EX-99.2 4 fillmorebidletter_may9.htm fillmorebidletter_may9.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

Exhibit 99.2

FCP
F I L L M O R E C AP I T AL P AR T N E R S

 

PRIVATE AND CONFIDENTIAL

May 9, 2007

VIA E-MAIL

Gregg Lemkau
Managing Director
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004

Dear Gregg:

Please inform the Board of Directors of Genesis HealthCare Corporation (“Genesis” or the “Company”) that you have received this letter today from Fillmore Capital Partners, LLC, the only party that appears to be interested in maximizing value for the Genesis shareholders. We hope that upon receipt of this letter the Board will change course and correct what to date has been a skewed and unfair manner of conducting this process. There should be a level playing field among all bidders, and the Board must consider our offer in light of its fiduciary duties to the Company’s shareholders.

On May 8, 2007, you informed us that the Board may accept as early as this evening a proposal from Formation Capital, LLC that has as one of its terms a $40 million termination fee, a $25 million increase from the $15 million termination fee currently in effect. We hope that the Board does not agree to any larger termination fee because doing so would have the effect of prematurely terminating this process a second time. For the Genesis Board to end the process yet again before its natural conclusion does not serve the interests of the Genesis shareholders. We note that in view of the existing matching right of the other bidder, the $50 million termination fee called for by our proposal would only be in effect after a full process has been conducted. This is very different from now increasing the Formation termination fee to $40 million.

Fillmore Capital Partners, LLC on behalf of certain of its affiliates (“Fillmore”) hereby submits this proposal to acquire the Company.

Enclosed with this letter, please find the following documents:

          1.      Proposed Merger Agreement, together with detailed mark-up of the Merger Agreement, marked to show changes from the draft distributed by Dechert LLP on May 5, 2007.
 

FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


Gregg Lemkau
May 9, 2007
Page 2

           2.      Proposed Equity Commitment Letter from Fillmore Strategic Investors, L.L.C. to Drumm Investors LLC (the parent of Beverly Enterprises, Inc. (“Beverly”)).
 
3.      Proposed Limited Guarantee of Fillmore Strategic Investors, L.L.C.
 
4.      Executed Debt Financing Commitment Letter from Credit Suisse dated May 2, 2007.
 
5.      Consolidated Balance Sheet of Drumm Investors LLC dated December 31, 2006.
 

There have been no changes to the proposed Equity Commitment Letter, Limited Guarantee or Debt Financing Commitment Letter from the versions included in our May 5 proposal. Upon confirmation that the Company is in agreement with these documents as presented, we are prepared to execute the Merger Agreement, Equity Commitment Letter, Limited Guarantee and Debt Commitment Letter in the form presented. Upon execution of the Merger Agreement, Drumm Investors LLC will pay or immediately reimburse the Company for, or have paid on its behalf, the $15,000,000 termination fee that the Company is required to pay to FC-Gen Acquisition, Inc. (“Formation”) under the terms of the Agreement and Plan of Merger dated January 18, 2007 among the Company, Formation and GEN Acquisition Corp., as amended through May 1, 2007 (the “Formation Merger Agreement”).

Purchase Price: Fillmore proposes to acquire all of the outstanding stock of the Company for $69.00 per share (the “Purchase Price”). Our proposal is based on 24,527,324 shares outstanding (including basic and restricted shares, options and shares convertible though the Convertible Senior Subordinate Debentures). We continue to believe our proposal offers an extremely attractive valuation for the Genesis shareholders.

Form of Consideration and Litigation: The Purchase Price would be paid in cash at closing. Upon execution of our proposed Merger Agreement, counsel for Drumm in the matter encaptioned Drumm Investors, LLC v. Genesis Healthcare Corp., Docket No. 0702856 (Chester Cty. PA) will file an appropriate notice of discontinuance.

Financing and Structure: We will finance the transaction through a combination of our own equity capital and third-party indebtedness. We have an irrevocable equity commitment from the institutional investor previously identified to you. As indicated by the binding commitment letter we have submitted, Credit Suisse will provide $3.55 billion of debt financing, the proceeds of which together with our equity investment will fund the acquisition of the Company, refinance indebtedness and pay transaction costs and expenses. Enclosed for your information as Exhibit A to this proposal letter is an updated sources and uses table for the acquisition. Enclosed for your information as Exhibit B to this proposal letter is an organizational structure chart showing that Drumm Investors LLC is the owner of all of the equity of Beverly.

Timing: We have demonstrated our ability very recently to obtain the necessary regulatory approvals and complete complex transactions quickly. We received regulatory approvals in connection with our acquisition of Beverly within 100 calendar days (which included the winter holidays and New Years) of the signing of a definitive agreement, and expect to be able to obtain

FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


Gregg Lemkau
May 9, 2007
Page 3

the necessary approvals for this transaction within the same period of time. We expect to file applications for approval of the transaction within five business days of the signing of the merger agreement in the following states: Maine, Massachusetts, New Jersey, Rhode Island, and West Virginia. For each state, we have templates of the documents required for expedited filing of our applications. The templates present our credentials in a manner which has been previously accepted by these state regulators. We have excellent relationships with the state regulators and our ownership structure of common ownership of the property and operations is clearly preferred by the regulators. Our projected approval date for each of those states is set forth in the table below:

      Projected Fillmore
State       Approval Date      

Maine  

    August 27, 2007
 
Massachusetts     August 27, 2007
 
New Jersey     July 25, 2007
 
Rhode Island     August 27, 2007
 
West Virginia   August 13, 2007

The remaining seven states can easily be accommodated within this timeframe and should not be an issue for Fillmore.

We will expect cooperation from the Company’s management team to ensure an orderly transition to minimize any disruption to patient care and the operations of the business.

