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What could turn into the first-ever merger between two bankrupt companies via joint reorganization plans gained new life June 26 when creditors dropped a lawsuit seeking to stop Genesis Health Ventures Inc.’s proposed takeover of Multicare Cos. Inc., attorneys said. The unsecured creditors committee in Multicare’s separate Chapter 11 filing agreed to end its suit seeking to block the merger in return for 2.5 percent of the equity in the combined company and 4 percent of the new warrants, said the committee’s attorney, David Rosner, from Kasowitz, Benson, Torres & Friedman in New York. The new 4 percent warrants that the unsecureds would get in the settlement would have a strike price of $20.33, Rosner said. Both the Genesis and Multicare bankruptcies were filed separately in Wilmington, Del., on the same day, but the case is being heard by visiting Judge Judith Wizmur. On Tuesday, she actually held the hearing in her Camden, N.J., courtroom and not in Delaware, and accepted the settlement between the creditors, Genesis and Multicare pending submission of a joint disclosure statement for the combined companies, Rosner said. Multicare’s unsecured creditors had sued in bankruptcy court in Wilmington to block the novel $1.5 billion merger of bankrupts by charging that a trustee should be appointed to investigate the Genesis takeover of Multicare, since the former controls 43.6 percent of the latter. Multicare’s creditors had charged that Genesis already controlled too much of Multicare and that the roughly $50 million in annual contracts Multicare signs with Genesis should be turned over to a third party, Rosner said. “We felt that Genesis was already managing Multicare under all these contracts and we felt that the contracts needed to be exposed to market rates so the true value of Multicare would be realized,” Rosner said after Tuesday’s hearing. “The resolution isn’t perfect, and Multicare’s unsecured creditors still have to approve it. But they went from zero to some distribution and we think it far beats the uncertainty of litigation.” Kennett Square, Pa.-based Genesis, which owns its stake in Multicare through its Genesis Eldercare management company, is seeking to turn Multicare into a wholly owned subsidiary under the joint reorganization plan. Wizmur set a court date for July 6 for Genesis and Multicare to file their combined disclosure plan as the basis for the reorganization plan and Aug. 28 for the hearing to see if Multicare’s unsecured creditors and other creditor classes for the two companies vote to approve the final plan, Rosner said. Multicare’s unsecured creditors charged in the suit that a conflict of interest exists because Multicare’s board is composed primarily of Genesis employees, he said. “We felt that Multicare’s revenues accounted for 10 percent of Genesis’ total revenues and that we could have received more value for Multicare if those contracts were exposed to market rates,” he said. The contracts cover such things as a management agreement, pharmaceutical services and therapeutical services. A combined Genesis and Multicare still has the chance, the settlement means, to be the first merger of two bankrupt companies to emerge from bankruptcy after a similar attempt between Metrocall Inc. and WebLink Wireless Inc. fell apart May 15. All the other parties involved in the two separate bankruptcy filings had reached a consensual agreement to the merger before Multicare’s unsecured sought to block the combined reorganization plan in its suit. The settlement would still turn 96 percent of newly issued common stock in the new entity over to the senior secured creditors of both Genesis and Multicare. The unsecured creditors at Multicare and Genesis would share the balance. Paul Shalhoub, Marc Abrams, Steven Wilamowski and Tariq Mundiya are lead debtor counsel at Willkie Farr & Gallagher for Multicare, and Robert Brady and Maureen Luke are debtor co-counsel at Young Conaway Stargatt & Taylor in Wilmington. Lisa Beckerman, Mark Taylor and Shuba Satayaprasad at Akin, Gump, Strauss, Hauer & Feld are counsel for the unsecured creditors committee at Genesis. Michael Walsh, Gary Hotlzerr, Michele Meises, Christopher Marcus, Hans Hwang and Samuel Kohn are the lead debtor counsel at Weil, Gotshal & Manges for Genesis while Rosner, Athena Foley and Marc Youngelman represent Multicare’s unsecured creditors at Kasowitz Benson. Richard Toder, Robert Scheibe and Peter Montoni are counsel at Morgan, Lewis & Bockius for Mellon Bank NA as the agent for the bank group for both bankruptcies. Copyright (c)2001 TDD, LLC. All rights reserved.

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