 15,667 32,900 45,838
Income tax expense.......................................... 4,478 5,857 12,505 17,087
-------- ------- ------- -------
Income before extraordinary item............................ 7,418 9,810 20,395 28,751
Extraordinary item - loss on extinguishment of debt,
net of tax benefit....................................... -- -- 1,481 873
-------- ------- ------- -------
Net income.................................................. $ 7,418 9,810 18,914 27,878
======== ======= ======= =======
Income per common and common equivalent share data:.........
Income before extraordinary item............................ $.27 .30 .74 .89
Net income.................................................. $.27 .30 .69 .87
Weighted average number of common and common
equivalent shares outstanding............................ 27,606 32,823 27,506 32,172
Income per common share assuming full dilution:
Income before extraordinary item............................ $.26 .28 .71 .85
Net income.................................................. $.26 .28 .67 .82
Weighted average number of common shares outstanding
assuming full dilution................................... 32,774 37,016 32,748 36,832
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities.................... $18,997 37,048
-------- -------
Cash flows from investing activities:
Assets and operations acquired............................... (122,940) (22,568)
Capital expenditures......................................... (49,510) (39,301)
Other assets................................................. (2,005) (9,465)
Proceeds from repayment of construction advances............. -- 13,100
-------- -------
Net cash used in investing activities........................ (174,455) (58,234)
-------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and 511 1,075
stock purchase plan.......................................
Proceeds from long-term debt................................. 218,200 112,400
Payments of long-term debt................................... (62,874) (91,310)
Debt issuance costs.......................................... (2,407) (195)
Other, net................................................... -- 184
-------- -------
Net cash provided by financing activities.................... 153,430 22,154
-------- -------
Increase (decrease) in cash and cash equivalents............. (2,028) 968
Cash and cash equivalents at beginning of period............. 3,921 1,150
-------- -------
Cash and cash equivalents at end of period................... $1,893 2,118
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
THE MULTICARE COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated financial Statements
September 30, 1997
(Unaudited)
(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,
institutional pharmacies, medical supply companies, outpatient
rehabilitation centers and other ancillary healthcare businesses.
The financial information as of September 30, 1997 and for the three
and nine months ended September 30, 1996 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 September
30, 1997 and the operating results and cash Flows for the three and
nine months ended September 30, 1996 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 year
ended December 31, 1996.
(2) Completed 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 32,790,495 Shares that had been validly
tendered and not withdrawn. The Shares accepted pursuant to the
Tender Offer constitute 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
F-20
<PAGE>
(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.
(3) Commitments and Contingencies
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, including
without limitation discussions at the federal level concerning budget
reductions and the implementation of prospective payment systems for
the Medicare and Medicaid programs. The Company is unable to predict
the impact of healthcare reform proposals on the Company; 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
been proposed could materially adversely affect 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) Capital Stock and Net Income Per Share
In May 1996, the Company effected a three-for-two stock split in the
form of a 50% stock dividend. All references to average number of
shares outstanding and per share amounts have been restated to
reflect the stock split. The computation of primary earnings per
share is based on the weighted average number of outstanding shares
during the period and includes when their effect is dilutive, common
stock equivalents consisting of certain shares subject to stock
options. Fully diluted earning per share additionally assumes the
conversion of the Company's Convertible Subordinated Debentures.
Net income used in the computation of fully diluted earnings per
share was determined on the assumption that the convertible
debentures were converted and net income was adjusted for the amounts
representing interest and amortization of debt issuance costs, net of
tax effect.
F-21
<PAGE>
In February 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("FASB 128") which is
required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. The
impact of FASB 128 on the calculation of earnings per share amounts
is not expected to be material.
(5) Acquisitions
In February 1996, the Company completed the acquisition of Concord
Health Group, Inc. (Concord). The Company acquired the outstanding
capital stock and warrants of Concord for approximately $75,000
including transaction costs, repaid approximately $41,000 of debt,
and assumed historical debt of approximately $4,000. Total goodwill
approximated $61,000.
In December 1996, the Company completed the acquisition of The A.D.S
Group (A.D.S). 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
A.D.S. Total goodwill approximated $30,700.
The following unaudited pro forma financial information gives effect
to the acquisitions of Concord and A.D.S as if such transactions occurred on
January 1, 1996:
<TABLE>
<CAPTION>
Pro Forma for the
Nine months ended
September 30, 1996
----------------------
<S> <C>
Net revenues....................................................... $ 438,137
Income before extraordinary item................................... 22,170
Net income......................................................... 20,689
Income before extraordinary item per common and common
equivalent share assuming full dilution....................... .75
Net income per common and common equivalent share
assuming full dilution........................................ $ .71
</TABLE>
F-22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation may 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 (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation in such capacity at 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 if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that such person's conduct was unlawful.
Section 145 of DGCL also provides that a corporation may indemnify
any person who was or is a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such
person acted under similar standards, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a
director, officer, employee or agent of a corporation is successful on the
merits or otherwise in the defense of any action referred to above, or in
defense of any claim, issue or matter therein, the corporation must indemnify
such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
In accordance with Section 145 of the DGCL, the Registrant's By-laws
provide that the Registrant will indemnify, to the maximum extent permitted by
applicable law, 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, any action by or in the right of the Registrant 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 Registrant or is or was serving in any capacity at the request of the
Registrant for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines,
penalties, exercise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees and disbursements).
The Registrant's By-laws also provide that expenses (including
attorneys' fees and disbursements) incurred by an officer or director in
defending an action, suit or proceeding will be paid by the Registrant in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such person seeking
indemnification to repay such amount in the event that it shall be ultimately
II-1
<PAGE>
determined by final judicial decision from which there is no further right of
appeal that such person is not entitled to be indemnified by the Registrant
for such expenses.
Section 102(B)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation 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 corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (regarding certain illegal distributions) or (iv) for any
transaction from which the director derived an improper personal benefit. The
Registrant's Certificate of Incorporation provides that the personal liability
of the Registrant's directors to the Registrant or any of its stockholders for
monetary damages for breach of fiduciary duty by such director as a director
is limited to the fullest extent permitted by Delaware law.
The Registrant also maintains directors' and officers' liability
insurance covering certain liabilities that may be incurred by directors and
officers of the Registrant in the performance of their duties.
Item 21.
A. Financial Statement Schedules.
Report of Independent Auditors
Valuation and Qualifying Accounts
B. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 (1) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis ElderCare
Corp., Genesis ElderCare Acquisition Corp., Genesis Health Ventures, Inc. and The
Multicare Companies, Inc.
4.1 Form of 9% Senior Subordinated Note due 2007
4.2 Indenture, dated August 11, 1997 by and among Genesis ElderCare Acquisition
Corp., PNC Bank, National Association, as trustee, and Banque Internationale a
Luxembourg, S.A., as paying agent.
5 Opinion of Blank Rome Comisky & McCauley LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Blank Rome Comisky & McCauley LLP included in the opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on page II-5).
25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- --------------------------
(1) Incorporated by reference to the Tender Offer Statement on Schedule 14D-1
filed by Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp. on
June 20, 1997.
Item 22. Undertakings.
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
II-2
<PAGE>
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement:
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally promptly means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
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 foregoing provisions, 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 Securities Act of 1933 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 appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennett Square,
Commonwealth of Pennsylvania, on January 15, 1998.
THE MULTICARE COMPANIES, INC.
By: /s/ Michael R. Walker
--------------------------------------
Michael R. Walker
Chairman, Chief Executive Officer and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael R. Walker, Richard R. Howard
and George V. Hager, Jr., and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution or
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with all exhibits thereto, and other documentation in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------------------------------------- --------------------------------------------- ------------------------
<S> <C> <C>
/s/ Michael R. Walker Chairman, Chief Executive Officer and January 15, 1998
- ----------------------------------------- Director
Michael R. Walker
/s/ Jonathan J. Coslet Director January 15, 1998
- -----------------------------------------
Jonathan J. Coslet
/s/ James G. Coulter Vice President, Assistant Secretary and January 15, 1998
- ----------------------------------------- Director
James G. Coulter
/s/ George V. Hager, Jr. Senior Vice President, Chief Financial January 15, 1998
- ----------------------------------------- Officer and Director
George V. Hager, Jr.
/s/ Richard R. Howard Director January 15, 1998
- -----------------------------------------
Richard R. Howard
/s/ James V. McKeon Vice President, Controller and January 15, 1998
- ----------------------------------------- Assistant Secretary
James V. McKeon
/s/ Karl I. Peterson Director January 15, 1998
- -----------------------------------------
Karl I. Peterson
/s/ James L. Singleton Vice President, Assistant Secretary and January 15, 1998
- ----------------------------------------- Director
James L. Singleton
/s/ William L. Spiegel Director January 15, 1998
- -----------------------------------------
William L. Spiegel
/s/ James A. Stern Director January 15, 1998
- -----------------------------------------
James A. Stern
</TABLE>
II-5
<PAGE>
SCHEDULE INDEX
Report of Independent Auditors
Valuation and Qualifying Accounts
II-6
<PAGE>
Independent Auditors' Report
The Board of Directors
The Multicare Companies, Inc.:
Under date of February 4, 1997, we reported on the consolidated balance sheets
of The Multicare Companies, Inc. and subsidiaries as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, as contained in the prospectus. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related financial statement schedule on valuation and qualifying
accounts. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 4, 1997
II-7
<PAGE>
SCHEDULE II
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1995, 1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning of costs and other at end
period expenses accounts(1) Deductions of period
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $5,241 4,760 2,502 972 11,531
====== ===== ===== === ======
Year ended December 31, 1995:
Allowance for doubtful accounts $2,726 3,483 -- 968 5,241
====== ===== ===== === ======
Year ended December 31, 1994:
Allowance for doubtful accounts $1,642 1,712 -- 628 2,726
====== ===== ===== === ======
</TABLE>
- -----------
(1) Represents amounts related to acquisitions.
(2) Represents amounts written-off as uncollectible.
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C>
2.1 (1) Agreement and Plan of Merger dated June 16, 1997 by and among Genesis ElderCare
Corp., Genesis ElderCare Acquisition Corp., Genesis Health Ventures, Inc. and The
Multicare Companies, Inc.
4.1 Form of 9% Senior Subordinated Note due 2007
4.2 Indenture, dated August 11, 1997 by and among Genesis ElderCare Acquisition
Corp., PNC Bank, National Association, as trustee, and Banque Internationale a
Luxembourg, S.A., as paying agent.
5 Opinion of Blank Rome Comisky & McCauley LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Blank Rome Comisky & McCauley LLP included in the opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on page II-5).
25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
(1) Incorporated by reference to the Tender Offer Statement on Schedule 14D-1
filed by Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp. on
June 20, 1997.
<PAGE>
[FACE OF NOTE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.
THE MULTICARE COMPANIES, INC.
9% Senior Subordinated Note due 2007
[CUSIP] [CINS] [__________]
No. $_________
THE MULTICARE COMPANIES, INC., a Delaware corporation (the "Issuer",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to _____________, or its registered assigns,
the principal sum of ____________ ($___ ) on August 1, 2007.
Interest Payment Dates: February 1 and August 1, commencing February 1,
1998.
Regular Record Dates: January 15 and July 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: THE MULTICARE COMPANIES, INC.
By: ___________________________________
Name:
Title:
2
<PAGE>
(Trustee's Certificate of Authentication)
This is one of the 9% Senior Subordinated Notes due 2007 described in the
within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION
as Trustee
By: ___________________________________
Authorized Signatory
3
<PAGE>
[REVERSE SIDE OF NOTE]
THE MULTICARE COMPANIES, INC.
9% Senior Subordinated Note due 2007
1. Principal and Interest.
The Issuer will pay the principal of this Note on August 1, 2007.
The Issuer promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the January 15 or July 15 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
February 1, 1998.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from August 11, 1997;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Issuer shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Issuer will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each February 1 and August 1
commencing February 1, 1998 to the persons who are Holders (as reflected in the
Security Register at the close of business on the January 15 or July 15
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the Issuer
will make payment to the Holder that surrenders this Note to a Paying Agent on
or after August 1, 2007.
The Issuer will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Issuer may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
4
<PAGE>
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Issuer may change any authenticating agent, Paying Agent or
Registrar without notice. The Issuer, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Issuer issued the Notes under an Indenture dated as of August 11,
1997 (the "Indenture"), between the Issuer, PNC Bank, National Association,
trustee (the "Trustee") and Banque Internationale a Luxembourg S.A., a paying
agent. Capitalized terms herein are used as defined in the Indenture unless
otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general obligations of the Issuer.
5. Optional Redemption.
The Notes will be redeemable, at the Issuer's option, in whole or in
part, at any time or from time to time, on or after August 1, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing August 1 of the
years set forth below:
Redemption
Year Price
---- ----------
2002............................... 104.500%
2003............................... 102.250
2004 and thereafter................ 100.000
Notes in original denominations larger than $1,000 may be redeemed in
part. On and
5
<PAGE>
after the Redemption Date, interest ceases to accrue on Notes or portions of
Notes called for redemption, unless the Issuer defaults in the payment of the
Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Issuer in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may be
sold to the Issuer in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Issuer,
unless the Issuer defaults in the payment of the purchase price.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Issuer at its request. After that, Holders entitled to the
money must look to the Issuer for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
6
<PAGE>
10. Discharge Prior to Redemption or Maturity.
If the Issuer deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the Issuer
will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Issuer will be discharged from certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Issuer
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Issuer must report to the Trustee on compliance with such limitations.
13. Subordination.
The payment of the Notes will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or Cash Equivalents, of all Senior Indebtedness.
14. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
15. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise, whether or not such payment is
7
<PAGE>
prohibited by the subordination provisions set forth in Article Eleven; (b)
default in the payment of interest on any Note when the same becomes due and
payable, and such default continues for a period of 30 days, whether or not such
payment is prohibited by the subordination provisions set forth in Article
Eleven; (c) default in the performance or breach of Article Five or Section
3.01(b) of the Indenture or the failure to make or consummate an Offer to
Purchase in accordance with Section 4.10 or 4.11 of the Indenture; (d) default
in the performance of or breach of any covenant or agreement of the Issuer in
the Indenture or under the Notes (other than a default specified in clause (a),
(b) or (c) above), and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding; (e) there
occurs with respect to any issue or issues of Indebtedness of the Issuer or any
Significant Subsidiary having an outstanding principal amount of $10 million or
more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Issuer or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Issuer or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Issuer or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Issuer or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; (h) the Issuer or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Issuer or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors; or (i) the Guaranty Documents are not
executed and delivered within three Business Days after the consummation of the
Tender Offer (unless prior to or at the end of such three Business Days the
Merger shall have been consummated).
8
<PAGE>
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Issuer occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
16. Trustee Dealings with Issuer.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Issuer or its Affiliates and may otherwise deal with the Issuer or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Issuer or of any successor Person shall have any liability for any
obligations of the Issuer under the Escrow Agreement, the Notes or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
18. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Issuer will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to The Multicare
Companies, Inc., 148 West State Street, Kennett Square, Pennsylvania 19348;
Attention: George V. Hager, Jr.
9
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing __________________________________________________ attorney to
transfer said Note on the books of the Issuer with full power of substitution
in the premises.
10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Issuer pursuant to
Section 4.10 or 4.11 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Issuer
pursuant to Section 4.10 or 4.11 of the Indenture, state the amount:
$___________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ________________________________
11
<PAGE>
==============================================================================
GENESIS ELDERCARE ACQUISITION CORP.,
Issuer
and
PNC BANK, NATIONAL ASSOCIATION,
Trustee
and
BANQUE INTERNATIONALE A LUXEMBOURG S.A.,
Paying Agent
----------------
Indenture
Dated as of August 11, 1997
----------------
9% Senior Subordinated Notes due 2007
==============================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C> <C>
ss. 310(a)(1)........................................................ 7.10
(a)(2)........................................................ 7.10
(b)........................................................... 7.08
ss. 313(c)........................................................... 7.06; 11.02
ss. 314(a)........................................................... 4.17; 11.02
(a)(4)........................................................ 4.16; 11.02
(c)(1)........................................................ 11.03
(c)(2)........................................................ 11.03
(e)........................................................... 11.04
ss. 315(b)........................................................... 7.05; 11.02
ss. 316(a)(1)(A)..................................................... 6.05
(a)(1)(B)..................................................... 6.04
(b)........................................................... 6.07
ss. 317(a)(1)........................................................ 6.08
(a)(2)........................................................ 6.09
ss. 318(a)........................................................... 11.01
(c)........................................................... 11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions.................................................................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act............................................ 24
SECTION 1.03. Rules of Construction........................................................................ 25
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.............................................................................. 25
SECTION 2.02. Restrictive Legends.......................................................................... 27
SECTION 2.03. Execution, Authentication and Denominations.................................................. 29
SECTION 2.04. Registrar and Paying Agent................................................................... 29
SECTION 2.05. Paying Agent to Hold Money in Trust.......................................................... 30
SECTION 2.06. Transfer and Exchange........................................................................ 31
SECTION 2.07. Book-Entry Provisions for Global Notes....................................................... 31
SECTION 2.08. Special Transfer Provisions.................................................................. 33
SECTION 2.09. Replacement Notes............................................................................ 37
SECTION 2.10. Outstanding Notes............................................................................ 37
SECTION 2.11. Temporary Notes.............................................................................. 37
SECTION 2.12. Cancellation................................................................................. 38
SECTION 2.13. CUSIP Numbers................................................................................ 38
SECTION 2.14. Defaulted Interest........................................................................... 38
SECTION 2.15. Issuance of Additional Notes................................................................. 39
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption.................................................... 39
SECTION 3.02. Notices to Trustee........................................................................... 40
SECTION 3.03. Selection of Notes to Be Redeemed............................................................ 40
SECTION 3.04. Notice of Redemption......................................................................... 40
SECTION 3.05. Effect of Notice of Redemption............................................................... 41
SECTION 3.06. Deposit of Redemption Price.................................................................. 41
SECTION 3.07. Payment of Notes Called for Redemption....................................................... 42
SECTION 3.08. Notes Redeemed in Part....................................................................... 42
- --------
</TABLE>
Note: The Table of Contents shall not for any purposes be deemed to be a
part of the Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
ARTICLE FOUR
COVENANTS
<S> <C> <C>
SECTION 4.01. Payment of Notes............................................................................. 42
SECTION 4.02. Maintenance of Office or Agency.............................................................. 42
SECTION 4.03. Limitation on Indebtedness................................................................... 43
SECTION 4.04. Limitation on Restricted Payments............................................................ 43
SECTION 4.05. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.............................................................. 45
SECTION 4.06. Limitations on Preferred Stock of Restricted Subsidiaries.................................... 46
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries............................. 46
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates.................................. 47
SECTION 4.09. Limitation on Liens.......................................................................... 48
SECTION 4.10. Limitation on Asset Sales.................................................................... 49
SECTION 4.11. Repurchase of Notes upon a Change in Control................................................. 49
SECTION 4.12. Limitation on Senior Subordinated Indebtedness............................................... 50
SECTION 4.13. Limitation on Management Fees................................................................ 50
SECTION 4.14. Existence.................................................................................... 50
SECTION 4.15. Payment of Taxes and Other Claims............................................................ 51
SECTION 4.16. Maintenance of Properties and Insurance...................................................... 51
SECTION 4.17. Notice of Defaults........................................................................... 51
SECTION 4.18. Compliance Certificates...................................................................... 52
SECTION 4.19. Commission Reports and Reports to Holders.................................................... 52
SECTION 4.20. Waiver of Stay, Extension or Usury Laws...................................................... 53
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Issuer May Merge, Etc................................................................... 53
SECTION 5.02. Successor Substituted........................................................................ 54
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default............................................................................ 55
SECTION 6.02. Acceleration................................................................................. 56
SECTION 6.03. Other Remedies............................................................................... 57
SECTION 6.04. Waiver of Past Defaults...................................................................... 57
SECTION 6.05. Control by Majority.......................................................................... 57
SECTION 6.06. Limitation on Suits.......................................................................... 57
SECTION 6.07. Rights of Holders to Receive Payment......................................................... 58
SECTION 6.08. Collection Suit by Trustee................................................................... 58
</TABLE>
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<TABLE>
<CAPTION>
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SECTION 6.09. Trustee May File Proofs of Claim............................................................. 59
SECTION 6.10. Priorities................................................................................... 59
SECTION 6.11. Undertaking for Costs........................................................................ 59
SECTION 6.12. Restoration of Rights and Remedies........................................................... 60
SECTION 6.13. Rights and Remedies Cumulative............................................................... 60
SECTION 6.14. Delay or Omission Not Waiver................................................................. 60
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General ..................................................................................... 60
SECTION 7.02. Certain Rights of Trustee.................................................................... 61
SECTION 7.03. Individual Rights of Trustee................................................................. 62
SECTION 7.04. Trustee's Disclaimer......................................................................... 62
SECTION 7.05. Notice of Default............................................................................ 62
SECTION 7.06. Reports by Trustee to Holders................................................................ 62
SECTION 7.07. Compensation and Indemnity................................................................... 62
SECTION 7.08. Replacement of Trustee....................................................................... 63
SECTION 7.09. Successor Trustee by Merger, Etc............................................................. 64
SECTION 7.10. Eligibility.................................................................................. 64
SECTION 7.11. Money Held in Trust.......................................................................... 64
SECTION 7.12. Withholding Taxes............................................................................ 65
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Issuer's Obligations.......................................................... 65
SECTION 8.02. Defeasance and Discharge of Indenture........................................................ 66
SECTION 8.03. Defeasance of Certain Obligations............................................................ 68
SECTION 8.04. Application of Trust Money................................................................... 70
SECTION 8.05. Repayment to Issuer.......................................................................... 70
SECTION 8.06. Reinstatement................................................................................ 70
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders................................................................... 71
SECTION 9.02. With Consent of Holders...................................................................... 71
SECTION 9.03. Revocation and Effect of Consent............................................................. 72
SECTION 9.04. Notation on or Exchange of Notes............................................................. 73
SECTION 9.05. Trustee to Sign Amendments, Etc.............................................................. 73
SECTION 9.06. Conformity with Trust Indenture Act.......................................................... 74
</TABLE>
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ARTICLE TEN
SECURITY
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SECTION 10.01. Security.................................................................................... 74
ARTICLE ELEVEN
SUBORDINATION
SECTION 11.01. Agreement to Subordinate.................................................................... 75
SECTION 11.02. Distribution on Dissolution, Liquidation, Bankruptcy or
Reorganization....................................................................... 76
SECTION 11.03. Suspension of Payment When Senior Indebtedness in Default................................... 77
SECTION 11.04. Payment Permitted if No Default............................................................. 79
SECTION 11.05. Subrogation to Rights of Holders of Senior Indebtedness..................................... 79
SECTION 11.06. Provisions Solely to Define Relative Rights................................................. 79
SECTION 11.07. Trustee to Effectuate Subordination......................................................... 80
SECTION 11.08. No Waiver of Subordination Provisions....................................................... 80
SECTION 11.09. Notice to Trustee........................................................................... 81
SECTION 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.............................. 82
SECTION 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation
of Trustee's Rights.................................................................. 82
SECTION 11.12. Trust Moneys and Escrowed Funds Not Subordinated............................................ 82
SECTION 11.13. No Suspension of Remedies................................................................... 82
SECTION 11.14. Trustee's Relation to Senior Indebtedness................................................... 82
SECTION 11.15. Other Rights of Holders of Senior Indebtedness.............................................. 83
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. Trust Indenture Act of 1939................................................................. 83
SECTION 12.02. Notices..................................................................................... 83
SECTION 12.03. Certificate and Opinion as to Conditions Precedent.......................................... 85
SECTION 12.04. Statements Required in Certificate or Opinion............................................... 85
SECTION 12.05. Rules by Trustee, Paying Agent or Registrar................................................. 86
SECTION 12.06. Payment Date Other Than a Business Day...................................................... 86
SECTION 12.07. Governing Law............................................................................... 86
SECTION 12.08. No Adverse Interpretation of Other Agreements............................................... 86
SECTION 12.09. No Recourse Against Others.................................................................. 86
SECTION 12.10. Successors.................................................................................. 87
SECTION 12.11. Duplicate Originals......................................................................... 87
SECTION 12.12. Separability................................................................................ 87
SECTION 12.13. Table of Contents, Headings, Etc............................................................ 87
</TABLE>
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EXHIBIT A Form of Note..................................................................................A-1
EXHIBIT B Form of Certificate...........................................................................B-1
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Non-QIB Accredited Investors.........................................C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S.........................................................D-1
EXHIBIT E Form of Supplemental Indenture................................................................E-1
</TABLE>
<PAGE>
INDENTURE, dated as of August 11, 1997, between GENESIS ELDERCARE
ACQUISITION CORP., a Delaware corporation (the "Issuer"), PNC Bank, National
Association, a national banking association duly organized under the laws of
the United States of America (the "Trustee"), and Banque Internationale a
Luxembourg S.A. (a "Paying Agent").
RECITALS
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $250,000,000
aggregate principal amount of the Issuer's 9% Senior Subordinated Notes due
2007 (the "Notes") issuable as provided in this Indenture. The Notes will be
secured pursuant to the terms of an Escrow Agreement (as defined herein) as
provided by Article Ten of this Indenture. All things necessary to make this
Indenture a valid agreement of the Issuer, in accordance with its terms, have
been done, and the Issuer has done all things necessary to make the Notes,
when executed by the Issuer and authenticated and delivered by the Trustee
hereunder and duly issued by the Issuer, the valid obligations of the Issuer
as hereinafter provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939 that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, the Issuer and the Trustee, as
follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person (i) existing
at the time such Person becomes a Restricted Subsidiary or (ii) existing at
the time and assumed in connection with the acquisition of assets by a
Restricted Subsidiary from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition; provided that Indebtedness of a
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such asset acquisition shall not be
Acquired Indebtedness. Acquired Indebtedness shall be deemed to be incurred on
the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
<PAGE>
2
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person, (ii) any other
Person that owns, directly or indirectly, 5% or more of such specified
Person's Capital Stock, (iii) any officer or director of (A) any such
specified Person, (B) any Subsidiary of such specified Person or (C) any
Person described in clause (i) or (ii) above or (iv) any other Person having a
relationship with any natural Person described in clause (i), (ii) or (iii)
above by blood, marriage or adoption not more remote than first cousin or any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such other Person described in this clause (iv).
