Letter of Intent
August 2, 1999
Genesis Health Ventures, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxxx, XX 00000
Gentlemen,
This letter of intent, upon your execution, will confirm the
understanding among Genesis Health Ventures, Inc., a Pennsylvania corporation
("Genesis"), The Cypress Group L.L.C., a Delaware limited liability company
("Cypress") and TPG Partners II, L.P., a Delaware limited partnership ("TPG",
and together with Cypress and Nazem, Inc., the "Sponsors") relating to a
restructuring of our joint investment in Genesis ElderCare Corp., a Delaware
corporation ("Parent"), and related transactions (the "Transactions").
1. Amendment of Put/Call Agreement. At the closing of the
Transactions (the "Closing"), the put option under the Put/Call Agreement, dated
October 9, 1997 (the "Put/Call Agreement"), among the parties hereto and Nazem,
Inc. shall be terminated and other modifications to the Put/Call Agreement
reasonably satisfactory to the parties shall become effective. In consideration
for the cancellation of the put option under the Put/Call Agreement, Genesis
will issue to the Sponsors at the Closing, in proportion to their respective
investments in Parent, securities as contemplated by Exhibits A and B.
2. Investment in Genesis. At the Closing, Genesis shall sell
to each of Cypress and TPG, and each of Cypress and TPG shall purchase from
Genesis for a purchase price of $25 million, 6.25 million shares of common
stock, par value $.01 per share ("Genesis Common Stock") of Genesis, and
warrants to purchase 1 million shares of Genesis Common Stock (or an aggregate
of 12.5 million shares of Genesis Common Stock and warrants to purchase 2
million shares of Genesis Common Stock for an aggregate purchase price of $50
million). The warrants shall have a term of 10 years, contain customary dilution
protection and be exercisable at any time in whole or in part. The exercise
price for the warrants shall be $5.00 per share and shall be paid in cash.
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3. Registration Rights. Holders of the common stock and
warrants referenced in Section 2 and holders of the securities described or
referenced in Exhibits A and B will have customary registration rights with
respect to such securities, including an unlimited number of piggyback
registration rights and 5 demand registration rights. In connection with such
registration rights, Genesis will agree to pay all customary registration
expenses (which shall not include underwriting discounts and commissions).
Demand registration rights shall include the right to have securities registered
on a shelf registration statement pursuant to Rule 415 under the Securities Act
of 1933. Registration right demands may be made by Cypress or TPG or their
affiliated investment funds or by any holder or holders of registrable
securities (including the securities issuable upon conversion, exercise or
exchange of such registrable securities) representing more than 50% of the
shares of common stock of Genesis that are then registrable securities and the
shares of common stock of Genesis then issuable upon conversion, exercise or
exchange of registrable securities. No registration right demand may be made for
registrable securities unless such registrable securities have a market value as
of the date of the demand equal to at least $25 million or constitute all of the
registrable securities held by the holder or holders making the demand. In
addition, no registration right demand may be made for registrable securities
other than common stock of Genesis prior to the 270th day following the first
issuance of registrable securities.
4. Election of Directors. Beginning immediately prior to
Closing and continuing for so long as Cypress and TPG or their affiliated
investment funds own any combination of voting securities of the Company and
securities convertible into voting securities of the Company where all such
voting securities represent more than 10% of the Company's total voting power,
Cypress and TPG, acting jointly (or in the event that only one of Cypress and
TPG shall then own or have the right to acquire shares of Genesis Common Stock,
then such Sponsor), shall be entitled to designate a number of directors
representing at least 23% of the total number of directors constituting the full
board of directors of Genesis; provided, that for so long as the total number of
directors constituting the full board of directors of Genesis is 9 or fewer,
Cypress and/or TPG, as the case may be, shall only be entitled to designate two
directors on the board of directors of Genesis. For purposes of this Section 4,
the Series I Preferred Stock and the securities issuable upon conversion of the
Series I Preferred Stock shall be considered voting securities.