Internal Approvals: All approvals necessary to enter into and consummate the transaction have been obtained. Our proposal is not subject to further due diligence or approvals, other than as outlined in the Merger Agreement.

Termination: Our proposal will remain in effect until 5:00 p.m. (EDT) on May 15, 2007.

Drumm Quality: By all measures, including evaluations done on behalf of the Centers for Medicare and Medicaid by the independent, not-for-profit, review organization, University of Wisconsin based Long Term Care Institute, the nation’s most well respected research organization and thought leader in long term care, and the federal survey and certification standards used by state licensing agencies across the country, Beverly and Golden Living Centers (formerly Beverly Enterprises) have exhibited the highest standards in quality of care. The Beverly and Golden Centers lead the industry in quality scores, as measured by state inspection reports. Aggregate quality scores for all Centers exceed industry averages and the company is recognized as an innovator in the care of frail elderly. The most recent Long Term Care Institute report noted in particular that “Beverly’s new leadership has continued to show its

FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


Gregg Lemkau
May 9, 2007
Page 4

strong commitment to meaningful quality improvement and impressive performance in all quality measures”. For a comparison of the operations of Golden Living Centers and Genesis using CMS quality measures, see Exhibit C to this proposal letter.

Advisors: We have engaged the following advisors to facilitate the proposed transaction with Genesis: Credit Suisse, our financial advisor, and Dechert LLP, our legal advisor.

Contact Information: Please direct any questions regarding this proposal or the enclosed documents to the following contacts at Fillmore, Credit Suisse, or Dechert:

Fillmore Capital Partners, LLC:   Credit Suisse:
 
Ronald E. Silva   Stuart Smith, Managing Director
President and Chief Executive Officer   Global Head of Healthcare Investment Banking
Fillmore Capital Partners, LLC   Credit Suisse
Four Embarcadero Center, Suite 710   Eleven Madison Avenue
San Francisco, CA 94111   New York, NY 10010
Tel: 415.834.1476   Tel: 212.325.3109
Fax: 415.834.1475   Fax: 646.935.7125
rsilva@fillmorecap.com   stuart.smith@credit-suisse.com

Dechert LLP
 
Joseph B. Heil
Dechert LLP
One Maritime Plaza
Suite 2300
San Francisco, CA 94111-3513
Tel: 415.262.4510
Fax: 415.869.3275
joseph.heil@dechert.com
 
Sincerely,
 
 
 
/s/ Ronald E. Silva                             
Ronald E. Silva
President and Chief Executive Officer
Fillmore Capital Partners, LLC
 
DRUMM INVESTORS LLC
 
By:  /s/ Ronald E. Silva                      
Name: Ronald E. Silva
Title: President

FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


FCP
F I L L M O R E C AP I T AL P AR T N E R S

Exhibit A
Sources and Uses Table
Sources and Uses            
Total Sources       Total Uses    
($ in millions)       ($ in millions)    

 

 
1st Lien Term Loan   $ 750.0   Gazelle Equity Purchase Price ($69.00 per    
        share)   $ 1,661.0
CMBS   2,800.0   Refinance Gazelle Long-Term Indebtedness   178.9
Assumption of Gazelle Capital Leases & VIE       Refinance Existing Beverly Term Loans   417.5
Indebtedness   116.3        
Sponsor Equity   240.0   Refinance Existing Beverly CMBS   1,400.0
Cash on Hand   31.3   Assumption of Gazelle Capital Leases &    
        VIE Indebtedness   116.3
        Gazelle Tender Premium (Sr. Sub Notes)   9.4
        Gazelle Convert Make-Whole Premium   24.0
        Prepayment Penalties on Existing Beverly    
        Indebtedness   15.0
        Gazelle Severance Costs   13.0
        Estimated Transaction Expenses   87.5
        Gazelle Break-Up Fee   15.0


Total Sources   $ 3,937.6   Total Uses   $ 3,937.6

 

 

FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


FCP
F I L L M O R E C AP I T AL P AR T N E R S


FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475


  FCP
F I L L M O R E C AP I T AL P AR T N E R S

Exhibit C

Golden Living Centers Outperforms Genesis on CMS Quality Measures

Data from the Centers for Medicare and Medicaid Services (“CMS”) for the period from January 2005 through March 2007 show that Golden Living Centers (“GLC”) achieved better results than Genesis.

There are 15 Quality Measures that directly relate to clinical indicators (four new ones addressing vaccinations were added earlier this year). Of the 15 measures:

  • GLC performed BETTER than Genesis on 12;

  • GLC matched Genesis on 2, and

  • Genesis performed better than GLC on only 1, as detailed in the charts set out below:

The purpose and source of the Quality Measures (taken from the CMS website) are:

“The nursing home quality measures come from resident assessment data that nursing homes routinely collect on the residents at specified intervals during their stay. These measures assess the resident’s physical and clinical conditions and abilities, as well as preferences and life care wishes. These assessment data have been converted to develop quality measures that give consumers another source of information that shows how well nursing homes are caring for their residents’ physical and clinical needs.

The quality measures, developed under CMS contract to Abt Associates and a research team led by Drs. John Morris and Vince Mor, have been validated and are based on the best research currently available. These quality measures meet four criteria. They are important to consumers, are accurate (reliable, valid and risk adjusted), can be used to show ways in which facilities are different from one another, and can be influenced by the provision of high quality care by nursing home staff.”


FCP
F I L L M O R E C AP I T AL P AR T N E R S


FILLMORE CAPITAL PARTNERS FOUR EMBARCADERO CENTER SUITE 710 SAN FRANCISCO CA 94111 PHONE 415-834-1477 FAX 415-834-1475