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Registrar, Co-Registrar, Paying Agent or
authenticating agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of
the properties and assets of any division or line of business of the Issuer or
its Restricted Subsidiaries; or (iii) any other properties or assets of the
Issuer or any Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (a) any transfer of properties and assets that is governed by Article
Five, (b) any transfer of properties or assets of the Issuer to a Restricted
Subsidiary, or of a Restricted Subsidiary to the Issuer or another Restricted
Subsidiary, (c) any transfer of inventory, receivables and other current
assets, (d) any transfer of assets for consideration at least equal to the
Fair Market Value of the assets transferred, to the extent that the
consideration received would satisfy clause (B) of Section 4.10, (e) the
Therapy Sale, (f) the Pharmacy Sale, or (g) any transfer of property or assets
with a Fair Market Value not in excess of $1 million in any transaction or
series of related transactions.
"Attributable Debt" in respect of a sale-leaseback transaction or an
operating lease in respect of a healthcare facility means, at the time of
determination, the present value (discounted at the interest rate implicit in
the lease, compounded semiannually) of the obligation of the lessee of the
property subject to such sale-leaseback transaction or operating lease in
respect of a healthcare facility for rental payments during the remaining term
of the lease included in such transaction including any period for which such
lease has been extended or may, at the option of the lessor, be extended or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental payments shall
include such
<PAGE>
3
penalty), after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water, utilities and
similar charges.
"Average Life" means, as of the date of determination with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the
products of (A) the number of years from the date of determination to the date
or dates of each successive scheduled principal payment of such Indebtedness
multiplied by (B) the amount of each such principal payment by (ii) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11, United States Code, as amended, or
any similar United States Federal or State law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the Board of Directors of the Issuer or
any committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Issuer to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in The City of New York, or in the city of the
Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Lease Obligation" means the discounted present value of the
rental obligations under any lease of real or personal property which, in
accordance with GAAP, is required to be recorded on the balance sheet of such
Person as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated, whether voting or
non-voting) of such Person's capital stock or equity interests.
"Cash Collateral Account" means the account established with the
Trustee pursuant to the terms of the Escrow Agreement for the deposit of the
net proceeds from the sale of the Notes and such other purposes as specified
therein.
"Cash Equivalent" means (i) any security, maturing not more than six
months after the date of acquisition, issued by the United States of America,
or an instrumentality or agency thereof and guaranteed fully as to principal,
premium, if any, and interest by the United States of America, (ii) any
certificate of deposit, time deposit, money market account or bankers'
acceptance, maturing not more than six months after the date of acquisition,
issued by any
<PAGE>
4
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less
than $500,000,000, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Ratings Services or any successor rating agency
and (iii) commercial paper, maturing not more than three months after the date
of acquisition, issued by any corporation (other than an Affiliate or
Subsidiary of the Issuer) organized and existing under the laws of the United
States of America with a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's Investors Service,
Inc. or any successor rating agency, or "A-1" (or higher) according to
Standard & Poor's Ratings Services or any successor rating agency.
"Change in Control" means any time that (i) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than an Existing Stockholder or Genesis ElderCare Corp., in a single
transaction or through a series of related transactions, is or becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 35% of the total voting power of the
Voting Stock of the Issuer on a fully diluted basis and such ownership is
greater than the amount of voting power of the Voting Stock of the Issuer, on
a fully diluted basis, held by Genesis and its Affiliates on such date; (ii)
the Issuer consolidates or merges with or into another corporation or conveys,
transfers or leases all or substantially all of its assets to any Person, or
any corporation consolidates or merges with or into the Issuer, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Issuer is changed into or exchanged for cash, securities or other property,
other than any such transaction where (A) the outstanding Voting Stock of the
Issuer is changed into or exchanged for (x) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (y) cash, securities or
other property in an amount which could be paid by the Issuer as a Restricted
Payment under Section 4.04 (and such amount shall be treated as a Restricted
Payment), and (B) the holders of the Voting Stock of the Issuer immediately
prior to such transaction own, directly or indirectly, not less than 50% of
the Voting Stock of the surviving corporation immediately after such
transaction; (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Issuer (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Issuer
was (a) approved by a vote of at least 66% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved or (b) approved
by Genesis in connection with its acquisition of the Common Stock of Genesis
ElderCare Corp. held by Cypress or TPG) cease for any reason to constitute a
majority of the Board of Directors of the Issuer then in office; or (iv) the
Issuer is liquidated or dissolved or adopts a plan of liquidation.
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
<PAGE>
5
"Collateral" means the Collateral as defined in the Escrow Agreement.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the date of the Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.
"Consolidated EBITDA" of any Person means, with respect to any
period, the Consolidated Net Income of such Person for such period, plus, to
the extent such amount was deducted in calculating such Consolidated Net
Income (i) Consolidated Income Tax Expense, (ii) depreciation expense, (iii)
amortization expense, (iv) Consolidated Interest Expense, (v) all other
non-cash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
by GAAP to be, made), less all non-cash items increasing Consolidated Net
Income and (vi) all management fees, and minus all management fees paid during
such period (whether or not such fees were deducted in calculating
Consolidated Net Income for such period), all as determined on a consolidated
basis in accordance with GAAP; provided that, if any Restricted Subsidiary is
not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA of the Issuer
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the percentage
ownership interest in the income of such Restricted Subsidiary not owned on
the last day of such period by the Issuer or any of its Restricted
Subsidiaries.
"Consolidated Income Tax Expense" means for any period, as applied to
any Person, the provision for federal, state, local and foreign income taxes
of such Person and its Consolidated Subsidiaries for such period (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets) as determined in accordance
with GAAP.
"Consolidated Interest Expense" means, without duplication, for any
period, as applied to any Person, the sum of (i) the interest expense of such
Person and its Consolidated Subsidiaries for such period, including, without
limitation, (A) amortization of debt discount, (B) the net cost under interest
rate contracts (including amortization of discounts), (C) the interest portion
of any deferred payment obligation calculated in accordance with the effective
interest method of accounting and (D) accrued interest, plus (ii) the interest
component of the Capital Lease Obligations paid, accrued and/or scheduled to
be paid, or accrued by such Person
<PAGE>
6
during such period, in each case as determined in accordance with GAAP, plus
(iii) Preferred Stock dividends in respect of Preferred Stock of the Issuer or
any Restricted Subsidiary held by Persons other than the Issuer or a Wholly
Owned Restricted Subsidiary. For purposes of clause (c) of the preceding
sentence, dividends shall be deemed to be an amount equal to the actual
dividends paid divided by one minus the applicable actual combined federal,
state, local and foreign income tax rate of the Issuer and its Consolidated
Subsidiaries (expressed as a decimal).
"Consolidated Net Income" of any Person means, for any period, as
applied to any Person, the net income (or loss) of such Person and its
Consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted, to the extent included in calculating such net income (loss),
by excluding (without duplication) (i) all extraordinary gains or losses (less
all fees and expenses relating thereto), (ii) the portion of net income of
such Person and its Consolidated Subsidiaries allocable to investments in
Persons other than Consolidated Subsidiaries to the extent that cash dividends
or distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Consolidated Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) any gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, or (vi) the net income of any Consolidated
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Consolidated Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Consolidated Subsidiary.
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable for
the sale of Capital Stock) of such Person and its Consolidated Subsidiaries,
as set forth on the most recent consolidated balance sheet of such Person and
its Consolidated Subsidiaries (which shall be as of a date not more than 90
days prior to the date of such computation determined in accordance with
GAAP).
"Consolidated Rental Payments" of any Person means, for any period,
the aggregate rental obligations of such Person and its Consolidated
Subsidiaries (not including taxes, insurance, maintenance and similar expenses
that the lessee is obligated to pay under the terms of the relevant leases),
determined on a consolidated basis in conformity with GAAP, payable in respect
of such period under Attributable Debt or leases of real or personal property
not constituting Attributable Debt (net of income from subleases thereof, not
including taxes, insurance, maintenance and similar expenses that the
sublessee is obligated to pay under the terms of such sublease), whether or
not such obligations are reflected as liabilities or commitments on a
consolidated balance sheet of such Person and its Subsidiaries or in the notes
<PAGE>
7
thereto, excluding, however, in any event, (i) that portion of Consolidated
Interest Expense of such Person representing payments by such Person or any of
its Consolidated Subsidiaries in respect of Capital Lease Obligations (net of
payments to such Person or any of its Consolidated Subsidiaries under
subleases qualifying as capitalized lease subleases to the extent that such
payments would be deducted in determining Consolidated Interest Expense) and
(ii) the aggregate amount of amortization of obligations of such Person and
its Consolidated Subsidiaries in respect of such Capital Lease Obligations for
such period (net of payments to such Person or any of its Consolidated
Subsidiaries and subleases qualifying as capitalized lease subleases to the
extent that such payments would be deducted in determining such amortization
amount).
"Consolidation" means, (i) with respect to the Issuer, the
consolidation of the accounts of the Issuer and each of its Restricted
Subsidiaries and (ii) with respect to any other Person, the consolidation of
the accounts of such Person and each of its Subsidiaries, in each case if and
to the extent the accounts of such Person and such Subsidiaries would normally
be consolidated with those of such Person, all in accordance with GAAP. The
term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 1600 Market Street, Philadelphia, PA 19103, Attention: Sheila
Wallbridge.
"Credit Facility" means (i) any and all credit agreements (whether of
the Issuer or any Subsidiary of the Issuer) contemplated by the Amended and
Restated Commitment Letter dated as of June 14, 1997 between the Issuer and
Mellon Bank, N.A., Citicorp Securities, Inc., Citibank, N.A., First Union
Capital Markets Corp., First Union National Bank and NationsBank, N.A. as the
same may be amended, restated, renewed, extended, restructured, supplemented
or otherwise modified from time to time; (ii) any agreements, instruments and
documents executed or delivered pursuant to or in connection with such credit
agreement; and (iii) any credit agreement, loan agreement, note purchase
agreement, indenture or other agreement, document or instrument refinancing,
refunding or otherwise replacing the credit agreement or any other agreement
deemed a Credit Facility under clause (i), (ii) or (iii) hereof, whether or
not with the same agent, trustee, representative, lenders or holders,
regardless of whether the Credit Facility or any portion thereof was
outstanding or in effect at the time of such restatement, renewal, extension,
restructuring, supplement or modification. Without limiting the generality of
the foregoing, the term "Credit Facility" shall include any amendment,
restatement, renewal, extension, restructuring, supplement or modification to
any Credit Facility and all refundings, refinancings and replacements of any
Credit Facility, including any agreement (a) extending the maturity of any
Indebtedness Incurred thereunder or contemplated thereby, (b) adding or
deleting borrowers or guarantors thereunder, provided that the addition of
such borrower or guarantor would not be prohibited by Sections 4.03, 4.07 and
4.09, (c) increasing the amount of Indebtedness Incurred thereunder or
available to be borrowed
<PAGE>
8
thereunder, provided such increase is permitted to be Incurred under Section
4.03, or (d) otherwise altering the terms and conditions thereof in a manner
not prohibited by Sections 4.03, 4.05, 4.07 and 4.09. Notwithstanding the
foregoing, with respect to any agreement providing for the refinancing,
refunding or replacement of Indebtedness under the Credit Facility, such
agreement shall be the Credit Facility under the Indenture only if a notice to
that effect is delivered by the Issuer to the Trustee and there shall be at
any time only one instrument that is (together with the related agreements,
instruments and documents) the Credit Facility under the Indenture. No
amendment or modification to the Credit Facility shall be considered a
refinancing, refunding or replacement of Indebtedness under the Credit
Facility for the purpose of requiring notice pursuant to the preceding
sentence.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Cypress" means The Cypress Group L.L.C., together with its
Affiliates or any of their respective successors.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means The Depository Trust Issuer, its nominees, and
their respective successors.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under, or in respect of, the Credit Facility and any Interest Rate Contract or
Currency Agreement related to Indebtedness under the Credit Facility and (ii)
any other Senior Indebtedness which, at the time of determination, has an
aggregate principal amount outstanding, together with any commitments to lend
additional amounts, of at least $30,000,000 and is specifically designated in
the instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
"Escrow Agreement" means the Escrow and Security Agreement made and
entered into as of the Closing Date by and among the Issuer, Genesis and the
Placement Agents in favor of the Trustee for the Holders.
"Escrow Agreement Officers' Certificate" means the Officers'
Certificate as defined in the Escrow Agreement.
"Escrow Agreement Opinion of Counsel" means the Opinion of Counsel as
defined in the Escrow Agreement.
"Event of Default" has the meaning provided in Section 6.01.
<PAGE>
9
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Notes" means any securities of the Issuer containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act and shall not contain terms concerning interest rate
increases) that are issued and exchanged for the Notes pursuant to the
Registration Rights Agreement and this Indenture.
"Exchange Offer" means the exchange offer by the Issuer of Exchange
Notes for the Notes pursuant to the terms of the Registration Rights
Agreement.
"Existing Stockholders" means Genesis, The Cypress Group L.L.C. and
TPG Partners II, L.P. and their Affiliates.
"Expiration Date" means October 31, 1997, subject to an extension of
up to one month at the Issuer's option.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy as determined in good faith by the
Board of Directors, whose determination shall be conclusive if evidenced by a
Board Resolution.
"Fixed Charge Coverage Ratio" of any Person means, for any period,
the ratio of (i) the sum of Consolidated EBITDA plus one-third of Consolidated
Rental Payments, in each case for such period, of the Issuer and its
Consolidated Subsidiaries, as determined in accordance with GAAP to (ii) the
sum of Consolidated Interest Expense and one-third of Consolidated Rental
Payments, in each case, for such period of the Issuer and its Consolidated
Subsidiaries; provided that in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a
pro forma basis and bearing a floating interest rate shall be computed as if
the rate in effect on the date of computation had been the applicable rate for
the entire period.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, as
in effect on the Closing Date. All ratios and computations contained or
referred to in this Indenture shall be computed in conformity with GAAP
applied on a consistent basis, except that computations made for purposes of
determining compliance with the terms of the covenants and with other
provisions of this Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of the
Notes, the Tender Offer or the Merger and
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10
(ii) except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Genesis" means Genesis Health Ventures, Inc.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
and are entered into in the ordinary course of business), to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv)
to maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor or
(v) otherwise to assure a creditor against loss; provided that the term
"Guaranteed Debt" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Guaranty Documents" means the Supplemental Indenture and the opinion
of counsel substantially in the form of Exhibit B-2 to the Escrow Agreement.
"Healthcare Related Business" means a business, the majority of whose
revenues result from healthcare, long-term care, or managed care related
businesses or facilities, including businesses which provide insurance
relating to the costs of healthcare, long-term care or managed care services.
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11
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money, (ii) all
obligations for the payment of money of such Person for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person
in connection with any letters of credit or acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities and in
connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(iii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iv) all obligations under Interest Rate Contracts
and Currency Agreements of such Person, (v) all Capital Lease Obligations of
such Person, (vi) all Indebtedness of other Persons the payment of which is
secured by a Lien, upon any property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; provided that
the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Guaranteed debt of such Person, (viii) all Redeemable
Capital Stock valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends, and (ix) all
Attributable Debt of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations,
the maximum liability upon the occurrence of the contingency giving rise to
the obligation, provided (A) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at the time of its issuance as determined in
conformity with GAAP, (B) that money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment of the interest
on such Indebtedness shall not be deemed to be "Indebtedness" and (C) that
Indebtedness shall not include any liability for federal, state, local or
other taxes. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is
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12
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the Board of
Directors.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Initial Blockage Period" has the meaning provided in Section 11.03.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date
on February 1 and August 1 of each year, commencing February 1, 1998.
"Interest Rate Contracts" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other similar agreements or arrangements.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan or other extension of credit (including, without
limitation, any guarantee or similar arrangement but excluding advances in the
ordinary course of business that are, in conformity with generally accepted
accounting principles, recorded as accounts receivable on the balance sheet of
the Issuer or a Restricted Subsidiary) or capital contribution to (by means of
any transfer of cash or other property (tangible or intangible) to others, or
any payment for property or services for the account or use of others or
otherwise), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities (including,
without limitation, any interests in any partnership or joint venture) issued
or owned by any other Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the issuance or
sale of Capital Stock of a Restricted Subsidiary if immediately after giving
effect thereto such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and the Issuer or another Restricted Subsidiary would
have an Investment in such Restricted Subsidiary after giving effect to such
issuance or sale. For purposes of the definition of "Unrestricted Subsidiary"
and Section 4.04, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Issuer or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Issuer or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and
(iii) "Investment" shall include the fair market value of the Capital Stock
(or any other remaining Investment), held by the Issuer or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary; provided that
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13
the fair market value of the Investment in an Unrestricted Subsidiary or any
other Person that has ceased to be a Restricted Subsidiary shall not exceed
the aggregate amount of Investments previously made in such Person valued at
the time such Investments were made less the net reduction of such
Investments.
"Issuer" means Genesis ElderCare Acquisition Corp. and, following the
Merger, Multicare until a successor replaces it pursuant to Article Five and
thereafter means the successor.
"Issuer Order" means a written request or order signed in the name of
the Issuer (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary and delivered to the Trustee; provided, however, that
such written request or order may be signed by any two of the officers or
directors listed in clause (i) above in lieu of being signed by one of such
officers or directors listed in such clause (i) and one of the officers listed
in clause (ii) above.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Merger" means the merger of Genesis ElderCare Acquisition Corp. with
and into Multicare which shall be the surviving corporation in the merger.
"Merger Closing Date" means the date the Merger is consummated.
"Multicare" means The Multicare Companies, Inc.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Issuer or any Restricted Subsidiary) net of (i) brokerage commissions
and other reasonable fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness either (A) is secured by the
assets or properties sold or (B) is required to be paid as a result of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Issuer or any Subsidiary of the Issuer) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Issuer or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Issuer or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
<PAGE>
14
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Cash
Equivalents (except to the extent such obligations are financed or sold with
recourse to the Issuer or any Restricted Subsidiary), net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.
"Non-payment Default" means any default or event of default under or
in respect of any Designated Senior Indebtedness, other than a Payment
Default.
"Non-U.S. Person" means a person who is not a "U.S. person" (as
defined in Regulation S).
"Notes" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture. For all purposes of this Indenture, the term "Notes" shall
include the Notes initially issued on the Closing Date, any Exchange Notes to
be issued and exchanged for any Notes pursuant to the Registration Rights
Agreement and this Indenture and any other Notes issued after the Closing Date
under this Indenture. For purposes of this Indenture, all Notes shall vote
together as one series of Notes under this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the Issuer
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such notice
is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the
Issuer defaults in the payment of the purchase price, any Note accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest on
and after the Payment Date; (v) that Holders electing to have a Note purchased
pursuant to the Offer to Purchase will be required to surrender the Note,
together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii)
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15
that Holders whose Notes are being purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof. On the
Payment Date, the Issuer shall (i) accept for payment on a pro rata basis
Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii)
deposit with the Paying Agent money sufficient to pay the purchase price of
all Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Notes or portions thereof
accepted for payment by the Issuer. The Paying Agent shall promptly mail to
the Holders of Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail to such Holders a
new Note equal in principal amount to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof. The Issuer
will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the paying agent
for an Offer to Purchase. The Issuer will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Issuer
is required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Issuer, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in
clause (ii) of the definition thereof or two officers listed in clause (i) of
the definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section
2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel,
who may be an employee of or counsel to the Issuer, that meets the
requirements of Section 12.04 hereof. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Issuer or
a Subsidiary of the Issuer or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
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16
"Payment Blockage Period" has the meaning provided in Section 11.03.
"Payment Default" means any default in the payment when due (at
maturity, upon acceleration of maturity, upon mandatory prepayment or
otherwise) of any amount owing under or in respect of any Designated Senior
Indebtedness.
"Permanent Offshore Global Notes" has the meaning provided in Section
2.01.
"Permitted Indebtedness" means:
(a) Indebtedness outstanding at any time in an aggregate
principal amount not to exceed $625 million, less any amount of such
Indebtedness permanently repaid as provided under Section 4.10;
(b) Indebtedness of Multicare in existence on the Merger
Closing Date; provided that upon consummation of the Merger not more
than $40 million of such Indebtedness shall remain outstanding;
(c) Indebtedness of the Issuer pursuant to the Notes;
(d) Indebtedness evidenced by letters of credit issued in
the ordinary course of business consistent with past practice to
support the Issuer's or any Subsidiary's insurance or self-insurance
obligations (including to secure workers' compensation and other
similar insurance coverages) to the extent such letters of credit are
not drawn upon or, if drawn upon, to the extent such drawing is
reimbursed no later than the third Business Day following a demand
for reimbursement;
(e) Interest Rate Contracts and Currency Agreements to the
extent that the notional principal amount of such obligations under
Interest Rate Contracts does not exceed the amount of Indebtedness
outstanding or committed to be incurred on the date such Interest
Rate Contracts are entered into;
(f) Indebtedness owed (A) to the Issuer evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such Indebtedness (except to the Issuer or
a Restricted Subsidiary) shall be deemed, in each case to be an
Incurrence of such Indebtedness not permitted by this clause (f);
(g) any guarantees of Indebtedness by a Restricted Subsidiary
entered into in accordance with Section 4.07;
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17
(h) Indebtedness incurred by the Issuer or any Restricted
Subsidiary, and any renewals, extensions, substitutions, refundings,
refinancings or replacements thereof, in an amount not to exceed $20
million at any one time outstanding to finance the acquisition or
construction of any property or assets or any business, including
Acquired Indebtedness and Indebtedness incurred within 90 days after
such acquisition or construction, less any amount of such
Indebtedness permanently repaid as provided under Section 4.10;
(i) Capital Lease Obligations, and any renewals, extensions,
substitutions, refundings, refinancings or replacements thereof, in
an amount not to exceed $10 million at any time outstanding, less any
amount of such Indebtedness permanently repaid as provided under
Section 4.10;
(j) Indebtedness in addition to that described in clauses
(a) through (i) of this definition of "Permitted Indebtedness," in an
aggregate principal amount outstanding at any time not to exceed $20
million, less any amount of such Indebtedness permanently repaid as
provided under Section 4.10; and
(k) any renewals, extensions, substitutions, refundings,
refinancings or replacements of any Indebtedness (other than
Indebtedness Incurred under clause (a), (d), (e), (f), (g), (h), (i)
or (j) of this definition of "Permitted Indebtedness"), including any
successive renewals, extensions, substitutions, refundings,
refinancings or replacements, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced, plus the
amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness being refinanced or the amount
of any premium reasonably determined by the Issuer as necessary to
accomplish such refinancing through means of a tender offer or
privately negotiated transactions and, in each case, actually paid,
plus the amount of expenses of the Issuer incurred in connection with
such refinancing; (ii) in case the Notes are refinanced in part or
the Indebtedness to be refinanced is pari passu with the Notes, such
new Indebtedness is expressly made pari passu with, or subordinate in
right of payment to, the remaining Notes; (iii) in the case of any
refinancing of Subordinated Indebtedness, such new Indebtedness is
made subordinate in right of payment to the Notes at least to the
same extent as the Indebtedness being refinanced; and (iv) such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; provided that in no
event may Indebtedness of the Issuer be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause
(k).
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18
For purposes of determining any particular amount of Indebtedness under
Section 4.03, (1) Indebtedness Incurred under the Credit Facility on or prior
to the Merger Closing Date shall be treated as Incurred pursuant to clause (a)
of this "Permitted Indebtedness" definition, (2) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (3) any Liens granted pursuant to the equal and ratable
provisions referred to in Section 4.09 shall not be treated as Indebtedness.
For purposes of determining compliance with Section 4.03, in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in this "Permitted Indebtedness" definition (other than
Indebtedness referred to in clause (1) of the preceding sentence), the Issuer,
in its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
(l) Notwithstanding the foregoing, for so long as the Credit Facility
is outstanding, Indebtedness Incurred under clause (a) above shall consist of
(i) $525 million of Indebtedness incurred under the Credit Facility (less any
amount referred to in clause (iii)), (ii) $100 million of Indebtedness
(whether or not incurred under the Credit Facility) and (iii) additional
Indebtedness equal to the amount by which, after giving effect to any
amendment, restatement, renewal, extension, restructuring, supplement or other
modification of the Credit Facility, the principal amounts outstanding and the
commitments under the Credit Facility have been permanently reduced (which may
include subsequent increases in the Credit Facility) less, without
duplication, in the case of Indebtedness described in clauses (i), (ii) or
(iii), any amount of such Indebtedness permanently repaid as provided under
ss.4.10.
"Permitted Investment" means (i) Investments in the Issuer or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to the
Issuer or a Restricted Subsidiary; provided that such Person's primary
businesses are Healthcare Related Businesses; (ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP; and (iv) Investments in existence on the Closing Date
(including Investments held by Multicare and its Subsidiaries).
"Permitted Junior Notes" has the meaning provided in Section 11.02.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pharmacy Sale" means the sale of Multicare's pharmacy business to
Genesis or any of its Affiliates in connection with the Merger.
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19
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock," as applied to any Person, means Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on
the Notes in the form set forth in Section 2.02.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Qualified Capital Stock" of any Person means any Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Redeemable Capital Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change in control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change in
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in Sections
4.10 and 4.11 and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to the Issuer's repurchase of such Notes as are required to be repurchased
pursuant to Sections 4.10 and 4.11.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
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20
"Registration" has the meaning provided in Section 4.19.
"Registration Rights Agreement" means the Registration Rights
Agreement dated the Closing Date among the Issuer and the Placement Agents.
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer," when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or
any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee in its Corporate Trust
Department customarily performing functions similar to those performed by any
of the above-designated officers and in each case having direct responsibility
for the administration of this Indenture or the Escrow Agreement and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than
an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933.