Each committee of the board of directors of Genesis shall
include at least one director designated as provided above; provided, that this
requirement shall not apply with respect to the appointment of any particular
designee to a committee in the event that the rules or regulations of the
primary exchange or quotation system on which Genesis's common stock is then
listed or quoted prohibits the appointment of such director to such committee.
The foregoing provisions shall be reflected in the certificate
of designations relating to the Series H Preferred Stock.
5. Additional Voting Rights. The definitive documentation
relating to the Transactions shall provide that for so long as Cypress and/or
TPG shall have the right to designate directors on the board of directors of
Genesis, Genesis shall not, without the consent of the at least two of such
directors:
(i) modify the terms of Genesis's Series G
Cumulative Convertible Preferred Stock; or
(ii) enter into any transaction or series of
transactions which would constitute a change
in control, as such phrase is defined for
purposes of Genesis's senior subordinated
indebtedness, or engage in any "going
private" transaction pursuant to Rule 13e-3
under the Securities Exchange Act of 1934.
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6. Pre-emptive Rights. Cypress and TPG shall each have a pro
rata right, based on the number of shares of common stock of Genesis held by
them and the number of shares of common stock of Genesis issuable upon exercise,
conversion or exchange of other securities held by them, to participate in
acquiring shares of Genesis capital stock and securities exchangeable,
convertible or exercisable for shares of Genesis capital stock issued by
Genesis; provided, that Cypress and TPG shall not have such right in connection
with (i) sales of securities in underwritten public offerings, (ii) sales of
warrants offered in connection with sales of debt securities pursuant to Rule
144A under the Securities Act of 1933, (iii) the issuance of securities in
exchange for assets or all of the stock of another company (whether by merger,
exchange or otherwise), (iv) issuances and sales of securities to employees and
directors pursuant to benefit plans and (v) issuances and sales of securities in
connection with joint ventures or other strategic relationships relating to a
Healthcare Related Business (as such phrase is defined for purposes of Genesis's
senior subordinated indebtedness); provided, that in the case of clause (v) the
securities issued in connection with any joint venture or strategic relationship
or any series of related joint ventures or strategic relationships do not
represent more than 5% of the total voting power of Genesis.
7. Standstill. The definitive documentation relating to the
Transactions shall provide that Cypress and TPG shall agree to customary
standstill provisions; provided, that such restrictions shall terminate if:
(i) the board of directors of Genesis approves a
transaction with any "person" (as that term
is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) and such
transaction would result in such person
beneficially owning securities representing
more than 35% of the total voting power of
Genesis or all or substantially all of its
assets,
(ii) any person (other than Genesis in the case
of an exchange offer) shall have commenced a
tender or exchange offer for voting
securities of Genesis or securities
exchangeable, convertible or exercisable for
voting securities of Genesis where all such
voting securities represent more than 35% of
the total voting power of Genesis or
(iii) Cypress and TPG no longer have the right to
designate directors on the board of
directors of Genesis as contemplated by
Section 4.
8. Stockholders Agreement. Effective as of the Closing, the
Stockholders Agreement, dated as of October 9, 1997, among Parent, the parties
hereto and Nazem, Inc., shall be amended to provide that Genesis may appoint
two-thirds of the members of the Board of Directors of Parent, to make
appropriate changes to the supermajority provisions and to permit Sponsors to
sell their stock of Parent.
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9. Irrevocable Proxy. The definitive documentation relating to
the Transactions shall provide that each Sponsor and its affiliated investment
funds owning securities of Genesis described or referenced in Section 2 and
Exhibit A and B shall give to Genesis an irrevocable power of attorney directing
Genesis to cast for, against or as an abstention, in the same proportion as the
other voting securities of Genesis (including the voting securities of Genesis
cast by the Sponsors) are cast, such number of shares of common stock and
preferred stock of Genesis so that the Sponsors do not have the right to vote
more than 35% of the total voting power of Genesis in connection with any vote
in which the holders of common stock of Genesis are entitled to vote generally
by virtue of their ownership of such securities; provided, that such power of
attorney shall terminate upon the existence of circumstances that result in a
termination of the standstill. Prior to each vote of securityholders of Genesis
in which the holders of common stock of Genesis are entitled to vote generally,
each of the Sponsors and their affiliated investment funds having the right to
vote voting securities of Genesis shall deliver to Genesis a true and correct
certificate setting forth the number and type of securities which it has the
right to vote. The votes held by each Sponsor and its affiliated investment
funds shall be reduced pro rata.