"Security Register" has the meaning provided in Section 2.04.
"Senior Indebtedness" means the following obligations, whether
outstanding on the Closing Date or thereafter Incurred: (a) all Indebtedness
and other monetary obligations of the Issuer or any Subsidiary of the Issuer
under or in respect of the Credit Facility (including obligations in respect
of any lease financing facility of the Credit Facility) or any Interest Rate
Contract or Currency Agreement related to Indebtedness under the Credit
Facility, whether for
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principal, interest (including interest accruing after the filing of a
petition by or against the Issuer or any Subsidiary of the Issuer under any
state or federal Bankruptcy Laws, whether or not such interest is allowed as a
claim after such filing in any proceeding under such law), fees, expenses,
indemnification or otherwise, and (b) the principal of, premium, if any, and
interest on all other Indebtedness of the Issuer (other than the Notes)
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be pari passu with or subordinated in
right of payment to the Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness that is by its terms
subordinate in right of payment to any Indebtedness of the Issuer, (ii)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of the Bankruptcy Law is without recourse to the Issuer, (iii)
any repurchase, redemption or other obligation in respect of Redeemable
Capital Stock, (iv) Indebtedness for goods, materials or services purchased in
the ordinary course of business or indebtedness consisting of trade payables
or other current liabilities, (v) Indebtedness of or amounts owed by the
Issuer to employees, officers, or directors, (vi) any liability for federal,
state, local or other taxes owed or owing by the Issuer, (vii) Indebtedness of
the Issuer to a Subsidiary of the Issuer or any other Affiliate of the Issuer
or any of such Affiliate's subsidiaries, (viii) that portion of any
Indebtedness which at the time of issuance is issued in violation of the
Indenture and (ix) amounts owing under leases (other than Capital Lease
Obligations).
"Senior Representative" has the meaning provided in Section 11.01.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined and described in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Issuer, accounted for more than 10% of the
consolidated revenues of the Issuer and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Issuer and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Issuer for such fiscal year.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Issuer
subordinated in right of payment to the Notes.
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"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by
such Person and one or more other Subsidiaries of such Person.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
"Supplemental Indenture" means the indenture supplemental hereto
substantially in the form of Exhibit E to this Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit and money market deposit,
maturing not more than one year after the date of acquisition, issued by, or
time deposit of, a commercial banking institution that is a member of the
Federal Reserve System and that has combined capital and surplus and undivided
profits of not less than $500,000,000, whose debt has a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or
higher) according to Standard & Poor's Ratings Services or any successor
rating agency or any money market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) commercial paper, maturing not more than one
year after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Issuer) organized and existing under the laws
of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Ratings Services or any successor rating agency
and (iv) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Services or Moody's Investors Service, Inc.
"Temporary Offshore Global Notes" has the meaning provided in Section
2.01.
"Tender Offer" means the offer to purchase all of the issued and
outstanding shares of Common Stock of Multicare made by Genesis ElderCare
Acquisition Corp.
"Therapy Sale" means the sale of Multicare's contract therapy
business to Genesis or any of its Affiliates in connection with the Merger.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
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"TPG" means TPG Partners II, L.P., together with its Affiliates, and
any of their respective successors.
"Transactions" means, collectively, the Tender Offer, the Merger, the
offering of the Notes issued hereunder, the management agreement to be entered
into by Genesis in connection with the Merger, the Therapy Sale and the
Pharmacy Sale.
"Trustee" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the provisions
of Article Seven of this Indenture and thereafter means such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Issuer) to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the Issuer
or any Restricted Subsidiary; provided that (A) any guarantee by the Issuer or
any Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Issuer or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under
Section 4.04 and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would be permitted under
Sections 4.03 and 4.04. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that (i) no Default or
Event of Default shall have occurred and be continuing at the time of or after
giving effect to such designation and (ii) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation would,
if Incurred at such time, have been permitted to be Incurred (and shall be
deemed to have been Incurred) for all purposes of this Indenture. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Global Notes" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof at any time
prior to the
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24
Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America (x) the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America or (y) that are
rated at least "Aaa" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "AAA" (or the then equivalent grade) by Standard & Poor's
Ratings Services.
"Voting Stock" means stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary
all the Capital Stock of which is owned by the Issuer or another Wholly Owned
Restricted Subsidiary.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
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25
"obligor" on the indenture securities means the Issuer
or any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in
the plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed
hereto as Exhibit A with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture. The Notes
may have notations, legends or endorsements required by law, stock exchange
agreements to which the Issuer is subject or usage. The Issuer shall approve
the form of the Notes and any notation, legend or endorsement on the Notes.
Each Note shall be dated the date of its authentication.
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26
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Issuer and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit A (the "U.S. Global
Notes"), registered in the name of the nominee of the Depositary, deposited
with the Trustee, as custodian for the Depositary, duly executed by the Issuer
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the U.S. Global Notes may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian
for the Depositary or its nominee, in accordance with the instructions given
by the Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit
A (the "Temporary Offshore Global Notes"), registered in the name of the
nominee of the Depositary, deposited with the Trustee, as custodian for the
Depositary, duly executed by the Issuer and authenticated by the Trustee as
hereinafter provided. At any time following September 22, 1997 (the "Offshore
Notes Exchange Date"), upon receipt by the Trustee and the Issuer of a
certificate substantially in the form of Exhibit B hereto, one or more
permanent global Notes in registered form substantially in the form set forth
in Exhibit A (the "Permanent Offshore Global Notes"; and together with the
Temporary Offshore Global Notes, the "Offshore Global Notes") duly executed by
the Issuer and authenticated by the Trustee as hereinafter provided shall be
deposited with the Trustee, as custodian for the Depositary, and the Registrar
shall reflect on its books and records the date and a decrease in the
principal amount of the Temporary Offshore Global Notes in an amount equal to
the principal amount of the beneficial interest in the Temporary Offshore
Global Notes transferred.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Notes shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Offshore Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Notes
and the Offshore Global Notes are sometimes referred to herein as the "Global
Notes."
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the
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27
rules of any securities exchange on which the Notes may be listed, all as
determined by the Officers executing such Notes, as evidenced by their
execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged
for an Exchange Note in connection with an effective Registration Statement
pursuant to the Registration Rights Agreement, the U.S. Global Notes, Temporary
Offshore Global Notes and each U.S. Physical Note shall bear the following
legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT, WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THE NOTES, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT
OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THE NOTES, THE HOLDER
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28
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE
TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE.
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SECTION 2.03. Execution, Authentication and Denominations. Subject to
Article Four, the aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is unlimited. The Notes shall
be executed by two Officers of the Issuer. The signature of these Officers on
the Notes may be by facsimile or manual signature in the name and on behalf of
the Issuer.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee or authenticating agent authenticates the Note,
the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Issuer Order authenticate for original issue Notes in the aggregate principal
amount specified in such Issuer Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Issuer in connection with such authentication of Notes. Such Issuer Order
shall specify the amount of Notes to be authenticated and the date on which
the original issue of Notes is to be authenticated and in case of an issuance
of Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate
Notes. An authenticating agent may authenticate Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such authenticating agent. An authenticating agent
has the same rights as an Agent to deal with the Issuer or an Affiliate of the
Issuer. The Trustee shall not be liable for the misconduct or negligence of
any authenticating agent appointed with due care.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount and any integral
multiple of $1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Issuer shall maintain
an office or agency where Notes may be presented for registration of transfer
or for exchange (the "Registrar"), an office or agency where Notes may be
presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City
of New York or at the principal Corporate Trust Office of the Trustee. The
Issuer shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Issuer may have one or
more co-Registrars and one or more additional Paying Agents.
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The Issuer shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Issuer shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Issuer fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Issuer may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become
effective until (i) the acceptance of an appointment by a successor Agent to
such Agent as evidenced by an appropriate agency agreement entered into by the
Issuer and such successor Agent and delivered to the Trustee or (ii)
notification to the Trustee that the Trustee shall serve as such Agent until
the appointment of a successor Agent in accordance with clause (i) of this
proviso. The Issuer, any Subsidiary of the Issuer, or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar, and/or agent for
service of notice and demands.
The Issuer initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands and Banque
Internationale a Luxembourg S.A., as Paying Agent. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Holders and shall otherwise
comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Issuer
shall furnish to the Trustee as of each Regular Record Date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of Notes held by each
Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than
11:00 a.m. (New York City time) on each due date of the principal, premium, if
any, and interest on any Notes, the Issuer shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal,
premium, if any, and interest so becoming due. The Issuer shall require each
Paying Agent other than the Trustee to agree in writing that such Paying Agent
shall hold in trust for the benefit of the Holders or the Trustee all money
held by the Paying Agent for the payment of principal of, premium, if any, and
interest on the Notes (whether such money has been paid to it by the Issuer or
any other obligor on the Notes), and such Paying Agent shall promptly notify
the Trustee of any default by the Issuer (or any other obligor on the Notes)
in making any such payment. The Issuer at any time may require a Paying Agent
to pay all money held by it to the Trustee and account for any funds
disbursed, and the Trustee may at any time during the continuance of any
payment default, upon written request to a Paying Agent, require such Paying
Agent to pay all money held by it to the Trustee and to account for any funds
disbursed. Upon doing so, the Paying Agent shall have no further liability for
the money so paid over to the Trustee. If the Issuer or any Subsidiary of the
Issuer or any Affiliate of any of them acts as Paying Agent, it will, on or
before each due date of any principal of, premium, if any, or interest on the
Notes, segregate and hold in a separate trust fund for the benefit of the
Holders a sum of money sufficient to pay such principal, premium, if any, or
interest so
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31
becoming due until such sum of money shall be paid to such Holders or
otherwise disposed of as provided in this Indenture, and will promptly notify
the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. A Holder may transfer a Note only by written application to
the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Issuer, the Trustee, and any agent of the Issuer shall
treat the person in whose name the Note is registered as the owner thereof for
all purposes whether or not the Note shall be overdue, and neither the Issuer,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations (including an exchange of Notes for Exchange Notes),
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met (including that such Notes are
duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee and Registrar duly executed by the Holder thereof
or by an attorney who is authorized in writing to act on behalf of the
Holder); provided that no exchanges of Notes for Exchange Notes shall occur
until a Registration Statement shall have been declared effective by the
Commission and that any Notes that are exchanged for Exchange Notes shall be
cancelled by the Trustee. To permit registrations of transfers and exchanges,
the Issuer shall execute and the Trustee shall authenticate Notes at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange or redemption of the Notes, but the Issuer may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S.
Global Notes and Offshore Global Notes initially shall (i) be registered in the
name of the Depositary for such
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Global Notes or the nominee of such Depositary, (ii) be delivered to the
Trustee as custodian for such Depositary and (iii) bear legends as set forth
in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depositary, or the Trustee as its custodian, or under
the Global Note, and the Depositary may be treated by the Issuer, the Trustee
and any agent of the Issuer or the Trustee as the absolute owner of such
Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Issuer, the Trustee or any agent of the
Issuer or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Note. Neither the
Issuer nor the Trustee shall be liable for any delay by the Depositary in
identifying the beneficial owners of the Notes and the Issuer and the Trustee
may conclusively rely on, and shall be protected in relying on, instructions
from the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of any Notes
to be issued).
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary
and the provisions of Section 2.08. In addition, U.S. Physical Notes and
Offshore Physical Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the U.S. Global Notes or the
Offshore Global Notes, respectively, if (i) the Depositary notifies the Issuer
that it is unwilling or unable to continue as Depositary for the U.S. Global
Notes or the Offshore Global Notes, as the case may be, and a successor
depositary is not appointed by the Issuer within 90 days of such notice, (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary or (iii) in accordance with the rules
and procedures of the Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the U.S. Global Notes to beneficial owners pursuant to paragraph
(b) of this Section 2.07, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the U.S. Global Notes in an
amount equal to the principal amount of the beneficial interest in the
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33
U.S. Global Notes to be transferred, and the Issuer shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Notes of like
tenor and amount.
(e) In connection with the transfer of the entire U.S. Global Note or
Offshore Global Note to beneficial owners pursuant to paragraph (b) of this
Section 2.07, the U.S. Global Note or Offshore Global Note, as the case may
be, shall be deemed to be surrendered to the Trustee for cancellation, and the
Issuer shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be,
an equal aggregate principal amount of U.S. Physical Notes or Offshore
Physical Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) or (d) of this Section 2.07
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the U.S. Physical Note
set forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest
in the Offshore Global Note pursuant to paragraph (b) of this Section 2.07
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the Offshore Physical
Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x)
the requested transfer is after the time period referred to in Rule
144(k) under the Securities Act or (y) the proposed transferee has
delivered to the Registrar (A) a certificate substantially in the
form of Exhibit C hereto and (B) if the aggregate principal amount of
the Notes being transferred is less than $100,000, an opinion of
counsel acceptable to the Issuer that such transfer is in compliance
with the Securities Act.
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(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and
the Issuer shall execute, and the Trustee shall authenticate and
deliver, one or more U.S. Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Physical Note
or an interest in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S.
Physical Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the
box provided for on the form of Note stating, or has otherwise
advised the Issuer and the Registrar in writing, that the sale has
been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Note stating, or has otherwise advised the Issuer and the
Registrar in writing, that it is purchasing the Note for its own
account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB
within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Issuer as it has requested
pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A or (y) an interest in the U.S.
Global Note, the transfer of such interest may be effected only
through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Note to be transferred consists of U.S. Physical Notes, upon receipt
by the Registrar of the documents referred to in clause (i) and
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the U.S.
Physical Notes to be transferred, and the Trustee shall cancel the
U.S. Physical Note so transferred.
(c) Transfers of Interests in the Temporary Offshore Global Note. The
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Note:
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(i) The Registrar shall register the transfer of any Note
(x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit D hereto or (y) if the proposed transferee is
a QIB and the proposed transferor has checked the box provided for on
the form of Note stating, or has otherwise advised the Issuer and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised the Issuer and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Issuer as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon
receipt by the Registrar of the documents referred to in clause
(i)(y) above and instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the U.S. Global Note in an amount equal to the
principal amount of the Temporary Offshore Global Note to be
transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Note.
(d) Transfers of Interests in the Permanent Offshore Global Note or
Offshore Physical Notes to U.S. Persons. The following provisions shall apply
with respect to any transfer of interests in the Permanent Offshore Global
Note or Offshore Physical Notes to U.S. Persons: The Registrar shall register
the transfer of any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to September 22, 1997, the Registrar shall
register any proposed transfer of a Note to a Non-U.S. Person upon
receipt of a certificate substantially in the form of Exhibit D
hereto from the proposed transferor.
(ii) On and after September 22, 1997, the Registrar shall
register any proposed transfer to any Non-U.S. Person if the Note to
be transferred is a U.S. Physical Note or an interest in the U.S.
Global Note, upon receipt of a certificate substantially in the form
of Exhibit D hereto from the proposed transferor.
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(iii) (a) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Note, upon receipt
by the Registrar of (x) the documents, if any, required by paragraph
(ii) and (y) instructions in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and
(b) if the proposed transferee is an Agent Member, upon receipt by
the Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Offshore Global Note in an amount equal to
the principal amount of the U.S. Physical Notes or the U.S. Global
Note, as the case may be, to be transferred, and the Trustee shall
cancel the Physical Note, if any, so transferred or decrease the
amount of the U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement
Legend, the Registrar shall deliver only Notes that bear the Private Placement
Legend unless either (i) the circumstances contemplated by the fourth
paragraph of Section 2.01 or paragraph (a)(i)(x) or (e)(ii) of this Section
2.08 exist or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Issuer and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees
by its acceptance of the Notes to furnish the Registrar or the Issuer such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Issuer with respect to)
the sufficiency of any such certifications, legal opinions or other
information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Issuer shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
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SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed
or wrongfully taken, the Issuer shall issue and the Trustee shall authenticate
a replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Issuer,
an indemnity bond must be furnished that is sufficient in the judgment of both
the Trustee and the Issuer to protect the Issuer, the Trustee or any Agent
from any loss that any of them may suffer if a Note is replaced. The Issuer
may charge such Holder for its expenses and the expenses of the Trustee in
replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Issuer in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of the Issuer and
shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Issuer receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Issuer or an Affiliate of the
Issuer) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Issuer or one of
its Affiliates holds such Note, provided, however, that in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Issuer or any other obligor upon the Notes or
any Affiliate of the Issuer or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer
of the Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Notes and that the pledgee is not the Issuer or
any other obligor upon the Notes or any Affiliate of the Issuer or of such
other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Issuer may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall
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38
be substantially in the form of definitive Notes but may have insertions,
substitutions, omissions and other variations determined to be appropriate by
the Officers executing the temporary Notes, as evidenced by their execution of
such temporary Notes. If temporary Notes are issued, the Issuer will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Issuer designated for such purpose pursuant to Section 4.02, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes the Issuer shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes
of authorized denominations. Until so exchanged, the temporary Notes shall be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Issuer at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Issuer has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. Except as expressly permitted by this
Indenture, the Issuer may not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP Numbers. The Issuer in issuing the Notes may use
"CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of
such numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Issuer will promptly notify
the Trustee of any change in "CUSIP," "CINS" or "ISIN" numbers for the Notes.
SECTION 2.14. Defaulted Interest. If the Issuer defaults in a payment
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date.
A special record date, as used in this Section 2.14 with respect to the
payment of any defaulted interest, shall mean the 15th day next preceding the
date fixed by the Issuer for the payment of defaulted interest, whether or not
such day is a Business Day. At least 15 days before the subsequent special
record date, the Issuer shall mail to each Holder and to the Trustee a notice
that states the subsequent special record date, the payment date and the
amount of defaulted interest to be paid.
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39
SECTION 2.15. Issuance of Additional Notes. The Issuer may, subject
to Article Four of this Indenture, issue additional Notes under this
Indenture. The Notes issued on the Closing Date and any additional Notes
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption. (a) The
Notes will be redeemable, at the Issuer's option, in whole or in part, at any
time or from time to time, on or after August 1, 2002 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing August 1 of
the years set forth below:
Redemption
Year Price
---- ----------
2002........................... 104.500%
2003........................... 102.250
2004 and thereafter............ 100.000
(b) In the event that the Tender Offer is not consummated and certain
other conditions set forth in the Escrow Agreement are not satisfied by the
Expiration Date, or if it appears, in the sole judgment of the Issuer, that
the Tender Offer will not be consummated and such conditions will not be
satisfied by the Expiration Date, the Issuer shall redeem the Notes in whole,
on 10 days' prior notice mailed by first-class mail to each Holder's last
address as it appears in the Security Register, at a Redemption Price equal to
101% of the principal amount of the Notes, plus accrued and unpaid interest to
the Redemption Date. On the earlier of (i) the Expiration Date, if the Trustee
has not received the Escrow Agreement Officers' Certificate stating that the
Tender Offer has been consummated (or will be consummated promptly upon the
release of the escrowed proceeds of the offering of the Notes to the Issuer)
and certain conditions have been satisfied and the Escrow Agreement Opinion of
Counsel, and (ii) such date on which the Trustee receives an officer's
certificate under the Escrow Agreement that the Tender Offer will not be
consummated and such conditions will not be satisfied by the Expiration Date,
the Trustee will mail by first-class mail to each Holder's last address as it
appears in the Security Register a written notice that the Notes will be
redeemed within 10 days of such notice.
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SECTION 3.02. Notices to Trustee. If the Issuer elects to redeem
Notes pursuant to Section 3.01(a) or (b), it shall notify the Trustee in
writing of the Redemption Date and the principal amount of Notes to be
redeemed.
The Issuer shall give notice provided for in this Section 3.02, (i)
pursuant to an election to redeem Notes under Section 3.01(a), in an Officers'
Certificate at least 45 days before the Redemption Date and (ii) pursuant to
an election to redeem Notes under Section 3.01(b), in an Officers' Certificate
at least 15 days before the Redemption Date (in each case unless a shorter
period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes
to be redeemed in compliance with the requirements, as certified to it by the
Issuer, of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; provided that no Notes of $1,000 in principal
amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount may only be redeemed in whole. The Trustee may select for
redemption portions (equal to $1,000 in principal amount or any integral
multiple thereof) of Notes that have denominations larger than $1,000 in
principal amount. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Issuer and the Registrar promptly in writing of the Notes or
portions of Notes to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes pursuant to Section 3.01(a), at least 30 days but not more than 60 days
before a Redemption Date, the Issuer, and with respect to any redemption of
Notes pursuant to Section 3.01(b), within 10 days before a Redemption Date,
the Trustee, shall mail a notice of redemption by first-class mail to each
Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be
surrendered to the Paying Agent in order to collect the Redemption
Price;
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(v) that, unless the Issuer defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right
of the Holders is to receive payment of the Redemption Price plus
accrued interest to the Redemption Date upon surrender of the Notes
to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the
portion of the principal amount (equal to $1,000 in principal amount
or any integral multiple thereof) of such Note to be redeemed and
that, on and after the Redemption Date, upon surrender of such Note,
a new Note or Notes in principal amount equal to the unredeemed
portion thereof will be reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN
number as provided in Section 2.13, no representation is being made
as to the correctness of the CUSIP, CINS or ISIN number either as
printed on the Notes or as contained in the notice of redemption and
that reliance may be placed only on the other identification numbers
printed on the Notes.
At the Issuer's request (which request may be revoked by the Issuer
at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 45 days (or
such shorter period as shall be satisfactory to the Trustee) before a
Redemption Date, the Trustee shall give the notice of redemption pursuant to
Section 3.01(a) in the name and at the expense of the Issuer. If, however, the
Issuer gives such notice to the Holders, the Issuer shall concurrently deliver
to the Trustee an Officers' Certificate stating that such notice has been
given. The Trustee shall give the notice of redemption if and as required
pursuant to Section 3.01(b).
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on
the Redemption Date and at the Redemption Price. Upon surrender of any Notes
to the Paying Agent, such Notes shall be paid at the Redemption Price, plus
accrued interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of Notes held by Holders to whom such notice
was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Issuer shall deposit with the Paying Agent (or, if the
Issuer is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than
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Notes or portions thereof called for redemption on that date that have been
delivered by the Issuer to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion
of Notes specified in such notice to be redeemed shall become due and payable
on the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless
the Issuer shall default in the payment of such Notes at the Redemption Price
and accrued interest to the Redemption Date, in which case the principal,
until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Notes), such Notes shall cease to accrue interest. Upon
surrender of any Note for redemption in accordance with a notice of
redemption, such Note shall be paid and redeemed by the Issuer at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders registered as
such at the close of business on the relevant Regular Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that
is redeemed in part, the Issuer shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Issuer shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal,
premium, if any, or interest shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Issuer, a Subsidiary of the Issuer, or
any Affiliate of any of them) holds on that date money designated for and
sufficient to pay the installment. If the Issuer or any Subsidiary of the
Issuer or any Affiliate of any of them acts as Paying Agent, an installment of
principal, premium, if any, or interest shall be considered paid on the due
date if the entity acting as Paying Agent complies with the last sentence of
Section 2.05. As provided in Section 6.09, upon any bankruptcy or
reorganization procedure relative to the Issuer, the Trustee shall serve as
the Paying Agent, if any, for the Notes.
The Issuer shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or
agency where Notes may be surrendered for registration of transfer or exchange
or for presentation for payment and where
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notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuer shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 12.02.
The Issuer may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve
the Issuer of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Issuer will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Issuer hereby initially designates the Corporate Trust Office of
the Trustee as such office of the Issuer in accordance with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. The Issuer will not, and
will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness
(including any Acquired Indebtedness but excluding Permitted Indebtedness)
unless at the time of such event and after giving effect thereto on a pro
forma basis the Issuer's Fixed Charge Coverage Ratio for the four full fiscal
quarters immediately preceding such event taken as one period, calculated on
the assumption that (i) such Indebtedness, and any Indebtedness Incurred or
repaid after the first day of such four-quarter period and on or prior to the
date of such event (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement)
in effect on the last day of such four-quarter period unless any portion of
such Indebtedness is projected, in the reasonable judgment of the senior
management of the Issuer, to remain outstanding for a period in excess of 12
months from the date of the Incurrence thereof) had been Incurred or repaid on
the first day of such four-quarter period and (ii) any acquisition or
disposition by the Issuer and its Restricted Subsidiaries out of the ordinary
course of business of any assets constituting a company, division, line of
business or business facility, in each case after the first day of such
four-quarter period, and on or prior to the date of such event, had been
consummated on the first day of such four-quarter period (including giving pro
forma effect to the application of the proceeds of any such disposition),
would have been at least equal to 2:00:1.00.
SECTION 4.04. Limitation on Restricted Payments. The Issuer will
not, and will not permit any Restricted Subsidiary to, directly or indirectly:
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(i) declare or pay any dividend on, or make any distribution
to holders of, its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Qualified Capital Stock
or in options, warrants or other rights to acquire such Qualified
Capital Stock and (y) pro rata dividends or distributions on Common
Stock of Restricted Subsidiaries held by minority stockholders);
(ii) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock (or any option, warrant or other
right to acquire such Capital Stock) of (A) the Issuer or an
Unrestricted Subsidiary held by any Person or (B) a Restricted
Subsidiary held by an Affiliate of the Issuer (other than any Wholly
Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Issuer;
(iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case, prior
to any scheduled repayment, or maturity, any Subordinated
Indebtedness; or
(iv) make any Investment in any Person (other than a
Permitted Investment)
(such payments described in (i) through (iv) collectively, "Restricted
Payments"), unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (x) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment
shall not be an event which is, or after notice or lapse of time or both,
would be, an "event of default" under the terms of any Indebtedness of the
Issuer or any Restricted Subsidiary; (y) the Issuer could Incur $1.00 of
additional Indebtedness under Section 4.03 (other than Permitted
Indebtedness); and (z) the aggregate amount of all Restricted Payments,
including any Restricted Payments made pursuant to clauses (i) and (iv) of the
succeeding paragraph, declared or made after the Closing Date shall not exceed
the sum of:
(A) 50% of the Consolidated Net Income of the Issuer accrued
on a cumulative basis during the period beginning on the first day of
the fiscal quarter beginning immediately following the Closing Date
and ending on the last day of the fiscal quarter ending prior to the
date of such proposed Restricted Payment for which reports have been
filed with the Commission or provided to the Trustee pursuant to
Section 4.19 (or, if such aggregate cumulative Consolidated Net
Income shall be a loss, minus 100% of the amount of such loss);
(B) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer as capital contributions to the Issuer;
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(C) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer from the issuance and sale (other than to
any of its Subsidiaries) of shares of Qualified Capital Stock of the
Issuer or any options or warrants to purchase such shares (other than
issuances to the extent used to make a Restricted Payment under
clause (ii) of the subsequent paragraph) of Qualified Capital Stock
of the Issuer;
(D) the aggregate Net Cash Proceeds received after the
Closing Date by the Issuer for debt securities that have been
converted into or exchanged for Qualified Capital Stock of the Issuer
to the extent such debt securities were originally sold for cash plus
the aggregate cash received by the Issuer at the time of such
conversion or exchange; and
(E) $10 million.
None of the foregoing provisions shall be deemed to prohibit the
following Restricted Payments so long as in the case of clauses (ii), (iii)
and (iv) at the time of and after giving effect to the proposed Restricted
Payment no Default or Event of Default shall have occurred and be continuing:
(i) dividends paid within 60 days after the date of
declaration if at the date of declaration, such payment would be
permitted by the provisions of the preceding paragraph;
(ii) the redemption, repurchase or other acquisition or
retirement of Capital Stock of the Issuer or Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially concurrent issue and sale (other than to a Subsidiary)
of shares of Qualified Capital Stock of the Issuer;
(iii) the redemption, repurchase, or other acquisition or
retirement of Subordinated Indebtedness of the Issuer, including
premium, if any, and accrued and unpaid interest, made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Issuer permitted to be Incurred under clause (k)
of the definition of "Permitted Indebtedness"; and
(iv) Investments in an aggregate amount not to exceed $25
million in any Person which owns, operates or services Healthcare
Related Businesses.
SECTION 4.05. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Issuer will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any restriction of any kind, on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distribution on its Capital
Stock to the Issuer or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed
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to the Issuer or any other Restricted Subsidiary, (iii) make any Investment in
the Issuer or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Issuer or any other Restricted Subsidiary, except
(a) any encumbrance or restriction existing under or by reason of applicable
law; (b) any encumbrance or restriction existing under or by reason of
customary non-assignment provisions of any lease governing a leasehold
interest of the Issuer, or any Restricted Subsidiary; (c) any restriction
pursuant to an agreement in effect at or entered into on the Closing Date; (d)
any restriction, with respect to a Restricted Subsidiary that is not a
Subsidiary on the Closing Date, in existence at the time such Person becomes a
Restricted Subsidiary and not incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary; (e) any restriction existing
under any agreement that extends, renews, refinances or replaces the
agreements containing the restrictions in the foregoing clauses (c) and (d),
provided that the terms and conditions of any such restrictions are not
materially less favorable to the Holders than those under or pursuant to the
agreement so extended, renewed, refinanced or replaced (in the opinion of the
Board of Directors of the Issuer whose determination shall be conclusive); (f)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Issuer or any Restricted Subsidiary in
any manner material to the Issuer or any Restricted Subsidiary; (g) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock of, or property and assets of, such Restricted
Subsidiary; or (h) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default with
respect to a financial covenant contained in such Indebtedness or agreement,
(B) the encumbrance or restriction is not materially more disadvantageous to
the Holders than is customary in comparable financings (as determined by the
Issuer) and (C) the Issuer determines that any such encumbrance or restriction
will not materially affect the Issuer's ability to make principal or interest
payments on the Notes.
SECTION 4.06. Limitations on Preferred Stock of Restricted
Subsidiaries. The Issuer will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any Preferred Stock of a
Restricted Subsidiary other than to the Issuer or a Wholly Owned Restricted
Subsidiary, or permit any Person (other than the Issuer or a Wholly Owned
Restricted Subsidiary) to own or hold any Preferred Stock of any Restricted
Subsidiary, unless such Restricted Subsidiary would be entitled to Incur
Indebtedness pursuant to Section 4.03 in an aggregate principal amount equal
to the aggregate liquidation value of the Preferred Stock to be issued.
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries. (a) The Issuer will not permit any Restricted Subsidiary,
directly or indirectly, to assume, guarantee or in any other manner become
liable with respect to any Indebtedness of the Issuer which is expressly by
its terms pari passu with or subordinate in right of payment to the Notes
("Guaranteed Indebtedness") unless (i) such Restricted Subsidiary
simultaneously executes and
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delivers a supplemental indenture to the Indenture providing for a guarantee
of payment of the Notes by such Restricted Subsidiary and (ii) such Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of any rights of reimbursement, indemnity or subrogation or any
other rights against the Issuer or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Subsidiary Guarantee.
If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinate in right of payment to, the Subsidiary Guarantee or (B)
subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness
shall be subordinated in right of payment to the Subsidiary Guarantee at least
to the extent that the Guaranteed Indebtedness is subordinated in right of
payment to the Notes.
(b) Each guarantee created pursuant to the provisions described in
the foregoing paragraph is referred to as a "Subsidiary Guarantee," and the
issuer of each such Guarantee is referred to as a "Subsidiary Guarantor."
Notwithstanding the foregoing, any Subsidiary Guarantee may provide by its
terms that it (together with any Liens arising from such Subsidiary Guarantee)
shall be automatically and unconditionally released and discharged upon (i)
any sale, exchange or transfer, to any Person not an Affiliate of the Issuer,
of all of the Issuer's Capital Stock in, or all or substantially all the
assets of, such Subsidiary Guarantor, which is in compliance with this
Indenture or (ii) the release or discharge of the assumption, guarantee or
other liability which resulted in the creation of such Subsidiary Guarantee,
except a release or discharge by or as a result of payment under such
Subsidiary Guarantee.
SECTION 4.08. Limitation on Transactions with Stockholders and
Affiliates. The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, renew or extend any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate of the Issuer (other than a Wholly Owned Restricted Subsidiary)
unless (i) such transaction or series of related transactions is on terms that
are no less favorable to the Issuer or such Restricted Subsidiary, as the case
may be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party and (ii) with respect to a transaction
or series of related transactions involving payments in excess of $10 million
in the aggregate, the Issuer delivers an Officers' Certificate to the Trustee
certifying that (A) such transaction complies with clause (i) above and (B)
such transaction or series of related transactions shall have been approved by
a majority of the independent directors of the Board of Directors of the
Issuer or for which the Issuer or a Restricted Subsidiary has received a
written opinion of a nationally recognized investment banking firm stating
that the transaction is fair to the Issuer or such Restricted Subsidiary from
a financial point of view (a copy of which opinion shall be attached to such
Officers' Certificate); provided, however, that the foregoing restriction
shall not apply to (a) the payment of reasonable and customary regular fees to
directors of the Issuer or any of its Restricted Subsidiaries who are not
employees of the Issuer or any Affiliate, (b) the payment of monthly fees in
accordance with Section 4.13 and the reimbursement of expenses pursuant to the
terms of management agreements with Genesis or
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any of its affiliates, (c) any payments or other transactions pursuant to any
tax-sharing agreement between the Issuer and any other Person with which the
Issuer files a consolidated tax return or with which the Issuer is part of a
consolidated group for tax purposes, (d) the Therapy Sale, provided the Issuer
or its Restricted Subsidiaries receives at least $20 million from the Therapy
Sale, (e) the Pharmacy Sale, provided the Issuer or its Restricted
Subsidiaries receives at least $50 million from the Pharmacy Sale, (f)
transactions in the ordinary course of business with Genesis or any of its
Affiliates, related to the Issuer's healthcare businesses or facilities;
provided that the aggregate amount of any such transactions in any twelve
month period does not exceed $10 million, (g) any Restricted Payments not
prohibited by Section 4.04 or (h) the payment of fees and expenses in
connection with the Transactions to Genesis, Cypress and TPG.
SECTION 4.09. Limitation on Liens. The Issuer will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Liens of any kind upon any of its respective properties now owned or
acquired after the Closing Date or any income or profits therefrom securing
(i) any Indebtedness of the Issuer which is expressly subordinate in right of
payment to any other Indebtedness of the Issuer, unless the Notes are equally
and ratably secured; provided that, if such Indebtedness is subordinate in
right of payment to the Notes, the Lien securing such Indebtedness shall be
subordinate to the Lien securing the Notes with the same relative priority as
such subordinated Indebtedness shall have with respect to the Notes; provided
further that this clause (i) shall not be applicable to any Liens securing any
such Indebtedness which became Indebtedness of the Issuer pursuant to a
transaction permitted under Article Five or Liens securing Acquired
Indebtedness and, in each case, which Liens were in existence at the time of
such transaction or Incurrence of such Acquired Indebtedness and not Incurred
in connection with or in contemplation of such transaction or Incurrence, so
long as such Liens do not extend to or cover any property or assets of the
Issuer or any Restricted Subsidiary other than property or assets acquired in
such transaction, or (ii) any assumption, guarantee or other liability of any
Restricted Subsidiary in respect of any Indebtedness of the Issuer which is
expressly subordinate in right of payment to any other Indebtedness of the
Issuer, unless the substantially similar assumption, guarantee or other
liability of such Restricted Subsidiary in respect of the Notes is equally and
ratably secured; provided that, if such subordinated Indebtedness is
subordinate in right of payment to the Notes, the Lien securing the
assumption, guarantee or other liability of such Restricted Subsidiary in
respect of such Indebtedness shall be subordinate to the Lien securing the
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to the Notes with the same relative priority as such subordinated
Indebtedness shall have with respect to the Notes; provided further that this
clause (ii) shall not be applicable to Liens securing any such assumption,
guarantee or other liability which existed at the time such Restricted
Subsidiary became a Restricted Subsidiary and which Liens were in existence at
the time of such transaction (unless such assumption, guarantee or other
liability was Incurred in connection with or in contemplation of such Person
becoming a Restricted Subsidiary), so long as such Liens do not extend to or
cover any property or assets of the Issuer or any other Restricted Subsidiary.
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SECTION 4.10. Limitation on Asset Sales. The Issuer will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless (i) the consideration received by the Issuer or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 75% of the consideration received consists of
cash or Temporary Cash Investments. In the event and to the extent that the
Net Cash Proceeds received by the Issuer or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months exceed $10 million, then the Issuer shall or
shall cause the relevant Restricted Subsidiary to (i) within 12 months after
the date Net Cash Proceeds so received exceed $10 million (A) apply an amount
equal to such excess Net Cash Proceeds to permanently repay Senior
Indebtedness of the Issuer or any Subsidiary Guarantor or Indebtedness of any
other Restricted Subsidiary, in each case owing to a Person other than the
Issuer or any of its Restricted Subsidiaries or (B) invest an equal amount, or
the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement; provided that if any such agreement is terminated, the Issuer may
invest such Net Cash Proceeds prior to the end of the 12-month period referred
to in clause (i) or six months after the termination of such agreement,
whichever is later), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related
to the nature or type of the property and assets of, or the business of, the
Issuer and its Restricted Subsidiaries existing on the date of such investment
and (ii) apply (no later than the end of the 12-month period referred to in
clause (i)) such excess Net Cash Proceeds (to the extent not applied pursuant
to clause (i)) as provided in the following paragraph of this Section 4.10.
The amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of
such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this Section 4.10 totals at least $10 million, the Issuer must commence, not
later than the fifteenth Business Day of such month, and consummate an Offer
to Purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount of the Notes, plus, in each case, accrued
interest (if any) to the Payment Date.
SECTION 4.11. Repurchase of Notes upon a Change in Control. The
Issuer must commence, within 30 days of the occurrence of a Change in Control,
and consummate an Offer to Purchase for all Notes then outstanding, at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
Within 30 days following a Change of Control, the Issuer shall mail a
notice to each Holder and the Trustee stating the terms of the Change of
Control.
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SECTION 4.12. Limitation on Senior Subordinated Indebtedness. The
Issuer will not Incur any Indebtedness, other than the Notes, that is
subordinate in right of payment to any Senior Indebtedness, unless such
Indebtedness is also pari passu with, or subordinate in right of payment to,
the Notes pursuant to subordination provisions substantially similar to those
contained in the Indenture; provided that the foregoing limitation shall not
apply to distinctions between categories of Senior Indebtedness of the Issuer
that exist by reason of any Liens or Guarantees arising or created in respect
of some but not all of such Senior Indebtedness.
SECTION 4.13. Limitation on Management Fees. The Issuer will not, and
will not permit any of its Restricted Subsidiaries to, pay any management fees
in any month to the extent such fees would exceed the greater of (i)
$1,991,666 and (ii) 4% of the Issuer's consolidated net revenues for such
month; provided that the Issuer may pay management fees in excess of such
amount (including accrued fees) to the extent that (A) both before and after
giving effect to the proposed payment (x) no Default or Event of Default shall
have occurred and be continuing and (y) the Issuer's Fixed Charge Coverage
Ratio for the four full fiscal quarters immediately preceding such event,
taken as one period and calculated on the assumption that (I) any Indebtedness
Incurred or repaid after the first day of such four-quarter period and on or
prior to the date of such payment (other than Indebtedness Incurred or repaid
under a revolving credit or similar arrangement to the extent of the
commitment thereunder (or under any predecessor revolving credit or similar
arrangement) in effect on the last day of such four quarter period unless any
portion of such Indebtedness is projected, in the reasonable judgment of the
senior management of the Issuer, to remain outstanding for a period in excess
of 12 months from the date of the Incurrence thereof), had been Incurred or
repaid on the first day of such four-quarter period, (II) any acquisition or
disposition by the Issuer and its Restricted Subsidiaries out of the ordinary
course of business of any assets constituting a company, division, line of
business or business facility, in each case after the first day of such
four-quarter period, and on or prior to the date of such payment, had been
consummated on the first day of such four-quarter period (including giving pro
forma effect to the application of the proceeds of any such disposition) and
(III) the proposed management fees were paid during such period, would have
been at least equal to 2:00:1.00; and (B) the aggregate amount of management
fees paid with respect to any month do not exceed 6% of the Issuer's
consolidated net revenues for such month. To the extent the Issuer is
prohibited from paying any management fees as a result of clause (y) of the
proviso to the preceding sentence, the Issuer may accrue such fees until they
may be paid in accordance with this Section 4.13 provided the payment of such
accrued fees is subordinated in right of payment to the prior payment in full
in cash or Cash Equivalents of all of the Issuer's obligations under the Notes
and this Indenture.
SECTION 4.14. Existence. Subject to Articles Four and Five of this
Indenture, the Issuer will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Issuer and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material
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licenses and franchises of the Issuer and each such Subsidiary; provided that
the Issuer shall not be required to preserve any such right, license or
franchise, or the existence of any Restricted Subsidiary, if the maintenance
or preservation thereof is no longer desirable in the conduct of the business
of the Issuer and its Restricted Subsidiaries taken as a whole.
SECTION 4.15. Payment of Taxes and Other Claims. The Issuer will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (i)
all material taxes, assessments and governmental charges levied or imposed
upon (a) the Issuer or any such Subsidiary, (b) the income or profits of any
such Subsidiary which is a corporation or (c) the property of the Issuer or
any such Subsidiary and (ii) all material lawful claims for labor, materials
and supplies that, if unpaid, might by law become a lien upon the property of
the Issuer or any such Subsidiary; provided that the Issuer shall not be
required to pay or discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which
adequate reserves have been established.
SECTION 4.16. Maintenance of Properties and Insurance. The Issuer
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Issuer may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided
that nothing in this Section 4.16 shall prevent the Issuer or any such
Subsidiary from discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Issuer, desirable in the conduct of the business of the
Issuer or such Subsidiary.
The Issuer will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by
corporations similarly situated and owning like properties, including, but not
limited to, products liability insurance and public liability insurance, with
reputable insurers or with the government of the United States of America, or
an agency or instrumentality thereof, in such amounts, with such deductibles
and by such methods as shall be customary for corporations similarly situated
in the industry in which the Issuer or any such Restricted Subsidiary, as the
case may be, is then conducting business.
SECTION 4.17. Notice of Defaults. In the event that the Issuer
becomes aware of any Default or Event of Default, the Issuer, promptly after
it becomes aware thereof, will give written notice thereof to the Trustee.
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SECTION 4.18. Compliance Certificates. (a) The Issuer shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal quarter. In the case of the Officers'
Certificate delivered within 90 days after the end of the Issuer's fiscal
year, such certificate shall contain a certification from the principal
executive officer, principal financial officer or principal accounting officer
of the Issuer that a review has been conducted of the activities of the Issuer
and its Restricted Subsidiaries and the Issuer's and its Restricted
Subsidiaries' performance under this Indenture and that the Issuer has
complied with all conditions and covenants under this Indenture. For purposes
of this Section 4.18, such compliance shall be determined without regard to
any period of grace or requirement of notice provided under this Indenture. If
the officers of the Issuer signing such certificate do know of such a Default
or Event of Default, the certificate shall describe any such Default or Event
of Default and its status. The first certificate to be delivered pursuant to
this Section 4.18(a) shall be for the first fiscal quarter beginning after the
execution of this Indenture.
(b) The Issuer shall deliver to the Trustee, within 90 days after the
end of the Issuer's fiscal year, a certificate signed by the Issuer's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of
this Section 4.18 and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe that
the Issuer was not in compliance with any of the terms, covenants, provisions
or conditions of Article Four and Section 5.01 of this Indenture as they
pertain to accounting matters and, if any Default or Event of Default has come
to their attention, specifying the nature and period of existence thereof;
provided that such independent certified public accountants shall not be
liable in respect of such statement by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be disclosed
in the course of an audit examination conducted in accordance with generally
accepted auditing standards in effect at the date of such examination.
SECTION 4.19. Commission Reports and Reports to Holders. At all times
from and after the earlier of (i) the date of the commencement of an Exchange
Offer or the effectiveness of the Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date,
in either case, whether or not the Issuer is then required to file reports
with the Commission, the Issuer shall file with the Commission the annual,
quarterly and other reports and other information required by Section 13(a) or
15(d) of the Exchange Act, regardless of whether such sections of the Exchange
Act are applicable to the Issuer (unless the Commission will not accept such a
filing). The Issuer shall mail or cause to be mailed copies of such reports
and information to Holders and the Trustee within 15 days after the date it
files such reports and information with the Commission or after the date it
would have been required to file such reports and information with the
Commission had it been subject to such sections
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of the Exchange Act; provided, however, that the copies of such reports and
information mailed to Holders may omit exhibits, which the Issuer will supply
to any Holder at such Holder's request. In addition, at all times prior to the
earlier of the date of the Registration and the date that is six months after
the Closing Date, the Issuer shall, at its cost, deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those which
would be required by the Exchange Act. In addition, at all times prior to the
Registration, upon the request of any Holder or any prospective purchaser of
the Notes designated by a Holder, the Issuer shall supply to such Holder or
such prospective purchaser the information required under Rule 144A under the
Securities Act.
SECTION 4.20. Waiver of Stay, Extension or Usury Laws. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Issuer from paying all or any portion
of the principal of, premium, if any, or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Issuer hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Issuer May Merge, Etc. The Issuer shall not, in a
single transaction or through a series of related transactions, consolidate
with or merge with or into any other Person or sell, assign, convey, transfer
or lease or otherwise dispose of all or substantially all of its properties
and assets as an entirety to any Person or group of affiliated Persons, or
permit any of its Restricted Subsidiaries to enter into any such transaction
or transactions if such transaction or transactions, in the aggregate, would
result in a sale, assignment, transfer, lease or disposal of all or
substantially all of the properties and assets of the Issuer and its
Restricted Subsidiaries on a consolidated basis to any other Person or group
of affiliated Persons, unless at the time and after giving effect thereto (i)
either (A) the Issuer shall be the continuing corporation, or (B) the Person
(if other than the Issuer) formed by such consolidation or into which the
Issuer is merged or the Person which acquires by conveyance, transfer, lease
or disposition the properties and assets of the Issuer, substantially as an
entirety (the "Surviving Entity") shall be a corporation duly organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case, expressly
assume, by an indenture supplemental to this Indenture, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of
the Issuer under the Notes and this Indenture, and this Indenture shall remain
in full force and effect; (ii) immediately before
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and immediately after giving effect to such transaction on a pro forma basis
(and treating any Indebtedness not previously an obligation of the Issuer or a
Restricted Subsidiary which becomes the obligation of the Issuer or any of its
Restricted Subsidiaries in connection with or as a result of such transaction
as having been incurred at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the Issuer (or the Surviving Entity if the Issuer is not the
continuing obligor under the Indenture) is at least equal to the Consolidated
Net Worth of the Issuer immediately before such transaction; (iv) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (and treating any Indebtedness not previously an obligation of the
Issuer or a Restricted Subsidiary which becomes the obligation of the Issuer
or any of its Restricted Subsidiaries in connection with or as a result of
such transaction as having been incurred at the time of such transaction), the
Issuer (or the Surviving Entity if the Issuer is not the continuing obligor
under this Indenture) could incur $1.00 of additional Indebtedness under
Section 4.03 (other than Permitted Indebtedness); provided that this clause
(iv) shall not apply to (x) a consolidation or merger with or into a Wholly
Owned Restricted Subsidiary with a positive net worth; provided that, in
connection with any such merger or consolidation, no consideration (other than
Qualified Capital Stock in the Surviving Entity or the Issuer) shall be issued
or distributed to the stockholders of the Issuer or (y) the merger of Genesis
ElderCare Acquisition Corp. with and into Multicare; and (v) the Issuer or the
Surviving Entity shall have delivered to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that such consolidation, merger,
transfer, lease or disposition and such supplemental indenture comply with the
terms of this Indenture.
SECTION 5.02. Successor Substituted. Upon any consolidation or
merger, or any sale, assignment, conveyance, transfer, lease or disposition of
all or substantially all of the properties and assets of the Issuer in
accordance with the immediately preceding paragraph, the successor Person
formed by such consolidation or into which the Issuer is merged or the
successor Person to which such sale, assignment, conveyance, transfer, lease
or disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the
same effect as if such successor had been named as the Issuer herein. When a
successor assumes all the obligations of its predecessor under this Indenture
and the Notes, the predecessor shall be released from those obligations;
provided that in the case of a transfer by lease, the predecessor shall not be
released from the payment of principal and interest on the Notes.
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55
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Notes if:
(a) the Issuer defaults in the payment of the principal of
(or premium, if any, on) any Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise,
whether or not such payment is prohibited by Article Eleven;
(b) the Issuer defaults in the payment of interest on any
Note when the same becomes due and payable, and such default
continues for a period of 30 days, whether or not such payment is
prohibited by Article Eleven;
(c) the Issuer defaults in the performance of, or breaches
the provisions of, Article Five or Section 3.01(b) or fails to make
or consummate an Offer to Purchase in accordance with Section 4.10 or
4.11;
(d) the Issuer defaults in the performance of or breaches
any covenant or agreement of the Issuer in this Indenture or under
the Notes (other than a default specified in clause (a), (b) or (c)
above), and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders
of at least 25% in aggregate principal amount of the Notes then
outstanding;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Issuer or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate
for all such issues of all such Persons, whether such Indebtedness
now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness
has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II)
the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance)
for the payment of money in excess of $10 million in the aggregate
for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Issuer or any Significant
Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against
all such Persons to
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exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Issuer or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or
any Significant Subsidiary or for all or substantially all of the
property and assets of the Issuer or any Significant Subsidiary or
(C) the winding up or liquidation of the affairs of the Issuer or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days;
(h) the Issuer or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of
an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or any Significant Subsidiary or for all or
substantially all of the property and assets of the Issuer or any
Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or
(i) the Guaranty Documents are not executed and delivered
within three Business Days after the consummation of the Tender Offer
(unless prior to or at the end of such three Business Days the Merger
shall have been consummated).
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs
with respect to the Issuer) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Issuer (and to the Trustee if
such notice is given by the Holders), may, and the Trustee at the request of
such Holders shall, declare the principal of, premium, if any, and accrued
interest on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) of Section 6.01 has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Issuer or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (g) or (h) of
Section 6.01 occurs with respect to the Issuer, the principal of, premium, if
any, and accrued interest on the Notes then outstanding
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shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the
outstanding Notes, by written notice to the Issuer and to the Trustee, may
waive all past defaults and rescind and annul a declaration of acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and interest on the Notes
that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the
Holder of each outstanding Note affected. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be
deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a majority
in aggregate principal amount of the outstanding Notes may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not pursue any
remedy with respect to this Indenture or the Notes unless:
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(i) the Holder gives the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of outstanding Notes make a written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders offer (and if requested
provide) the Trustee indemnity satisfactory to the Trustee against
any costs, liability or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the
Trustee a direction that is inconsistent with the request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination
of whether the Holders of the required aggregate principal amount of
outstanding Notes have concurred in any request or direction of the Trustee to
pursue any remedy available to the Trustee or the Holders with respect to this
Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
The limitations set forth in this Section 6.06 shall not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the Notes, which right
shall not be impaired or affected without the consent of the Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of the principal of, premium, if any, or interest on, such
Note or to bring suit for the enforcement of any such payment, on or after the
due date expressed in the Notes, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c)
of Section 6.01 occurs and is continuing, the Trustee may recover judgment in
its own name and as trustee of an express trust against the Issuer or any
other obligor of the Notes for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest
is lawful, interest on overdue
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installments of interest, in each case at the rate specified in the Notes, and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Issuer (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or
exchange of the Notes or upon any such claims and to distribute the same, and
any custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07. Nothing herein contained
shall be deemed to empower the Trustee to authorize or consent to, or accept
or adopt on behalf of any Holder, any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and interest, respectively; and
Third: to the Issuer or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction
may direct.