10. Representation and Warranties. (a) In the definitive
documentation regarding the Transactions, Genesis shall make customary
representations and warranties, including representations and warranties
regarding the following:
(i) organization and good standing;
(ii) capitalization;
(iii) issuance of securities and securities
issuable upon conversion, exercise or
exchange or in payment of dividends;
(iv) authority relative to definitive agreements;
(v) no conflicts; required filings, consents and
approvals;
(vi) SEC reports and financial statements;
(vii) listing of Genesis Common Stock;
(viii) rights plan amended to allow Transactions;
(ix) state takeover statutes and other
antitakeover provisions contained in
constituent documents not applicable to
Transactions; and
(x) offering of securities not in violation of
the Securities Act of 1933.
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(b) In the definitive documentation regarding the
Transactions, Sponsors shall make customary representations and warranties,
including representations and warranties regarding the following:
(i) organization, standing and power;
(ii) authority relative to definitive agreements;
(iii) no conflicts; required filings and consents;
and
(iv) purchase for investment.
11. Conditions. (a) The definitive documentation regarding the
Transactions shall provide for customary conditions of the parties' obligation
to close, including the following:
(i) no injunctions or restraints;
(ii) required filings and consents (including
regulatory, shareholder and third party
consents and termination of the HSR waiting
period), other than as contemplated under
Section 11(b)(x);
(iii) receipt of waivers from Genesis's senior
lenders and amendment to Genesis's senior
credit facility, in each case reasonably
acceptable to Cypress and TPG; and
(iv) receipt of waivers from The Multicare
Companies, Inc.'s senior lenders and
amendment to The Multicare Companies, Inc.'s
senior credit facility, in each case
reasonably acceptable to Cypress and TPG.
(b) The definitive documentation regarding the Transactions
shall provide that the Sponsors' obligation to close shall be further
conditioned on customary conditions, including the following:
(i) consent of Cypress's limited partners;
(ii) listing of Genesis Common Stock;
(iii) customary opinions of Genesis's counsel;
(iv) representations and warranties of Genesis
being true and correct in all material
respects when given and at closing;
(v) reasonable satisfaction with corporate and
other proceedings;
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(vi) Genesis shall have taken appropriate actions
(including filing certificates of
designation and amending its articles of
incorporation) to issue or prepare for the
issuance of the securities described or
referenced in Section 2 and Exhibits A and B
and to effect the other provisions and
agreements contemplated hereby;
(vii) no change of control (as defined for
purposes of Genesis's senior subordinated
indebtedness) of Genesis shall have
occurred;
(viii) no material breach of covenants by Genesis;
(ix) no material adverse change in the business,
properties, operations or financial
condition of Genesis; and
(x) regulatory consents in connection with the
disposition by Sponsors of their stock in
Parent in one or more transactions
satisfactory to Sponsors.
(c) The definitive documentation regarding the Transactions
shall provide that the Genesis's obligation to close shall be further
conditioned on customary conditions, including the following:
(i) representations and warranties of Sponsors
being true and correct in all material
respects when given and at Closing; and
(ii) no material breach of covenants by Sponsors.
(d) The parties' obligations hereunder shall be subject to the
negotiation, execution and delivery of definitive documentation satisfactory in
form and substance to the parties, including without limitation, documentation
reflecting modifications to the Put/Call Agreement reasonably satisfactory to
the parties.