The Trustee, upon prior written notice to the Issuer, may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted
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by it as Trustee, a court may require any party litigant in such suit to file
an undertaking to pay the costs of the suit, and the court may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07,
or a suit by Holders of more than 10% in principal amount of the outstanding
Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder,
then, and in every such case, subject to any determination in such proceeding,
the Issuer, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Issuer, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver
of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article Six or by law to the Trustee or to the Holders
may be exercised from time to time, and as often as may be deemed expedient,
by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
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Whether or not herein expressly so provided, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection
to the Trustee shall be subject to the provisions of this Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely, and shall be protected in acting
or refraining from acting, upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine and to have
been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in any such document;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which
shall conform to Section 12.04. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on
such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care;
(iv) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or
within its rights or powers or for any action it takes or omits to
take in accordance with the written direction of the Holders of a
majority in principal amount of the outstanding Notes relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate; and
(vii) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report,
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notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Issuer personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Issuer's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement
in the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in TIA Section 313(c) notice
of the Default or Event of Default within 45 days after it occurs, unless such
Default or Event of Default has been cured; provided, however, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in
good faith determine that the withholding of such notice is in the interest of
the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after
each August 1, beginning with August 1, 1998, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such
August 1, if required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Issuer shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses and advances
incurred or made by the Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
The Issuer shall indemnify the Trustee against any and all losses,
liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses
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(including reasonable fees and disbursements of counsel) of any kind
whatsoever which may be incurred by the Trustee in connection with any
investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) arising out of or
in connection with the acceptance or administration of its duties under this
Indenture; provided, however, that the Issuer need not reimburse any expense
or indemnify against any loss, obligation, damage, penalty, judgment, action,
suit, proceeding, reasonable cost or expense (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to
such proceeding) in which it is determined that the Trustee acted with
negligence, bad faith or willful misconduct. The Trustee shall notify the
Issuer promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Issuer shall not relieve the Issuer of its
obligations hereunder, unless the Issuer is materially prejudiced thereby. The
Issuer shall defend the claim and the Trustee shall cooperate in the defense.
Unless otherwise set forth herein, the Trustee may have separate counsel and
the Issuer shall pay the reasonable fees and expenses of such counsel. The
Issuer need not pay for any settlement made without its consent, which consent
shall not be unreasonably withheld.
To secure the Issuer's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held by the Trustee pursuant to the Escrow Agreement and money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the Bankruptcy Law or
any applicable federal or state law for the relief of debtors.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying the Issuer in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Issuer. The Issuer may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting pursuant to the requirement of TIA Section 310(b).
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If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Issuer. If the successor Trustee does not deliver its written acceptance
required by the next succeeding paragraph of this Section 7.08 within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuer or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, (ii) the resignation or removal of the
retiring Trustee shall become effective and (iii) the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Issuer shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuer's obligation under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national
banking association, the resulting, surviving or transferee corporation or
national banking association without any further act shall be the successor
Trustee with the same effect as if the successor Trustee had been named as the
Trustee herein.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall
have a combined capital and surplus of at least $25 million as set forth in
its most recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Issuer. Money held in trust
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by the Trustee need not be segregated from other funds except to the extent
required by law and except for money held in trust under Article Eight of this
Indenture.
SECTION 7.12. Withholding Taxes. The Trustee, as agent for the
Issuer, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding
taxes applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any
amounts payable in respect of the Notes, to withhold such amounts and timely
pay the same to the appropriate authority in the name of and on behalf of the
Holders of the Notes, that it will file any necessary withholding tax returns
or statements when due, and that, as promptly as possible after the payment
thereof, it will deliver to each Holder of a Note appropriate documentation
showing the payment thereof, together with such additional documentary
evidence as such Holders may reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Issuer's Obligations. Except as otherwise
provided in this Section 8.01, the Issuer may terminate its obligations under
the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment
money or securities have theretofore been held in trust and
thereafter repaid to the Issuer, as provided in Section 8.05) have
been delivered to the Trustee for cancellation and the Issuer has
paid all sums payable by it hereunder; or
(ii) (A) the Notes mature within one year or all of them are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Issuer irrevocably deposits in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee), without
consideration of any reinvestment of any interest thereon, to pay
principal, premium, if, any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by
it hereunder, (C) no Default or Event of Default with respect to the
Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Issuer is a party or by which it
is bound and
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(E) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Issuer's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii),
the Issuer's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05, 8.06 and Article Eleven (with
respect to payments in respect of Indebtedness that is subordinated in right
of payment to any Senior Indebtedness other than with respect to the assets
held in trust as described in the foregoing clause (ii)) shall survive until
the Notes are no longer outstanding. Thereafter, only the Issuer's obligations
in Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge
of the Issuer's obligations under the Notes and this Indenture except for
those surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Issuer will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the date of the deposit referred
to in clause (A) of this Section 8.02, and the provisions of this Indenture
will no longer be in effect with respect to the Notes, and the Trustee, at the
expense of the Issuer, shall execute proper instruments acknowledging the
same, except as to (i) rights of registration of transfer and exchange, (ii)
substitution of apparently mutilated, defaced, destroyed, lost or stolen
Notes, (iii) rights of Holders to receive payments of principal thereof and
interest thereon, (iv) the Issuer's obligations under Section 4.02, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the
rights of the Holders as beneficiaries of this Indenture with respect to the
property so deposited with the Trustee payable to all or any of them; provided
that the following conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10 acting as the agent of the Trustee) and conveyed all right,
title and interest for the benefit of the Holders, under the terms of
an irrevocable trust agreement in form and substance satisfactory to
the Trustee as trust funds in trust, specifically pledged to the
Trustee for the benefit of the Holders as security for payment of the
principal of, premium, if any, and interest, if any, on the Notes,
and dedicated solely to, the benefit of the Holders, in and to (1)
money in an amount, (2) U.S. Government Obligations that, through the
payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms, will provide, not later than
one day before the due date of any payment referred to in this clause
(A), money in an amount or (3) a combination thereof in an amount
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, without
consideration of the reinvestment of such interest and after payment
of all federal, state and local taxes
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or other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and accrued interest on
the outstanding Notes at the Stated Maturity of such principal or
interest; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of such principal, premium, if
any, and interest with respect to the Notes;
(B) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Issuer is a party or by which it
is bound and is permitted by Article Eleven;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or during the period ending
on the 123rd day after such date of deposit;
(D) the Issuer shall have delivered to the Trustee (1)
either (x) a ruling directed to the Trustee received from the
Internal Revenue Service to the effect that the Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the Issuer's exercise of its option under this Section 8.02
and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if
such option had not been exercised or (y) an Opinion of Counsel to
the same effect as the ruling described in clause (x) above
accompanied by a ruling to that effect published by the Internal
Revenue Service, unless there has been a change in the applicable
federal income tax law since the date of this Indenture such that a
ruling from the Internal Revenue Service is no longer required and
(2) an Opinion of Counsel to the effect that (x) the creation of the
defeasance trust does not violate the Investment Issuer Act of 1940
and (y) after the passage of 123 days following the deposit (except,
with respect to any trust funds for the account of any Holder who may
be deemed to be an "insider" for purposes of the Bankruptcy Law,
after one year following the deposit), the trust funds will not be
subject to the effect of Section 547 of the Bankruptcy Law or Section
15 of the New York Debtor and Creditor Law in a case commenced by or
against the Issuer under either such statute, and either (I) the
trust funds will no longer remain the property of the Issuer (and
therefore will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally) or (II) if a court were to rule under
any such law in any case or proceeding that the trust funds remained
property of the Issuer, (a) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent
not paid to the Holders, the Trustee will hold, for the benefit of
the Holders, a valid and perfected security interest in such trust
funds that is not avoidable in bankruptcy or otherwise except for the
effect of Section 552(b) of the Bankruptcy Law on interest on the
trust funds accruing after the commencement of a case under such
statute and (b) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds
are used in such case or proceeding;
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(E) if the Notes are then listed on a national securities
exchange, the Issuer shall have delivered to the Trustee an Opinion
of Counsel to the effect that such deposit, defeasance and discharge
will not cause the Notes to be delisted; and
(F) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or
one year) period referred to in clause (D)(2)(y) of this Section 8.02, none of
the Issuer's obligations under this Indenture shall be discharged. Subsequent
to the end of such 123-day (or one year) period with respect to this Section
8.02, the Issuer's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07,
2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05, 8.06 and Article Eleven (with
respect to payments in respect of Indebtedness that is subordinated in right
of payment to any Senior Indebtedness other than with respect to the assets
held in trust as described in this Section 8.02) shall survive until the Notes
are no longer outstanding. Thereafter, only the Issuer's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to,
and not in reliance upon, the continuance of the Issuer's obligations under
Section 4.01, then the Issuer's obligations under such Section 4.01 shall
cease upon delivery to the Trustee of such ruling or Opinion of Counsel and
compliance with the other conditions precedent provided for herein relating to
the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Issuer's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Issuer may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) of Section 5.01 and Sections 4.03 through 4.19, clause (c) of Section
6.01 with respect to clauses (iii) and (iv) of Section 5.01, clause (d) of
Section 6.01 with respect to Sections 4.03 through 4.19, and clauses (e) and
(f) of Section 6.01 shall be deemed not to be Events of Default, and Article
Eleven shall not apply to the money and/or U.S. Government Obligations held by
the trust referred to in clause (i) below, in each case with respect to the
outstanding Notes if:
(i) with reference to this Section 8.03, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit
of the Holders as security for payment of the principal of,
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premium, if any, and interest, if any, on the Notes, and dedicated
solely to, the benefit of the Holders, in and to (A) money in an
amount, (B) U.S. Government Obligations that, through the payment of
interest and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of
any payment referred to in this clause (i), money in an amount or (C)
a combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal, state
and local taxes or other charges and assessments in respect thereof
payable by the Trustee, the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity of such
principal or interest; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Issuer is a party or by which it
is bound and is permitted by Article Eleven;
(iii) immediately after giving effect to such deposit on a
pro forma basis, no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or during the period
ending on the 123rd day after such date of deposit;
(iv) the Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Issuer Act of 1940, (B) the Trustee,
for the benefit of the Holders, has a valid first-priority security
interest in the trust funds, (C) the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and (D) after the passage of
123 days following the deposit (except, with respect to any trust
funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the Bankruptcy Law, after one year
following the deposit), the trust funds will not be subject to the
effect of Section 547 of the Bankruptcy Law or Section 15 of the New
York Debtor and Creditor Law in a case commenced by or against the
Issuer under either such statute, and either (1) the trust funds will
no longer remain the property of the Issuer (and therefore will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally)
or (2) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Issuer, (x)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected
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security interest in such trust funds that is not avoidable in
bankruptcy or otherwise (except for the effect of Section 552(b) of
the Bankruptcy Law on interest on the trust funds accruing after the
commencement of a case under such statute) and (y) the Holders will
be entitled to receive adequate protection of their interests in such
trust funds if such trust funds are used in such case or proceeding;
(v) if the Notes are then listed on a national securities
exchange, the Issuer shall have delivered to the Trustee an Opinion
of Counsel to the effect that such deposit defeasance and discharge
will not cause the Notes to be delisted; and
(vi) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05. Repayment to Issuer. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Issuer upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability
with respect to such money. The Trustee and the Paying Agent shall pay to the
Issuer upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years. After
payment to the Issuer, Holders entitled to such money must look to the Issuer
for payment as general creditors unless an applicable law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Issuer's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as
the case may be, until such time as the Trustee or Paying Agent is permitted
to apply all such money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Issuer
has made any payment of principal of, premium, if any, or interest on any
Notes because of the reinstatement of its obligations, the Issuer shall be
subrogated to
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the rights of the Holders of such Notes to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Issuer, when authorized
by a resolution of its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; provided that such amendments or supplements shall not, in
the good faith opinion of the Board of Directors as evidenced by a
Board Resolution, adversely affect the interests of the Holders in
any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of
the Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Issuer, when authorized by
its Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture, the Notes and the Escrow
Agreement with the written consent of the Holders of a majority in principal
amount of the Notes then outstanding, and the Holders of a majority in
principal amount of the Notes then outstanding by written notice to the
Trustee may waive future compliance by the Issuer with any provision of this
Indenture, the Notes and the Escrow Agreement.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
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(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or adversely affect any right of repayment at
the option of any Holder of any Note, or change any place of payment
where, or the currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(ii) reduce the percentage in principal amount of
outstanding Notes the consent of whose Holders is required for any
such supplemental indenture, for any waiver of compliance with
certain provisions of this Indenture or certain Defaults and their
consequences provided for in this Indenture;
(iii) waive a default in the payment of principal of,
premium, if any, or interest on, any Note;
(iv) modify Article Eleven or the Escrow Agreement in a
manner that adversely affects the rights of any Holder in any
material respect; or
(v) modify any of the provisions of this Section 9.02,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each outstanding Note affected
thereby.
Notwithstanding the foregoing and without affecting any restrictions
on amendments to this Indenture under the Credit Facility, any amendment to
the provisions of Article Eleven that is adverse to the holders of Senior
Indebtedness shall require the consent of such holders.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Issuer shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Issuer will
mail supplemental indentures to Holders upon request. Any failure of the
Issuer to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or
waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of
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the consenting Holder, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as
to its Note or portion of its Note. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the time the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
shall become effective on receipt by the Trustee of written consents from the
Holders of the requisite percentage in principal amount of the outstanding
Notes.
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the
last two sentences of the immediately preceding paragraph, those persons who
were Holders at such record date (or their duly designated proxies) and only
those persons shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Holders after such record date. No such consent shall be valid
or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of the second paragraph of Section 9.02. In case of an amendment
or waiver of the type described in clauses (i) through (v) of the second
paragraph of Section 9.02, the amendment or waiver shall bind each Holder who
has consented to it and every subsequent Holder of a Note that evidences the
same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. At the Issuer's expense, the Trustee may
place an appropriate notation on the Note about the changed terms and return
it to the Holder and the Trustee may place an appropriate notation on any Note
thereafter authenticated. Alternatively, if the Issuer or the Trustee so
determines, the Issuer in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity
and effect of such amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Issuer. Subject to
the preceding sentence, the Trustee shall sign such amendment, supplement or
waiver if the same does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
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SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. Security. (a) On the Closing Date, the Issuer shall
(i) enter into the Escrow Agreement and comply with the terms and provisions
thereof and (ii) cause the Collateral to be pledged to the Trustee for the
benefit of the Holders in an amount equal to the net proceeds to be received
by the Issuer from the sale of the Notes. The Collateral shall be pledged by
the Issuer to the Trustee for the benefit of the Holders and shall be held by
the Trustee in the Cash Collateral Account pending disposition pursuant to the
terms of the Escrow Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Escrow Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Collateral) as the
same may be in effect or may be amended from time to time in accordance with
its terms, and authorizes and directs the Trustee to enter into the Escrow
Agreement and to perform its respective obligations and exercise its
respective rights thereunder in accordance therewith. The Issuer will do or
cause to be done all such acts and things as may be necessary or proper, or as
may be required by the provisions of the Escrow Agreement, to assure and
confirm to the Trustee the security interest in the Collateral contemplated
hereby, by the Escrow Agreement or any part thereof, as from time to time
constituted, so as to render the same available for the security and benefit
of this Indenture and of the Notes secured hereby, according to the intent and
purposes herein expressed. The Issuer shall take, or shall cause to be taken,
any and all actions reasonably required (and any action requested by the
Trustee) to cause the Escrow Agreement to create and maintain, as security for
the obligations of the Issuer under this Indenture and the Notes, valid and
enforceable first priority liens in and on all the Collateral, in favor of the
Trustee, superior to and prior to the rights of third Persons and subject to
no other Liens.
(c) The release of any Collateral pursuant to the Escrow Agreement
will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Collateral is
released pursuant to this Indenture and the Escrow Agreement. To the extent
applicable, the Issuer shall cause TIA Section 314(d) relating to the release
of property or securities from the Lien and security interest of the Escrow
Agreement (other than pursuant to Sections 7(c) and 7(d) thereof) and relating
to the substitution therefor of any property or securities to be subjected to
the Lien and security interest of the Escrow Agreement to be complied with.
Any certificate or opinion required by TIA Section 314(d) may be made by an
Officer of the Issuer, except in cases where TIA Section 314(d) requires that
such
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certificate or opinion be made by an independent Person, which Person shall be
an independent engineer, appraiser or other expert selected by the Issuer.
(d) The Issuer shall cause TIA Section 314(b), relating to opinions
of counsel regarding the Lien under the Escrow Agreement, to be complied with.
The Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof,
accept as conclusive evidence of compliance with the foregoing provisions the
appropriate statements contained in such instruments.
(e) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in
aggregate principal amount of Notes then outstanding shall, on behalf of the
Holders, take all actions it deems necessary or appropriate in order to (i)
enforce any of the terms of the Escrow Agreement and (ii) collect and receive
any and all amounts payable in respect of the obligations of the Issuer
thereunder. The Trustee shall have power to institute and to maintain such
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interests and the interests of the Holders in the Collateral (including
power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest hereunder or be prejudicial to the interests of
the Holders or of the Trustee).
ARTICLE ELEVEN
SUBORDINATION
SECTION 11.01. Agreement to Subordinate. The Issuer, for itself, its
successors and assigns, covenants and agrees, and each Holder, by his or her
acceptance thereof, likewise covenants and agrees, that the payment of the
principal of and premium, if any, and interest on each and all of the Notes
(including any payment in connection with the repurchase, redemption or other
acquisition thereof) is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full, in cash or Cash Equivalents of all Senior Indebtedness. This Article
Eleven constitutes a continuing offer to all persons or entities who become
holders of, or continue to hold, Senior Indebtedness, each of whom is an
obligee hereunder and is entitled to enforce such holder's rights hereunder,
subject to the provisions hereof, without any act or notice of acceptance
hereof or reliance hereon. All provisions of this Article Eleven shall be
subject to Section 11.12.
For the purposes of this Article Eleven, (a) no Senior Indebtedness
shall be deemed to have been paid in full unless and until all commitments or
other obligations of the holders of the Senior Indebtedness to make advances
or otherwise extend credit shall have terminated and the holders thereof shall
have indefeasibly received payment in full in cash or Cash Equivalents, and
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(b) the term "Senior Representative" shall mean the indenture trustee or other
trustee, agent or representative for any Senior Indebtedness.
SECTION 11.02. Distribution on Dissolution, Liquidation, Bankruptcy
or Reorganization. Upon any distribution of assets of the Issuer upon any
total or partial dissolution, winding up, liquidation or reorganization of the
Issuer, whether in bankruptcy, insolvency, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of the Issuer or otherwise,
(a) The holders of Senior Indebtedness shall be entitled to
receive payment in full in cash or Cash Equivalents or, as acceptable
to each holder of Senior Indebtedness, in any other manner, of all
amounts and obligations due on or in respect of all Senior
Indebtedness before the Holders are entitled to receive any payment
or distribution of any kind or character (excluding securities of the
Issuer provided for in a plan of reorganization with respect to the
Issuer approved by the bankruptcy court that are equity securities or
are subordinated in right of payment to all Senior Indebtedness to
the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article; such securities are
hereinafter collectively referred to as "Permitted Junior Notes") on
account of principal of, premium, if any, or interest on the Notes
(including any payment or other distribution which may be received
from the holders of Subordinated Indebtedness as a result of any
payment on such Subordinated Indebtedness); and
(b) any payment or distribution of assets of the Issuer or
any Subsidiary of the Issuer of any kind or character, whether in
cash, property or securities (excluding Permitted Junior Notes), by
set-off or otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article (including any
payment or other distribution which may be received from the holders
of Subordinated Indebtedness as a result of any payment on such
Subordinated Indebtedness) shall be paid by the liquidating trustee
or agent or other Person making such payment or distribution, whether
a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Senior Indebtedness or their
Senior Representative or Representatives, ratably according to the
aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to
make payment in full in cash, Cash Equivalents or in any other form
acceptable to each, of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or any Holder shall have
received any payment or distribution of assets of the Issuer or any
Subsidiary of the Issuer of any kind or character, whether in cash,
property or securities (excluding Permitted Junior Notes), in respect
of principal,
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premium, if any, and interest on the Notes before all Senior
Indebtedness is paid in full in cash, then and in such event, such
payment or distribution (including any payment or other distribution
which may be received from the holders of Subordinated Indebtedness
as a result of any payment on such Subordinated Indebtedness) shall
be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Issuer for
application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, Cash Equivalents or, as acceptable to each holder of Senior
Indebtedness, any other manner, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness
or deposited with a court of competent jurisdiction.
The consolidation of the Issuer with, or the merger of the Issuer
into, another corporation or the liquidation or dissolution of the Issuer
following the sale or conveyance of its property or assets as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution, winding
up, liquidation or reorganization of the Issuer for the purposes of this
Article Eleven if such other corporation shall, as a part of such
consolidation, merger, sale or conveyance, comply with the conditions stated
in Article Five.
If the Trustee or any Holder does not file a proper claim or proof of
debt in the form required in any proceeding referred to above prior to 30 days
before the expiration of the time to file such claim in such proceeding, then
the holder of any Senior Indebtedness (or its Senior Representative) is hereby
authorized, and has the right, to file an appropriate claim or claims for or
on behalf of such Holder.
SECTION 11.03. Suspension of Payment When Senior Indebtedness in
Default. (a) Unless Section 11.02 shall be applicable, upon the occurrence of
a Payment Default, then no payment or distribution of any assets of the Issuer
or any Subsidiary of the Issuer of any kind or character (excluding Permitted
Junior Notes) shall be made by the Issuer or any Subsidiary of the Issuer or
on behalf of or out of the property of the Issuer, or received by the Trustee
or any Noteholder on account of principal of, premium, if any, or interest on,
the Notes or on account of the purchase, redemption, defeasance (whether under
Section 8.02 or 8.03) or other acquisition of or in respect of the Notes
unless and until such Payment Default shall have been cured or waived in
writing by the holders of the Designated Senior Indebtedness or shall have
ceased to exist or the Designated Senior Indebtedness shall have been paid in
full in cash, Cash Equivalents or in any other manner as acceptable to each
holder of such Designated Senior Indebtedness, after which the Issuer shall
resume making any and all required payments in respect of the Notes, including
any missed payments.
(b) Unless Section 11.02 shall be applicable, upon (i) the occurrence
of a Non-payment Default pursuant to which the maturity of the applicable
Designated Senior
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Indebtedness may be accelerated, either immediately or upon the giving of
notice, the passage of time or both, and (ii) receipt by the Trustee and the
Issuer from a Senior Representative or the holder of any Designated Senior
Indebtedness of written notice of such occurrence, no payment (other than any
payments made pursuant to Section 8.02 or 8.03 or from the money or proceeds
of U.S. Government Securities held under the Escrow Agreement as provided in
Section 10.01) or distribution of any assets of the Issuer or any Subsidiary
of the Issuer of any kind or character (excluding Permitted Junior Notes)
shall be made by the Issuer or any Subsidiary of the Issuer or on behalf of or
out of the property of the Issuer or any Subsidiary of the Issuer, or received
by the Trustee or any Holder on account of any principal of, premium, if any,
or interest on, the Notes (including payments under any guaranty thereof) or
on account of the purchase, redemption or other acquisition of or in respect
of Notes (including payments under any guaranty thereof) for a period
("Payment Blockage Period") commencing on the date of receipt by the Trustee
of such notice until the earliest of (x) 179 days after receipt of such
written notice by the Trustee (provided any Designated Senior Indebtedness as
to which notice was given shall theretofore have not been accelerated), (y)
the date such Non-payment Default and all other Non-payment Defaults as to
which notice is also given after such period is initiated shall have been
cured or waived in writing by the holders of the Designated Senior
Indebtedness or shall have ceased to exist or the Senior Indebtedness related
thereto shall have been paid in full in cash or Cash Equivalents or (z) the
date such Payment Blockage Period and any Payment Blockage Periods initiated
during such period shall have been terminated by written notice to the Issuer
or the Trustee from the Senior Representative and the holders of the
Designated Senior Indebtedness that have given notice of a Non-payment Default
at or after the initiation of such Payment Blockage Period, after which in the
case of clause (x), (y) or (z), the Issuer shall resume making any and all
required payments in respect of the Notes including any missed payments.
Notwithstanding any other provision of this Indenture, in no event shall a
Payment Blockage Period extend beyond 179 days from the date of the receipt by
the Issuer or the Trustee of the notice referred to in clause (ii) of this
paragraph (b) (the "Initial Blockage Period"). Not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period
of 360 consecutive days; provided that, subject to the limitations set forth
in the next sentence, the commencement of a Payment Blockage Period by the
representative of Designated Senior Indebtedness other than the Credit
Facility shall not bar the commencement of another Payment Blockage Period by
the representative for the Credit Facility within such period of 360
consecutive days. Notwithstanding anything in this Indenture to the contrary,
there must be 180 days in any 360-day period in which no Payment Blockage
Period is in effect. No event of default (other than an event of default
pursuant to the financial maintenance covenants under the Credit Facility)
that existed or was continuing (it being acknowledged that any subsequent
action that would give rise to an event of default pursuant to any provision
under which an event of default previously existed or was continuing shall
constitute a new event of default for this purpose) on the date of
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or shall
be made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the holders of, such Designated Senior
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Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, the Issuer or
any Subsidiary of the Issuer shall make, or the Trustee or any Holder shall
receive, any payment to the Trustee or any Holder prohibited by the foregoing
provisions of this Section, then and in such event such payment shall be paid
over and delivered forthwith to a Senior Representative of the holders of the
Designated Senior Indebtedness.
SECTION 11.04. Payment Permitted if No Default. Nothing contained in
this Article, elsewhere in this Indenture or in any of the Notes shall prevent
the Issuer, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Issuer referred
to in Section 11.02 or under the conditions described in Section 11.03, from
making payments at any time of principal of, premium, if any, or interest on
the Notes.
SECTION 11.05. Subrogation to Rights of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
Holders shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Notes shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders or the Trustee, shall, as among the Issuer, its
creditors other than holders of Senior Indebtedness, and the Holders, be
deemed to be a payment or distribution by the Issuer to or on account of the
Senior Indebtedness.
SECTION 11.06. Provisions Solely to Define Relative Rights. The
provisions of this Article are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Indenture or in the Notes is intended to or shall (i) impair, as among
the Issuer, its creditors other than holders of Senior Indebtedness and the
Holders, the obligation of the Issuer, which is absolute and unconditional, to
pay to the Holders the principal of, premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with
their terms; or (ii) affect the relative rights against the Issuer of the
Holders and creditors of the Issuer other than their rights in relation to the
holders of Senior Indebtedness; or (iii) prevent the Trustee or any Holder
from exercising all remedies otherwise permitted by applicable law upon
Default under this Indenture, subject to the rights, under this Article of the
holders of Senior Indebtedness to receive distributions and payments otherwise
payable to Holders (A) in any case, proceeding, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other marshaling
of assets and liabilities of the Issuer
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referred to in Section 11.02, to receive, pursuant to and in accordance with
such Section, cash, property and securities otherwise payable or deliverable
to the Trustee or such Holder, or (B) under the conditions specified in
Section 11.03, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 11.03(c).
SECTION 11.07. Trustee to Effectuate Subordination. Each Holder by
his or her acceptance thereof authorizes and directs the Trustee on his or her
behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his or her
attorney-in-fact for any and all such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Issuer whether
in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the indebtedness of Issuer owing
to such Holder in the form required in such proceedings and the causing of
such claim to be approved. If the Trustee does not file a proper claim at
least 30 days before the expiration of the time to file such claim, then the
holders of Senior Indebtedness, and their agents, trustees or other
representatives are authorized to do so for and on behalf of the Holders.
SECTION 11.08. No Waiver of Subordination Provisions. (a) No right of
any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Issuer or any Holder
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Issuer or any Holder with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, or waive compliance with the terms of,
Senior Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (iii) release any Person liable in any manner for the
collection or payment of Senior Indebtedness; (iv) exercise or refrain from
exercising any rights against the Issuer and any other Person; (v) amend,
supplement, restate or otherwise modify or restructure the Senior
Indebtedness; and (vi) otherwise deal with any Person liable on account of
Senior Indebtedness; provided, however, that in no event shall any such
actions limit the right of the Holders to take any action to accelerate the
maturity of the Notes pursuant to Article Six of this Indenture or to pursue
any rights or remedies hereunder or under applicable laws if the taking of
such action does not otherwise violate the terms of this Article, subject to
the rights, if any, under this
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Article, of the holders, from time to time, of Senior Indebtedness to receive
the cash, property or securities receivable upon the exercise of such rights
or remedies.
SECTION 11.09. Notice to Trustee. (a) The Issuer shall give prompt
written notice to the Trustee of any fact known to the Issuer which would
prohibit the making of any payment to or by the Trustee in respect of the
Notes. Notwithstanding the provisions of this Article or any provision of this
Indenture, the Trustee or any Paying Agent shall not be charged with knowledge
of the existence of any facts which would prohibit the making of any payment
to or by the Trustee or any Paying Agent in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Issuer
or a holder of Senior Indebtedness or from a Senior Representative or any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that
no such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least three Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal
of, premium, if any, or interest on any Note), then, anything herein contained
to the contrary notwithstanding but without limiting the rights and remedies
of the holders of Senior Indebtedness or any trustee, fiduciary or agent
thereof, the Trustee shall have full power and authority to receive such money
and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by
it within three Business Days prior to such date; nor shall the Trustee be
charged with knowledge of the elimination of the act or condition preventing
any such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Issuer by a Person representing himself
to be a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor) to establish that such notice has been
given by a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent thereof and the Trustee shall have no duty to
investigate the authenticity thereof or the authority of the person signing
and shall have no liability for relying thereon); provided, however, that
failure to give such notice to the Issuer shall not affect in any way the
ability of the Trustee to rely on such notice. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article, and if
such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to
receive such payment or the Trustee or the Paying Agent may deposit the funds
in question with a court of competent jurisdiction.
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SECTION 11.10. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Issuer
referred to in this Article, the Trustee and the Holders shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction
in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other
person making such payment or distribution, delivered to the Trustee or to the
Holders, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
indebtedness of the Issuer, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto
or to this Article, provided that the foregoing shall apply only if such court
has been fully apprised of the provisions of this Article.
SECTION 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder of Senior
Indebtedness. Nothing in this Article shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 7.07.
SECTION 11.12. Trust Moneys and Escrowed Funds Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments from (x)
money or the proceeds of U.S. Government Obligations held in trust under
Article Eight by the Trustee for the payment of principal of, premium, if any,
and interest on the Notes (provided that at the time deposited, such deposit
did not violate any then outstanding Senior Indebtedness) and (y) money or the
proceeds of U.S. Government Securities held under the Escrow Agreement shall
not be subordinated to the prior payment of any Senior Indebtedness or subject
to the restrictions set forth in this Article Eleven, and none of the Holders
shall be obligated to pay over any such amount to any holder of Senior
Indebtedness.
SECTION 11.13. No Suspension of Remedies. Nothing contained in this
Article shall limit the right of the Trustee or the Holders to take any action
to accelerate the maturity of the Notes pursuant to Article Six of this
Indenture or to pursue any rights or remedies hereunder or under applicable
law, subject to the rights, if any, under this Article of the holders, from
time to time, of Senior Indebtedness to receive the cash, property or
securities receivable upon the exercise of such rights or remedies.
SECTION 11.14. Trustee's Relation to Senior Indebtedness. With
respect to the holders of Senior Indebtedness, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article
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against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Indebtedness.
SECTION 11.15. Other Rights of Holders of Senior Indebtedness. All
rights and interests under this Indenture of the holders of Senior
Indebtedness, and all agreements and obligations of the Trustee, the Holders
and the Issuer under this Article shall remain in full force and effect
irrespective of (i) any lack of validity or enforceability of the Credit
Facility, and promissory notes evidencing the Credit Facility or any other
agreement or instrument relating thereto or to any other Senior Indebtedness
or (ii) any other circumstance that might constitute a defense available to,
or a discharge of, a guarantor or surety (other than as a result of any
payments indefeasibly made on the Credit Facility or any other Senior
Indebtedness).
The holders of Senior Indebtedness are hereby authorized to demand
specific performance of this Article, whether or not the Issuer shall have
complied with any provisions of this Article applicable to it, at any time
when the Trustee or any Holder shall have failed to comply with any of these
provisions.
The provisions of this Article shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Senior Indebtedness is rescinded or must otherwise be returned by any holder
of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of
the Issuer or otherwise, all as though such payment had not been made.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. Trust Indenture Act of 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of
and to govern indentures qualified under the TIA. After the effectiveness of
the Registration Statement, this Indenture shall be subject to the provisions
of the TIA that are required to be a part of this Indenture and shall, to the
extent applicable, be governed by such provisions. If any provision of this
Indenture limits, qualifies or conflicts with the duties imposed by TIA
318(c), the imposed duties shall control.
SECTION 12.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
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if to the Issuer:
-----------------
Genesis ElderCare Acquisition Corp.
148 West State Street
Kennett Square, PA 19348
Telecopier No.: (610) 444-7483
Attention: George V. Hager, Jr.
if to the Trustee:
------------------
PNC Bank, National Association
Corporate Trust Department
1600 Market Street
Philadelphia, PA 19103
Telecopier No.: (215) 585-8872
Attention: Sheila Wallbridge
if to the Paying Agent:
-----------------------
Banque Internationale a Luxembourg S.A.
69, route d'Esch
L-1470 Luxembourg
Telecopier No.: (352) 4590-4227
Attention: Jacques Kinnen
The Issuer, the Trustee or the Paying Agent by notice to the other
may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery. Copies of any such communication or notice to a Holder shall also be
mailed to the Trustee and each Paying Agent at the same time.
Any notice or communication (i) mailed to a Holder shall be mailed to
it at its address as it appears on the Security Register by first-class mail
and shall be sufficiently given to him if so mailed within the time prescribed
and (ii) for so long as the Notes are listed on the Luxembourg Stock Exchange,
shall be published in a leading newspaper of general circulation in
Luxembourg, not later than the latest date, and not earlier than the earliest
date, prescribed
<PAGE>
85
in the Notes for the giving of such notice or communication. Copies of any
such communication or notice to a Holder shall also be mailed to the Trustee
and each Agent at the same time.
Failure to transmit a notice or communication to a Holder as provided
herein or any defect in any such notice shall not affect its sufficiency with
respect to other Holders. Except for a notice to the Trustee, which is deemed
given only when received, and except as otherwise provided in this Indenture,
if a notice or communication is mailed in the manner provided in this Section
12.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken
in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 12.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer to the Trustee to take any
action under this Indenture, the Issuer shall furnish to the Trustee:
(i) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied
with; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 12.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e)
and shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions
herein relating thereto;
<PAGE>
86
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of
each such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion
of Counsel may rely on an Officers' Certificate or certificates of
public officials.
SECTION 12.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 12.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of
maturity of any Note shall not be a Business Day, then payment of principal
of, premium, if any, or interest on such Note, as the case may be, need not be
made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date, Payment
Date or Redemption Date, or at the Stated Maturity or date of maturity of such
Note; provided that no interest shall accrue for the period from and after
such Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or
date of maturity, as the case may be.
SECTION 12.07. Governing Law. The laws of the State of New York shall
govern this Indenture and the Notes. The Trustee, the Issuer and the Holders
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Indenture or the
Notes.
SECTION 12.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Issuer or any Subsidiary of the Issuer. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.09. No Recourse Against Others. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Issuer
contained in this Indenture, or in any of the Notes, or because of the
creation of any Indebtedness represented thereby, shall be had against any
incorporator or against any past, present or future partner, shareholder,
other equityholder, officer, director,
<PAGE>
87
employee or controlling person, as such, of the Issuer or of any successor
Person, either directly or through the Issuer or any successor Person, whether
by virtue of any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise; it being expressly understood that
all such liability is hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
the Notes.
SECTION 12.10. Successors. All agreements of the Issuer in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 12.11. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 12.12. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 12.13. Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms and provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
GENESIS ELDERCARE ACQUISITION CORP.
By: /s/ Michael R. Walker
--------------------------------
Attest: /s/ Ira C. Gubernick Name: Michael R. Walker
------------------------ Title: Chairman and Chief
Name: Ira C. Gubernick Executive Officer
Title: Secretary
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title:
BANQUE INTERNATIONALE A LUXEMBOURG
S.A.
By:
--------------------------------
Name:
Title:
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
GENESIS ELDERCARE ACQUISITION CORP.
By:
--------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Shelia Wallbridge
--------------------------------
Name: Shelia Wallbridge
Title: Assistant Vice President
BANQUE INTERNATIONALE A LUXEMBOURG
S.A.
By:
--------------------------------
Name:
Title:
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
GENESIS ELDERCARE ACQUISITION CORP.
By:
--------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title:
BANQUE INTERNATIONALE A LUXEMBOURG
S.A.
By: /s/ Daniel Schammo
--------------------------------
Name Daniel Schammo
Title: Premier Conseller
<PAGE>
EXHIBIT A
---------
[FACE OF NOTE]
GENESIS ELDERCARE ACQUISITION CORP.
9% Senior Subordinated Note due 2007
[CUSIP] [CINS] [__________]
No. $_________
GENESIS ELDERCARE ACQUISITION CORP., a Delaware corporation (the
"Issuer", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to _____________, or its
registered assigns, the principal sum of ____________ ($____) on August 1,
2007.
Interest Payment Dates: February 1 and August 1, commencing February
1, 1998.
Regular Record Dates: January 15 and July 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: August 11, 1997 GENESIS ELDERCARE ACQUISITION
CORP.
By:
----------------------------
Name:
Title:
<PAGE>
(Trustee's Certificate of Authentication)
This is one of the 9% Senior Subordinated Notes due 2007 described in the
within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
A-4
[REVERSE SIDE OF NOTE]
GENESIS ELDERCARE ACQUISITION CORP.
9% Senior Subordinated Note due 2007
1. Principal and Interest.
----------------------
The Issuer will pay the principal of this Note on August 1, 2007.
The Issuer promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of
the Notes at the close of business on the January 15 or July 15 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
February 1, 1998.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the
"Shelf Registration Statement") under the Securities Act with respect to
resales of the Notes is not declared effective by the Commission, on or prior
to the earlier of (x) the date that is six months after the Merger Closing
Date and (y) March 31, 1998, in accordance with the terms of the Registration
Rights Agreement dated as of August 11, 1997 between the Issuer and Morgan
Stanley & Co. Incorporated, First Union Capital Markets Corp. and Montgomery
Securities, the per annum interest rate borne by the Notes shall be increased
by 0.5% from the rate shown above accruing from the earlier of (x) the date
that is six months after the Merger Closing Date and (y) March 31, 1998,
payable in cash semiannually, in arrears, on each Interest Payment Date,
commencing August 1, 1998 until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from August 11, 1997;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the
face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Issuer shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE>
A-5
2. Method of Payment.
-----------------
The Issuer will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each February 1 and August
1 commencing February 1, 1998 to the persons who are Holders (as reflected in
the Security Register at the close of business on the January 15 or July 15
immediately preceding the Interest Payment Date), in each case, even if the
Note is cancelled on registration of transfer or registration of exchange
after such record date; provided that, with respect to the payment of
principal, the Issuer will make payment to the Holder that surrenders this
Note to a Paying Agent on or after August 1, 2007.
The Issuer will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Issuer may
pay principal, premium, if any, and interest by its check payable in such
money. It may mail an interest check to a Holder's registered address (as
reflected in the Security Register). If a payment date is a date other than a
Business Day at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Issuer may change any authenticating agent, Paying Agent or
Registrar without notice. The Issuer, any Subsidiary or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
----------------------
The Issuer issued the Notes under an Indenture dated as of August 11,
1997 (the "Indenture"), between the Issuer, PNC Bank, National Association,
trustee (the "Trustee") and Banque Internationale a Luxembourg S.A., a paying
agent. Capitalized terms herein are used as defined in the Indenture unless
otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control.
The Notes are general obligations of the Issuer.
<PAGE>
A-6
5. Optional Redemption.
-------------------
The Notes will be redeemable, at the Issuer's option, in whole or in
part, at any time or from time to time, on or after August 1, 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed
by first-class mail to each Holder's last address, as it appears in the
Security Register, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest
due on an Interest Payment Date), if redeemed during the 12-month period
commencing August 1 of the years set forth below:
Redemption
Year Price
---- ----------
2002............................... 104.500%
2003............................... 102.250
2004 and thereafter................ 100.000
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Issuer defaults in the
payment of the Redemption Price.
6. Special Redemption.
------------------
In the event that the Tender Offer is not consummated and certain
other conditions set forth in the Escrow Agreement are not satisfied by the
Expiration Date, or if it appears, in the sole judgment of the Issuer, that
the Tender Offer will not be consummated and such conditions will not be
satisfied by the Expiration Date, the Issuer shall redeem the Notes in whole,
on 10 days' prior notice mailed by first-class mail to each Holder's last
address as it appears in the Security Register, at a Redemption Price equal to
101% of the principal amount of the Notes, plus accrued and unpaid interest to
the Redemption Date. On the earlier of (i) the Expiration Date, if the Trustee
has not received the Escrow Agreement Officers' Certificate that the Tender
Offer has been consummated (or will be consummated promptly upon the release
of the escrowed proceeds of the offering of the Notes to the Issuer) and
certain conditions have been satisfied and the Escrow Agreement Opinion of
Counsel, and (ii) such date on which the Trustee receives an officer's
certificate under the Escrow Agreement that the Tender Offer will not be
consummated and such conditions will not be satisfied by the Expiration Date,
the Trustee will mail by first-class mail to each Holder's last address as it
appears in the Security Register a written notice that the Notes will be
redeemed within 10 days of such notice.
<PAGE>
A-7
7. Repurchase upon Change of Control.
---------------------------------
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Issuer in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at its last address as it
appears in the Security Register. Notes in original denominations larger than
$1,000 may be sold to the Issuer in part. On and after the Payment Date,
interest ceases to accrue on Notes or portions of Notes surrendered for
purchase by the Issuer, unless the Issuer defaults in the payment of the
purchase price.
8. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer or exchange of any Notes selected for redemption. Also, it need
not register the transfer or exchange of any Notes for a period of 15 days
before the day of mailing of a notice of redemption of Notes selected for
redemption.
9. Persons Deemed Owners.
---------------------
A Holder shall be treated as the owner of a Note for all purposes.
10. Unclaimed Money.
---------------
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Issuer at its request. After that, Holders entitled to the
money must look to the Issuer for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Issuer deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Issuer will be discharged from the Indenture and the Notes,
<PAGE>
A-8
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Issuer will be discharged from certain covenants set
forth in the Indenture.
12. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not
materially and adversely affect the rights of any Holder.
13. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the
Issuer and its Restricted Subsidiaries, among other things, to Incur
additional Indebtedness, make Restricted Payments, use the proceeds from Asset
Sales, engage in transactions with Affiliates or merge, consolidate or
transfer substantially all of its assets. Within 45 days after the end of each
fiscal quarter (90 days after the end of the last fiscal quarter of each
year), the Issuer must report to the Trustee on compliance with such
limitations.
14. Subordination.
-------------
The payment of the Notes will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full,
in cash or Cash Equivalents, of all Senior Indebtedness.
15. Successor Persons.
-----------------
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
16. Defaults and Remedies.
---------------------
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise, whether or not such payment is prohibited by the
subordination provisions set forth in Article Eleven; (b) default in the
payment of interest on any Note when the same becomes due and payable, and
such default
<PAGE>
A-9
continues for a period of 30 days, whether or not such payment is prohibited
by the subordination provisions set forth in Article Eleven; (c) default in
the performance or breach of Article Five or Section 3.01(b) of the Indenture
or the failure to make or consummate an Offer to Purchase in accordance with
Section 4.10 or 4.11 of the Indenture; (d) default in the performance of or
breach of any covenant or agreement of the Issuer in the Indenture or under
the Notes (other than a default specified in clause (a), (b) or (c) above),
and such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding; (e) there occurs with respect
to any issue or issues of Indebtedness of the Issuer or any Significant
Subsidiary having an outstanding principal amount of $10 million or more in
the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a
principal payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within 30 days
of such payment default; (f) any final judgment or order (not covered by
insurance) for the payment of money in excess of $10 million in the aggregate
for all such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Issuer or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises enters
a decree or order for (A) relief in respect of the Issuer or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or any Significant Subsidiary or for all or
substantially all of the property and assets of the Issuer or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of the Issuer
or any Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days; (h) the
Issuer or any Significant Subsidiary (A) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or any Significant Subsidiary or for all or
substantially all of the property and assets of the Issuer or any Significant
Subsidiary or (C) effects any general assignment for the benefit of creditors;
or (i) the Guaranty Documents are not executed and delivered within three
Business Days after the consummation of the Tender Offer (unless prior to or
at the end of such three Business Days the Merger shall have been
consummated).
<PAGE>
A-10
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least
25% in aggregate principal amount of the Notes then outstanding shall, declare
all the Notes to be due and payable. If a bankruptcy or insolvency default
with respect to the Issuer occurs and is continuing, the Notes automatically
become due and payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
17. Trustee Dealings with Issuer.
----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Issuer or its Affiliates and may otherwise deal with the Issuer or its
Affiliates as if it were not the Trustee.
18. No Recourse Against Others.
--------------------------
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as
such, of the Issuer or of any successor Person shall have any liability for
any obligations of the Issuer under the Escrow Agreement, the Notes or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
19. Authentication.
--------------
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
20. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Issuer will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Genesis ElderCare
Acquisition Corp., 148 West State Street, Kennett Square, Pennsylvania 19348;
Attention: George V. Hager, Jr.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing attorney to transfer said Note
------------------------------------
on the books of the Issuer with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
PERMANENT OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by Rule
144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
<PAGE>
A-12
If none of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
------------------------------ -----------------------------------
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within-mentioned instrument
in every particular, without
alteration or any change
whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule
144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
Dated:
------------------------------ -----------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Issuer pursuant to
Section 4.10 or 4.11 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Issuer
pursuant to Section 4.10 or 4.11 of the Indenture, state the amount:
$___________________.
Date:______________
Your Signature: _______________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE>
EXHIBIT B
---------
Form of Certificate
-------------------
PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: Corporate Trust Department
Re: Genesis ElderCare Acquisition Corp. (the "Issuer")
9% Senior Subordinated Notes due 2007 (the "Notes")
---------------------------------------------------
Dear Sirs:
This letter relates to U.S. $__________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of
the Indenture dated as of August 11, 1997 (the "Indenture") relating to the
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
--------------------------------
Authorized Signature
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: Corporate Trust Department
Re: Genesis ElderCare Acquisition Corp. (the "Issuer")
9% Senior Subordinated Notes due 2007 (the "Notes")
---------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $____________aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as of
August 11, 1997 (the "Indenture"), relating to the Notes, and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and the
Securities Act of 1933 (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the Issuer
or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you and to the Issuer a signed letter substantially in the
form of this letter, (D) outside the United States in accordance with Rule 904
of Regulation S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(F) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the Notes from
us a notice advising such purchaser that resales of the Notes are restricted
as stated herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Issuer such certifications, legal
opinions and other information as you and
<PAGE>
C-2
the Issuer may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes
purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
--------------------------
Authorized Signature
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
--------------------------------------------------
_________,___
PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: Corporate Trust Department
Re: Genesis ElderCare Acquisition Corp. (the "Issuer")
9% Senior Subordinated Notes due 2007 (the "Notes")
---------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$______ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to
and in accordance with Regulation S under the Securities Act of 1933 and,
accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------
Authorized Signature
<PAGE>
EXHIBIT E
FORM OF FIRST SUPPLEMENTAL INDENTURE
THE FIRST SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture") dated as of __________, 1997, among The Multicare Companies, Inc., a
Delaware corporation ("Multicare"), Genesis ElderCare Acquisition Corp., a
Delaware corporation (the "Issuer"), PNC Bank, National Association, as trustee
under the indenture referred to below (the "Trustee") and Banque Internationale
a Luxembourg S.A. (a "Paying Agent").
R E C I T A L S
WHEREAS, the Issuer heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of August 11, 1997, providing
for the issuance of an aggregate principal amount of $250,000,000 of 9% Senior
Subordinated Notes due 2007 (the "Notes");
WHEREAS, the Tender Offer is required to be consummated by the
Expiration Date and the Merger is required to be consummated within four months
after consummation of the Tender Offer;
WHEREAS, Multicare desires to guarantee, on a senior
subordinated basis, the obligations of the Issuer under the Indenture and the
Notes and to comply with the requirements of the Indenture with respect to the
execution of a supplemental indenture in connection with its senior subordinated
guaranty; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Issuer
and the Trustee are authorized to execute and deliver this Supplemental
Indenture.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Issuer, Multicare and the Trustee mutually covenant and agree
for the equal and ratable benefit of the holders of the Notes as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS
SECTION 1.01. Definitions. Unless otherwise defined herein,
terms defined in the Indenture are used herein as defined therein. In addition,
as used herein:
"Guaranteed Obligations" has the meaning provided in Section 2.01.
"Guarantor Senior Indebtedness" means the following
obligations whether outstanding on the Closing Date or thereafter
Incurred: (a) all Indebtedness and other monetary obligations of
Multicare or any Subsidiary of Multicare under or in respect of the
Credit Facility (including obligations in respect of any lease
financing facility of the Credit Facility) or any Interest Rate
Contract or Currency Agreement related to Indebtedness under the Credit
Facility, whether for principal, interest (including interest accruing
after the filing of a petition by or against Multicare or any
Subsidiary of Multicare under any state or federal Bankruptcy Laws,
whether or not such interest is allowed as a claim after such filing in
any proceeding under such law), fees, expenses, indemnification or
otherwise, and (b) the principal of, premium, if any, and interest on
all other Indebtedness of Multicare (other than the Multicare Senior
Subordinated Guaranty) unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall be pari passu with or subordinated in right of
payment to the Multicare Senior Subordinated Guaranty. Notwithstanding
the foregoing, "Senior Indebtedness" shall not include (i) Indebtedness
that is by its terms subordinate in right of payment to any
Indebtedness of Multicare, (ii) Indebtedness which when incurred and
without respect to any election under Section 1111(b) of the Bankruptcy
Law is without recourse to Multicare, (iii) any repurchase, redemption
or other obligation in respect of Redeemable Capital Stock, (iv)
Indebtedness for goods, materials or services purchased in the ordinary
course of business or indebtedness consisting of trade payables or
other current liabilities, (v) Indebtedness of or amounts owed by
Multicare to employees, officers, or directors, (vi) any liability for
federal, state, local or other taxes owed or owing by Multicare, (vii)
Indebtedness of Multicare to a Subsidiary of Multicare or any other
Affiliate of Multicare or any of such Affiliate's subsidiaries, (viii)
that portion of any Indebtedness which at the time of issuance is
issued in violation of the Indenture and (ix) amounts owing under
leases (other than Capital Lease Obligations).
"Guarantor Designated Senior Indebtedness" means (i) all
Guarantor Senior Indebtedness under, or in respect of, the Credit
Facility and any Interest Rate Contract or Currency Agreement related
to Indebtedness under the Credit Facility and (ii) any other Guarantor
Senior Indebtedness which, at the time of determination, has an
aggregate principal amount outstanding, together with any commitments
to lend additional amounts, of at least $30,000,000 and is specifically
designated in the
<PAGE>
3
instrument evidencing such Senior Indebtedness as "Guarantor Designated
Senior Indebtedness."
"Guarantor Subordinated Indebtedness" means any Indebtedness
of Multicare subordinated in right of payment to the Multicare Senior
Subordinated Guaranty.
"Multicare Restricted Subsidiary" means any Subsidiary of
Multicare other than a Multicare Unrestricted Subsidiary.