12. Covenants. (a) In the definitive documentation regarding
the Transactions, Genesis shall agree to customary covenants, including
covenants relating to:
(i) reasonable best efforts to consummate the
Transactions, including reasonable best
efforts to obtain all necessary consents and
approvals (including regulatory, shareholder
and third party consents and termination of
the HSR waiting period);
(ii) presentation and recommendation of proposals
to shareholders necessary to consummate
the Transactions;
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(iii) prior to Closing and subject to reasonable
exceptions (including exceptions related to
consummation of the Transactions), (A)
Genesis will conduct its business only in
the ordinary course consistent with past
practice, (B) no transaction described in
clause (ii) of Section 5; (C) no issuance,
or split, combination or reclassification
of, capital stock; (D) no dividends or
distributions on Genesis Common Stock; and
(E) no amendments to Genesis's charter or
by-laws;
(iv) no acts or omissions materially impairing
Genesis's ability to consummate the
Transactions or causing a condition not to
be satisfied;
(v) advising Sponsors of any change, development
or condition that may materially impair
Genesis's ability to consummate the
Transactions or cause a condition not to be
satisfied;
(vi) public announcements;
(vii) reservation of securities issuable upon
conversion, exchange or exercise;
(viii) filing of certificates of designation and
amendment to Genesis's articles of
incorporation;
(ix) provision of information, including
provision of information sufficient to
permit sales of securities under Rule 144
under the Securities Act of 1933;
(x) if the Closing occurs, payment of Sponsors'
expenses (including fees and expenses of
professional advisors) not to exceed
$1,000,000;
(xi) publicity; and
(xii) no amendment to Genesis's articles of
incorporation, by-laws, shareholder rights
agreement or other constituent document in a
manner adverse to Sponsors (other than in a
manner that affects the Sponsors the same as
other shareholders of Genesis).
(b) In the definitive documentation regarding the
Transactions, Sponsors shall agree to customary covenants, including covenants
relating to:
(i) reasonable best efforts to consummate the
Transactions;
(ii) no affirmative acts materially impairing
Sponsors' ability to consummate the
Transactions;
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(iii) public announcements; and
(iv) publicity.
(c) In the definitive documentation regarding the
Transactions, each Sponsor shall also covenant that
(i) for so long as the standstill is in effect,
it will not sell voting securities of
Genesis to:
(A) any person in a transaction or a
series of transactions where such
voting securities, together with any
other voting securities known by
such Sponsor to have been sold to
such person by any other Sponsor,
represent more than 15% of Genesis's
total voting power or
(B) to any "competitor" of Genesis,
except, in any case, in an
underwritten public offering or in a
transaction approved by Genesis's
board of directors; and
(ii) it will give notice to Genesis of any
transfer of securities acquired in
connection with the Transactions, including
the name of the transferee and whether it
believes the transferee and the selling
Sponsor are a "person" (as such term is used
in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934).
For purposes of clause (i)(B), "competitor" shall mean any
person which derives more than $500 million in revenues from the operation of
long-term care facilities and/or institutional pharmacy sales; provided, that
any person which derives more than $200 million in revenues from the operation
of long-term care facilities and/or institutional pharmacy sales solely within
one of two markets in which Genesis then operates (as most recently reported by
Genesis in its filings with the Securities and Exchange Commission) shall be a
"competitor".
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13. Indemnification. The definitive documentation relating to
the Transactions shall provide for:
(a) the reciprocal indemnification between
Genesis and Sponsors for breaches of
representations and warranties and breaches
of covenants; provided, that Sponsors'
ability to recover in respect of any breach
of the representation and warranty set forth
in Section 10(a)(vi) or the covenants set
forth in Sections 12(a)(i), (iv), (v), (vi),
(x) and (xi) and Genesis's ability to
recover in respect of any breech of the
covenants set forth in Sections 12(b)(i),
(ii), (iii) and (iv) shall be limited to $50
million;
(b) indemnification of Sponsors' designees to
Genesis's board of directors to the fullest
extent permitted by law (consistent with the
indemnification of Genesis's other
directors); and
(c) indemnification of Sponsors in connection
with the Transactions (other than in respect
of losses arising out of (i) losses of value
of the Sponsors' investments, (ii) claims by
the limited partners in Sponsors' affiliated
investment funds and (iii) tax consequences
of the Transactions).