"Multicare Unrestricted Subsidiary" means (i) any Subsidiary
of Multicare that at the time of determination shall be designated a
Multicare Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and (ii) any Subsidiary of a Multicare
Unrestricted Subsidiary. The Board of Directors may designate any
Multicare Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of Multicare) to be a Multicare Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, Multicare or any Multicare
Restricted Subsidiary; provided that (A) any guarantee by Multicare or
any Multicare Restricted Subsidiary of any Indebtedness of the
Subsidiary being so designated shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by Multicare or such Multicare
Restricted Subsidiary (or both, if applicable) at the time of such
designation; (B) either (I) the Subsidiary to be so designated has
total assets of $1,000 or less or (II) if such Subsidiary has assets
greater than $1,000, such designation would be permitted under Section
4.04 of the Indenture and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this
proviso would be permitted under Sections 4.03 and 4.04 of the
Indenture. The Board of Directors may designate any Multicare
Unrestricted Subsidiary to be a Multicare Restricted Subsidiary;
provided that (i) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Multicare
Unrestricted Subsidiary outstanding immediately after such designation
would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the
Indenture. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions.
"Multicare Senior Subordinated Guaranty" means the
unconditional guaranty by Multicare of the Guaranteed Obligations on
the terms and conditions provided herein.
"Placement Agreement" means the placement agreement between
the Issuer and Morgan Stanley & Co. Incorporated, Montgomery Securities
and First Union Capital Markets Corp. dated August 4, 1997.
<PAGE>
4
ARTICLE TWO
MULTICARE SENIOR SUBORDINATED GUARANTY
SECTION 2.01. Multicare Senior Subordinated Guaranty. Subject
to the provisions of this Article Two, Multicare, as primary obligor and not
merely as surety, hereby fully, unconditionally and irrevocably guarantees, from
the consummation of the Tender Offer to and until the consummation of the
Merger, to each Holder and to the Trustee on behalf of the Holders: (i) the due
and punctual payment of the principal of, premium, if any, on and interest on
each Note, when and as the same shall become due and payable, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal of and interest, if any, on the Notes, to the extent
lawful, and the due and punctual performance of all other obligations of the
Issuer to the Holders or the Trustee (the "Guaranteed Obligations"), all in
accordance with the terms of such Note and the Indenture and (ii) in the case of
any extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, at Stated Maturity, by
acceleration or otherwise. Multicare hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of merger or
bankruptcy of the Issuer any right to require a proceeding first against the
Issuer the benefit of discussion, protest or notice with respect to any such
Note or the debt evidenced thereby and all demands whatsoever, and covenants
that this Multicare Senior Subordinated Guaranty will not be discharged as to
any such Note except upon the earlier of (x) the payment in full of the
principal thereof, premium, if any, and interest thereon and (y) the
consummation of the Merger. The maturity of the obligations guaranteed hereby
may be accelerated as provided in Article Six of the Indenture for the purposes
of this Article Two. In the event of any declaration of acceleration of such
obligations as provided in Article Six of the Indenture, such obligations
(whether or not due and payable) shall forthwith become due and payable by
Multicare for the purpose of this Article Two. In addition, without limiting the
foregoing provisions, upon the effectiveness of any acceleration under Article
Six of the Indenture, the Trustee shall promptly make a demand for payment on
the Notes under the Multicare Senior Subordinated Guaranty provided for in this
Article Two.
If the Trustee or the Holder of any Note is required by any
court or otherwise to return to the Issuer or Multicare, or any custodian,
receiver, liquidator, trustee, sequestrator or other similar official acting in
relation to the Issuer or Multicare, any amount paid to the Trustee or such
Holder in respect of a Note, this Multicare Senior Subordinated Guaranty, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Multicare further agrees, to the fullest extent that it may lawfully do so,
that, as between it, on the one hand, and the Holders and the Trustee, on the
other hand, the maturity of the obligations guaranteed hereby may be accelerated
as provided in Article Two hereof for the purposes of this Multicare Senior
Subordinated Guaranty, notwithstanding any stay, injunction or other prohibition
extant under any applicable bankruptcy law preventing such acceleration in
respect of the obligations guaranteed hereby.
<PAGE>
5
Until such time as the Notes are fully and finally paid,
including all interest, premium, principal and liquidated damages with respect
thereto, Multicare hereby irrevocably waives any claim or other rights which it
may now or hereafter acquire against the Issuer that arise from the existence,
payment, performance or enforcement of its obligations under this Multicare
Senior Subordinated Guaranty and the Indenture, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution,
indemnification, any right to participate in any claim or remedy of the Holders
against the Issuer or any collateral which any such Holder or the Trustee on
behalf of such Holder hereafter acquires, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Issuer, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to Multicare in violation of the preceding sentence and the
principal of, premium, if any, and accrued interest on the Notes shall not have
been paid in full, such amount shall be deemed to have been paid to Multicare
for the benefit of, and held in trust for the benefit of, the Holders, and shall
forthwith be paid to the Trustee for the benefit of the Holders to be credited
and applied upon the principal of, premium, if any, and accrued interest on the
Notes. Multicare acknowledges that it will receive direct and indirect benefits
from the issuance of the Notes pursuant to this Indenture and that the waivers
set forth in this Section 2.01 are knowingly made in contemplation of such
benefits.
The Multicare Senior Subordinated Guaranty set forth in this
Section 2.01 shall not be valid or become obligatory for any purpose with
respect to a Note until the certificate of authentication on such Note shall
have been signed by or on behalf of the Trustee.
SECTION 2.02. Obligations Unconditional. Subject to Section
2.05, nothing contained in this Article Two or in the Indenture or in the Notes
is intended to or shall impair, as between Multicare and the Holders, the
obligation of Multicare, which is absolute and unconditional, upon failure by
the Issuer, to pay to the Holders the principal of, premium, if any, and
interest on the Notes as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of Multicare, nor shall anything herein or
therein prevent any Holder or the Trustee on their behalf from exercising all
remedies otherwise permitted by applicable law upon default under the Indenture.
Without limiting the foregoing, nothing contained in this
Article Two will restrict the right of the Trustee or the Holders to take any
action to declare the Multicare Senior Subordinated Guaranty to be due and
payable prior to the Stated Maturity of the Notes pursuant to Section 6.02 of
the Indenture or to pursue any rights or remedies hereunder.
SECTION 2.03. Notice to Trustee. Multicare shall give prompt
written notice to the Trustee of any fact known to Multicare which would
prohibit the making of any payment
<PAGE>
6
to or by the Trustee in respect of the Multicare Senior Subordinated Guaranty
pursuant to the provisions of this Article Two.
SECTION 2.04. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of, premium, if any, or
interest on the Notes by reason of any provision of this Article will not be
construed as preventing the occurrence of an Event of Default.
SECTION 2.05. Net Worth Limitation. Notwithstanding any other
provision of the Indenture or the Notes, this Multicare Senior Subordinated
Guaranty shall not be enforceable against Multicare in an amount in excess of
the net worth of Multicare at the time that determination of such net worth is,
under applicable law, relevant to the enforceability of this Multicare Senior
Subordinated Guaranty. Such net worth shall include any claim or future claim of
Multicare against the Issuer for reimbursement and any claim against any grantor
of a Guarantee for contribution.
ARTICLE THREE
SUBORDINATION
SECTION 3.01. Agreement to Subordinate. Multicare, for itself,
its successors and assigns, covenants and agrees, and each Holder, by his or her
acceptance thereof, likewise covenants and agrees, that the payment of the
principal of and premium, if any, and interest on each and all of the Notes
under this Multicare Senior Subordinated Guaranty (including any payment in
connection with the repurchase, redemption or other acquisition thereof) is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full, in cash or Cash
Equivalents of all Guarantor Senior Indebtedness. This Article Three constitutes
a continuing offer to all persons or entities who become holders of, or continue
to hold, Guarantor Senior Indebtedness, each of whom is an obligee hereunder and
is entitled to enforce such holder's rights hereunder, subject to the provisions
hereof, without any act or notice of acceptance hereof or reliance hereon. All
provisions of this Article Three shall be subject to Section 3.12.
For the purposes of this Article Three, (a) no Guarantor
Senior Indebtedness shall be deemed to have been paid in full unless and until
all commitments or other obligations of the holders of the Senior Indebtedness
thereunder to make advances or otherwise extend credit shall have terminated and
the holders thereof shall have indefeasibly received payment in full in cash or
Cash Equivalents, and (b) the term "Guarantor Senior Representative" shall mean
the indenture trustee or other trustee, agent or representative for any
Guarantor Senior Indebtedness.
<PAGE>
7
SECTION 3.02. Distribution on Dissolution, Liquidation,
Bankruptcy or Reorganization. Upon any distribution of assets of Multicare upon
any total or partial dissolution, winding up, liquidation or reorganization of
Multicare, whether in bankruptcy, insolvency, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of Multicare or otherwise,
(a) the holders of Guarantor Senior Indebtedness shall be
entitled to receive payment in full in cash or Cash Equivalents or, as
acceptable to each holder of Guarantor Senior Indebtedness, in any
other manner, of all amounts and obligations due on or in respect of
all Guarantor Senior Indebtedness before the Holders are entitled to
receive any payment or distribution of any kind or character (excluding
securities of Multicare provided for in a plan of reorganization with
respect to Multicare approved by the bankruptcy court that are equity
securities or are subordinated in right of payment to all Guarantor
Senior Indebtedness to the same extent as, or to a greater extent than,
the Multicare Senior Subordinated Guaranty is so subordinated as
provided in this Article; such securities are hereinafter collectively
referred to as "Multicare Permitted Junior Notes") on account of
principal of, premium, if any, or interest on the Notes (including any
payment or other distribution which may be received from the holders of
Guarantor Subordinated Indebtedness as a result of any payment on such
Guarantor Subordinated Indebtedness);
(b) any payment or distribution of assets of Multicare or any
Subsidiary of Multicare of any kind or character, whether in cash,
property or securities (excluding Multicare Permitted Junior Notes), by
set-off or otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article (including any payment
or other distribution which may be received from the holders of
Guarantor Subordinated Indebtedness as a result of any payment on such
Guarantor Subordinated Indebtedness) shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Guarantor Senior Indebtedness or
their Guarantor Senior Representative or Representatives, ratably
according to the aggregate amounts remaining unpaid on account of the
Guarantor Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full in cash, Cash Equivalents or
in any other form acceptable to each, of all Guarantor Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Guarantor Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 3.02, the Trustee or any Holder shall have
received any payment or distribution of assets of Multicare or any
Subsidiary of Multicare of any kind or character, whether in cash,
property or securities (excluding Multicare Permitted Junior Notes), in
respect of principal, premium, if any, and interest on the Notes before
all Guarantor Senior
<PAGE>
8
Indebtedness is paid in full in cash, then and in such event, such
payment or distribution (including any payment or other distribution
which may be received from the holders of Guarantor Subordinated
Indebtedness as a result of any payment on such Guarantor Subordinated
Indebtedness) shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of
Multicare for application to the payment of all Guarantor Senior
Indebtedness remaining unpaid to the extent necessary to pay all
Guarantor Senior Indebtedness in full in cash, Cash Equivalents or, as
acceptable to each holder of Guarantor Senior Indebtedness, any other
manner, after giving effect to any concurrent payment or distribution
to or for the holders of Guarantor Senior Indebtedness or deposited
with a court of competent jurisdiction.
The consolidation of Multicare with, or the merger of
Multicare into, another corporation or the liquidation or dissolution of
Multicare following the sale or conveyance of its property or assets as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five of the Indenture shall not be deemed a
dissolution, winding up, liquidation or reorganization of Multicare for the
purposes of this Article Three if such other corporation shall, as a part of
such consolidation, merger, sale or conveyance, comply with the conditions
stated in Article Five of the Indenture.
If the Trustee or any Holder does not file a proper claim or
proof of debt in the form required in any proceeding referred to above prior to
30 days before the expiration of the time to file such claim in such proceeding,
then the holder of any Guarantor Senior Indebtedness (or its Guarantor Senior
Representative) is hereby authorized, and has the right, to file an appropriate
claim or claims for or on behalf of such Holder.
SECTION 3.03. Suspension of Payment When Guarantor Senior
Indebtedness in Default. (a) Unless Section 3.02 shall be applicable, upon the
occurrence of a Payment Default in respect of Guarantor Designated Senior
Indebtedness, then no payment or distribution of any assets of Multicare or any
Subsidiary of Multicare of any kind or character (excluding Multicare Permitted
Junior Notes) shall be made by Multicare or any Subsidiary of Multicare or on
behalf of or out of the property of Multicare, or received by the Trustee or any
Holder on account of principal of, premium, if any, or interest on, the Notes or
on account of the purchase, redemption, defeasance (whether under Section 8.02
or 8.03 of the Indenture) or other acquisition of or in respect of the Notes
unless and until such Payment Default shall have been cured or waived in writing
by the holders of the Guarantor Designated Senior Indebtedness or shall have
ceased to exist or the Guarantor Designated Senior Indebtedness shall have been
paid in full in cash, Cash Equivalents or in any other manner as acceptable to
each holder of such Guarantor Designated Senior Indebtedness, after which
Multicare shall resume making any and all required payments in respect of the
Notes, including any missed payments.
<PAGE>
9
(b) Unless Section 3.02 shall be applicable, upon (i) the
occurrence of a Non-payment Default pursuant to which the maturity of the
applicable Designated Senior Indebtedness may be accelerated in respect of
Guarantor Designated Senior Indebtedness, either iimmediately or upon the giving
of notice, the passage of time, or both, and (ii) receipt by the Trustee and
Multicare from a Guarantor Senior Representative or the holder of any Guarantor
Designated Senior Indebtedness of written notice of such occurrence, no payment
(other than any payments made pursuant to Section 8.02 or 8.03 of the Indenture
or from the money or proceeds of U.S. Government Securities held under the
Escrow Agreement as provided in Section 10.01 of the Indenture) or distribution
of any assets of Multicare or any Subsidiary of Multicare thereof of any kind or
character (excluding Multicare Permitted Junior Notes) shall be made by
Multicare or any Subsidiary of Multicare thereof or on behalf of or out of the
property of Multicare or any Subsidiary of Multicare, or received by the Trustee
or any Holder on account of any principal of, premium, if any, or interest on,
the Notes (including payments under any guaranty thereof) or on account of the
purchase, redemption or other acquisition of or in respect of Notes (including
payments under any guaranty thereof) for a period ("Payment Blockage Period")
commencing on the date of receipt by the Trustee of such notice until the
earliest of (x) 179 days after receipt of such written notice by the Trustee
(provided any Guarantor Designated Senior Indebtedness as to which notice was
given shall theretofore have not been accelerated), (y) the date such
Non-payment Default and all other Non-payment Defaults as to which notice is
also given after such period is initiated shall have been cured or waived in
writing by the holders of the Guarantor Designated Senior Indebtedness or shall
have ceased to exist or the Guarantor Senior Indebtedness related thereto shall
have been paid in full in cash or Cash Equivalents or (z) the date such Payment
Blockage Period and any Payment Blockage Periods initiated during such period
shall have been terminated by written notice to Multicare or the Trustee from
the Guarantor Senior Representative and the holders of the Guarantor Designated
Senior Indebtedness that have given notice of a Non-payment Default at or after
the initiation of such Payment Blockage Period, after which in the case of
clause (x), (y) or (z), Multicare shall resume making any and all required
payments in respect of the Notes including any missed payments. Notwithstanding
any other provision of this Supplemental Indenture, in no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt by Multicare
or the Trustee of the notice referred to in clause (ii) of this paragraph (b)
(the "Initial Blockage Period"). Not more than one Payment Blockage Period may
be commenced with respect to the Notes during any period of 360 consecutive
days; provided that subject to the limitations set forth in the next sentence,
the commencement of a Payment Blockage Period by the representative of Guarantor
Designated Senior Indebtedness other than the Credit Facility shall not bar the
commencement of another Payment Blockage Period by the representative for the
Credit Facility within such period of 360 consecutive days. Notwithstanding
anything in this Supplemental Indenture to the contrary, there must be 180 days
in any 360-day period in which no Payment Blockage Period is in effect. No event
of default (other than an event of default pursuant to the financial maintenance
covenants under the Credit Facility) that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was
<PAGE>
10
continuing shall constitute a new event of default for this purpose) on the date
of commencement of any Payment Blockage Period with respect to the Guarantor
Designated Senior Indebtedness initiating such Payment Blockage Period shall be,
or shall be made, the basis for the commencement of a second Payment Blockage
Period by the representative for, or the holders of, such Guarantor Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing,
Multicare or any of its Subsidiaries shall make, or the Trustee or any Holder
shall receive, any payment to the Trustee or any Holder prohibited by the
foregoing provisions of this Section, then and in such event such payment shall
be paid over and delivered forthwith to a Guarantor Senior Representative of the
holders of the Guarantor Designated Senior Indebtedness.
SECTION 3.04. Payment Permitted If No Default. Nothing
contained in this Article, in the Indenture or in any of the Notes shall prevent
Multicare, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of Multicare referred to
in Section 3.02 of this Supplemental Indenture and Section 11.02 of the
Indenture or under the conditions described in Section 3.03 of this Supplemental
Indenture and Section 11.03 of the Indenture, from making payments at any time
of principal of, premium, if any, or interest on the Notes.
SECTION 3.05. Subrogation to Rights of Holders of Guarantor
Senior Indebtedness. Subject to the payment in full of all Guarantor Senior
Indebtedness, Holders shall be subrogated to the rights of the holders of such
Guarantor Senior Indebtedness to receive payments and distributions of cash,
property and securities applicable to the Guarantor Senior Indebtedness until
the principal of, premium, if any, and interest on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of Guarantor Senior Indebtedness of any cash, property or securities to
which the Holders or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Guarantor Senior Indebtedness by Holders or the Trustee, shall,
as among Multicare, its creditors other than holders of Guarantor Senior
Indebtedness, and the Holders, be deemed to be a payment or distribution by
Multicare to or on account of the Guarantor Senior Indebtedness.
SECTION 3.06. Provisions Solely to Define Relative Rights. The
provisions of this Article are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Guarantor
Senior Indebtedness on the other hand. Nothing contained herein or in the
Indenture or in the Notes is intended to or shall (i) impair, as among
Multicare, its creditors other than holders of Guarantor Senior Indebtedness and
the Holders, the obligation of Multicare, which is absolute and unconditional,
to pay to the Holders the
<PAGE>
11
principal of, premium, if any, and interest on the Notes under this Multicare
Senior Subordinated Guaranty in accordance with its terms; or (ii) affect the
relative rights against Multicare of the Holders and creditors of Multicare
other than their rights in relation to the holders of Guarantor Senior
Indebtedness; or (iii) prevent the Trustee or any Holder from exercising all
remedies otherwise permitted by applicable law upon Default under the Indenture,
subject to the rights, under this Article of the holders of Guarantor Senior
Indebtedness to receive distributions and payments otherwise payable to Holders
(A) in any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of Multicare referred to in Section 3.02 of this Supplemental
Indenture, to receive, pursuant to and in accordance with such Section, cash,
property and securities otherwise payable or deliverable to the Trustee or such
Holder, or (B) under the conditions specified in Section 3.03 of this
Supplemental Indenture, to prevent any payment prohibited by such Section or
enforce their rights pursuant to Section 3.03(c) of this Supplemental Indenture.
SECTION 3.07. Trustee to Effectuate Subordination. Each Holder
by his or her acceptance thereof authorizes and directs the Trustee on his or
her behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his or her
attorney-in-fact for any and all such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of Multicare whether in
bankruptcy, insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the indebtedness of Multicare owing
to such Holder in the form required in such proceedings and the causing of such
claim to be approved. If the Trustee does not file a proper claim at least 30
days before the expiration of the time to file such claim, then the holders of
Guarantor Senior Indebtedness, and their agents, trustees or other
representatives are authorized to do so for and on behalf of the Holders.
SECTION 3.08. No Waiver of Subordination Provisions. (a) No
right of any present or future holder of any Guarantor Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of Multicare or
any Holder or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by Multicare or any Holder with the terms, provisions
and covenants of this Supplemental Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Guarantor Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders,
without incurring responsibility to the Holders and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders to the holders of Guarantor Senior Indebtedness, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, or waive compliance with
the terms of, Guarantor Senior
<PAGE>
12
Indebtedness or any instrument evidencing the same or any agreement under which
Guarantor Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (iii) release any Person liable in any manner for
the collection or payment of Guarantor Senior Indebtedness; (iv) exercise or
refrain from exercising any rights against Multicare and any other Person; (v)
amend, supplement, restate or otherwise modify or restructure the Guarantor
Senior Indebtedness; and (vi) otherwise deal with any Person liable on account
of Guarantor Senior Indebtedness; provided, however, that in no event shall any
such actions limit the right of the Holders to take any action to accelerate the
maturity of the Notes pursuant to Article Six of the Indenture or to pursue any
rights or remedies thereunder or under applicable laws if the taking of such
action does not otherwise violate the terms of this Article, subject to the
rights, if any, under this Article, of the holders, from time to time, of
Guarantor Senior Indebtedness to receive the cash, property or securities
receivable upon the exercise of such rights or remedies.
SECTION 3.09. Notice to Trustee. (a) Multicare shall give
prompt written notice to the Trustee of any fact known to Multicare which would
prohibit the making of any payment to or by the Trustee in respect of the Notes.
Notwithstanding the provisions of this Article or any provision of the
Indenture, the Trustee or any Paying Agent shall not be charged with knowledge
of the existence of any facts which would prohibit the making of any payment to
or by the Trustee or any Paying Agent in respect of the Notes, unless and until
the Trustee shall have received written notice thereof from Multicare, a holder
of Senior Indebtedness or a holder of Guarantor Senior Indebtedness or from a
Guarantor Senior Representative or any trustee, fiduciary or agent therefor;
and, prior to the receipt of any such written notice, the Trustee shall be
entitled in all respects to assume that no such facts exist; provided, however,
that if the Trustee shall not have received the notice provided for in this
Section at least three Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of, premium, if any, or interest on any
Note), then, anything herein contained to the contrary notwithstanding but
without limiting the rights and remedies of the holders of Guarantor Senior
Indebtedness or any trustee, fiduciary or agent thereof, the Trustee shall have
full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date; nor shall the Trustee be charged with knowledge of the
elimination of the act or condition preventing any such payment unless and until
the Trustee shall have received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to
it of a written notice to the Trustee and Multicare by a Person representing
himself to be a Guarantor Senior Representative or a holder of Guarantor Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a Guarantor Senior Representative or a holder of
Guarantor Senior Indebtedness (or a trustee, fiduciary or agent thereof and the
Trustee shall have no duty to investigate the authenticity thereof or the
authority of the person
<PAGE>
13
signing and shall have no liability for relying thereon); provided, however,
that failure to give such notice to Multicare shall not affect in any way the
ability of the Trustee to rely on such notice. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Guarantor Senior Indebtedness to participate
in any payment or distribution pursuant to this Article, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Guarantor Senior Indebtedness held by such Person, the extent
to which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment or the Trustee or the Paying Agent may deposit the funds in
question with a court of competent jurisdiction.
SECTION 3.10. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of Multicare
referred to in this Article, the Trustee and the Holders shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the Trustee or to the Holders, for
the purpose of ascertaining the Persons entitled to participate in such payment
or distribution, the holders of Guarantor Senior Indebtedness and other
indebtedness of Multicare, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article, provided that the foregoing shall apply only if such court has
been fully apprised of the provisions of this Article.
SECTION 3.11. Rights of Trustee as a Holder of Guarantor
Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its
individual capacity shall be entitled to all the rights set forth in this
Article with respect to any Guarantor Senior Indebtedness which may at any time
be held by it, to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Supplemental Indenture shall deprive the
Trustee of any of its rights as such holder of Guarantor Senior Indebtedness.
Nothing in this Article shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.07 of the Indenture.
SECTION 3.12. Trust Moneys and Escrowed Funds Not
Subordinated. Notwithstanding anything contained herein to the contrary,
payments from (x) money or the proceeds of U.S. Government Obligations held in
trust under Article Eight by the Trustee for the payment of principal of,
premium, if any, and interest on the Notes (provided that at the time deposited,
such deposit did not violate any then outstanding Guarantor Senior Indebtedness)
and (y) money or the proceeds of U.S. Government Securities held under the
Escrow Agreement shall not be subordinated to the prior payment of any Guarantor
Senior Indebtedness or subject
<PAGE>
14
to the restrictions set forth in this Article Three, and none of the Holders
shall be obligated to pay over any such amount to any holder of Guarantor Senior
Indebtedness.
SECTION 3.13. No Suspension of Remedies. Nothing contained in
this Article shall limit the right of the Trustee or the Holders to take any
action to accelerate the maturity of the Notes pursuant to Article Six of the
Indenture or to pursue any rights or remedies hereunder or under applicable law,
subject to the rights, if any, under this Article of the holders, from time to
time, of Guarantor Senior Indebtedness to receive the cash, property or
securities receivable upon the exercise of such rights or remedies.
SECTION 3.14. Trustee's Relation to Guarantor Senior
Indebtedness. With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Article against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness.
SECTION 3.15. Other Rights of Holders of Guarantor Senior
Indebtedness. All rights and interests under this Supplemental Indenture of the
holders of Guarantor Senior Indebtedness, and all agreements and obligations of
the Trustee, the Holders and Multicare under this Article shall remain in full
force and effect irrespective of (i) any lack of validity or enforceability of
the Credit Facility, and promissory notes evidencing the Credit Facility or any
other agreement or instrument relating thereto or to any Guarantor Senior
Indebtedness or (ii) any other circumstance that might constitute a defense
available to, or a discharge of, a guarantor or surety (other than as a result
of any payments indefeasibly made on the Credit Facility or any Guarantor Senior
Indebtedness).
The holders of Guarantor Senior Indebtedness are hereby
authorized to demand specific performance of this Article, whether or not
Multicare shall have complied with any provisions of this Article applicable to
it, at any time when the Trustee or any Holder shall have failed to comply with
any of these provisions.
The provisions of this Article shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Guarantor Senior Indebtedness is rescinded or must otherwise be returned by any
holder of Guarantor Senior Indebtedness upon the insolvency, bankruptcy or
reorganization of Multicare or otherwise, all as though such payment had not
been made.
<PAGE>
15
ARTICLE FOUR
EXECUTION AND DELIVERY OF MULTICARE
SENIOR SUBORDINATED GUARANTY
SECTION 4.01. Execution of Multicare Senior Subordinated
Guaranty. (a) To evidence its Multicare Senior Subordinated Guaranty set forth
in this Supplemental Indenture, Multicare hereby agrees that a notation of such
Multicare Senior Subordinated Guaranty substantially in the form of Annex A
hereto shall be endorsed by an officer of Multicare on each Note authenticated
and delivered by the Trustee after the date hereof until consummation of the
Merger.
(b) Notwithstanding the foregoing, Multicare hereby agrees
that the Multicare Senior Subordinated Guaranty set forth herein shall remain in
full force and effect for the term provided herein notwithstanding any failure
to endorse on each Note a notation of such Multicare Senior Subordinated
Guaranty.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Multicare Senior Subordinated Guaranty no longer holds that
office at the time the Trustee authenticates the Note on which a Multicare
Senior Subordinated Guaranty is endorsed, the Multicare Senior Subordinated
Guaranty shall be valid nevertheless.
SECTION 4.02. Delivery and Enforceability of Multicare Senior
Subordinated Guaranty. (a) The delivery of the Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of the
Multicare Senior Subordinated Guaranty set forth in this Supplemental Indenture
on behalf of Multicare.
(b) Multicare hereby agrees that its obligations hereunder
shall be unconditional, regardless of the validity, regularity or enforceability
of the Notes or this Supplemental Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder with respect to any
provisions hereof or thereof, the recovery of any judgment against the Issuer,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
SECTION 4.03. Waiver of Presentment; Rights and Remedies. (a)
Multicare hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Issuer, any
right to require a proceeding first against the Issuer, protest, notice and all
demands whatsoever and covenants that the Multicare Senior Subordinated Guaranty
made pursuant to this Supplemental Indenture will not be discharged except by
complete performance of the obligations contained in the Notes and the
Indenture.
(b) If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Supplemental Indenture and such
proceeding has been discontinued
<PAGE>
16
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then, and in every such case, subject to any determination in
such proceeding, Multicare, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of Multicare, the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE FIVE
MISCELLANEOUS PROVISIONS
SECTION 5.01. Releases upon Release of Multicare Senior
Subordinated Guaranty. Concurrently with the release or discharge of this
Multicare Senior Subordinated Guaranty (other than a release or discharge by or
as a result of payment under such guarantee of Guaranteed Obligations),
Multicare shall automatically be released from and relieved of its obligations
under this Supplemental Indenture. Upon delivery by the Issuer to the Trustee of
an Officers' Certificate to the effect that such release or discharge has
occurred, the Trustee shall execute any documents reasonably required in order
to evidence the release of Multicare from its obligations under this
Supplemental Indenture.
SECTION 5.02. Effect of Supplemental Indenture. Upon the
execution and delivery of this Supplemental Indenture by Multicare, the Issuer
and the Trustee, the Indenture shall be supplemented in accordance herewith, and
this Supplemental Indenture shall form a part of the Indenture for all purposes,
and every Holder heretofore or hereafter authenticated and delivered under the
Indenture shall be bound thereby.
SECTION 5.03. Indenture Remains in Full Force and Effect.
Except as supplemented hereby, all provisions in the Indenture shall remain in
full force and effect.
SECTION 5.04. Indenture and Supplemental Indenture Construed
Together. This Supplemental Indenture is an indenture supplemental to and in
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.
SECTION 5.05. Conflict with Trust Indenture Act. If any
provision of this Supplemental Indenture limits, qualifies or conflicts with any
provision of the Trust Indenture Act that is required under such Act to be part
of and govern any provision of this Supplemental Indenture, the provision of
such Act shall control. If any provision of this Supplemental Indenture modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the provision of such Act shall be deemed to apply to the Indenture as
so modified or to be excluded by this Supplemental Indenture, as the case may
be.
<PAGE>
17
SECTION 5.06. Separability Clause. In case any provision in
this Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 5.07. Effect of Headings. The Article and Section
headings herein are for convenience only and shall not affect the construction
hereof.
SECTION 5.08. Benefits of Supplemental Indenture, Etc. Nothing
in this Supplemental Indenture, the Indenture or the Notes express or implied,
shall give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders, any benefit of any legal or
equitable right, remedy or claim under the Indenture, this Supplemental
Indenture or the Notes.
SECTION 5.09. Successors and Assigns. All covenants and
agreements in this Supplemental Indenture by Multicare shall bind its successors
and assigns, whether so expressed or not.
SECTION 5.10. Certain Duties and Responsibilities of Trustee.
In entering into this Supplemental Indenture, the Trustee shall be entitled to
the benefit of every provision of the Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee, whether or
not elsewhere herein so provided.
SECTION 5.11. Governing Law. This Supplemental Indenture shall
be governed by and construed in accordance with the laws of the State of New
York.
<PAGE>
SECTION 5.12. Counterparts. This Supplemental Indenture may be
executed in counterparts, each of which, when so executed, shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
Dated: _____________, 1997 THE MULTICARE COMPANIES, INC.
By: ________________________________
Name:
Title
GENESIS ELDERCARE ACQUISITION
Dated: _____________, 1997 CORP.
By: ________________________________
Name:
Title:
Dated: _____________, 1997 PNC BANK, NATIONAL ASSOCIATION
as Trustee
By: ________________________________
Name:
Title:
<PAGE>
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF MULTICARE SENIOR
SUBORDINATED GUARANTY ON NOTE
The Multicare Companies, Inc. ("Multicare"), as primary
obligor and not merely as surety, fully unconditionally and irrevocably
guarantees (a) the due and punctual payment of the principal of, premium, if
any, or interest on the Notes, whether at Stated Maturity or an Interest Payment
Date, by acceleration, call for redemption or otherwise, (b) the due and
punctual payment of interest on the overdue principal and premium of, and
interest on the Notes and (c) that in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, the same will be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that the Multicare
Senior Subordinated Guaranty would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant jurisdiction,
the liability of Multicare under its Multicare Senior Subordinated Guaranty
shall be limited to such amount as will not, after giving effect thereto, and to
all other liabilities of Multicare, result in such amount constituting a
fraudulent transfer or conveyance.
The Multicare Senior Subordinated Guaranty shall not be valid
or obligatory for any purpose until the certificate of authentication on the
Note upon which the Multicare Senior Subordinated Guaranty is noted shall have
been executed by the Trustee under the Indenture by the manual or facsimile
signature of one of its authorized officers.
THE MULTICARE COMPANIES, INC.
By: ______________________________
Name:
Title:
<PAGE>
[LETTERHEAD OF BLANK ROME COMISKY & McCAULEY LLP]
January 15, 1998
The Multicare Companies, Inc.
433 Hackensack Avenue
Hackensack, NJ 07601
Re: The Multicare Companies, Inc. 9% Senior Subordinated Notes
due 2007 Registration Statement on Form S-4
Gentlemen:
We have acted as counsel to The Multicare Companies, Inc. (the
"Company") in connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the offer to exchange by the Company of up to $250,000,000 in principal amount
of 9% Senior Subordinated Notes due 2007 (the "Exchange Notes") for
outstanding $250,000,000 in principal amount of 9% Senior Subordinated Notes
due 2007. The Exchange Notes will be issued pursuant to the Indenture (the
"Indenture") dated as of August 11, 1997, by and among the Company's
predecessor, Genesis ElderCare Acquisition Corp., a Delaware corporation, PNC
Bank, National Association, as trustee, and Banque Internationale A Luxembourg
S.A., as paying agent. This opinion is being furnished pursuant to the
requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the documents listed
on Exhibit "A" attached hereto. We have not performed any independent
investigation other than the document examination described. Our opinion is
therefore qualified in all respects by the scope of that document examination.
We have assumed and relied, as to questions of fact and mixed questions of law
and fact, on the truth, completeness, authenticity and due authorization of
all certificates, documents and records examined and the genuineness of all
signatures.
This opinion is limited to the laws of the Commonwealth of
Pennsylvania and the Delaware General Corporation Law, and no opinion is
expressed as to the laws of any other jurisdiction. While the Indenture provides
that it will be governed by the substantive laws of the State of New York, we
<PAGE>
The Multicare Companies, Inc.
January 15, 1998
Page 2
have assumed for the purposes of this opinion that the Indenture will be
governed by the laws of the Commonwealth of Pennsylvania.
Based upon and subject to the foregoing, we are of the opinion that
the Exchange Notes that are being offered by the Company pursuant to the
Registration Statement, when issued by the Company as contemplated by the
Registration Statement and in accordance with the Indenture, will be binding
obligations of the Company.
The opinions expressed herein are qualified in all respects by, and
subject to, the following: (a) no opinion is rendered as to the availability of
equitable remedies including, but not limited to, specific performance and
injunctive relief; (b) the effect of bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer, preference, moratorium and other
similar laws or equitable principles affecting creditors' rights or remedies;
(c) the effect of equitable subordination or any other doctrine which may
subordinate claims under the Indenture or the Notes; (d) general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing; (e) the effect of applicable
law and court decisions which may now or hereafter limit or render unenforceable
certain rights and remedies; and (f) the application of a standard of "good
faith" or "commercial reasonableness" to any decisions, actions or conduct under
the Indenture.
This opinion is given as of the date hereof. We assume no obligation
to update or supplement this opinion to reflect any facts or circumstances
which may hereafter come to our attention or any changes in laws which may
hereafter occur.
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus which is part of the Registration Statement.
Sincerely,
/s/ BLANK ROME COMISKY & McCAULEY LLP
-------------------------------------
BLANK ROME COMISKY & McCAULEY LLP
<PAGE>
EXHIBIT "A"
1. The Company's Amended and Restated Articles of Incorporation.
2. The Company's Amended and Restated Bylaws.
3. The Company's Minute Books from March 1992 through the date hereof.
4. The Indenture.
5. The Registration Statement.
6. Agreement and Plan of Merger dated June 16, 1997 by and among Genesis
ElderCare Corp., Genesis ElderCare Acquisition Corp., Genesis Health
Ventures, Inc. and The Multicare Companies, Inc.
7. Certificate of Ownership and Merger dated October 10, 1997.
<PAGE>
Exhibit 23.1
Independent Accountants Consent
The Board of Directors
The Multicare Companies, Inc.
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 15, 1998
<PAGE>
Exhibit 25
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FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
PNC BANK, NATIONAL ASSOCIATION
(Exact Name of Trustee as Specified in its Charter)
NOT APPLICABLE
(Jurisdiction of incorporation or
organization if not a U.S. national bank)
25-1146430
(I.R.S. Employer Identification No.)
One PNC Plaza
FifthAvenue and Wood Street, Pittsburgh,
Pennsylvania 15222 (Address of principal
executive offices - Zip code)
Allan K. Poust, Vice President, PNC Bank, National Association
27th Floor, One Oliver Plaza, Pittsburgh, Pennsylvania 15222-2602
(412) 762-2838
(Name, address and telephone number of agent for service)
THE MULTICARE COMPANIES, INC.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
22-3152527
(I.R.S. Employer Identification No.)
433 Hackensack Avenue
Hackensack, New Jersey 07601
(Address of principal executive offices - Zip code)
9% Senior Subordinated Notes Due 2007
(Title of the indenture securities)
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Item 1. General information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, Ohio
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
Yes. (See Exhibit T-1-3)
Item 2. Affiliations with obligor and underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the trustee, describe each such affiliation.
Neither the obligor nor any underwriter for the obligor is
an affiliate of the trustee.
Item 3 through Item 14.
The issuer currently is not in default under any of its outstanding
securities for which PNC Bank is trustee. Accordingly, responses to
Items 3 through 14 of Form T-1 are not required pursuant to Form T-1
General Instructions B.
Item 15. Foreign trustee.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under the indentures qualified or
to be qualified under the Act.
Not applicable (trustee is not a foreign trustee).
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
Exhibit T-1-1 - Articles of Association of the trustee, as
presently in effect.
Exhibit T-1-2 - Copy of Certificate of the Authority of the Trustee
to Commence Business, filed as Exhibit 2 to
Trustee's Statement of Eligibility and
Qualification, Registration No. 2-58789 and
incorporated herein by reference.
Exhibit T-1-3 - Copy of Certificate as to Authority of the Trustee
to Exercise Trust Powers, filed as Exhibit 3 to
Trustee's Statement of Eligibility and
Qualification, Registration No. 2-58789, and
incorporated herein by reference.
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Exhibit T-1-4 - The By-Laws of the trustee, filed as Exhibit 4 to
Trustee's Statement of Eligibility and
Qualification, Registration No. 333-28711 and
incorporated herein by reference.
Exhibit T-1-5 - The consent of the trustee required by Section 321(b
of the Act.
Exhibit T-1-6 - The copy of the Balance Sheet taken from the latest
Report of Condition of the trustee published in
response to call made by Comptroller of the
Currency under Section 5211 U.S. Revised Statutes.
NOTE
The answers to this statement, insofar as such answers relate to (a) what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or are owners of 10% or more
of the voting securities of the obligor, or are affiliates or directors or
executive officers of the obligor, and (b) the voting securities of the
trustee owned beneficially by the obligor and each director and executive
officer of the obligor, are based upon information furnished to the trustee by
the obligor and also, in the case of (b) above, upon an examination of the
trustee's records. While the trustee has no reason to doubt the accuracy of
any such information furnished by the obligor, it cannot accept any
responsibility therefor.
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Signature appears on next page
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, PNC Bank, National Association, a corporation organized and existing
under the laws of the United States of America, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania on
January 12, 1998.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By /s/ Allan K. Poust
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Allan K. Poust
Vice President
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<PAGE>
EXHIBIT T-1-1
ARTICLES OF ASSOCIATION
PNC BANK, NATIONAL ASSOCIATION
(Amended and Restated as of September 15, 1997)
FIRST: The title of this Association shall be "PNC Bank, National
Association."
SECOND: The main office of the Association shall be in the City of
Pittsburgh, Allegheny County, Pennsylvania. The general business of the
Association shall be conducted at its main office and its branches.
THIRD: The Board of Directors of the Association shall consist of not
fewer than five (5) nor more than twenty-five (25) persons, the exact number
of Directors within such minimum and maximum limits to be fixed and determined
from time to time by a resolution of a majority of the full Board of Directors
or by resolution of the shareholders at any annual or special meeting thereof.
Each Director shall own such minimum qualifying equity interest in the
ultimate parent bank holding company of the Association as shall be required
from time to time by applicable law or regulation. Unless otherwise provided
by the laws of the United States, any vacancy in the Board of Directors for
any reason, including an increase in the number thereof, may be filled by
action of the Board of Directors, within the limits then specified by law.
A majority of the Board of Directors then in office shall be
necessary to constitute a quorum for the transaction of business at any
meeting of the Board.
FOURTH: The annual meeting of the shareholders for the election of
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
By-Laws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors. Any action which may be taken at a meeting of the shareholders of
the Association may be taken without a meeting if a consent in writing setting
forth the action so taken is signed by all the shareholders who would be
entitled to vote at a meeting for such purpose.
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Terms of Directors, including Directors selected to fill vacancies,
shall expire at the regular meeting of shareholders at which Directors are
elected, unless a Director resigns or is removed from office prior to the date
of such meeting.
Despite the expiration of a Director's term, the Director shall
continue to serve until his or her successor is elected and qualifies or until
there is a decrease in the number of Directors and his or her position is
eliminated.
A Director may resign at any time by delivering written notice to the
Board of Directors, its Chairman, or to the Association's Secretary, which
resignation shall be effective when the notice is delivered unless the notice
specifies a later effective date.
FIFTH: The amount of the authorized capital stock of the Association
shall be Two Hundred Eighteen Million Nine Hundred Eighteen Thousand, Five
Hundred and Seventy Dollars ($218,918,570), divided into 6,735,956 shares of
common stock of the par value of Thirty-Two Dollars and Fifty Cents ($32.50)
each, but said capital stock may be increased or decreased from time to time
in accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the
Association shall have any preemptive or preferential right of subscription to
any shares of any class of stock of the Association, whether now or hereafter
authorized, or to any obligations convertible into stock of the Association,
issued or sold, nor any right of subscription to any thereof other than such,
if any, as the Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may from time to time
fix.
The Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of
the shareholders.
SIXTH: The Board of Directors shall appoint one of its members
President of the Association who shall be Chairman of the Board; but the Board
of Directors may appoint a Director, in lieu of the President, to be Chairman
of the Board, who shall perform such duties as may be designated by the Board
of Directors. The Board of Directors shall have the power to appoint one or
more Vice Presidents of various ranks; to appoint a Cashier, a Secretary, and
such other officers and employees
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as may be required or deemed advisable to transact the business of the
Association; to fix the salaries to be paid such officers and employees; to
dismiss at its pleasure such officers and employees and to appoint others to
take their place.
The business and affairs of the Association shall be managed by or
under the direction of the Board of Directors. The Board of Directors shall
have the power to define the duties of officers and employees of the
Association and to require adequate bonds from them for the faithful
performance of their duties; to make all By-Laws and adopt all resolutions
that may be lawful for the general regulation of the business of the
Association and the management of its affairs, including but not limited to,
the manner of election or appointment of Directors, officers, or employees and
the appointment of judges of election, and generally to do and perform all
acts that may be lawful for a Board of Directors to do and perform.
Notwithstanding any provision of this or any other Article, the Board of
Directors may delegate to the management of the Association such authorities
and powers as the Board of Directors deems advisable from time to time, to the
fullest extent permitted by applicable laws, regulations, and safe and sound
banking practices.
SEVENTH: (a) Subject to any prohibitions or limitations set forth in
sections (b) and (g) of this Article or the Association's By-Laws, the
Association may indemnify or reimburse any Director, officer, or employee for,
or advance amounts in payment of, any expenses actually and reasonably
incurred in any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative, or investigative, to which such individual
was or is a party or a potential party by reason of his or her performance of
official duties on behalf of or at the request of the Association. Such duties
shall specifically include, but not be limited to, service performed at the
request of the Association as a representative of a domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise. For purposes of this Article, "expenses" shall include, but
not be limited to, attorneys' fees and costs, judgments, fines, taxes,
penalties, and amounts paid or to be paid in settlement.
(b) Notwithstanding any provision of this Article or the
Association's By-Laws, the following prohibitions and limitations shall apply:
(i) No indemnification
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shall be made in any case where the act or failure to act giving rise to the
claim for indemnification is determined by a court of competent jurisdiction
to have constituted willful misconduct or recklessness; (ii) No
indemnification shall be made for any expenses incurred in an administrative
proceeding or civil action instituted by a federal banking agency which
proceeding or action results in a final order or settlement pursuant to which
the Director, officer or employee is assessed a civil money penalty; removed
from office or prohibited from participating in the conduct of the
Association's affairs; or is required to cease and desist from or take any
affirmative action described in Section 8(b) of the Federal Deposit Insurance
Act with respect to the Association; (iii) The Association may advance
expenses to a Director, officer or employee in connection with an action or
proceeding under 12 U.S.C. ss.ss.164 or 1818 only if the Board of Directors
has first made such determinations and findings and otherwise satisfied such
procedural requirements, if any, as may be specified by rule, regulation,
advice, or guidance issued by a federal banking agency having jurisdiction
over the Association; (iv) Any advance of expenses must be subject to a
written and legally binding agreement which specifies, at a minimum, that
reimbursement to the Association of expenses advanced (including expenses
already paid) shall be required if and to the extent that: (a) the expenses
are not covered by any insurance policy or fidelity bond purchased by the
Association or its holding company; (b) the Board of Directors finds that the
Director, officer, or employee willfully misrepresented factors relevant to
the Board's decision to advance expenses; or (c) for any other reason the
expenses advanced subsequently become prohibited indemnification payments, as
defined in 12 C.F.R. ss.359.1(1); and (v) No indemnification shall be made
with respect to amounts provided for by any compromise settlement unless such
settlement shall have been approved by a court of competent jurisdiction, or
the holders of record of a majority of the outstanding shares of the
Association, or the Board of Directors, acting by vote of Directors not
parties to the same or substantially the same action, or proceeding,
constituting a majority of the whole number of Directors.
(c) The Association may provide for the payment of
reasonable premiums for insurance policies or fidelity bonds covering the
payment of expenses and the liabilities
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of its Directors, officers, and employees, provided that no such insurance or
fidelity bond coverage may be purchased for a final order assessing any
judgment or civil money penalty against such individuals in an administrative
proceeding or civil action commenced by a federal banking agency.
(d) Any amendment or repeal of this Article, or the adoption
of any other provision of the Articles of Association or By-Laws which has the
effect of increasing the liability of the Association's Directors, officers,
and employees shall operate prospectively only and shall not affect any action
taken, or any failure to act, prior to the adoption of such amendment, repeal
or other provisions.
(e) The Board of Directors may adopt By-Law provisions
consistent with this Article and may limit the classes of individuals to whom
this Article shall apply. In the event of any inconsistency or conflict
between this Article and such By-Law provisions, this Article shall control;
provided, that a By-Law provision limiting the classes of individuals to whom
this Article shall apply shall not be deemed to be such an inconsistency or
conflict.
(f) The rights of indemnification or reimbursement provided
for in this Article shall not be exclusive of other rights, if any, to which
such Directors, officers, or employees, or their personal representatives, may
be entitled as a matter of Pennsylvania law.
(g) Notwithstanding any other provision of this Article or
the Association's By-Laws, the Association shall not make or agree to make any
prohibited indemnification payment, as defined in 12 C.F.R. ss.359.1(1).
EIGHTH: The Board of Directors shall have the power, without the
approval of the shareholders, to change the location of the main office to any
other place within the limits of the City of Pittsburgh, Allegheny County,
Pennsylvania, and to establish or change the location of any branch or
branches of the Association subject to the approval of the Comptroller of the
Currency.
NINTH: The corporate existence of the Association shall continue
until terminated in accordance with the laws of the United States.
TENTH: The Board of Directors of the Association, or any three (3) or
more shareholders owning, in the aggregate, not less than ten (10%) percent of
the stock of the Association, may call
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a special meeting of the shareholders at any time. Unless otherwise provided
by the laws of the United States or duly waived, a notice of the time, place,
and purpose of every annual and every special meeting of the shareholders
shall be given by first-class mail, postage prepaid, mailed at least ten (10)
days prior to the date of such meeting to each shareholder of record at his
address as shown upon the books of the Association.
ELEVENTH: These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders
of a majority of the stock of this Association, unless the vote of the holders
of a greater amount of stock is required by law, and in that case by the vote
of the holders of such greater amount.
TWELFTH: Honorary or advisory directors, without voting power or
power of final decision in matters concerning the business of the Association,
may be appointed by resolution of a majority of the full Board of Directors,
or by resolution of shareholders at any annual or special meeting. Honorary or
advisory directors shall not be counted to determine the number of Directors
of the Association or the presence of a quorum in connection with any Board
action and shall not be required to own a qualifying equity interest. Honorary
or advisory directors may be appointed to one or more advisory boards of
directors of the Association, to serve upon such terms and conditions as may
be specified by the Board of Directors, or the Association's By-Laws.
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EXHIBIT T-1-5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990, in
connection with the proposed issuance by The Multicare Companies, Inc., of its
9% Senior Subordinated Notes Due 2007, we hereby consent that reports of
examination by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By /s/ Allan K. Poust
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Allan K. Poust
Vice President
Dated: January 12, 1998
<PAGE>
EXHIBIT T-1-6
SCHEDULE RC - BALANCE SHEET
FROM
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of
PNC BANK, NATIONAL ASSOCIATION
of PITTSBURGH in the state of PENNSYLVANIA
at the close of business on
September 30, 1997
filed in response to call made by
Comptroller of the Currency,
under title 12, United States Code, Section 161
Charter Number 540
Comptroller of the Currency Northeastern District
BALANCE SHEET
<TABLE>
<CAPTION>
Thousands
of Dollars
ASSETS
<S> <C>
Cash and balances due from depository institutions
Noninterest-bearing balances and currency and coin................................... $ 3,291,380
Interest-Bearing Balances............................................................ 122,778
Securities
Held-to-maturity securities.......................................................... 0
Available-for-sale securities........................................................ 5,669,736
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal funds sold and
Securities purchased under agreements to resell...................................... 869,038
Loans and lease financing receivables:
Loans and leases, net of unearned income $44,571,048
LESS: Allowance for loan and lease losses 812,830
LESS: Allocated transfer risk reserve 0
Loans and leases, net of unearned income,
allowance and reserve............................................................ 43,758,218
Trading assets ........................................................................ 134,154
Premises and fixed assets (including capitalized leases)............................... 716,561
Other real estate owned ............................................................... 50,869
Investments in unconsolidated subsidiaries and
associated companies ............................................................... 3,679
Customers' liability to this bank on acceptances
outstanding......................................................................... 50,248
Intangible assets ..................................................................... 1,575,419
Other assets........................................................................... 1,406,879
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Total Assets........................................................................ $ 57,648,959
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</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices................................................................. $34,197,693
Noninterest-bearing $ 8,472,726
Interest-bearing 25,724,967
In foreign offices, Edge and Agreement subsidiaries,
and IBFs......................................................................... 1,544,664
Noninterest-bearing $ 6,571
Interest-bearing 1,538,093
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal funds purchased and
Securities sold under agreements to repurchase................................... 2,156,756
Demand notes issued to U.S. Treasury................................................... 799,995
Trading Liabilities.................................................................... 155,047
Other borrowed money
With original maturity of one year or less.......................................... 10,085,030
With original maturity of more than one year through three years.................... 882,274
With original maturity of more than one year........................................ 1,169,398
Bank's liability on acceptances executed and outstanding............................... 50,248
Subordinated notes and debentures ..................................................... 645,953
Other liabilities...................................................................... 1,080,158
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Total liabilities...................................................................... 52,767,216
EQUITY CAPITAL
Perpetual preferred stock and related surplus.......................................... 0
Common Stock........................................................................... 218,919
Surplus. . . .......................................................................... 1,933,735
Undivided profits and capital reserves................................................. 2,760,127
Net unrealized holding gains (losses) on
available-for-sale securities....................................................... (31,038)
Cumulative foreign currency translation adjustments.................................... 0
Total equity capital................................................................... 4,881,743
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Total liabilities and equity capital................................................... $ 57,648,959
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</TABLE>