14. Termination. This letter of intent may be terminated and
the Transactions may be abandoned or terminated (a) at any time by mutual
agreement of Genesis, Cypress and TPG, (b) at the option of Genesis, on the one
hand, and Cypress and TPG, on the other hand, if definitive documentation
relating to the Transactions shall not have been executed by August 31, 1999.
The provisions of Sections 14, 16 and 19 shall survive any termination of this
letter of intent or abandonment or termination of the Transactions.
15. Ordinary Course. Prior to the execution of the definitive
documentation relating to the Transactions, Genesis shall operate its business
only in the ordinary course consistent with past practice and shall not enter
into, or enter into any agreement or make any commitment with respect to, any
extraordinary transaction, in any case, without the prior written consent of
Cypress and TPG or except as, and upon the terms, disclosed in writing to
Cypress and TPG prior to the date hereof.
16. Publicity. Each party shall promptly advise and cooperate
with the other before issuing any press release or other information to the
public with respect to the Transactions; provided, that nothing shall prohibit
any disclosure that may be required by law, regulation or legal or judicial
process or the rules of any securities exchange.
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17. Disclosure. Xxxxxxx agrees to promptly furnish the
Sponsors with all financial and other information concerning Genesis and related
matters, and access to personnel of Genesis, which the Sponsors may reasonably
request. Genesis will notify the Sponsors promptly of any material adverse
change in the business, properties, operations or financial condition of
Genesis.
18. Definitive Documentation; Reasonable Best Efforts.
Promptly after the execution of this letter of intent, counsel for the Sponsors
and Genesis shall prepare the definitive documentation which shall contain
provisions consistent with this letter of intent and such further terms and
conditions as are customary in documentation of such type or as may otherwise be
mutually agreeable to the parties. The parties shall cooperate and use their
reasonable best efforts to negotiate and execute the definitive documentation as
soon as practical after the date hereof.
19. Miscellaneous. This letter of intent shall be governed by,
and construed in accordance with, the laws of the State of New York.
This letter of intent contains the entire agreement among
the parties relating to the subject matter hereof. This letter of intent may not
be amended or modified except by a written document which shall be executed by
each of the parties hereto. This letter of intent is solely for the benefit of
the parties hereto, and no other person shall acquire or have any rights under
or by virtue of this letter of intent. This letter of intent may not be assigned
by any of the parties hereto; provided, that the Sponsors may assign their
rights and obligations under this letter of intent, and the definitive
documentation relating to the Transactions shall provide that the Sponsors may
assign their rights and obligations thereunder, to their respective affiliated
investment funds; provided, further, that, in connection with any such
assignment, TPG Partners II, L.P., Cypress Merchant Banking Partners L.P. and
Cypress Offshore Partners L.P. shall remain liable for such obligations.
Each party also agrees that unless and until definitive
documentation with respect to the Transactions has been executed and delivered,
the parties hereto shall have no legal obligation of any kind whatsoever with
respect to the Transactions by virtue of this letter or any other written or
oral expression with respect to the Transactions, except for the matters
specifically agreed to in Sections 14 through 19, inclusive, hereof.
This letter of intent may be executed in counterparts, each of
which will be deemed an original, but all of which taken together will
constitute one and the same instrument.
[Signatures follow.]
S-1
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate copy of this
letter of intent.
Very truly yours,
THE CYPRESS GROUP L.L.C.
By:________________________
Name:
Title:
TPG PARTNERS II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By:________________________
Name:
Title:
Accepted and agreed to as of
the date first written above:
GENESIS HEALTH VENTURES, INC.
By:______________________________
Name:
Title:
